Green Logistics - How the shipper is decarbonising?

The origins of the wave of green transformation in shipping are multifaceted. At present, the main pressure from the International Maritime Organization (IMO), regional governments to bring the policy, regulatory requirements. Shipping companies (ship-owning companies), as regulated objects, are the main implementers of the green transformation of shipping.

However, it must be said that in addition to the policy and regulatory requirements, shipping companies are facing more pressure to decarbonize.

One of the most important points is the pressure of social opinion, a trend that is particularly prominent in Europe and the United States. Social opinion and political correctness lead the western public to recognize the green consumption, and this demand comes to the shippers in the international trade chain and directly contributes to the demand for green maritime transport services.

Green Logistics Increases Shipping Costs

There is no doubt that the green transformation of shipping will make the shipping cost rise significantly.

In shipping economics, shipping cost is mainly divided into capital cost (CAPEX) and operation cost (OPEX), and operation cost is usually divided into management cost and voyage cost.

The impact of shipping green transition on capital cost, i.e. newbuilding cost, is relatively limited. For example, for Maersk's methanol dual-fuel container vessels, the CAPEX increase is in the range of 10-15%.

In contrast, operating costs (OPEX) will be more challenging, with fuel costs accounting for almost half of OPEX, which will rise by a factor of 2-8 due to the impact of alternative fuels. And even by 2030, these alternative fuels will still be 1.3 to 1.9 times more expensive than conventional fuels, according to an analysis by the Mærsk Mc-Kinney Møller Zero Carbon Shipping Center.

All these rising shipping costs affect the shippers of shipping first, and for the shipper-based shippers who mainly trade, this directly leads to the rising cost of transporting commodities and reduces the price competitiveness of commodities. So how do shippers see this change?

In a survey interview with some leading international shippers conducted by international consulting firm McKinsey, shipper companies said they were willing to pay a 5% to 10% premium for sustainable logistics services.

Ultimately, of course, all of the rising costs will be reflected in the price of commodities, and consumer acceptance becomes an important factor in the success of the eventual green shipping transition.

Similar to the increasing number of "green and organic" labels on agricultural commodities in previous years, we suspect that consumers will also see more "green and zero carbon" labels on commodities in the future.

Of course some green lobbying groups are recognizing this and trying to dispel this little fear. For example, the NGO Transport & Environment has previously argued that 100% green shipping would only add less than 10 cents to the cost of a pair of Nike sneakers.

Currently, current demand-side commitments from shippers remain fragmented. This is due to the high cost of green products and the lack of agreement on industry-wide standards. Stronger demand signals will drive carriers to make capital investments in green products.

Green Shipping Networks

As shippers recognize the difficulty of leveraging the shipping industry's investment in a green, low-carbon transition with fragmented decarbonization needs. A growing number of coalition-based organizations are emerging.

Examples include the First Mover Coalition (FMC), coZEV, BICEPS Network, Ship It Zero, and the Global Maritime Forum's Sea Cargo Charter, Getting to Zero Coalition.

These Green Shipping Networks are increasingly speaking out in the industry, urging shippers to raise the demand for green shipping on the one hand, and shipping companies to complete the green and low-carbon transition as soon as possible on the other.

However, it is worth noting that in addition to the major international shippers and world-renowned retailers as their members, many of the shipper coalitions have non-governmental organizations, or interest groups, behind them.

Behind Ship It Zero, for example, has been the leadership of radical environmental lobbying groups Pacific Environment, STAND.earth and Sort Your Ship Out.

And coZEV was formed by the Aspen Institute, which is known as the "convener of U.S. think tanks.

These organizations have complex interests and even involve a lot of political ideas, which need to be noted and vigilant in the process of green transformation development of Chinese shipping enterprises.

How the shipper is decarbonising?

Shippers can play a key role in financially supporting the decarbonization of the supply chain by increasing their investment costs. We see five actions that shippers can consider in this regard.

1. Enter into long-term contracts, thereby mitigating supplier uncertainty, and increase procurement budgets to account for higher costs.

2. Proactively require shipping partners to provide sustainable products to accelerate decarbonization. For example, in April 2021, Salesforce announced that its supplier contracts now require suppliers, including logistics partners, to set carbon reduction targets and provide products and services on a carbon-neutral basis.

3. Take responsibility for interacting with end consumers, particularly regarding their low-carbon environmental choices, and actively shape consumer behavior. For example, companies can incorporate sustainability into their branding and guide consumers towards greener freight.

4. Actively participate in low-carbon shipper coalition organizations. Shippers and freight forwarders can join buyer coalitions to gather support for decarbonizing freight.

5. Actively participate in the creation of green shipping corridors. Green shipping corridor is a project involving the upstream and downstream of the shipping industry, which can bring together all the demands of relevant stakeholders and fundamentally create a demonstration project of green shipping.