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Compliance with new emissions rules likely to be problematic

Increasing environmental and sustainability pressures – such as the recently-announced “Paris Agreement for shipping” – will further innovation in design and shipping practices, but could also bring changes in risk profile and financial challenges. How well prepared is the industry?

In April 2018, the International Maritime Organization (IMO) reached a landmark agreement to cut shipping emissions by at least 50% by 2050, with the goal of eventually phasing them out completely.

According to the IMO, international shipping accounts for about 2.2% of all global greenhouse gas  emissions and 2.1% of carbon dioxide (CO2) emissions, which some estimates suggest is as much as Germany as a country. This would have made shipping the sixth largest emitting country of CO2 in 2015, according to The International Council on Clean Transportation[1].

The IMO’s latest agreement to curb greenhouse gases adds to the UN body’s existing legally-binding rules to reduce sulphur oxide (SOx) and nitrogen oxide (NOx) emissions under Annex VI of IMO’s pollution prevention treaty (MARPOL). A revision to MARPOL will see Sox emissions reduce to 0.5% m/m from January 1, 2020. Any vessels failing to comply could face fines, invalidate their insurance and potentially be prevented from sailing.

Shipping companies are already working to cut emissions. For example, Hapag-Lloyd says that it intends to achieve a 20% reduction in CO2 emissions by 2020, having already lowered them by 46% between 2007 and 2016. By 2025, all new ships will be 30% more energy-efficient than those built in 2014, according to the IMO[2].

Reducing emissions can be achieved by switching to cleaner shipping and fuels, while slowing ships down by 10% could reduce fuel usage by almost a third[3].

Emissions rules are already driving increasing interest in alternative fuels and innovative forms of propulsion. For example, Maersk is planning to fit spinning “rotor sails” to one of its oil tankers as it looks to reduce emissions and fuel costs[4].

An increasing number of car carriers and ferries, cruise ships, container ships, bulk carriers and tankers are already running on liquefied natural gas (LNG) as operators look to comply with emissions rules. As of March 2017, the in-service and on-order fleet of LNG-powered seagoing ships was around 200, according to LNG World Shipping[5] – up by almost 25% year-on-year.

In November 2017, container shipping group CMA CGM placed an order for nine ultra-large container ships powered by LNG. Next year will see two of the first ever LNG-powered car carriers enter service – Siem Car Carriers ordered the vessels to transport Volkswagen cars from Europe to North America. “The shipping industry will look for technical solutions to reduce emissions. We will see environmental concerns and regulations increasingly driving technical innovation in the shipping industry. We already see it with the use of LNG-fuel for new container ships,” says Volker Dierks, Head of Marine Hull Underwriting, AGCS Central & Eastern Europe.

“While this may help comply with regulations, we will be watching to see if there are any technical issues with engines and bunkering of biofuels.

“The introduction of new technology can bring about new operations that will require appropriate training. The industry will have to be proactive in understanding the risks involved, rather than just being reactive,” says Captain Andrew Kinsey, Senior Marine Risk Consultant, AGCS.

The reduction in sulphur emissions will be challenging for shipping operators, and one that is likely to have cost implications.

“The move to low sulphur fuel is a major concern for shipping companies, as the solutions to the problem are not straightforward,” says Chris Turberville, Head of Marine Hull & Liabilities, UK, AGCS. “Whether there will be enough availability of low sulphur fuel is a big question mark; the use of ‘scrubbers’ (exhaust gas cleaning systems) is also in question, as although they are effective in ensuring the air is clean, the waste product must go somewhere, and if it is put into the ocean this too could be seen as polluting.”

“The shipping industry understands the need for the regulations and the need to address emissions. But compliance with the MARPOL framework is likely to be problematic and industry preparation lacking. The maritime industry’s challenge is to have a smooth transition towards compliance of these regulations without causing disruption,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS.


[1] BBC, Reality Check: Are Ships More Polluting Than Germany?, April 2018

[2] IMO, Low Carbon Shipping and Air Pollution Control In Focus

[3] The Economist, The Shipping Industry Attempts To Cap Carbon Emissions

[4] Forbes, Norsepower: Why European Ships Are Switching Back To Sails, March 2018

[5] LNG World Shipping, The World’s LNG-Fuelled Ships On Order, 2017