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Navigating Regulatory Challenges

During a riveting opening panel session of the Tradewinds Shipowners Forum at Posidonia 2024, Harry Conway, Chair of the Marine Environment Protection Committee (MEPC) of the International Maritime Organisation (IMO), engaged in an in-depth discussion with senior representatives of the shipping industry on regulatory issues ranging from shadow fleets to alternative fuels.

“We should be concerned by dark fleet activity because of the safety of vessels and crew, as well as the protection of the marine environment. If elements within the industry circumvent the rules and regulations, we have a problem. Dark fleet vessels have no accountability because they operate under the radar; they don’t respect the rules, and the IMO is taking measures and actions to tackle the issue.”

Michael Parker, Global Industry Head of Shipping & Logistics at Citi, agreed that the problem is profound. He said, “I am concerned, but we have to call it out; we are at war, and until the war is over and issues are resolved, it won’t be easy to find solutions. The IMO is powerless to enforce various things to improve transparency unless others are willing to take more impactful steps. Sanctions are not proving to be effective, but I am optimistic that we are in an age of regulation and transparency, and climate change and data are going to drive positive change. It’s really a question of enforcement. We hope peace will bring the restoration of more normal behaviour. We cannot allow the creation of shadow fleets to happen again.”

Christopher J. Wiernicki, Chairman and CEO of ABS, said that the industry is in the early innings of a decade of uncertainty. “A new age of safety, commercial compliance, and government accountabilities is here. This is a shared responsibility; the onus should not be just on the commercial side. The shadow fleet is a matter of concern. It has a different perspective compared to the rest of us; they have old vessels, poor inspections, lack insurance, and are riddled with mechanical failures and oil spills, which they simply regard as collateral damage. But as we move forward, environmental regulations are going to be global shipping shapers, so as we move forward, environmental regulations will be a big part of commercial decision-making."

Wiernicki added, “Our industry is divided into three types: the leaders who are taking decisions and placing bets today; then we have the fast followers, those doing some piloting and experimenting around fuels; and we have the very many who are actually doing nothing, waiting to see what will happen.”

In response to his remarks, Dr Conway said that there is indeed a greater sense of a common mission, even though there is still a polarisation between those who act and those who aren’t doing so much.

On the themes of decarbonisation and alternative fuels, the shipping industry seems to be in unison around the main challenges it is facing and the necessity of effective and impactful incentivisation policies for the energy transition in maritime to be successful.

“If the carbon cost is passed onto the supply chain and then to consumers, we are not making any progress toward shipping decarbonisation; instead, we should be using proceeds from the EU ETS to subsidise the industry in our quest to decarbonise. Other incentives could include the reduction of waiting times at ports for vessels that are more energy-efficient,” said Charis Plakantonaki, Chief Strategy Officer, Star Bulk Carriers Corp. “We need the IMO to provide more clarity on the measures they are planning and what the impact on our industry will be.”

Dr Conway concluded, “Clarity, pragmatism, uncertainty, shared responsibility – these are the key words of the industry, and these are the things we at the IMO strive to provide. The clarity the industry is craving is our priority as we study a lot of proposals on the table, each having its own implications for the transition, which is not going to be cheap. We have done comprehensive impact assessments, and come September, we will be able to make informed decisions as we try to provide the certainty the industry needs to make the right investment decisions.”

The scene for the decarbonisation discussion was set earlier in the opening session of the Tradewinds event by Clarkson Research Managing Director, Stephen Gordon, who highlighted that shipping is responsible for about 2% of global emissions, while it is also the most carbon-efficient mode of transportation. “Significant fleet renewal and alternative fuels are needed, but also retrofitting technology and slower speeds in a multi-layered approach.”

The conference also addressed the future of energy shipping, which globally accounts for 38 percent of shipping volumes, and in Greece is even higher, reaching almost 50 percent. As peak oil remains at least a decade away, with other estimates projecting it much further into the future, Evangelos Marinakis, Chairman & Founder of Capital Maritime & Trading Corp., who controls a fleet of more than ten million deadweight tons, is optimistic about the future of energy shipping. This optimism is fuelled by continuous global population growth and the ongoing modernization of the developing world. “We bet on what happened yesterday, what is happening today, and what is likely to happen tomorrow,” he said. “We see that the world’s population is increasing, and as countries develop, electricity needs rise, driving up demand. We also see that Artificial Intelligence (AI) demands increasingly more power, which will further contribute to the sustainable demand for oil and gas. Of course, geopolitical tensions and developments always play their part. With current events in the Red Sea and the potential for conflict between the USA and China, anything could happen.”

Regarding geopolitical factors, Paolo Enoizi, CEO of Hafnia, stated: “We believe that recent geopolitical events have clearly reset the perspective towards oil and gas. Many charterers and final users appreciate how quickly they can divert vessels to target different markets based on needs and opportunities. It’s all about how we create more value.”

Andrian Dacy, CEO & CIO of J.P. Morgan Asset Management’s Global Transportation Group, added: “There is a lot of connectivity between today and tomorrow. We can’t ignore today when planning for the future. It comes down to the current consumption of crude oil and gas and the likely reserves, which we believe will last for at least fifty more years, give or take. With renewables in the mix, it could probably be 60 years. The takeaway is that the advent of renewables is not happening quickly enough to account for the additional demand for power created by AI, which is going to be the biggest energy consumer.”