The end of the world as we know it

By Roger Strevens, Chairman of the Trident Alliance and Head of Environment for Wallenius Wilhelmsen Logistics. This blog post was originally published in Bunkerworld.

I regret to inform you that the world as we know it is about to end.  Perhaps I should qualify that so as not to cause undue alarm: specifically, it is the shipping world that is about to end and only in the sense of ‘as we know it’. Of course the engine of world commerce will keep turning.

Forthcoming sulphur regulation, both in emission control areas (ECAs) and globally, is the driver of this transformative change. As an industry we’ve been addressing environmental issues through regulation for decades. This time is different though.  

Four factors combine to make it so: the scope – it concerns all vessels, the impact – the industry will need to adopt new fuels; the cost - way beyond what can be absorbed; and the uncertainty - knowing what to do, but not the best way to do it. 

Each of these is impactful by itself, but taken in combination they will quite literally change the face of the industry.

At this point it is worth stopping to consider why these regulations are coming to an industry that many argue already delivers superior environmental performance relative to any other mode of transport. That view may be valid for CO2 due to shipping’s advantage in economy of scale,  but not for sulphur emissions. The most common marine fuel has about 1,000 times as much sulphur as what is used in land transportation.  It is well documented that sulphur emissions harm the environment and people’s health, leading to premature deaths. Like it or not, sulphur regulations for shipping are necessary. By the same token, it would be wise to anticipate the introduction of additional ECAs elsewhere. 

Regulatory focus on emissions reduction is unlikely to relent, and sustainability is no longer an option for any industry.  With this and the challenges of regulatory compliance in mind, proactivity is the best strategy. Waiting till the eleventh hour to find and implement compliance solutions is to have one foot in yesterday and the other in the grave. Companies that take the initiative by forming partnerships with relevant stakeholders and trialling solutions ahead of time are more likely to find the most efficient compliance solutions. Given the cost implications, this will help them retain or extend their commercial advantage and help them be viewed as a reliable long term partner by their customers.

Compelling as the previous two paragraphs may sound, in reality they only hold true when all shipping companies are compelled to face the same regulatory challenges. That is how it is supposed be, but that is not necessarily how it is.

Enforcement of sulphur regulations, particularly in Europe, is weak.  And, as regulatory cost increases it is enforcement, rather than regulation by itself, which is the driver of compliance.

Although the general consensus is that most shipping companies will comply, the temptation to cut corners is very real, especially given that markets are already fiercely competitive and the cost of compliance will exceed what can be absorbed.  In other words, environmental regulation has, for the first time, direct and ongoing commercial consequences: customers care.  

Companies that take their chances on non-compliance stand to realise major cost savings. Over time such savings can distort the competitive landscape and, without an appropriate response from the authorities, will lead to growth in the number of non-compliant operators. Also, the regulations will not have the desired health and environmental impacts, the development of technologies and new fuels to enable compliance will slow down, and compliant shipping companies will suffer, It is these concerns that led to the formation of the Trident Alliance , a network of shipping companies that see transparency and robust enforcement of sulphur regulations as a business imperative.  Founded in July 2014, the group now has over 20 members representing around 10% of the industry by fuel consumption. Its membership, covers all sizes of company and segments of the industry.

In recent months we have helped to draw the issue of enforcement out into the open, and it is now a regular headline issue.  Awareness is the first step towards a solution.  The Trident Alliance members also engage in supporting the development of enforcement mechanisms and technologies.  

But it does not have to be the case that regulatory problems necessitate regulatory solutions; given the right conditions industry can address the issue itself. The Trident Alliance is currently exploring a transparency initiative with the potential to redress the whole enforcement issue. If the idea bears scrutiny a variation on REM’s classic might apply: It’s the end of the world as we know it, but we feel fine.