By Matthew Smith, Senior Vice President, Commercial and Operations, Tankers International
The role of shipping in the global supply chain is increasingly in the ESG spotlight. Today, most major energy companies have formal environmental goals. Many of these targets stand out for their ambition or the way they underpin a new brand image and strategy. Most of these companies already report their emissions to the public, shareholders and regulators, and these targets and reports now focus on all aspects of the supply chain.
It is very symbolic of the new dynamics of decarbonization in the industry. Environmental issues are increasingly driving the business decisions of cargo owners and their customers, meaning that vessel efficiency and emissions represent tangible value for charterers and their stakeholders.
The growing pressure from the demand side coincides perfectly with increasing attention from regulators. The shipping industry is facing a series of historic regulations over the next few years, and there are indications that more regulations are on the way.
Unfortunately, this dynamic creates significant challenges for shipowners. At a fundamental level, zero carbon ship technology and investment is still in its infancy and the sector will not be able to go green overnight, although many of our stakeholders need green options today. today. This is where Tankers International’s VLCC pooling model is uniquely placed to help shipowners, charterers and the wider industry today.
Meeting the regulatory challenge
The Energy Efficiency Index for Existing Ships (EEXI) and Carbon Intensity Indicator (CII) regulations will be the first global rules to decarbonize shipping when they come into force on January 1 this year. next. Targeting the design of a ship, measuring and comparing its carbon efficiency in operation, these rules will have a radical impact.
Vessels that are unable to demonstrate EEXI or CII credentials may be limited in their trading options. At the same time, they provide easily comparable reference indicators for shippers and thus facilitate decision-making based on climate impact.
The dramatic potential impact of these regulations makes carbon efficiency a priority, even for the most resilient shipowners. Yet even the most progressive can find compliance difficult.
Continuous measurement and calibration will invariably occupy a shipowner’s operational resources, while planning for ship efficiency improvements can in itself consume resources. For many, the EEXI and CII rules will also require expensive specialized software and new analytical techniques that cannot be learned overnight.
Shipping’s regulatory journey towards decarbonization has only just begun, and future rules will add more complex challenges. For example, the EU is now expected to add shipping to the EU Emissions Trading Scheme, with the proposed legislation having recently cleared several hurdles. By explicitly linking carbon to costs and requiring the purchase of credits based on solid data, these rules will create even broader obligations.
Maximize resources and share knowledge
The Tankers International Pooling model frees up operational resources for a shipowner. As a pool, we will take on a significant portion of the day-to-day commercial and operational responsibilities surrounding a vessel, which would otherwise have to be handled by an in-house team. Through pooling, these staff can be redeployed as needed to focus on strategic priorities.
As new environmental regulations create more complex obligations for shipowners, the operational benefit of pooling will only increase. For example, the Tankers International VLCC Pool will help participating shipowners calculate and monitor efficiency to help optimize vessels for the CII rules and help meet future EU Emissions Trading Scheme requirements. .
Cash flow is another critical benefit, especially in the context of achieving ambitious environmental goals. High environmental standards represent undeniable value for charterers and will represent an increasing premium for top-rated VLCCs, but flagship technology investments are understandably capital-intensive.
Our model meets this challenge by providing shipowners with a regular and scheduled income, thanks to revenue sharing between vessels. We provide transparent and fair information about how revenue sharing works with all participants in our pool. This is based on zero commission, no hidden fees or unexpected costs, leaving them with a clear understanding of their financial situation.
Improved cash flow also increases total revenue, allowing a vessel to take advantage of longer voyages which often represent better freight rates. For example, bunkers must be purchased by the shipowner before the ship embarks on a voyage, and freight is not paid until the voyage is complete. This leaves the owner with low cash flow and can limit a tanker’s income potential. Our pool will leverage its size and financial strength to support these expenses and maximize total revenue.
Participants can also benefit from enhanced technical support and information sharing that can help owners identify and optimize the investments needed to comply with environmental regulations. For example, Tankers International offers regular technical forums to provide insight into new technologies, which helps shape buying decisions and best practices.
Although shippers are looking for green solutions, zero carbon shipping will take time. In the meantime, climate compensation can offer an immediate solution.
Tankers International’s Climate Compensation Voyage Program was recently launched in partnership with specialists Vertree. The program uses scientifically recognized methodologies and proprietary data to calculate emissions for a specific VLCC on a trip, monthly or yearly basis. Shippers then have the opportunity to offset their carbon emissions through a range of nature-based, community-led solutions.
Climate offsetting alone will not solve shipping’s decarbonization problems, but it can play an immediate and significant role in giving shippers the green tools they need to succeed today.
Decarbonization is becoming a defining issue for the entire shipping industry. Shipowners will have to dedicate enormous operational, technical and financial resources to meet the challenge, and many will find their bandwidth and cash flow stretched to breaking point. It is essential that tanker owners maximize the support available to them as the pressure to deliver results intensifies. Pools are crucial tools that can contribute to the shipping sustainability revolution.