Saturday, March 11, 2023

Carbon Emissions Trading and Shipping: A game changer


The inclusion of shipping in the European Union’s Emissions Trading System (ETS) is a game changer for ocean transportation.

The World Bank foresees that the Carbon Emissions Trading (CET) market may develop into the world's largest commodity trading market, expected to exceed $3 trillion in the near future. The Bank also expects CET futures, as well as the carbon finance market as a whole, to replace oil as the world's largest market.

We show that the link between carbon emissions trading and shipping is strong, particularly between CET and dry bulk shipping. The link becomes stronger during periods of external shocks, such as Brexit, Covid-19 and China-US trade frictions.

But how can our results be intelligently used by shipowners for greater profit? How can they support the environmental sustainability decisions of shipping companies? And how can governments include shipping in emissions trading systems?

This pioneering research (published Open Access in Energy Economics) took three years to complete. Sincere thanks are due to the funding organizations that allowed us to carry out the work. These were:

1. National Natural Science Foundation of China

2. The 111 Project of China

3. The Postdoctoral Research Foundation of China

4. The Liaoning Revitalization Talents Program

5. The Liaoning Natural Science Foundation

6. The Dalian Academy of Social Sciences

7. The Dalian Federation of Social Sciences (Key Project)


Friday, January 27, 2023


On the left, Drewry’s World Container Index (WCI) has tumbled by 80% year-on-year, down to $2000/FEW. On the right, one sees the industry’s unprecedented, all-time-high, orderbook with deliveries coming on stream this and the next two years (with many thanks to Drewry Shipping Consultants Ltd and Alphaliner). If you look at the two graphs together, ‘one plus one makes two’, and rates are expected to fall even further going forward.

MSC’s orderbook in particular is spectacular, five times that of the more conservative Maersk Line. This explains their ‘divorce’: Maersk has decided to invest along the supply chain while Mr. Aponte (MSC) will continue doing what he, and his father before him, did best: “shipping”. In other words, the two companies decided to invest their fathomless profits of the COVID-19 years in what each was best at: Door-to-door supply chain integration for Maersk; competitive ‘port-to-port shipping’ for MSC. The two strategies are not compatible, as they lead to two different cost structures: substantial investments in a global network of sales  effort around the world, for Maersk, targeting the individual shipper, and ocean transport cost competitiveness for MSC, renowned over the years for its acquisition of new and secondhand tonnage at competitive prices.

My point here is different, though: The two graphs tell us that shipping alliances may have not been very successful, after all, in managing capacity, and regulators may be proven right in considering the (COVID19) price hikes just a “matter of demand and supply”. This could be the second reason for the Maersk-MSC divorce. Or not?