Will the maritime trade industry sink or swim in the perma-crises era of the 21st century?
At this year's London International Shipping Week #LISW23 in September Dryad Global's CEO Corey Ranslem will be talking all about digitisation and maritime transformation.
The United Nations Conference on Trade and Development (UNCTAD) produced a Review of Maritime Transport 2022 highlighting major challenges for the future of shipping, and emphasising the opportunities to secure an efficient, sustainable, and resilient industry for 2023 and beyond.
Over the past 3 years, an extended period of global instability and uncertainty has stressed the importance of global maritime transport and trade to the world economy. Climate change, spiralling inflation, a surge in energy costs, the social and economic fallout from the COVID-19 pandemic, port closures, and the war in Ukraine have all impacted the maritime industry and constrained the global supply chain. Although the ongoing supply chain crisis has seemingly begun to ease, it is crucial that the maritime transport sector focus on cultivating a transparent framework that will facilitate long term development and ultimately create a more stable and resilient industry.
The COP27 conference in 2022 resulted in the realisation and understanding that the shipping industry can become the backbone for the future sustainable supply chain. Stepping up as a leader in sustainable trade, the maritime industry would be able to stay competitive in the trade arena while also contributing towards decarbonisation and the International Maritime Organisation’s (IMO) emission goals. Key players in the industry such as ports, shipping companies and transport operators must make improvements and changes to expand their capacity, renew and expand fleets equipment and reduce emissions, as well as improve connectivity and performance. Because of the current era of perma-crises, in which the shipping industry has been severely disrupted, a structural shift in the maritime and trade industry is imminent. Restructuring that focuses on decarbonisation with the aid of digitalisation will support the industry’s future security, resilience, efficiency, and sustainability.
What is Digitalisation?
Current trends suggest that globalisation and e-commerce will continue to scale up as all countries become more technologically advanced and new generations gain access to digital technologies. This has significant implications for the maritime industry, as infrastructure, logistics and business models must be able to scale with these trends. Digitalisation provides the foundation on which the industry is able to automate processes and collate reliable data and risk intelligence to meet demand effectively. Digital technologies can be leveraged by workers to increase productivity and reduce human error. As digitalisation is inevitable, it is extremely important that maritime cyber security is taken just as seriously as physical security. The risks presented by disruptions as a consequence of cyber crime to digital services are rising and significantly affect all stakeholders.
What is Decarbonisation?
Owing to humanity's growing concerns over the scale of climate change, methods of limiting and eliminating direct contribution to the greenhouse effect are at the forefront of change in the maritime industry. Decarbonising the maritime industry involves eliminating the ~3% of global greenhouse gas emissions that international shipping produces annually. This includes all aspects of the value chain and is important to ensure the continued economical operation of the industry as policy change continues to accelerate globally in favour of decarbonisation. The maritime industry is further motivated by climate change's direct implications of more common and intense catastrophic weather affecting ports, vessels, and navigable waters.
Improvements and Changes Needed in the Maritime Industry to Expedite Decarbonisation
With the help of digitalisation in the maritime industry, decarbonisation can be expedited throughout many segments of shipping which will create a more resilient, sustainable and efficient industry. The Paris Agreement of 2016 saw the IMO declare an ambitious target of reducing greenhouse gas (GHG) emissions in international shipping to 50% by 2050, and a reduction in CO2 emissions goal of 40% by 2030 and 70% by 2050. However, since 2016 there has been newfound international awareness surrounding the importance of maritime trade, which prompted the COP27 conference agreement that the shipping industry can be the backbone of the sustainable supply chain the world desperately needs. The effects of climate change have recently had a critical impact upon maritime transport with extreme weather, including floods, heatwaves, hurricanes, and fires, wreaking havoc on world-class ports across Australia, Pakistan, Europe, the United States, East Africa and Brazil.
Decarbonisation and digitalisation are symbiotic in their relationship. Digitisation can assist in creating more agile processes that reduce time at port and minimise logjams, reduce energy consumption, assess industry equipment to reduce inefficiency as well as ensure safety, and remain competitive in providing reliable cost-effective transport for consumers. These changes and improvements need to be made to expedite decarbonisation and transform maritime transport into a sustainable industry to ensure its security and resilience. Digitalisation and immediate action by all players in the maritime industry can help make this a reality.
Expand Capacity and Improve Connectivity and Performance
The world has experienced unpredictable and unprecedented events including the COVID-19 pandemic and climate change related weather. These events caused a surge in online ordering of goods and consumer spending which strained the already disrupted supply chain, driving shipping costs up to historic highs and in turn the costs of consumer goods. The spike in e-commerce also saw cargo ships making more port calls causing congestion to become a major issue for container ships. The median turnaround time of a cargo ship increased by 13.7%, leaving the world waiting for manufactured goods. The dramatic rise and fall of shipping costs since 2021, specifically in dry bulk and grain freight, has seen countries of low and middle incomes paying from 1.06% to 1.27% more on food. Long term underinvestment in ports by some countries contributed to delays and supply chain breakdown, thus increasing prices. These price hikes are also a result of the current war in Ukraine, one of the world’s main grain providers. The geopolitical events in Ukraine have also contributed to the rise in cost of living globally with projections of stagflation and a global recession affecting many countries in the near future.
To prepare for a future of uncertainty and further instability in shipping costs, governments and operators must invest in expansions and upgrades in port infrastructure as well as land transport connections. . Port infrastructure development can be tailored to the future sustainable supply chain with environmental impacts in mind and utilising digitalisation to create effective changes including alternative energy for docked ships to eliminate idle time and fuel wastage. Block chain digital ledger is a useful tool that ensures faster loading and unloading of cargo and efficient movement of ships thus also decreasing idle time. Speeding up procedures to allow cargo to enter and leave port can also expedite decarbonisation in the maritime industry.
Further, acceleration of trade facilitation reforms with the use of digitalisation would simplify trading and contribute to decarbonisation efforts. Logistical logjams can be unblocked through expedited digitalised procedures which allow pre-arrival processing with online documentation, enhanced transparency and accelerated clearance where goods can forgo physical inspection. Improved efficiency through digital technology to predict, monitor and schedule ports and ships leads to lower chance of oil spills, fuel wastage, and saves shipping companies time and money. Digitalisation can be an incredibly helpful tool in accelerating decarbonisation and cultivating a resilient framework for the industry.
Renew and Expand Fleets and Equipment, and Reduce Emissions
With 10% of global energy, food and fertilizer exports halted due to the Ukraine Crisis and China's previous zero-COVID policy having created major manufacturing delays, global inflation and rising cost of living could stifle consumer spending. Although the Black Sea Grain Initiative will aid in food shortages, it is currently projected that in the following 5 year period, from 2023 to 2027, annual growth in maritime trade will fall to 2.1% from the 30-year average of 3.3%. Due to these volatile future projections ship owners are concerned and uncertain about their commercial security and are therefore not willing to invest in building new, greener ships.
It is becoming increasingly critical that investment is made into low carbon fuels, energy-efficient shipping technologies and decarbonisation. Support must also be provided to developing countries to aid in their energy transitions and their port upgrades to withstand the impacts of climate change. 40% of Europe’s total natural gas was imported from the Russian Federation prior to the war on Ukraine. The trade restrictions placed on Russia are forcing EU countries to explore alternative fuels and import from distant locations. This is altering shipping demand and decreasing the need for ships specially made to carry fossil fuels.
The world’s maritime fleet is ageing and, over a 12 month period beginning January 2020, emitted greenhouse gas emissions at a rate of 4.7% thus commencing 2021 with historically high CO2 emissions in the shipping industry of 816 million tons which has continued to increase year on year. A new, sustainable fleet of ships is needed to reduce emissions and increase efficiency. Utilising cost efficient and alternate fuels, as well as smart digital systems, a new generation of ships must expand the current fleet to provide more efficient trade while reducing greenhouse gas emissions thus ensuring the maritime industry’s compliance with the IMO GHG emissions targets. Digital devices and risk intelligence systems such as ARMS by Dryad Global can help with effective navigation to avoid obstacles and optimise routes to reduce fuel consumption and emissions. These digitalised systems can also monitor shipping equipment for regular maintenance and potential issues which fosters a safer working environment.
Conclusion
If the maritime transport and trade industry is going to survive the perma-crises era of the 21st century, then decarbonisation and digitalisation must be at the forefront of the incoming structural shifts that will occur. For the shipping industry to ensure its stability in the years ahead it must become more efficient, more resilient and more sustainable.
The digitalisation of the maritime industry will be one of the main tools that will propel it to become leaders in the sustainable supply chain. By expediting decarbonisation through expanding capacity in ports, improving connectivity and performance, renewing and expanding the new generation of ships, and reducing emissions, the maritime industry will become more resilient, efficient and sustainable. These improvements and changes in the shipping industry must be reassessed and updated often to ensure the survival of maritime trade.
Reference: https://unctad.org/rmt2022