By Anastasios Papagiannopoulos
Mr. Anastasios Papagiannopoulos is President at Bimco and Principal at Common Progress. The article is part of his recent speech delivered at the Piraeus Merine Club.
I will attempt to describe some of the main challenges facing our industry today.
GEOPOLITICS & PROTECTIONISM
The economic foundations of the geopolitical system have changed substantially since the collapse of the communist bloc in the 1990’s. Three are the main factors contributing to the changes:
1) The extraordinary economic growth of the PRC
2) The globalization of the international production, trade and investment
3) The application of advanced technologies promoting the automation in production.
There is no doubt that the PRC has taken the better part of the profits created by the new trends. This country has become an emerging economic super power, but with ambitions to enhance its political prestige too.
The mature economies of the western alliance which were victorious in the CW have failed to elaborate a coherent response to the new challenges. Therefore we are faced with Brexit, some sort of paralysis in the EU and repetitive cases of autarchic political movements rising in the Western world.
The lack of a coherent policy for the emerging IES and the risks stemming from it are becoming quite clear in the case of the USA. The financial crisis which started in the USA in 2008 and became a global economic storm, absorbed the main part of the American governments’ energies in the last 10 years. However the recourse of the current administration to protectionism threatens the foundations of the global economic prosperity. This particular policy looks as a paradox if one recalls how the American administrations since the SWW have designed, supported and defended the openens of the IES. For the international shipping, protectionism, if eventually prevails will be a major blow.
It is imperative for the mature economies to avoid the temptations of tit for tat trade policies and consolidate the established and legitimate networks for the circulation of goods, capital, people and technology. It cannot be denied that the integration of the PRC in the world economy, along with the chaos in the Middle East and the emergence of the new energy sources will transform the geopolitical agenda in the near future. To handle all these changes will be a tall order full of risks, requiring patience, agility and skills. But the spread of protectionism far from being a credible response will become a new source of global instability and risks.
The historical experience points to the self defeating nature of protectionism in the medium term, but in the meantime the national economies will suffer and the political cleavages between and within states will intensify.
REGULATIONS
In our days the protection of the environment has emerged as an issue of paramount importance. This is something to be expected after many decades of unfettered and galloping industrial growth. However as it always happens in cases of delayed reactions some of the policies advocated may have detrimental consequences if they are not carefully planned and gradually applied.
The IS sector is a very interesting case in the debate about the best policies for the protection of the environment. There are three main issues involved. The installation of BWT, the consumption of low sulphur fuel and the aspirational targets of the industry in the medium term aiming at a drastic reduction of carbon emissions. Finally as we all know the share of IS in the total air emissions is a little more than 2% and follows a declining trajectory since 2008.
Fortunately for everybody involved in this industry the IMO has become accepted as the only forum of decision making internationally. This makes possible at least up to a point a reasonable debate and facilitates the stipulation of measures which most of the times have been designed by experts and are applicable globally.
The IMO solutions for the installation of BWT appear reasonable and achievable. But there are still a few important questions remaining open.
1) Up to the moment the US authorities have approved only 6 makers of BWT systems with limited production capacity. This may create shortages for the entire global fleet given that after 2020 all existing ships must sooner or later comply with this regulation.
2) There are NB’s already equipped with BWTS which do not comply with the approved systems by the US. It will be unfair for their owners to be discriminated.
3) If the number of the producers of the BWT systems remains as limited as it is today the costs of buying and installing such a system will be disproportionally high for the older ships. Making inevitable their premature and unreasonable scrapping.
The case of the low sulphur fuels is the other major piece of environmental regulation which will have important implications for IS. The IMO regulations must be applied by 2020 and all the ocean going ships must burn fuels with max 0,5% Sulphur. In this case too one can raise several very reasonable questions.
1) The producers and the sellers of the fuels are not regulated on what they can produce or sell
2) There is still a big question mark about the ability of the existing refineries to remove the total amount of Sulphur required for the world commercial fleet.
3) The regulations allow the use of alternative compliance methods, such as exhaust gas scrubber, if the ship burns fuel with higher than 0,5% Sulphur. So it is explicitly allowed to produce and sell heavy fuel.
4) Can the port states actually enforce the low Sulphur regulations to ships visiting their ports? Up to now the majority of port states never really enforced Sulphur limits before as they reside outside emission control areas.
As a whole then the enforcement of the “Global Cap” by 2020 is going to be challenging for the port states and for the level playing field of the industry.
It is beyond any doubt that there is a strong relationship between speed and emissions of sox. Therefore given all these reasonable and unanswered questions about the 2020 cap it might be wise to broaden our spectrum of potential measures towards the parameters that could have a real reducing impact on the carbon emissions. For example the experimental and for a limited period of time application of either a modest limitation on speed or the imposition of a levy on fuel consumed might provide a more clear picture of what is achievable within the existing framework of available fuels and marine technology.
Finally the major international organizations of the RT have prepared to propose an aspirational strategy aiming at the drastic decarbonization of the shipping sector by the mid C21. All the participants of the industry must adopt through the IMO the most efficient measures leading to this target. I firmly believe that through an open dialogue based on good faith we can work out a feasible realistic and efficient plan for the decarbonization of IS.
