As the shipping industry confronts the climate challenge, the evolution of business models becomes imperative, according to Danish Ship Finance, says an article published on baltic exchange website.
Danish Ship Finance Highlights Imperative Shifts Amidst Climate Challenges
In response to the pressing climate challenges faced by the shipping industry, Danish Ship Finance (DSF) emphasizes the imperative need for the evolution of business models in its latest Shipping Market Review.
DSF contends that traditional tonnage providers are susceptible to disruption, advocating for a transition towards long-term contracts and increased collaboration to combat emissions.
Beyond Vessel Operations, A Fundamental Re-evaluation
The urgency to reduce greenhouse gas emissions has prompted the shipping industry to extend its focus beyond vessel operations. DSF asserts that a fundamental re-evaluation of the commercial architecture, which has shaped the industry for decades, is necessary.
This shift is not merely a reaction to regulatory pressures but a recognition that business model innovation is crucial for unlocking untapped potential and fostering a consolidation wave among smaller players.
Regulatory Framework And Industry Roadmap
International Maritime Organisation (IMO) regulations have set the course for reducing greenhouse gas emissions, with operational measures expected to deliver short-term reductions by 2030 and new fuels driving the industry towards net-zero emissions by 2050.
DSF notes that a global regulatory framework, combined with the European Union’s introduction of a regional carbon price from 2024, is creating a roadmap for the industry. However, the report underscores that addressing commercial misalignments is equally crucial.
Unraveling Commercial Misalignments, Challenges With Traditional Models
While operational improvements are necessary, DSF identifies that true emission reduction potential lies in unraveling commercial misalignments among vessel owners, operators, cargo owners, and terminals.
The traditional tonnage provider model, focused on buying and selling ships rather than trading them, is deemed inadequate. DSF emphasizes that this model creates fleets of vessels built with standardized design at the lowest possible cost to maximize rewards during market peaks.
Long-Term Contracts, A Potential Solution
DSF suggests a shift towards long-term contracts for vessels as a potential solution. Vessels on long-term contracts may attract investors not traditionally engaged in the shipping industry, such as infrastructure funds seeking cash flow stability.
This approach allows for increased investments in energy efficiency and may lead to market consolidation, making it challenging for traditional owners to compete on the cost of equity and debt.
Collaboration For Emission Reduction, Optimizing Global Seaborne Trade
Collaboration between ships and their destinations offers a significant opportunity for emission reduction. Beyond reducing idling time at ports, optimizing fuel-saving measures, and transparent benchmarking could lead to a 10-20% reduction in emissions.
DSF advocates for a voyage index, disclosing carbon intensity per voyage, to incentivize change, foster collaboration, and align with climate targets.
Towards a Sustainable Future, The Voyage Index Proposition
DSF proposes a voyage index, disclosing carbon intensity per voyage, as a critical addition to commercial contracts. This index, combined with a global terminal heatmap, would enable stakeholders to evaluate and optimize performance, fostering collaboration between different industry players.
The voyage index, adjusted annually, could drive investments in energy efficiency, aligning the interests of cargo owners and vessel operators toward a sustainable future.
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Source: baltic exchange
