Decarbonization of shipping: A new course for maritime logistics

As a Hamburg-based consulting firm, Five Glaciers Consulting closely monitors developments in the shipping industry. The maritime industry plays a central role in the city and beyond for the German economy. Shipping is and remains the most efficient method of transporting goods, thereby ensuring both our basic needs and the industry’s ability to operate. This is precisely why we are committed to understanding the progress and challenges in the decarbonization of shipping and to continuously expanding our expertise in this area.

The shipping industry, which accounts for about three percent of global greenhouse gas emissions, faces a major challenge: decarbonization. For decades, shipping companies aimed to operate their vessels as cost-effectively as possible. However, regulatory requirements and changing consumer behavior have shifted the focus from pure cost optimization to sustainable business practices. The industry is working intensively to reduce its emissions, relying on a variety of new technologies to increase efficiency and on the development and implementation of innovative fuels.

A contribution to the global energy transition

About 90 percent of global trade is transported by sea, making shipping one of the most important transportation systems in the world. At the same time, container ships emit significant amounts of CO2 and other pollutants due to their massive engines. This means that the industry bears a significant responsibility to do its part in achieving climate goals. Last year, the International Maritime Organization (IMO) tightened its climate protection goals and set specific interim targets for the coming years to achieve net-zero by 2050.

The IMO’s newly adopted strategy is seen as an important step toward a more climate-friendly shipping industry and is aligned with the Paris Agreement and the EU’s ambitions. Leading representatives of the maritime industry and cargo owners had previously repeatedly emphasized at international conferences the need for a global regulatory framework to drive the introduction of near-zero greenhouse gas fuels globally and thus create a so-called “level playing field.” Furthermore, calls for a unified transition plan for marine fuels and the elimination of the price gap between conventional and environmentally friendly fuels are growing louder.

Challenges of the EU Emissions Trading System for the Shipping Industry

While major shipping companies welcome the internationally applicable IMO plan for emissions reduction, some stakeholders are more critical of the measures to reduce emissions under the EU Green Deal. The EU plans to integrate shipping into the European Emissions Trading System (ETS) and also to reduce the permitted CO2 intensity of marine fuels on an annual basis (FuelEu Maritime). Under the EU ETS, shipping companies must purchase ETS allowances for their CO2 emissions, with the price of CO2 rising steadily and the number of allowances decreasing in parallel. This creates financial burdens that could put European shipping companies at a particular disadvantage in international competition. The industry is therefore calling for the harmonization of European regulations with the IMO’s global climate protection standards.

The impact of the maritime emissions trading system is far-reaching: nearly all industries that rely on maritime transport will be affected directly or indirectly. Shipping companies are attempting to pass on the costs of ETS allowances to their customers. This means that companies that reduce their carbon footprint in the supply chain not only contribute to decarbonization but may also reap financial benefits.

Barriers to the decarbonization of shipping and potential solutions

A key aspect of decarbonization is the provision of alternative, zero-emission fuels such as methanol or ammonia. However, according to a report by the First Movers Coalition, in collaboration with the Boston Consulting Group, there are numerous barriers slowing down the transition. More than 95% of planned projects for the production of zero-emission marine fuels have not yet reached a final investment decision (FID). This investment decision is, however, crucial for beginning the construction phase and scaling up production. The report emphasizes that removing these barriers is crucial to advancing the decarbonization of shipping. It is important that major players with the necessary resources take the lead as so-called “first movers” to pave the way and set the direction. This includes initiatives such as the development of “Green Corridors,” which serve as targeted measures for the introduction of zero-emission ship propulsion systems.

Furthermore, collaboration between industry partners and various stakeholders (shipping companies, ports, logistics firms, and suppliers, etc.) is crucial for pooling demand for alternative fuels and achieving economies of scale. These partnerships represent an important step toward overcoming the chicken-and-egg problem associated with alternative fuels.

Alternative fuels as a source of hope

Alternative fuels are key to making shipping more climate-friendly. Currently, most freighters still run on heavy fuel oil or marine diesel, which are derived from refinery waste. Both are extremely harmful to the environment. LNG (liquefied natural gas) is considered an interim solution that reduces emissions of particulate matter and nitrogen oxides but emits only about 20 percent less CO2. Future alternatives such as green methanol, ammonia, and hydrogen are viewed as promising options for climate-neutral propulsion of container fleets. These maritime e-fuels could, at least in theory, help drastically improve the climate footprint of shipping.

A critical look at the progress made

Although significant progress has already been made in decarbonizing shipping, the reality remains complex. The main point of criticism lies in the lack of infrastructure for alternative fuels and the slow implementation of investment projects. Most plans for zero-emission fuels have not yet reached the FID stage, which is delaying implementation. Furthermore, the price gap between fossil fuels and green fuels persists, making adoption difficult. Further measures are urgently needed here to increase the competitiveness of green fuels and create incentives for investment.

The shipping industry needs a clear, global regulatory framework developed and implemented by the IMO to ensure that the industry operates under the same standards worldwide. Without such a framework, there is a risk that regional measures, such as the European ETS, will fail to achieve the desired effect and may even lead to distortions of competition.

The energy transition in shipping is underway

Practice shows that the energy transition in the shipping industry has already begun. More than half of the new engines ordered since 2023 focus on technologies for alternative fuels. Interest in retrofitting existing engines is also growing, as demonstrated at the international shipbuilding trade fair SMM in Hamburg. It is expected that the shipping industry will increasingly switch to innovative fuels and low-emission technologies in the coming years to reduce its emissions and meet climate targets.

Opportunities for companies along the supply chain

Measures to decarbonize shipping offer opportunities not only for shipping companies but also for businesses throughout the entire supply chain. Large companies can participate directly in initiatives such as Zemba, while smaller companies can benefit from green offerings from their freight forwarders. Those who reduce their environmental footprint in maritime transport can not only improve their greenhouse gas balance but also benefit from future cost savings.

Decarbonizing the shipping industry is a complex and long-term endeavor, but the industry is ready to set a new course. The transition to more climate-friendly fuels and the introduction of energy efficiency ratings are important steps along this path. Companies that act now and invest in this transition can benefit in the long term from a more sustainable and efficient supply chain.