Importance of Sustainable Procurement Practices in the Maritime Sector

Written by Janice Kang Hui Xuan, MSIPMM

by Janice Kang, MSIPMM

Importance of Sustainable Procurement Practices in the Maritime Sector

Written by Janice Kang Hui Xuan, MSIPMM

by Janice Kang, MSIPMM

by Janice Kang, MSIPMM

Ninety percent of world trade is transported on ships is an oft repeated statement within the maritime industry. Shipping is the lifeblood of international trade. Shipping is also by far the most efficient means of transport on a per ton of cargo carried basis. However that does not mean that shipping does not contribute to significant pollution on absolute terms.

Out of the total global air pollution shipping accounts for 18 to 30 percent of the nitrogen oxide, 9 percent of the sulphur oxides and 3.5 to 4 percent of all climate change emissions. (Schrooten, De Vlieger, Int Panis, & Pastori, 2009)

From the perspective of good corporate social responsibility and general conscientiousness, whether you are an operator in the maritime sector or an entity that depends on shipping for their procurement (which would be the vast majority of companies), moving towards a more sustainable form of shipping would be in everyone’s best interests.

Pollution

The picture above shows pollution at sea from oil sludge discharge.

Why Sustainable Procurement

Shipping is a highly deregulated environment with its hodgepodge of “Flags of Convenience” and varying regulations across ports and countries. Many ship owners have operated with impunity with sub-standard engines burning heavy fuel oil to disposing harmful waste at open sea with no oversight by their flag states who are ultimately responsible in policing them.

While the International Maritime Organisation has risen as a body creating standards across the industry worldwide, significant gaps remain. Shipping is also a highly reactive industry, the industry can be notoriously difficult to change unless significantly nudged in the right direction.

One famous example would be post Titanic when the International Convention of Safety of Life at Sea was introduced most notably mandating that life rafts need to be sufficient to accommodate all persons onboard a vessel. (International Conference on Safety of Life at Sea (1913-1914 : London, England), 1914)

A two pronged approach will be required to get the maritime industry in line with the general growth of cleaner forms of energy.

Implementing Sustainable Procurement Practices

The first step is to step up government regulations and incentives. All flag states need to demand transparency, vessels at sea can no longer operate out of sight and out of mind. Classification societies routinely inspect if vessels are in seaworthy condition, these inspections could easily be expanded to cover testing of emissions same as is done on motor vehicles.

Other simple but effective regulation are ports enforcing burning of cleaner, low sulphur marine gas oil within port limits, a practice which is already implemented at various ports including almost all European and American ports. With regulations on one end, government incentives for using cleaner fuels such as LNG can also play a pivotal role. One such example is Singapore’s Maritime and Port Authorities grant for building of LNG powered vessels and to develop Singapore port as a LNG bunkering hub. (shipandbunker.com, 2016)

The above suggestions still have one flaw, they do not address the disjointed nature of shipping regulation and incentives. Regulations especially need to be globalised which can only be achieved by closer cooperation between countries and giving the IMO a larger role in setting global shipping standards.

Regulations and incentives are in a way going after the supply side. The second method in our two pronged approach is getting the demand side to nudge ship-owners to align with their own sustainable practices.

Let us take Ikea, probably one of the companies most driven to a sustainable approach. However their own report on “Group Approach to Sustainability” does not directly refer to sea transport or the maritime industry. However Ikea does specifically state specific parameters that the trucks used to carry their products must adhere to. (Ikea, 2011)
Granted that insisting upon newer trucks is not the same as expecting large ocean carries to change their vessels that cost tens of millions of dollars each. But companies like Ikea need to take a step in the right direction in pushing ship owners to move away from their existing policies that put the environment at the bottom of their priority list.

Importance of Sustainable Procurement Practices

That is not to say that the entire industry is completely unconcerned about being sustainable. There are various initiatives in place working to get the shipping industry on the right path.

One such example is the Sustainable Shipping Initiative (SSI) which takes a pragmatic approach to sustainable shipping. The SSI has some heavy hitting members in their ranks which include Maersk Line, Cargill, Bunge and others along with NGO’s like WWF and Forum for the Future.

The SSI understands the reality of shipping economics, for example ship owners may invest in technology that reduces fuel consumption but they may not recoup their costs as a lot of the time vessels are on time charter where the fuel cost is borne by charterers.

Especially on short term charters (which is increasingly the case today), charterers may not pay a premium for a more fuel efficient vessel. This seriously disincentives owners from making any significant investments in fuel efficient technology.

To counteract this the SSI has come up in conjunction with Deloitte with a “Save As You Sail” (SAYS) financial model. SAYS not only works with institutions to provide retrofit financing, their model clearly spells out the savings and increase in profits for both charterers and owners which should theoretically give owners justification to charge a small premium over other vessels in the same size.

The financing of course allows repayment over 3 years which limits upfront capital costs for owners especially in this depressed market. Another aspect of the SSI that ties with demand side push i.e. companies that use marine transport for sustainable shipping is the “beyond-compliance rating scheme”. As the name suggests, SSI will rate companies based on their sustainability beyond their regular flag and class requirement.

These ratings will help companies like Ikea make decisions on which carrier to use for the marine transport needs. (Sustainable Shipping Initiative, 2017)

Companies like Nippon Yusen Kabushiki (NYK), Maersk and Evergreen have also allocated budgets to a new generation of super eco-friendly vessels. For example NYK has unveiled a Super Eco Ship 2030 concept.

The design uses solar panels to propel the ship, however the current solar panel technology is not sufficient to power the entire ship (Gray, 2014). While examples like this are a long way from reality we can hope that these are signs of times to come.

Even at a modest 3% increase in trade every year emissions will be 3.3 times the current volume. To cut emissions by half before 2050 CO2 emissions will have to be cut by 85% on a per ton-mile basis. The time for the shipping industry to act now regardless of the fact that they have managed to fly under the radar in terms of regulations.

CO2 emissions

The diagram above shows the projected CO2 emissions and increase in cargo for the period from 2010 to 2050. (Nippon Yusen Kabushiki, 2017)

Conclusion

Suffice to say, the maritime industry has a long way to go. The unfortunate fact is that other than the large lines like Maersk, the smaller ship owners have no incentive to go green on even worry about sustainability. Ship owners are notorious for finding loopholes with flags of convenience, single ship owning companies and whole other schemes for regulatory avoidance.

While Ikea may want to press ship owners to become sustainable, a trader chartering a small 6,000 DWT Vietnamese owned vessel to carry clinkers from Quang Ninh, Vietnam to General Santos Philippines is not going to care about whether the ship owner has environmentally friendly, sustainable practices. While companies with good corporate social responsibility programs can make a nudge, the ultimate push can only come from centralised regulatory bodies which for now falls under the IMO.

Shipping needs to move away from reactionary where only an incident of literally Titanic proportions can push them to do the right thing to a leader in sustainable practices.


References:

Gray, J. (2014). Shipping industry sails towards environmentally friendly future. Retrieved from The New Economy: https://www.theneweconomy.com/business/, accessed 30/08/2017.

Ikea. (2011). The IKEA Group approach. Ikea.

International Conference on Safety of Life at Sea (1913-1914 : London, England). (1914). Text of the Convention for the Safety of Life at Sea. London: London : H.M. Stationery Off., Harrison and Sons, Printers.

Nippon Yusen Kabushiki. (2017). NYK Super Eco Ship 2030. Retrieved from NYK Line: http://www.nyk.com/english/csr/envi/ecoship/, accessed 30/08/2017.

Safety 4 Sea (2014). UNCTAD release Review of Maritime Transport. Retrieved from https://www.safety4sea.com/world-seaborne-trade-grew-by-just-3-8-in-2013/, accessed 30/08/2017.

Schrooten, L., De Vlieger, Int Panis, L., & Pastori, E. (2009, October). Emissions of maritime transport: A European reference system. Science of the Total Environment.

Shipandbunker.com. (2016). Singapore Announces Recipients of S$8M in Grants, other initiatives as it Prepares for LNG Bunkering by mid-2017. Retrieved from Ship and Bunker: https://shipandbunker.com/news/apac/, accessed 30/08/2017.

Sustainable Shipping Initiative. (2017). SSI Progress Report: A Case for More Action. Sustainable Shipping Initiative.

About the Author: Janice Kang has substantial years of experience in the oil and gas industry, specifically in the area of customer service.

She is a qualified member of Singapore Institute of Purchasing and Materials Management (MSIPMM). She is completing the course on Diploma in Procurement and Supply Management (DPSM) at SIPMM Academy.

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