Ship owners facing looming deadlines to use less-polluting fuels have slashed the number of new vessels on order because they don’t know which alternative technology to switch to. Ammonia, hydrogen, biofuels and electrification are some of the many contenders to power the world’s future merchant fleet, but most are only in the trial stage and won’t be scalable for at least a decade. With the life of a commercial ship averaging around 20 years, opting for a technology that doesn’t take off could be very costly.
But owners are running out of time to make the choice. In 2018 the International Maritime Organization set a target to cut shipping’s greenhouse-gas emissions in half by 2050 from 2008 levels. The deadline prompted some ship owners to hold off on new orders until it became clearer which new fuels would be the best option — a decline that has turned into a slump with the subsequent global trade disputes and the pandemic.
Orders fell almost 10% in 2019 and then more than 50% in 2020 to the lowest in at least two decades, IHS Markit data show. If activity doesn’t pick up, that could lead to a dearth of vessels and a spike in freight rates in a few years.
“People aren’t ordering ships because we don’t know what to fuel them with,” said Morten Aarup, head of market research at Danish vessel owner D/S Norden A/S. “Engineers, ship designers need to come together” urgently to find the best solution, he said in a recent panel discussion on shipping trends.
Uncertain Waters
Emissions targets leading to slowdown in ship orders
Source: IHS Markit
But the use of alternative fuels in shipping is still in its infancy, with many of the big ship owners pursuing different alternatives. Trafigura Group, one of the world’s biggest energy traders, has a stake in a company selling marine biofuels, vessel classification society Lloyd’s Register has given approval in principle to several ammonia-fueled ship projects, and Swedish tanker line Stena Bulk AB is planning to run some of its vessels on used cooking oil.