Why investors are increasingly betting on greening the maritime fleet

With the maritime sector agreeing to a 40% cut in emissions by 2030, private investors are increasingly betting on greening the maritime fleet, a market that may be worth up to $4tn.

An array of nautical vessels off the coast of Singapore. Maritime transport is responsible for about 2.5% of global greenhouse gas (GHG) emissions, According to the International Maritime Organisation. Lechatnoir / iStock

In short

  • Maritime emissions are 2.5% of the global total and rising fast.
  • Many of the biggest contributors are companies based in Europe.
  • Private investors are waking up to the huge potential of greening the maritime fleet.
  • Changing ports will also play a role.

According to the International Maritime Organisation (IMO), maritime transport emits around 940 million tonnes of CO2 annually and is responsible for about 2.5% of global greenhouse gas (GHG) emissions.

Moreover, shipping emissions “under a business-as-usual scenario (will) increase between 50% and 250% by 2050” becoming a major hurdle in the battle to prevent further global warming, according to the IMO. That’s why it introduced stricter emissions regulations in 2020 and has committed to a 40% cut by 2030.

Importantly, the countries that are the main contributors to greenhouse gas (GHG) emissions from this source, are not the usual suspects. The US is there of course, but it is preceded by Norway (30% of estimated emissions), followed by France (10%), the UK (8%) and Germany (6%). This is one area where developed countries still have a lot to do.

Investment initiatives

Investors increasingly realise there are significant capital needs to decarbonise sea shipping. This has led to a plethora of new investment initiatives.

Take Breakwave Advisors in the US, which recentlylaunched “The World’s First Green Technology Shipping ETF” BSEA (Breakwave Sea Decarbonization Tech) which is “a vehicle for investing in maritime technology tied to carbon reduction.” It seeks to reflect the Marine Money Decarbonisation Index, which is an index of 50 public companies leading decarbonisation efforts.

According to Harold Malone, Principal at Sea/Switch, Breakwave’s partner, the amount of private capital needed to fund decarbonisation ranges between $1.5tn to $4tn.

The potential for private capital to be deployed in the decarbonisation of shipping was specifically referred to by global investment firm KKR in announcing its (€688.6mn) deal to buy Ocean Yield, a Norway-based ship-owning company with investments in vessels on long-term charters.

Vincent Policard, partner and co-head of European infrastructure at KKR, spoke of the role of long-term capital to meet the substantial investment needs of the sector and the attractions of “a strategy of investments in modern fuel-efficient vessels on long-term charters.”

Reducing speed

Part of the reduction in emissions will come from making ships go slower, a fact partially behind the current disruption of global supply chains.

“There has been a noticeable reduction in shipping speeds – a fall from an average of 19 knots per hour in 2008 to just 14 knots now,” says Jacqueline Broers, a senior analyst at emerging markets trust Utilico. Ed Buttery, chief executive officer at UK shipping experts Taylor Maritime Trust agrees: “Basically, we are investing in ships to slow them down.”

Andy Dacy of US investment bank JPMorgan says concerns over what this means for ship design “may explain why the amount of new build at the moment is somewhat constrained,” further exacerbating demand-supply disruptions.

There is a delay until more fuel-efficient ships come online (order books show a big spike in 2024/5). A large number of ships may well become ‘green obsolescent’ in 2023, according to JPMorgan.

Buttery of Taylor Maritime Trust is making sure his handy-size ships are considerably greener than the large container carriers. They emit only 7 grams of carbon per kilometre carried, which is far lower than large cargo ships, let alone a Boeing 747 aeroplane, which emits some 500 grams per kilometre carried.

Cleaner fuel

What are the alternative fuels? Dacy says maritime fuel LNG “is not the ultimate solution to the question of improving shipping's fuel consumption, but it is easily deployable.”

Taylor Maritime is not keen on LNG because of the methane emitted and has instead been switching to ultra-low sulphur fuel oil which “reduces emissions by over 80%.”

Buttery says he will shortly be making a biofuel announcement, while he expects hydrogen to come in “in 10 to 15 years.” Taylor Maritime has committed to net zero carbon fuels by 2030.

Regulation

In adapting to the new realities of greener shipping, Asia is in the lead. Singapore’s new Global Centre for Maritime Decarbonisation (GCMD) recently requested proposals for the safety and operation of ammonia bunkering.

And new notations are now being introduced for vessels on the Singapore Registry of Ships to recognise investment in technology and environmental performance.

Ports also play a role

It’s not just about shipping. The ports themselves can play a role.

DWS is part owner of Peel Ports, a major UK port operator that handles 70 million tonnes of cargo a year. Its head of infrastructure, Hamish Mackenzie, regards decarbonisation and the shift in global energy supply towards more renewables as “an area of huge opportunity.”

According to Mackenzie, ports “will need to convert their facilities to service the growing offshore industries,” while he regards hydrogen as “a potentially massive opportunity.” Although he acknowledges that most ports will need capital investment going forward, he doesn’t think that will lead to lower returns.

John Arbuckle, partner and infrastructure specialist at real estate consultant Gerald Eve, points out that ports “will play a significant role in the decarbonisation of the shipping industry by supplying hydrogen fuel.” The hydrogen can then be used to power port vehicles and equipment which cannot be easily electrified.

Digitalisation can of course also play to the green angle with “port truck and crane automation reducing fuel and vehicle consumable usage by up to 50%,” according to Peter Bachman at London asset manager Gresham House.

He cites the industrial automation company AiDrivers (AiD), which has focused solely on automating port and airport trucks and cranes.