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Maritime Shipping Conference: Notes on Upcoming Emission Rules

Companies and Markets

By Tom Abrams, CFA  |  March 28, 2023

For insights on upcoming emissions standards for the maritime shipping industry, global supply chains, and maritime subsegment fundamentals, we attended the Capital Link International Shipping Forum on March 20. This article shares the latest industry discussions on emissions and decarbonization. A second Insight article to be published includes conference comments on the shipping cycle. But before we get into the details, the high-level maritime shipping themes from the conference were:

  • Crude tanker fundamentals are solid and are expected to remain so

  • Bulk carrier fundamentals seem to be starting to bottom

  • Containerships see a more balanced market ahead

  • The uncertainty of the impact of 2023 emission regulations is holding back new ship orders, which may set up improved capacity utilizations and maritime shipping cycles over the next few years

Evolving Emission Standards

The International Maritime Organization (IMO) is a regulatory body for much of the world’s main shippers at the country level. In 2020, the IMO promulgated a set of rules—IMO 2020—meant to reduce SOx emissions. Before the rules went into effect, there was concern that the industry would not be able to comply, but refinery supply came through and made the transition to lower sulfur fuels quite smooth.

In fact, despite Covid’s buffeting impact on the industry, IMO 2020 seems to have helped reduce overall sulfur emission by approximately 75% over the past few years, primarily by monitoring the types of fuels loaded onto ships.

The effective date for additional rules—IMO 2023—is just ahead, and though the rules may change slightly when they are finalized in July, the direction is clear in standards EEXI 2023 and CII 2023. The Energy Efficiency Index of Existing Vessels (EEXI) is part of an effort to reduce carbon intensity in international shipping by 40% by 2030 compared to 2008.

It has been estimated the industry has achieved 24% - 30% reductions so far since 2008; however, there is uncertainty about how the industry will achieve the 40% reduction by 2030. New ships can offer 30% greater fuel efficiency compared to old, but to underwrite new capacity—especially given global shipyard constraints and 1.5- to 2.5-year waits for new vessels—there will have to be structurally higher pricing for the sector. Higher pricing will be inevitable if less efficient ships are gradually withdrawn from service.

The impact of the CII, or Carbon Intensity Indicator, however, is one to watch near term. It’s a link between greenhouse gas emissions and tonnage/distance and will vary based on the type of vessel. Under the CII, operating ships will have to measure their carbon emissions, with performance scored from A to E. Performance over a period of time in the D or E category will lead to penalties, including potentially not being able to operate the vessel in signatory ports.

Already, there are indications that asset values are being impacted modestly by the IMO 2023 rules, particularly among E-graded vessels, where discounts are more prevalent and liquidity (the percent of a fleet changing hands each year) is the lowest. As scores are tallied and customers evaluate their supply chains, there is a material uncertainty on D- and E-graded vessel demand. If some low-graded ships are no longer in demand by emission-concerned customers, that will drive utilizations on the remaining higher, and ultimately shipping day rates as well. The harder the regulations bite, the more ships will be scrapped rather than see money spent to comply. That could tighten up the market from the supply side across all shipping subsectors.

Decarbonization Efforts

In a synthesis report of a multi-year climate study, the United Nation’s Intergovernmental Panel on Climate Change (IPCC) also said on March 20 that the world will likely miss the hoped-for 1.5 degree centigrade warming limit by 2030. According to the IPCC, warming is likely to be closer to 2% and would bring with it many more violent climate-related impacts.

A heightened concern about climate change could pressure the industry, but shipping is one of those very hard to decarbonize industries. It generates about 3% of the world’s carbon emissions while handling about 30% of the world’s goods. As a general guideline, conference participants thought that the maritime sector could gradually decarbonize an additional 5% - 10%.

Many factors that impact the maritime shipping industry’s energy transition were mentioned at the conference, but three prominent themes were:

  • Geopolitical uncertainty

  • The push for lower emissions

  • Planning for the timing of scalable new fuel technologies

Interestingly, many speakers believed commercial supply chain dynamics would drive the push for lower emissions rather than regulations. Everyone wants improvements in their supply chains, but ship operators need the improvements underwritten—especially if large capital commitments are needed.

Because it tilts toward consumer goods, the container market could be the first place to see changes in vessel operations if goods manufacturers pressure their supply chains for lower emissions. Though transportation costs may rise because of slower, energy-saving voyages or more expensive alternative fuels, the impact on individual consumer goods will likely be minimal—for example, on a pair of imported shoes.

strategies for decarbonization  
New vessels Engine power limitation
Energy-saving devices Speed reduction
Alternative fuels Journey selection and optimization

New fuel technologies were also discussed. It could take 10 - 15 years for the industry to reach scale on one alternative fuel or another, but a shipper today would need to commit to fuel in a vessel and powerplant that is long lived. In addition, several operators noted that there will be great market demand for sustainable fuels—biofuels, methanol, ammonia, and hydrogen, for example—in sectors like aviation and food. Given potential limitations to scalability, there was concern those fuels might not be available to the ship operator in the port where they fuel up.

To address the concerns about sustainable fuel availability, the EU announced on March 23 its “FuelEU Maritime” regulations mandating reductions in emissions in the maritime sector. The regulations call for a 2% reduction by 2025 and up to an 80% decrease by 2050. It remains to be seen if similar rules are adopted by other places in the world or not. Non-compliant ships could simply shift to different routes, but at the very least the new rules reinforce the IMO’s rules and will support the search for adequate supplies of sustainable fuels in Europe.

Ships have very specifically engineered designs for engine and fuel storage, so changing or retrofitting power systems—or adding on-board carbon capture—is usually not practical. One of the easiest changeovers—converting to a methanol powerplant (ammonia retrofits much more complicated)—there is still hesitation to do it given the intermediate-term uncertainties for global methanol supplies.

It was also noted that evaluating a new ship’s fuel choice is increasingly done on a “well-to-wake” basis, an analysis that considers where a sustainable fuel comes from and not just the onboard consumption. Hydrogen (other than green), ammonia, and even cleaner-burning liquefied natural gas (LNG) can become less carbon compelling on a full lifecycle basis. Other interesting comments on the topic of future fuel choices included the need for individual ports to invest in multiple on-shore systems to handle different fuels and to eventually train 300,000 - 700,000 workers to handle those new fuels.

Thus the industry doesn’t have speedy, inexpensive options to decarbonize. The market will receive new fuels, but scaled amounts are uncertain and use requires infrastructure at ports around the world and years to replace current fleets of vessels, which typically operate for 25 - 30 years, if powerplants need to be different.

In other regulations, the EU in 2024 will initiate a carbon trading system and, in 2025, further limit greenhouse gas emissions in ports. On this latter point, many ports, in conjunction with vessel managers, are arranging for ships to use electric power from shore rather than from on-board diesel. That practice dramatically reduces emissions at port.

Other port efforts include matching onshore and offshore material handling equipment to enable faster unloading and scheduling arrivals more smoothly to reduce idle time. As emissions metrics become available throughout the supply chain, more collaboration between ships and ports should become the norm.

Some maritime shippers also see potential to reduce emissions by pairing with other technologies. For example, one speaker discussed how wind turbines on some ships could reduce hydrocarbon consumption by 5% - 10%. Participating in onshore carbon removal was also mentioned as a possibility (or simply becoming more involved with carbon trading networks as they develop).

Two points about carbon credits were interesting. One was that the supply of credits may be limited amid heavy demand from other industries. A second was whether investments in carbon credits takes dollars away from shipping capacity longer term.

Lastly, some larger firms also see a need for an integrated approach even further up the supply chain to better optimize shipments and carbon emissions. As a result, they are getting involved in warehousing, trucking, rail systems, and even cross-border trade regulations.

In Summary

Constraints are coming for maritime shipping emissions due to new regulations and customer end-to-end reviews of their supply chains. The unique characteristics of long-lived, expensive, hard-to-decarbonize assets in the shipping industry sets up uncertainty as to how the market will evolve.

Will customers rapidly avoid ships with high emissions? When will it become financially justifiable to renew fleets? And could a recession, geopolitical pressures, or new customer preferences impact shipping demand? We may have to wait until next year’s conference for some of the answers.


This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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Tom Abrams, CFA

Associate Director, Deep Sector Content

Mr. Tom Abrams is the Associate Director for deep sector content at FactSet. In this role, he is responsible for integrating additional energy data onto the FactSet workstation, including drilling, production, cost, regulatory, and price information. Prior, he spent over 30 years working at sell- and buy-side firms, most recently as the sell-side midstream analyst at Morgan Stanley. He also held positions at Columbia Management, Dreyfus, Credit Suisse First Boston, Oppenheimer, and Lord Abbett. Mr. Abrams earned an MBA from the Cornell Graduate School of Business and holds a BA in economics from Hamilton College. He is a CFA charterholder and holds certificates in ESG investing, sustainable investments, and real estate analysis. 


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.