Commentary Trading Places

By Peter Tirschwell

Carriers would have no choice but to flex their capacity to keep the market as tight as possible.

What happens at the International Maritime Organization’ s( IMO) Marine and Environment Protection Committee( MEPC) meeting in early April will have profound implications for shippers, dwarfing the impact, for example, of proposed fines on Chinese ships calling at US ports.

The reason is the possibility, if not the likelihood, that IMO negotiators will fail to agree to a meaningful carbon tax on shipping, instead choosing to achieve the organization’ s goal of net-zero emissions by or around 2050 via a fuel standard. IMO watchers say the standard is all but certain to gain the necessary support of member states in April.

Opposition by certain powerful member states to a fuel levy makes it“ exceedingly unlikely” that the tax will be in the final MEPC agreement, said Eirik Nyhus, environment director at DNV.

Here is why that is critical: A fuel standard mandating a reduction in carbon intensity over time to reach the 2050 goal is similar conceptually to the IMO 2020 low-sulfur fuel requirement. The message to shipowners was, and would be again:“ Here’ s the requirement, and if it means higher fuel costs, it’ s on you to mitigate those costs or pass higher costs on to your customers.” That is why, according to S & P Global Market Intelligence, 25 % of container ships are now fitted with scrubbers that remove sulfur from vessel emissions while enabling ships to run on traditional bunkers versus higher-cost low sulfur fuel oil. The message to the industry would be identical if the IMO failed to reach consensus on a carbon tax, which is controversial among IMO member states, and proceeded with a fuel standard regulation to give its 2050 goal teeth. The showdown will occur at the 83rd MEPC meeting on April 7 – 11.

A fuel standard, on the other hand, is not seen as controversial.

“ There appears to be broad support across the numerous member states that we will agree to a legally binding greenhouse gas intensity limit for the fuels themselves which would take effect in 2028 and become increasingly stringent as you move to 2050,” Bryan Wood-Thomas, vice president for environmental policy at the World Shipping Council( WSC), told the Journal of Commerce’ s TPM25 conference in early March.

The impact is so potentially profound because of how carriers would likely respond to a scenario in which a fuel standard is imposed on them— to increasingly use fuels much more expensive than traditional bunkers— but no automatically higher cost is imposed on shippers to pay.

Carriers would have no choice but to go all out to protect their interests, which, in practice, means squeezing capacity to keep the market as tight and rates as high as possible to offset the higher cost of zero- or low-carbon bunkers.

That is increasingly familiar territory for carriers. The past 25 years of container shipping shows carriers steadily ratcheting up capacity management through their own actions— slow steaming, idling, blank sailings, scrapping— increasingly aided by external phenomena in the form of pandemics, geopolitics and climate change.

“ Since 2019, carriers have built a revenue model around inefficiency,” said Peter Creeden, a longtime senior Hamburg Süd operations executive now leading Sydney-based consultant MPC International.“ Their focus is not on supply chain efficiency but on leveraging inefficiencies to sustain profitability.”

The incentive for carriers to act to mitigate periodic waves of overcapacity is clear. Alternative fuels will be more expensive for longer because major energy producers have made it clear that in the absence of a fuel tax— what they consider to be a bona fide demand signal— they will limit investments in production capacity.

The possibility that methanol prices would remain high due to a high level of uncertainty regarding regulation, said Maersk CEO Vincent Clerc, led the company last year to pivot its fleet renewal to LNG ships, a fuel it had long disparaged as inadequate in the energy transition.

Underlying the need of carriers to ensure market advantage to fund any IMO-mandated energy transition is a lack of uptake from shippers to fund the transition themselves. Maersk Chairman Robert Uggla told shareholders on March 18 it is“ clear that we are dependent on customers to support and pay for” the energy transition, and that“ the biggest challenge... we face [ is ] the cost gap between clean and traditional fuels.”

Without the cost gap being closed or narrowed— the purpose of a fuel tax— the uptake among customers will likely remain limited.

Hapag-Lloyd CEO Rolf Habben Jansen, meanwhile, has reported progress with the carrier’ s biofuel-based sustainability product Ship Green that allows shippers to decarbonize 25 %, 50 % or 100 % of what they move with the liner. Volumes last year doubled to 200,000 TEUs, or 1.6 % of the carrier’ s total volume.

Senior Editor Greg Knowler contributed to this analysis. email: peter. tirschwell @ spglobal. com

54 Journal of Commerce | April 7, 2025 www. joc. com