For well over a year now global freight rates have been significantly inflated on previously typical levels. Whilst there has been a noteworthy decline in recent months, most industry commentators have concluded the rates of old are consigned to the history books.
What was once a ruthlessly low margin sector, is now more profitable than being a Silicon Valley tech giant. In Q3 of 2021, the shipping lines were making three times more money than Facebook, Amazon, Netflix and Google combined. Numbers certain to attract the brightest and best talents from the next generation into the industry.
Into 2022 and the quarterly profits from many of the big carriers are still raising eyebrows:
- A.P. Moller–Maersk: $8.55bn (Q2)
- Cosco Shipping: $5.49bn (Q2)
- CMA CGM: $7.2bn (Q1)
- Hapag-Lloyd: $4.8bn (Q2)
However, these figures have come at a time when sustainability scrutiny has never been so prevalent. COP26 late in 2021 saw some of the most ambitious agreements signed for a whole range of sectors, and transportation was certainly no exception. With transportation responsible for an estimated 30% of global emissions and 3% for sea shipping, all industry stakeholders are expected to do their bit.
An increasing number of countries are mandating a net-zero by 2050 target into their plans. Leading scientists accept limiting global temperature rises to 1.5°C is a necessity.
So, what is the connection? Well, that’s what we’re here to explore. Could the heightened freight rates of the last 18 months mean an acceleration of the sustainability agenda from shipping lines?
Will these record profits provide the necessary capital for investment into low emission fuels, decarbonisation, and other vital projects?
Sectors where margins are tight and profit is low, are typically harder to shift. More government subsidies and investment are required. Otherwise, those businesses moving to more expensive but sustainable models will just be priced out. But that’s no longer the case for sea freight carriers.
Has the financial boom for the carriers removed that burden, or is the focus elsewhere?
Schedule reliability for shipping was 40% in June 2022. Although that is an improvement, it’s still way down on pre-pandemic levels of 75-95%. Likely then there will be some focus here. Reliability and container delays impact the carriers’ costs, customer service and profit.
Let’s look at some of the biggest carriers and gain a greater understanding of their green agenda to find the answer.
“Many freight carriers find themselves today in the fortunate position of having much deeper pockets than expected some 24 months ago. I really hope that some of these windfall cashflows will be invested in deepening efforts to decarbonise their value chains.” Claire Fargeot, Strategic Advisor to WTA Group
A.P. Moller–Maersk
A.P. Moller-Maersk pride themselves on leading the path towards decarbonisation in shipping.
It’s fair to say freight rate increases have had a direct impact on accelerating their sustainability agenda. In their sustainability report of 2021, a revised target of 2040 was set for net zero. 10 full years sooner than their initial proposal set out in 2018. Ambitious and extremely admirable.
“We see ourselves as a leader in how to decarbonise one of the hard-to-abate sectors. We think this is the right thing to do”. CEO Søren Skou
Maersk make it clear this is for the benefit of decarbonising their customers supply chains. An interim target of 25% of ocean cargo using green fuels by 2030 has also been established.
Mediterranean Shipping Company
MSC’s environmental agenda remains focused around the UN’s 17 Sustainable Development Goals (SDGs).
A 2050 net zero target stays in place, but 2021 saw the launch of a ‘carbon insetting’ programme. Basically, giving customers the opportunity to reduce their emissions by purchasing biofuel for their shipment instead of regular fuel.
But critics would argue that isn’t much of an acceleration towards MSC’s own environmental agenda. The cost is being passed onto the customer who has already stomached higher rates.
“We continue to improve our fleet’s efficiency using digital tools and new technologies, as well as engaging with energy providers to explore solutions and scale up the production of low- and zero-carbon fuels” CEO Soren Toft
COSCO Shipping
COSCO’s recently announced sustainability report suggests an acceleration of their own climate agenda. A net-zero target of 2060 is less ambitious than Maersk and MSC, but in line with the Chinese government’s own climate ambition.
The aim is to achieve this with investment in clean fuel, renewable energy and green passports for ships.
CMA CGM
Comparable to the strategy seen from MSC, CMA CGM are aiming for net zero by 2050.
“We have accelerated our energy transition, investing heavily to develop our 'e-methane ready' fleet powered by liquefied natural gas, which will include 44 vessels by 2024. We have signed major partnerships to accelerate the development of alternative fuels” Rodolphe Saadé, CEO of CMA CGM Group
They’re also running an offset programme, offering their customers the chance to invest in forestry or similar projects, but again that places the cost on their user base.
Interestingly they are tracking the percentage of biofuel in their energy mix. Only 2.8% currently, but more than double the 2020 levels of 1.1%. Progress, but that figure will need to rise dramatically over the coming years to have a genuine impact on overall sustainability.
Hapag-Lloyd
“We critically reviewed our structures and processes in 2021 and improved them. We have also expanded our sustainability strategy and set ourselves ambitious targets.” Rolf Habben Jansen, CEO
Big talk from the CEO in their sustainability report, outlining a mantra of acceleration towards net-zero. Hapag-Lloyd demands a 30% reduction in their own emissions by 2030, which is a new target and in the short term more ambitious than any other carrier. That sits along a carbon neutral by 2045 pledge.
Hapag-Lloyd is also a member of the Global Maritime Forum: Getting to Zero Coalition, alongside MSC and A.P. Moller-Maersk. A collaboration of stakeholders with a single aim in mind: eliminating carbon.
What else is being prioritised?
There’s no doubt, having looked through all the sustainability reports we did, other challenges are the agenda for shipping lines.
War on-going in Ukraine, continuing growth and profitability, minimising disruption and negotiating the continued economic shock caused by COVID-19 are high on the agenda for the shipping lines. All of which are having resources dedicated to.
Then there’s the technological developments; blockchain, AI, machine learning, Internet of Things. All of which they want to stay ahead of, or risk becoming a dinosaur in the industry.
There’s a lot of plates to be spun for the shipping lines (as there are for any business owners). But their financial might to tackle all these issues at once, has been considerably strengthened in 2021 and 2022.
“More research needs to be undertaken to find the right solutions for marine propulsion, alternative low carbon and zero-carbon fuels as well as further innovative technologies that enhance the energy efficiency of ships.” Claire Fargeot, Strategic Advisor to WTA Group
In conclusion
It’s clear there has been somewhat of an acceleration of the sustainability agenda from the shipping lines in 2021. The shipping lines are very clearly facing up to the issue of decarbonisation. Progress is being made. All those with significant market share are producing regular sustainability reports, analysing that progress. For good reason. That near 3% contribution to global emissions from sea freight is more than all of Germany.
Whether this extra focus on sustainability is a consequence of external pressures, customer expectations or a much healthier financial position, we’ll never be able to say. Perhaps a combination off all 3.
What we can express, is our desire for this drive to continue. It is not optional that logistics needs to clean up its act and sea freight is an enormous part of that. Of course though, the expectation is not entirely on the carriers, individual operators need to find carbon savings at all levels of their operations, not just in their supply chains.
“In order to embrace more sustainable day-to-day decisions, organisations on both sides of the marine contract require access to standardised insights that enable them to understand their environmental impact throughout the voyage of their cargo.” Claire Fargeot, Strategic Advisor to WTA Group
For a look at WTA Group's own sustainability agenda, check out our corporate social responsibility page linked below.
Alternatively, discover our specialist advice for optimising both your inbound and outbound supply chain.
