Global Transport and Logistics
Select country/ language

Select country/ language


Login Sign up

The effect of decarbonisation

While there are still major issues for shippers in the current market, it may be helpful to look beyond the horizon and start preparing for other elements that will have an impact on the long run

One of the elements is the decarbonisation of the container shipping industry. Under current regulations agreed by the International Maritime Organization (IMO) the shipping industry must reduce its total CO2 emissions by 50% by 2050. This will be measured in relation to the total emissions. The global trade is expected to double by then, this will require a reduce of 75% emission per TEU for each containership. This cannot be done with conventional fuels and therefore the industry has no other choice than to aim for full decarbonisation

In the medium term several shipping lines will start building and launching ships powered by natural gas (LNG). It should be noted that such ships will reduce emissions by a maximum of 25%. Meaning that these ships can reduce emissions significantly in the very short run, but at the same time cannot live up to the long-term target for 2050. The use of these ships must therefore be seen as a transitional phase.

In 2021, Hapag-Lloyd expressed her ambition to achieve full decarbonisation by 2045. Maersk is even more ambitious and expects to reach this target by 2040. A decade ahead of the IMO schedule.

What are the consequences for shippers if other container lines will follow and opt for the more ambitious target of 2040?

In specific terms, this means that the entire world fleet of container vessels will have to be replaced over the next 18 years. A containership has usually a lifespan of 25 years, so the consequence is a depreciation that comes 7 years to soon. 28% of the ships life is unused resulting in a financial loss which will have to be covered by higher freight rates. 

UNCTAD's most recent estimate from January 2021 was that the global container fleet is worth USD 159 billion. Removing 28% of that value can - extremely simplified - be estimated at a one-time loss of  USD 45 billion. In relation to Maersk's decarbonisation, recent reports from ship brokers indicate that Maersk has just ordered four more CO2-neutral vessels with a capacity of 16,000 TEU each at a price of USD 175 million per ship. That’s about 13% more expensive than the current benchmark of about USD 150 million for a similar conventional ship. This again indicates - extremely simplified - that the new fleet to be built will be 13% more expensive than a conventional fleet. Based on the current value of the world fleet, it provides an additional cost of USD 21 billion. The price of Maersk's 16,000 TEU vessels corresponds to a price of approx.  USD 11,000 per TEU capacity. As the world fleet currently has a capacity of approx. 25 million TEU, it indicates a new construction price of USD 270 billion.These ships would normally be built over a period of 25 years, but with the new ambition of CO2 neutrality in 2040, this is now reduced to 18 years. This means that investment costs increase from USD 11 billion per year to USD 15 billion per year - an increase of USD 4 billion per year.

Based on these calculations, the price of the more ambitious conversion will be an additional cost of USD 70 billion. At present, the industry transports 180 million TEU per year, and over a period of 18 years it will therefore correspond to a cost of USD 22 per TEU.

The current indications are that green fuel is 3-4 times more expensive than conventional fuel. This is likely to diminish over time, but it is highly uncertain what the final price will be. In its most recent quarterly accounts, Hapag-Lloyd estimated its fuel costs at EUR 457 million and sailed at 3 million TEU. With a conversion of USD 1.14 per TEU, this corresponds to USD 181 per TEU in average fuel cost. If green fuel is four times more expensive, that equates to an increased cost of USD 543 per TEU in addition to what is already paid.

The price of the new fuel will have the biggest impact on shippers, in comparison to the increased investments cost. This is, of course, based on the assumption that ‘green’ fuel in general is sufficiently present. 

As we’ve seen over the past year, most shippers have been able to pay thousands of extra dollars in freight rates, something we couldn’t have imagined before the pandemic. No shipper will be happy with these financial conditions but is now clear that it has clearly been possible given the circumstances. 

Realistically, shippers should start adjusting to a future where freight rates will be significantly higher than before the pandemic. This to finance the transition to ‘green’ sea freight and because the actual financial conditions have shown that is possible for many shippers. But not for all shippers.

And as a final comment: Yes, the above is extremely simplified and the numbers are fraught with great uncertainty. But as a loose estimate, it shows that the green transition is certainly financially possible, but that it will also entail significant costs for shippers.

Read more about our Green Logistics

Any questions?

Our teams in DSV Air & Sea are ready for you.

DSV Air&Sea Contact us