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Would a fleet-based approach to CO2 reduction work?

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Recently Danish Shipping released details of an analysis the shipowners’ trade organisation had commissioned from consultants CE Delft.

The document, which has been submitted to the IMO as a discussion point rather than a definite proposal, suggests that rather than impose new requirements on existing ships as would happen under the under discussion EEXI, a quicker reduction in emissions could be achieved by shipowners being assessed on the basis of their fleet’s overall emissions.

The argument is that money spent on retrofitting an existing ship that will have a limited lifespan is money that cannot be spent on ordering new ships that are more efficient and will therefore reduce the potential to cut emissions even more.

At first glance the idea has much merit but when thought through the benefit may not be as great as first seems possible.

Building new ships is an option that exists for rather a limited number of operators when the industry is looked at with a wider view. The owners that build new ships are rarely those that operate ships approaching the end of their useful life. The majority of ships are operated by companies and individuals that have never commissioned a newbuilding in their entire history, but who source their tonnage from the second hand market.

Under the proposed EEXI, these owners will already be facing a large bill for retrofitting their own existing fleets and for them there would be no chance of offsetting that cost by ordering new ships. Having brought an older vessel up to new efficiency standards, that owner will at some point have to try to recoup the costs when selling on to a third or fourth time buyer. Not a very likely prospect when the ship may have just a few years of operation left in it.

Looking ahead, the second division – for want of a better term – operators  will at some point be in the market for ‘new’ tonnage and their target will be the very ships that Danish Shipping proposes be left unaltered by their original owners because the money has been put towards new buildings.

Because the potential new owner will have no newbuildings to reduce his individual fleet’s emissions, he will be required to make the upgrades that the original owner had avoided. Under those circumstances surely he will want to obtain the ship at a price that reflects the work needed for continued operation. It is even possible that the original owner will be left with an unsellable ship as potential buyers look elsewhere.

Another element that will need to be factored in is the attitude of charterers or shippers towards ships that individually are considered as environmentally suspect. Some may find them attractive – a ship that has not had its speed limited by derating the engine may be an ideal tool for one charterer but a complete anathema to another wanting to boast of their green credentials.

That leaves the intriguing question, will the reduced second hand value or the potential freight rate actually allow original owners to spend more on new vessels or will it actually reduce the equity they have available?

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