Clearing a path to decarbonisation

As has been observed before, shipping is subject to a ‘licence to operate’, implicitly granted by a wide group of stakeholders. There are many moving parts to this arrangement but the newest and biggest driver by far is decarbonisation.

As the experts at Danish Ship Finance observed in their most recent report, the industry is struggling to identify a clear pathway towards zero carbon. Some reasons are well understood: the size of the operators and fragmented market structure, others including the impact of zero carbon fuels on financial performance, less so.

In a market with little room for differentiation, the industry’s low return on invested capital, combined with an increased need to invest in decarbonisation has dried up the supply of equity investors and created an environment where there are more vessel sellers than buyers. Fewer new vessels are being ordered, and transaction volumes among existing vessels are currently low.

The demands to advance the climate agenda are starting to affect how businesses operate as they attempt to cut their carbon emissions, ramp up energy efficiency and adjust to new risks incurred by the introduction of new technologies. The global call to decarbonise is increasing the pressure on margins at a time when the shipping industry can scarcely handle any additional financial burden.

In the absence of clear long-term guidance from regulators that works to bridge and facilitate the energy transition, DSF foresees a bumpy outlook which is likely to reshape the industry and the way it makes money.

Read the full blog on the Voyager Worldwide website.