The International Maritime Organization (IMO) recently agreed to a carbon tax that could possibly double the already record high shipping costs, and shippers around the globe are worried they will be left footing the bill.
Last month, the IMO Intersession Working Group (ISWG) reached an agreement regarding the carbon tax, which has been a back-and-forth conversation for the last decade. However, the Global Shippers Forum (GSF) is offering some resistance due to concerns about how the Bunker Adjustment Factor (BAF), a surcharge that adjusts to the fuel price fluctuations, will be passed to them.
James Hookham, director of the GSF, recently said “If the shipping industry is serious about market-based mechanisms as a route to decarbonization, then it needs to insulate its customers from their inflationary effects, otherwise, emissions will be reduced by suppressing demand for world trade, rather than by incentivizing the step-changes in fuels and propulsion technology [that are] so urgently required.”
Furthermore, GSF cautioned that container carriers could potentially remove older, less fuel efficient, vessels from their fleets to avoid the tax, thus further limiting capacity and pushing rates up even higher.
IMO Discussing Vessel’s Energy Efficiency
The IMO will be discussing a handful of emission reducing measures this week at the 78th Marine Environment Protection Committee (MEPC) being held this week. During these discussions both the technical and carbon pricing elements of the plan will be discussed with the goal of providing regulatory clarity for both the shipping industry and the local governments. Kitack Lim, the secretary general of the IMO, said in his opening statement, that the new carbon tax will be on the table for this weeks discussions.
“While progress has been made on many of the measures set out in the initial greenhouse gas [GHG] strategy … further action is needed,” Lim said. “Your discussions this week will chart the way forward for the decarbonization of international shipping. It is therefore of utmost importance that the IMO continues to deliver concrete progress in transitioning international shipping from fossil fuels to low and zero-carbon alternatives.”
The new carbon tax is only one part of the IMO’s plan of energy efficient measures set to take effect in 2023. Under the new measures, any ship with 400 gross tonnage (GT) or more will be required to have their Energy Efficiency Existing Ship Index (EEXI) calculated with certain requirements of improvements in energy efficiency, varying by the size and type of the vessel. Additional measures plan on improving a vessel’s energy efficiency by adding a carbon intensity indicator to verify the vessels annual reduction factor. The goal of the latter measure is to ensure continuous improvement of the vessels’ operational carbon output with a specific rating level.
Not All Shippers Oppose the Carbon Tax
While the GSF claims that shippers are concerned with how the carbon tax will affect them, certain container carriers are saying a good portion of their customers are welcoming a change. One of the largest container carriers recently said that they’ve seen customers willing to pay a premium to meet the target for their Scope 3 emissions, so they need their products to be delivered in a more energy efficient way.
Soon after last year’s MEPC meeting, the same major container carrier, proposed a tax of at least $150 per ton of carbon emitted from traditional marine fuels, saying that it was necessary to fund the development of greener alternatives.
Several massive importers working with various container carriers have set or are in the process of setting energy efficiency target for their supply chains. Late last year nine major importers such as Unilever, Michelin and IKEA, committed to fully decarbonizing their ocean freight by 2040 as part of the Aspen Institute’s Cargo Owners for Zero-Emission Vessels initiative.
Final Thoughts
Although we can all agree that taking care of our planet is important, doing so at the expense of businesses’ profitability is a controversial topic. While it has yet to be seen at what magnitude this tax will affect shippers, you can rest assured knowing that ClearFreight will have your back and help you be prepared to deal with whatever may come.
Contact our team today to learn how our decades of experience, customer service, and customizable supply chain solutions can help make logistics easier for you.