Should sea freight be excluded from ethical management?

1. State of play

93,000. This is the approximate number of ships in the world commercial fleet in 2017.

Maritime trade has gradually emerged as the catalyst of the world’s economy. In 2015, nearly 80% of trade, in terms of volume, was transported by sea, accounting for more than 70% of trade value. Given this trend, the sector is therefore a vector of multiple opportunities. Despite substantial variations, the leaders show high profitability throughout the cycle, including groups such as CMA CGM, the world’s third-largest shipping company.

However, things are not as simple as they may seem. While the automotive and aviation industries have begun their energy transition, sea freight, which is highly energy-intensive, is polluting more and more. The booming sector has remained outside any regulations designed to limit its environmental impact. While solutions do exist, technical progress has long been neglected in favour of immediate profitability. Today, the entire ecosystem is likely to suffer from this passivity, the repercussions of which also affect humankind.

2. Nature and extent of ecological, health and social damage

Unlike the automotive industry, ships use unrefined heavy fuel oil that is extremely high in sulphur. Although it is cheaper than other fuels and not taxed, this fuel oil gives off harmful fumes when heated and then burned to power the engines. Various substances, which are toxic to humans and the environment, are thus released into the atmosphere. Sulphur dioxide, nitrogen oxide, heavy metals, volatile organic compounds and particulate matter are among the most harmful. The Centre for Energy, Environment, and Health (CEEH) in Denmark highlighted the sometimes dramatic consequences in 2011. These pollutants cause cardiovascular diseases and they are estimated to be partly responsible for the deaths of 50,000 people in Europe each year.

Maritime transport adversely affects the environment as a whole. In fact, it is responsible for 2-3% of global greenhouse gas emissions, mainly carbon dioxide. The latter directly contributes to global warming.

The problem with this sector is continuously reinforced by the fact that air pollution is not the only negative externality it causes. Though it gets little mention, the discharge of ballast water also significantly affects the marine environment. Taken on by cruise ships, large oil tankers and bulk carriers to optimise manoeuvrability, this water is then discharged into an ecosystem it did not come from. As a result, the risk of dispersal of non-native, exotic, and possibly invasive species is considerable. The case of Asterias amurensis, a large purple and yellow starfish, illustrates this problem perfectly. 

Native to Japan, China, Korea, and Russia, this species was introduced into Tasmania as larvae contained in ballast water. Despite its harmless appearance, Asterias amurensis continues to ravage an entire ecosystem, and its population in the Tasmanian estuary of Derwent reached nearly 30 million individuals in 1995. Shellfish, crabs, sea urchins, fish eggs and other starfish are among its favourite prey. This alone is enough to strike fear into Australian and New Zealand authorities, who are overwhelmed by a scourge they are unable to control. These concerns are all the more compelling because a phenomenon such as this also brings significant economic repercussions with it. Aquaculture operations, such as oyster and scallop farms, in particular, contribute to a local economy that is highly dependent on sea farming but they are threatened by this starfish for which they provide easy prey.  

The risks surrounding the growth of maritime trade, therefore, go beyond air pollution itself. While some are difficult to categorise, others are the result of human negligence. The starkest example is the devastating effects of oil spills. In addition to immediate toxicity to marine life, the polycyclic aromatic hydrocarbons in crude oil penetrate sediments and the marine environment in a lasting manner. Therefore, they cause direct damage (death by suffocation or drowning) and collateral damage (deformities) to the surrounding ecosystem. The sinking of the Erika on 12 December 1999 off the coast of Brittany is still vivid in our minds to this day. Nearly 200,000 birds were oiled, not to mention the 400 km of coastline that was permanently polluted.

3. Emerging awareness and the beginnings of a regulatory framework

Despite the slow emergence of awareness, various initiatives have been undertaken to reduce the ecological impact of maritime trade. The International Maritime Organisation (IMO), a specialised agency of the United Nations, in its MARPOL Convention, limits the level of sulphur in ships’ fuel to 0.5% and even 0.1% in the most sensitive areas (known as Emission Control Areas). Similarly, precise directives have been adopted to curb greenhouse gas emissions from maritime freight. The urgency is real since they could account for 17% of the global environmental footprint by 2050 if nothing is done. All 173 member states of the IMO have reached an agreement on a quantified target, namely halving these emissions between 2008 and 2050.

Some companies are also taking action to reduce their environmental footprint. In order to reduce its emissions, French shipping company CMA CGM has signed an agreement with the Total Group for the supply of around 300,000 tonnes of liquefied natural gas per year from 2020. The Mediterranean Shipping Company (MSC) is also a firm believer in this fuel of the future, and has ordered gas-fuelled ships. Other shipowners are doing even more. Take Maersk, the world’s largest shipping company, for example. With plans to be carbon neutral by 2050, its policies and internal reports are among the most ambitious in the sector. Equipped with engines powered by a blend containing 20% biofuel made from vegetable waste, the Mette Maersk embarked on a 46,300 km journey from the Netherlands to China in March 2019. This move, which is expected to reduce CO2 emissions by 1.5 million kilograms, is emblematic of the company’s commitment to press ahead with the modernisation of its largest vessels.

4. Costs and uniformity of good practice

Such innovations come at a cost. Since 2015, Maersk has been investing €900 million annually to improve its energy efficiency. Nearly €900 million more will be spent over the next five years to switch to low-carbon or zero-carbon fuels and propulsion technologies. The latter is a considerable amount of money, which probably explains why some industry giants are still cautious. Even the companies that are most sensitive to these concerns are showing some contradictions. MSC Cruises, a subsidiary of the MSC Group that is strongly committed to the energy transition, calls its cruise ship MSC Splendida an “eco-ship”. However, it still takes large amounts of electricity and water to run its four swimming pools and five engines; an observation that puts the company’s efforts into perspective.

Though it gets little mention, the dismantling of aging vessels that have reached their end of life (40 years) also poses a significant problem. Shipbreaking Platform, an NGO that has taken an interest in the issue, estimates that 7 out of 10 ships are sent to just a few shipyards in India, Pakistan and Bangladesh. These ships are then dismantled in the sand with no consideration for the lead, polychlorinated biphenyls and asbestos released into the surrounding ecosystems. The consequences for fauna and flora are worrying, as are the risks to workers. Compliance with labour law, accident prevention and access to health care are issues that shipowners should not overlook when sending their ships for dismantling.

5. New opportunities in a competitive world

The profound changes that this sector is destined to undergo cause us to analyse it with caution. As things stand today, several risks are likely to limit the profit dynamic of the least responsible shipowners. The first of them, the regulatory risk, has its origins in recent attempts to regulate maritime freight. While these new standards do not include any international sanctions due to a lack of harmonisation, the IMO stresses that it is each Member’s responsibility to ensure their application, compliance and enforcement. It has issued “exemplary sanctions” in the event of a violation of these texts.

However, the development of new technologies is in itself a source of new challenges. The societies that are most reluctant to embrace inevitable change are likely to be overwhelmed. The trend towards cleaner fuels (ammonia, hydrogen and electric batteries in particular) is a necessary step forward, as illustrated by the trials conducted by Maersk. Although costly, such developments are likely to improve vessels in the long term and safeguard a sector that is controversial in its lack of environmental ethics.

The asset management sector must encourage the transformations in which shipping companies are involved. In order to do so, the management process must favour the most responsible companies. A specific analysis grid is required to make it possible to identify issuers concerned about their ecological and social impact. Although the trend seems to be towards generalised awareness, this transition remains costly and can only be achieved with the financial sector’s support.