BCOs Rebuke CO2 Mitigations In 2023-24 Contracts
November 16th 2023 – Steamship lines are being forced to continue to fund the costs of the transition to more environmentally friendly fuels as beneficial cargo owners (BCOs) pushed back in 2023 on CO2 mitigation charges initially proposed in many tenders by ocean carriers. During a time where carriers are reporting major downturns in profits, it is leaving people questioning where the investment will come from in order to achieve the net-zero commitment the International Maritime Organization (IMO) adopted under the Revised Greenhouse Gas Strategy (GHG).
One global forwarder alleged that of the 200 BCO tenders it oversaw that contained requirements for C02 mitigation such as the use of biofuel, not one of the final contracts contained these clauses once signed. BCOs were simply not willing to take on the extra cost within their contracts. While many of these global companies maintain their commitments to reduce Scope 3 emissions, they do not appear willing to bear the cost within their supply chain just yet.
Experts say that the only way to change this culture would be to implement a carbon tax on all shipping worldwide, enforced on a global scale. The tax would need to be enough to significantly reduce the amount of investment steamship lines are having to make out of their own profits to transition to cleaner fuels. How such a carbon tax could be enforced globally remains to be seen, and would fall upon the IMO to enforce on its member states.
When revising the GHG, the IMO committed to creating a formula for emissions pricing by 2027 as well as a marine fuel standard which all member states can adhere to. However, politically it would be seen as a challenge to get all member states to agree to a sufficient enough carbon tax that would allow them to achieve their goals in time.
Many believe a new fuel standard, similarly to how the low-sulfur fuel requirements worked when implemented in 2020, would be the most amicable solution for all states.
Economic uncertainty is not helping the situation, with fears steamship lines will not be able to pass on these types of fees in the event of further downturn. There are already growing gears that carriers will not be able to pass on upcoming European Union Emissions Trading System (ETS) costs.
One thing is for certain; steamship lines are publicly crying out that they cannot continue to fund this transition to newer, greener fuels on their own. If their hands are forced, it would result in further tightening of alliances that would mean less competition in the freight market, a situation that could cost shippers even more money than contributing their fair share to renewable fuels.