Uncertain ship lifespans could raise freight rates

28 September 2020

Uncertainty around the lifespan of ships could hit freight rates, according to an industry professional.

Speaking on a webinar by the International Chamber of Shipping (ICS), Karin Orsel, CEO at MF Shipping Group, said a fast changing regulatory environment raised questions over ships' longevity.

New shipping rules, such as recent sulphur fuel restrictions, and other potential regulatory changes mean vessels could need updates that may not be economically viable and could result in ships being scrapped sooner.

Orsel said: “We've been investing in several vessels recently, which are going to be delivered now. With all these quick developments and new governmental demands, it's quite a bold decision if you order vessels now because what is the normal economic life cycle will change in the future.” 

Orsel said there was a “big question mark” over whether a vessel could have a lifespan 20 years shorter.

She raised the concern that changes to lifespans of vessels could “mean that the freight rates have to be completely different in order to make it a valid investment”.

Freight rates are calculated by a combination of factors, including insurance, management, maintenance and repairs costs, port costs and fuel costs. Therefore any changes to lifespan, maintenance or fuel could significantly impact freight rates and increase shipping costs.

The UN International Maritime Organisation (IMO) has been introducing regulations, including the January 2020 global bunker fuel regulation lowering the cap on sulphur in fuel from 3.5% to 0.5%. Sulphur content restrictions have been estimated to potentially add $60bn to shipping costs from 2020 onwards.  

Dimitrios Fafalios, president of Fafalios Shipping, told the webinar of concerns over potential negative impacts from future environmental regulations on the industry and Europe.

“The next few months are very critical. We have to guide the politicians so that any emissions reduction regulation is effective, and addresses the industry as it is and not as it is perceived,” he said. 

“We have to come out of the shadows as an industry, and let the higher echelons know about the benefits, efficiencies and environmental performance of shipping.”

UN secretary-general António Guterres, in a statement for IMO World Maritime Day, said: “In the longer term, a sustainable shipping industry is vital. Shipping activities must be balanced with the long-term health and biodiversity of the oceans. 

“The IMO has developed global standards which support cleaner and greener shipping. Governments and IMO must continue to work together to support the decarbonisation of shipping and improved energy efficiency; the facilitation of shipping through increased digitalisation, involving ports; and efforts to ensure the sustainability and protection of the workforce, including a focus on diversity.”

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