Abstract
This paper presents the first analysis on how financial savings arising from energy efficient ships are allocated between owners and those hiring the ships. This as an important undertaking as allocation of financial savings is expected to have an impact on the incentives faced by ship owners to invest in more energy efficient vessels. We focus on the dry bulk Panamax segment as it contributes to around 50Mt (5%) of total CO2 emissions from shipping in 2007 and therefore its importance in terms of environmental impact should not be neglected. The time charter market represents a classical example of the principal–agent problem similar to the tenant–landlord problem in the buildings sector. We discovered that on average only 40% of the financial savings delivered by energy efficiency accrue to ship owner for the period 2008–2012. The finding that only part of the savings are recouped by shipowners affecting their incentives towards energy efficiency could consequently have implications on the type of emission reduction policies opted at both, global and regional levels.
Highlights
As the energy efficiency of a ship, i.e. the amount of fuel consumed per unit of transport supplied, is a function of both the technical specification and the way in which a ship is maintained and operated, one can distinguish between ‘‘technical efficiency’’ which refers to some baseline conditions, and ‘‘operational efficiency’’ which takes into account the practicalities of the voyage, variability in environmental conditions and commercial realities of operations
The full list of variables includes age of the ship when the contract was signed; its gross tonnage (Gross Tonnage in the tables), installed power on the ship measured in horsepower (Horsepower), consumption of fuel measured in tonnes per day (Fuel Consumption), quantity of fuel which can be loaded onto the ship (Bunker Capacity), design speed of the ship (Speed); simplified Efficiency Design Index (EEDI), as described above (EEDI), the fuel price in Rotterdam (Fuel Price); fleet size measured in total dwt (Fleet), price of the commodity carried by Panamax ships (Commodity Price), traded quantity carried by Panamax ships (Trade), number of days where loading of the cargo is allowed without
Confirming evidence form the press industry, we discovered that only part of the financial savings from energy efficiency accrues to ship owners
Summary
As the energy efficiency of a ship, i.e. the amount of fuel consumed per unit of transport supplied, is a function of both the technical specification and the way in which a ship is maintained and operated, one can distinguish between ‘‘technical efficiency’’ which refers to some baseline conditions, and ‘‘operational efficiency’’ which takes into account the practicalities of the voyage, variability in environmental conditions and commercial realities of operations. According to a large bulk shipping owner, the company would still invest in energy efficiency even if not remunerated through charter rates as many major charterers require ships to comply with a certain level of environmental performance (Rehmatulla, 2014) This view has been recently confirmed by Lloyd’s List (2012b), according to which, Maersk and other operators in the container market, as well as operators of other vessel types that hire ships on long charters may not be willing to pay premiums for energy efficient vessels but they feel compelled to take in the better ships first, where owners of vessels with a lower performance are forced to start accepting lower rates or shorter contracts. It is interesting to note that less energy efficient ships are forced to accept lower rates, as discussed in Lloyd’s List (2012b), contradicts the statement that energy efficient is not remunerated through charter rates
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