T&E: The price sensitivity of efficiency in shipping

While the novel analysis on technical efficiency shows that shipping companies order slightly more efficient ships as a result of higher fuel prices (albeit with a time lag of around 6 years), the analysis found no clear relationship between higher fuel prices and better operational efficiency. The results suggest that the only way to ensure energy efficiency improvements is with bespoke action. Policy-makers in the EU, IMO, and other regions should therefore ensure their policy measures to reduce shipping emissions include concrete, explicit measures to improve energy efficiency.

Findings: Design efficiency

• Higher fuel prices lead shipping companies to order more energy-efficient ships
• Results differ between ship types: tankers are less sensitive to changes than container ships, and the impact on bulk carriers is negligible.
• The effect is delayed: there is a lag of between 4 and 8 years between higher prices and the arrival of more efficiently designed vessels.
• The effect is lower since the introduction of the IMO’s Energy Efficiency Design Index (EEDI).
• Higher charter prices (a sign of better general economic conditions) are also shown to lead to more efficiently designed ships.
• The Estimate Index Value (EIV) – an approximation for technical energy efficiency – of tankers is much more sensitive (about four times as sensitive) to charter rate changes than container ships, while the EIV of new-build bulk carriers is slightly less sensitive to charter rate changes than container ships.

  

• Converting the results to the price increases estimated for the EU’s green shipping package (EU ETS and FuelEU, known at t for 55, FF55), the consultants estimated that, while the design efficiency of vessels coming online in 2031 will be 4% better than 2023, given that newbuilds are a small share of the entire fleet, technical energy efficiency of all ships visiting EU ports would only increase 0.03% by 2031, with negligible impacts on total emissions.

Findings: Operational Efficiency

• No correlation found between higher fuel prices and better operational efficiency
• In fact, a weak correlation was found for the opposite: higher fuel prices lead to higher speeds for all ship types. The model fit is, however, too poor to definitively support this finding. While it is possible that no correlation exists in reality between higher fuel prices and better efficiency, it is also possible that some factors where there was a lack of data, such as contract type or weather conditions, influence the relationship.

  

• This doesn’t mean that a correlation between prices and operational efficiency doesn’t exist, just that with the variables considered, no strong correlation was found. Nonetheless, real-world evidence — for example, of container companies overcharging customers for their emissions pricing liabilities — shows that in practice the nature of the shipping industry means that higher prices do not automatically translate into more environmentally-efficient behavior.
• Lower charter rates (a sign of bad general economic conditions) were also associated with higher vessel speeds, and the inverse (higher charter rates, lower speeds). However, there was similarly a poor model fit meaning this finding cannot be definitively supported.
• For tankers and bulk carriers, higher charter rates correlated with higher vessel speeds, however, the model fit is also poor.

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