The Boston Consulting Group (BCG) surveyed 125 companies that ship cargo to gauge their willingness to pay a premium for carbon-neutral shipping. Their responses present both challenges and opportunities for the shipping industry.
82% of shipping customers willing to pay a premium for zero-carbon shipping
BCG’s recent 2022 survey showed that 82% of shipping customers are willing to pay a premium for zero-carbon shipping. In addition, the willingness to pay (WtP) premium rose by more than 30% to about 3% in 2022, which would correspond to between $10 billion and $20 billion in extra revenue for the shipping sector.
A partial conversion of hesitant customers also seems to be taking place, with the low WtP segment (WtP 2%) shrinking from roughly 40% in 2021 to about 30% in 2022.
Looking ahead, the trajectory of the WtP premium is positive, expected to surpass well over 3%, as roughly 65% of surveyed customers in 2022 stated a willingness to pay an even higher premium in the future.
However, a WtP premium of 3% per year is not sufficient if cargo owners are to fund decarbonization alone, which would require them to pay a 10% to 15% premium per year until 2050
In addition to increased WtP year on year, more shipping customers are responding that they would be more loyal to a zero-carbon shipper. Overall loyalty is higher (71% in 2022 versus 67% in 2021), with a significant shift in the low WtP segment.
While regulation remains the most common driver of WtP premiums, demand in the shipping customers’ value chain is playing an increasing role, rising from 29% in 2021 to 34% in 2022.
Such growth included an increase of more than 9 percentage points in the high WtP segment and more than 5% points in the low WtP segment. “This dynamic mirrors a general consumer trend, as 57% of consumers are willing to change their purchasing habits to help reduce negative environmental impact and 33% are already choosing brands that have publicly embraced environmental or social causes,” according to a report by the Maersk Mc-Kinney Moller Center for Zero Carbon Shipping.
Taking Action to Fill the Gap
Given that a WtP premium of 10% to 15% annually is required to fund decarbonization by 2050, it’s clear that hoping for the market to solve the funding gap “organically” by itself is not a winning approach to achieving the goals of the Paris Agreement.
The current WtP growth trajectory of 30% per year will not reach the 10% threshold for years to come. It’s also evident that consumer behavior holds an increasingly vital key for closing the gap.
Taking a broader perspective, overall sustainability awareness among consumers is roughly 80%, with about 70% willing to pay a small premium (5%) for sustainable consumer products, according to the Maersk Mc-Kinney Moller Center. Fortunately, fully decarbonizing the value chain for many consumer products costs less 5% of the products’ price.
Solutions to accelerate this process are already in progress. Policymakers and regulators hold a good deal of influence in facilitating change and need to move forward in instituting carbon taxes to help fund the green transition
BCG stated.
Some companies have chosen to act as frontrunners for green solutions
Some companies have chosen to act as frontrunners for green solutions in order to foster transition among peers and customers, not just responding to demand but increasing (green) supply to create demand and generate new infrastructure in the value chain.
Nonetheless, being a frontrunner is not a requirement for taking positive decarbonization steps and starting one’s own journey.
Shipping companies can also engage in the public debate to help shape the views of their customers and of policy makers. Further, these customers can leverage the increasing awareness and interest in sustainability issues among consumers to make decarbonized products more attractive, both through day-to-day marketing and longer-term campaigning.
Increased consumer WtP for goods is expected to be highly effective for some segments, as the effect of raising prices slightly for some products (such as apparel, electronics, and consumer goods) can help finance decarbonization.
Improve perception of green offerings
Both shipping companies and their customers should communicate the benefits. Indeed, a BCG study showed clearly that consumers value other social and environmental topics above carbon emissions in multiple industries.
Moreover, shipping companies need to understand and act on responsiveness to green products, working closely with their customers to identify what matters most to them, and determining how a premium can or cannot be obtained.
A one-size-fits all approach does not work
Boost transparency
Shipping companies need to confirm the impact of choosing green services compared with traditional services. This can be partly achieved, for example, through fully transparent carbon accounting and billing practices such as specifying carbon emissions on invoices and receipts.
Players should also work toward creating standardized classifications for decarbonized shipping, possibly in collaboration with policymakers.
Such an initiative could include fuel usage as well as ship classifications according to the IMO’s Carbon Intensity Indicator.
