By Thomas Buckley
Reader, you perhaps know this already. You owe a large chunk of your everyday grooming, sustenance and routine to the shipping industry. The Taiwan-made toothbrush you use to scrub away the Dutch kale you sautéed (don’t fall for the slow simmer hype) in a frying pan designed and assembled in La France all battled the hell and high waters of the fives oceans to reach you, as did the German car you steer and the lambswool sweater you don to placate your better half, whom wrapped the Christmas gift in paper plucked from a China woodland.
Without shipping, the import and export of goods on the scale necessary for the modern world would not be possible. Around 90 percent of world trade is carried by the international shipping industry, represented by 50,000 merchant ships transporting every kind of cargo and manned by over a million seafarers of virtually every nationality.
Human advances in technology have steered the industry from the paddle, through the sail, to today’s fuel, fed into an engine room that rotates propellers –some nearly 34 feet in diameter and weighing 113 tons– to move the ship forward through the water. Approximately 90 percent of all commercial shipping vessels are propelled by bunker fuel, a cheap crude oil distillate notorious for its high 3.5 percent sulphur oxide (SOx) content and dangerous vapors.
The International Maritime Organization (IMO), the governing body of the commercial shipping industry responsible for safety and pollution abatement, is issuing stringent regulations to stem SOx emissions from bunker fuel consumption, with the latest cap due to be implemented January 1, 2015.
The IMO regulations, along with the commercial risk of rising fuel prices tied to volatile crude oil markets, are steering financial and strategic investment to develop fossil-free solutions as ship owners and operators seek a competitive edge in areas of cost and compliance. The drive to go green offers significant opportunities to savvy investors and is expected to ramp up M&A activity among companies specializing in clean shipping technology, a growing subsector within an industry that has dined on fossil fuels for over a century.
The maritime sector’s investment in sustainability attracted headlines when Finnish marine equipment firm Wärtsilä was said to have received takeover interest from Rolls-Royce in a deal that could have valued the target at approximately €9.9 billion ($12.6 billion). Juha Kytölä, vice president for Environmental Technologies at Wärtsilä, said in an interview for this report that the company remains an attractive target to bidders on account of its strong portfolio of environmental solutions serving the shipping industry.
These environmental solutions include scrubbers: air pollution control systems retrofitted onto ships’ engines to stem SOx emissions. According to industry reports, the scrubber market could swell to $15 billion by 2025 in order to meet regulatory challenges, in turn driving consolidation between players. Wärtsilä boasts a 50 percent share of the scrubber market, making it extremely palatable to suitors eager to capitalize on clean opportunities in the maritime sector. The trickle-down from Rolls-Royce’s interest in Wärtsilä seems evident in Norwegian chemical company Yara International’s acquiring a controlling stake in scrubber manufacturer Green Tech Marine months later in a bid to become “an industry leader in marine emissions solutions.”
The shipping industry’s push for sustainability is also disrupting naval architecture, offering investment opportunities in agile and nimble enterprises designing vessel models that will see industry dependence on bunker fuel lessened. Startups including B9 Shipping and Windship are successfully testing carbon neutral propulsion systems based on energy storage, wind power and solar power, in some cases using automated carbon fiber sails 180 feet tall or huge towing kites rigged to a cargo ship’s bow. In February 2011, G.J. van den Akker, head of agriculture giant Cargill’s ocean transportation business, said in a press release the company saw its partnership with German towing kite company SkySails as a meaningful first step to help drive environmental best practice within the shipping industry.
Modern day wind propulsion systems could herald a Second Age of Sail, earlier reports have suggested. There is ample room for traction, and, in fact, every vessel in the industry could be equipped with sails in less than 50 years’ time, according to Robert Dane, chief executive of Sydney-based clean shipping startup Ocius Technology. The company’s opening rigid steel sail concept, Lotus, could be retrofitted onto 6,100 bulk carriers over 10,000 deadweight tonnage –sailor speak for the sum of the weights of cargo, fuel, fresh water, ballast water, provisions, passengers, and crew– immediately and thereby reduce fuel consumption by between 20 percent and 40 percent, according to a company presentation. Assuming a speed of 13.6 knots, a typical ship engine fuel consumption of 170 grams per kilowatt-hour and a fuel price of $720 per ton, this would equate to fuel savings between $473,000 and $757,000 for a large capesize vessel over a return voyage on the Los Angeles-Shanghai shipping route.
“Recent developments in cleantech shipping offer 21st century solutions to a century-old problem in the backbone of global trade,” Diane Gilpin, managing director of B9 Shipping said in an interview for this report. “It would be great to see more investors hop on board.”
Thomas Buckley is a Mergermarket reporter based in London covering the European industrials sector. He can be reached at Thomas.Buckley@mergermarket.com
