The Sea Cargo Charter – charterers driving decarbonisation

Nov 11 2021


The Sea Cargo Charter, an agreement by a group of charterers to calculate and report emissions from chartering activities, is building its footprint in shipping, as tanker operators are asked to provide data for all 2021 voyages.

The Sea Cargo Charter, an agreement by a group of charterers to report emissions from chartering activities and track alignment with IMO goals, is getting an increasing footprint in the shipping industry.

 

The current status was presented in a Connecticut Maritime Association (CMA) forum webinar on May 5, with speakers from Cargill, Anglo American, Dow Chemical and Maersk Tankers. The webinar was supported by Global Maritime Forum and Marine Money. (The full webinar is on YouTube see link below).

 

As of May 2021, the Charter has 22 signatories. Of particular interest to the tanker sector are charterers Trafigura, Equinor, Total, Gunvor, Shell, Occidental, and Dow Chemical. Also, tanker operators Maersk Tankers and Norden are signatories.

 

On the face of it, the Sea Cargo Charter is only demanding tanker operators do what they are already required to do, decarbonise at a rate in alignment with IMO’s targets.

 

But it also provides a structure for charterers to demand information about emissions from their voyages, and for charterers to discriminate between tanker operators on the basis of emissions.

 

Sea Cargo Charter also aims to drive standard methodologies about how maritime emissions are measured and added up, something webinar participants said is sorely needed.

 

Another benefit is that Sea Cargo Charter demonstrates to regulators, and others, that charterers are getting involved in maritime decarbonisation, he said.

 

Companies are not allowed to use offsets to reduce their reported emissions. “If people want to do offsets that's fine, but its outside the Sea Cargo Charter reporting,” said Cargill’s Jan Dieleman.

 

The group has a relationship with the Poseidon Principles, an initiative supported by 27 banks, who undertake to measure the climate intensity of their shipping (loan) portfolios, and assess their alignment to “established decarbonisation trajectories” (such as the IMO’s). Poseidon Principles and Sea Cargo Charter have the same office address in Copenhagen on their websites, as does Global Maritime Forum.

 

Cargill

Jan Dieleman, chair of Sea Cargo Charter, and head of Cargill’s Ocean transportation business said that the purpose, from a charterer’s perspective, is to have a tool to learn about the emissions from the ships it charters. In other words, to drive transparency. “Hopefully that transparency is going to give increased accountability going forward,” he said.

 

It will also drive efforts to obtain emissions data in a standardised format. “In Cargill we've been looking at emissions for the last 5 years.

the more we looked at it the more complicated it became,” he said.

 

“We needed something standardised where we all can say, these are the emissions, this is how we're going to measure it, this is how we're going to disclose all this information.”

 

One of the biggest challenges has been “getting data flowing,” he said. “I don't see a lot of people unwilling to do it, but people are a bit uncomfortable with it. We have to explain what it is.”

 

“What we have today in Sea Cargo Charter is not the end state. There's a lot of things that still need to be tackled.”

 

In future we may see more verification (checks on the data), Mr Dieleman said.

 

“Decarbonisation is going to be the biggest challenge and opportunity in the next decade. I urge people to turn it into business models and new revenue streams, not see it as a problem or headache.”

 

Cargill is described as a “global food corporation” on its Wikipedia page, and “the largest privately held corporation in the United States in terms of revenue”, with $114.7bn revenue a year.

 

Anglo American

Raghav Gulati, Safety, Sustainability and Technical Operations Manager - Shipping at Anglo American, said that the company is using the Charter as its “vehicle to calculate emissions and measure our alignment to the IMO decarbonisation trajectory.”

 

With this standard, transparent framework, you an have confidence in the accuracy of the numbers, and then track if your decarbonisation trajectory is on course, he said.

 

Anglo American is described on Wikipedia as a multinational mining company, the world's largest producer of platinum with 40 per cent of world output, and a major producer of diamonds, copper, nickel, iron ore and coal.

 

In time charters, gathering data is “relatively easy”, because the charterer is in control of the voyage. “But when it comes to voyage fixtures - it becomes a challenge to get that data,” he said.

 

“We've observed a lot of hesitance around sharing the data from counter parties. That's mainly because they are unaware of the principles. Having the discussion [about the reasons for needing data] with the stakeholders is proving very effective to get the data flowing transparently.”

 

Anglo American has done a lot of work with its internal commercial teams, so they can understand the requirements, and convey them to shipping companies in chartering discussions. The contract should specify the data which shipping companies are expected to provide, he said.

 

How you manage the data is just as important as whether or not you obtain the data, he said. “That data can get fairly overwhelming at times.”

 

The company has a target of only working with measured data. “We expect that soon we can get that 100 per cent target of getting the factual data and we don't have any assumptions.”

 

It is important to validate the data coming in. “If it comes to be totally inaccurate, that data has no value for us. If the numbers are not correct we can reach out to counterparties to have it counterchecked.”

 

Shipping companies should see the IMO’s decarbonisation target “as an industry target, not an owners’ or charterers’ target. It is a shared responsibility,” he said.

 

Maersk Tankers

Eva Birgitte Bisgaard, chief commercial officer with Maersk Tankers, said that in the early days of maritime decarbonisation, the company had felt “we were standing a little bit on our own” as a shipowner supporting decarbonisation.

 

“When we first saw the initiatives coming from Cargill, we were right there.”

 

It was the ambition level of Sea Cargo Charter “that made it super attractive for us,” she said. Also, “it was bringing a lot of the different parties together.”

 

“I think the transparency that we are trying to drive through the Sea Cargo Charter will really help us. It’s going to direct us to how we look at emissions.”

 

Maersk will file its first report in the beginning of 2022, based on data collected over 2021.

 

Gathering the data is already proving a complex problem, with 230 vessels each providing about 100 pieces of data a day in their noon reports. That adds up to several millions of pieces of data which will go into the final report.

 

But as a result, Maersk gets a much clearer idea of where its emissions are.

 

The data calculation methods are just as important as the data gathering, she said.

 

Maersk is now taking emissions into account when choosing which vessels to allocate to which cargo, perhaps with more efficient ships doing longer routes, she said.

 

It also expects to use the data in discussions with vessel owners, showing them what their emissions currently are, and how they might be reduced. Maersk Tankers is a commercial manager of a pool of tankers, working with 30 different pool partners (owners).

 

Dow Chemical

Lance Nunez, Global Marine and Terminal Logistics Director with Dow Chemical said that its participation in Sea Cargo Charter “has started driving increased focus on the respective emissions and ESG programs of our carriers.”

 

It would like to have data for all of its 2021 voyages, to include in its first report in 2022.

 

Dow is “one of the world’s biggest chemical producers and one of the world’s biggest speciality chemical shippers,” he said.

 

“Emissions reductions are now prominently featured in our supplier relationship management discussions,” he said.

 

He said that these discussions have so far been welcomed by most of the company’s core carriers. “They have already got a long list of reduction actions. We still have plenty of work to do.”

 

“The general sentiment from our carriers has been that [they] understand that emissions reporting is inevitable.”

 

“Some carriers have not been so enthusiastic, but they seem to be more the exception than the rule. It usually stems from not understanding what the Sea Cargo Charter is about. After explaining that further, they become more receptive.”

 

“What's seems most scary for them is the lack of standard methodology for data gathering and calculation. If reporting is to be sustainable, it needs to be straightforward and standard across their customer base. Sea Cargo Charter offers an opportunity to standardise.”

 

Both shipping companies and charterers have a role to play in reducing emissions, he said. “It is a global issue impacting all industries, not just ours”.

 

Shipping companies can use the data they collect for their own purposes.

 

“This is a very efficient and effective way to collect that data, that at the end of the day, we will all need.”

 

“It is not a spectator sport. we need everybody at the table bringing their best solutions. Ask yourself, what are you doing to be part of the solution.”

 

One challenge for parcel tankers, Mr Nunez said, is that the voyages do not have a definite start and end, with parcels being discharged at different times and places. “Vessels are typically not fully empty before they start loading the next voyage.”

 

It is working on a methodology for calculating emissions from parcel tankers, with a certain amount of the emissions allocated to each cargo.

 

“We work in a dynamic industry with a lot of variation and a lot of complexity and global consensus on anything is difficult,” he said.

 

“This is the first iteration of Sea Cargo Charter and it’s a great start.

 

But we have a lot left to learn, we have a lot left to do.”

 

Commercial decision making

A major benefit of Sea Cargo Charter is that it enables emissions to be taken into consideration as part of commercial decision making, rather than emissions data only being seen by operational staff.

 

This is a “huge step forward,” Mr Dieleman said. It means that for reducing emissions overall, “you’re going to be in a much better place much faster.”

 

Dow’s Mr Nunez agreed that the decisions about vessel chartering have been made by cost and service quality until now. “Going forward it is quickly becoming service, cost and sustainability.”

 

Cargill also uses the data in its consideration of which ship is best for which cargo. For example, a larger cargo volume may have lower emissions if it is moved on one large ship rather than two smaller ones.

 

“There's a lot of things which will spin off from this.”

 

Challenges

When creating the Sea Cargo Charter, there was an effort to find the right balance between accuracy and pragmatism, Mr Dieleman said. Or in other words, getting completely accurate data would be an impractically large task. “We tried to avoid being pulled into all kinds of rabbit holes.”

 

Mr Dieleman was concerned that the Sea Cargo Charter reports would end up being used to make a poorly informed league table. While discriminating between vessels on emissions may be one of the ultimate goals, it should only be done together with full understanding of the reasons that various vessels have the emissions that they do, or as he put it, “knowing the nuances behind it.”

 

He would prefer that the purpose of Sea Cargo Charter is seen to be to “create transparency” and “understand the drivers to reduce emissions and using that to go forward.”

 

Maersk’s Ms Bisgaard agreed, “the worse place we could end up here is by naming and shaming, that won't get us anywhere. “We're trying to bring down emissions. The important thing here is to be able to bring forth the relevant data that we need.”

 

There will be complexities if it becomes clear that charterers are paying more money for vessels as a result of being part of Sea Cargo Charter. “

 

“We're going to see much more strategic partnerships with suppliers and users, having discussions on the ‘green premium’, who's going to pay what,” said Cargill’s Mr Dieleman.

 

Another challenge is that there is still much uncertainty about what the future fuels will be, including about infrastructure and commercial viability. “The predictability right now is super low,” said Maersk’s Ms Bisgaard.

 

Link with IMO

There is a lack of clarity about IMO’s requirements for certain vessels, because they do not obviously fit into the classification bands, said Cargill’s Mr Dieleman.

 

“If there's ‘unclarity’ in IMO there's going to be ‘unclarity’ in Sea Cargo Charter, because we link them up.”

 

Dow’s Mr Nunez said that Sea Cargo Charter could compliment IMO’s initiatives, because IMO’s efforts do not take the broader supply chain, which maritime cargo transport is part of, into account. “If you are an end user you want to measure all your supply chain emissions. The maritime piece needs to fit in there. What the IMO has done so far is not ticking that box.”

 

The decision to align Sea Cargo Charter with the IMO targets was a complex one. “A lot of participants thought the IMO target was maybe not ambitious enough,” said Mr Dieleman. “In the end we did settle for IMO to have the consistency.”

 

The IMO reporting schemes require much less granularity than the Sea Cargo Charter, which “obliges reporting on a voyage basis, so providing emissions data that we as charterers can use to make better decisions,” said Captain Gulati.

 

Another factor is that IMO measures are focussed only on the asset and its emissions per ton mile. Sea Cargo Charter takes in a broader range of factors into account which may affect emissions, such as how the vessels are routed, how fast the loading is, how long the ballast legs are, so how much the vessels are optimised more broadly in the supply chain. “The asset is an important piece but not the only one,” Mr Dieleman said.

 

The Sea Cargo Charter is trying to show emissions on a voyage by voyage basis, and why they occurred, “was it the port stay, was it the speed you have, show the levers,” said Cargill’s Mr Dieleman.

 

Geographical

Not all parts of the world have the same level of ambition in decarbonisation. “Definitely the European region is far more progressed,” said Anglo American’s Captain Gulati. “The Asian countries are picking up the pace, they have started to come out with their own goals.”

 

Cargill’s Mr Dieleman added, “I was pleasantly surprised, signatories are not all Western based, I was a little bit afraid of that. One of the first companies which signed up was a Chinese grain house.”

 



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