Collaborating to reduce emissions in the global supply chain

Maximising energy efficiency gains across the global supply chain requires collaboration and cooperation among all stakeholders. Reducing emissions from shipping by improving energy efficiency is an integral part of the global drive towards a more sustainable shipping industry. In the context of the global supply chain, it is likely that large corporates will increasingly come under public and shareholder pressure to reduce their scope 3 emissions¹. This may manifest itself as new “efficiency-centric” business models imposed on the shipping industry to the potential detriment of BIMCO’s small to medium sized (SME) members. 

New business models will almost certainly embrace digitalisation of existing processes and operations to improve efficiency, transparency and predictability. Increased predictability may have the consequence of reducing volatility. While this may attract new types of investors to shipping, it may undermine existing business models. BIMCO has an important role to play in engaging on behalf of its members to make their voice heard in any discussions on possible new business models. We need to collaborate with those who use shipping’s transportation services to ensure our members can maintain competitiveness in the face of an evolving industry facing potentially radical changes. 

Optimally, the global supply chain needs to operate as a continuous and uninterrupted “pipeline” servicing the customer by moving goods seamlessly from origin to destination efficiently. From a cargo commodity perspective, delays at origin and destination are disproportionately more costly than delays to ships waiting in ports. This situation is compounded by the shipping industry’s tendency to use standard charter party forms that must be amended to counter contractual principles that were created for a business model that was not designed to reward energy efficiency. A prime example is the long-established principle of “utmost despatch” which provides charterers with commercial certainty in terms of the arrival of the chartered ship. This legally obliges the ship to proceed as fast as it safely can, even if a berthing delay is expected. While it is essential to maintain the commercial certainty that the principle provides, the consequence has been a “sail fast then wait” culture – primarily in bulk shipping – which inhibits a more widespread adoption of energy efficient operational measures, such as just in time arrivals.  

In the context of reducing emissions and increasing efficiency the practice of “sail fast, then wait” is sub-optimal. Paradoxically, cargo owners focused on security of supply and vulnerability in the logistics chain consider it an optimised model with marginal operating costs. Shipping works on a derived demand basis which means that it is essentially controlled by external players. Shipping’s business model changes in response to changes in business practice by those who use shipping’s cargo transportation services – not the other way around.  It requires broad collaboration and cooperation among multiple stakeholders to develop and deliver a holistic systemic change where shipping becomes a seamless component of the global supply chain “pipeline”. 

With a clear and recognised need to work more collaboratively and blend technological solutions with contractual provisions, we stand at the threshold of a new dimension in shipping that could benefit from BIMCO’s involvement with the development of alternative business models. 

The way forward may include new business models that take a holistic and incentivised approach focused on the entire supply chain. The key elements of the model will be information sharing, decarbonisation, digitalisation, sustainability, collaboration, and cooperation, all of which will be drawn together to form the basis of alternative business models that complement existing voyage, time and bareboat charter parties.

¹ Scope 3 refers to all indirect greenhouse gas emissions from all sources whether upstream or downstream of a value chain and which are not owned or controlled by the reporting entity directly. This includes (but is not limited to) emissions due to production of goods and services used by an activity, upstream emissions from feedstock or energy used that are not included in scope 1 or scope 2 such as the emissions associated with fuel extraction, production, and transportation, emissions indirectly caused by transportation, emissions due to disposal and treatment of waste including end-of-life treatment of products and emissions due to service or product use. (WBCSD & WRI, 2015)