Moving vehicles by ocean is going to get very expensive very soon and fuel consumption will have to be significantly reduced to alleviate those costs and meet new stringent emissions regulations being brought in over the next five years. The industry could face longer transit times as a consequence but there are mitigating strategies that can be implemented in the supply chain that can reduce the risk of disruption to the delivery of vehicles.
This was the message at yesterday’s Environment Club meeting held in London by Wallenius Wilhelmsen Logistics in conjunction with the World Wildlife Fund. But dealing with the cost and its consequences demands a widespread rethink across the logistics industry.
Speed is central to this “paradigm shift” said WWL’s global head of environment, Melanie Moore. Specifically, the company proposes a reduction of shipping speed from the 19 knots typical of car carriers to a new 10-knot standard. But though slower steaming has been a strategy many have been willing to adopt during the days of overcapacity brought about by the economic crisis, with recovery comes the renewed demand for competitive shipping times. Moore admitted that understanding the compromise between speed and cost was the biggest single issue WWL faced in dialogue with its customers as it moved forward.
“If we came out with this today, we wouldn’t get any business. Of course not, why would they wait?
Rather, WWL wants to pursue a longer-term solution through a “five-year conversation” with its customers. The company maintains that working on speed together, and finding savings elsewhere in a supply chain in which 40% of lead time is often spent with vehicles standing still, was the best method to offset the costs facing the industry.
“It’s not just us taking the chance and telling our customers ‘you are now going to have another couple of days in the schedule’. We have to work with them so they can change their other dynamics in the supply chain.”
Over the next five years ocean forwarders face three significant challenges relating to the International Maritime Organisation’s MARPOL regulations, and particularly the air emissions restrictions outlined in Annex VI.
The first is the addition of a 200 nautical mile Emission Control Area (ECA) around North America, stipulating the use of ECA specific fuel by 10-15% in volume. This becomes effective in August 2012 (similar zones already being established in the Baltic and North seas). The second is the CO2 energy efficiency instrument to be put in place by 2013 meaning a cost on marine fuels equivalent of $30/90/135 per tonne of fuel depending on the carbon factor. The third is the implementation in 2015 of the 0.1% sulphur content rule that will see a 0.1% requirement for MGO (marine gas oil) fuel, adding between $150-200/tonne fuel premium for ECAs (that being a modest estimate according to Moore).
“When it comes to the 200nm ECA in the US and Canada, total fuel composition is going to change significantly…we are looking at double-digit figures for the more expensive fuel,” said Moore. So we are looking at that distance creating quite a big change in our fuel composition requirements for the future, as soon as 2012.”
According to Moore the industry needs to compensate by creating velocity in the supply chain and handing over its vehicles in a more efficient way. This does not automatically mean adding extra factory to dealer days but finding those days as efficiency gains elsewhere in the supply chain, something demanding forward looking dialogue with its customers.
“Customers have been impacted heavily in the last year and they are looking for savings. I think the situation matches what we are trying propose in terms of the paradigm shift. I think we are at a time in the industry where it is ok to look at supply chain change. The time is ripe to create this sort of paradigm shift. And speed is definitely a driver today.”
WWL also used the Environment Day to reveal its latest concept for a green ocean cargo terminal powered by solar and wind energy. Called the Castor Green Terminal (Castor being an endangered species of North American beaver), the concept includes a terminal and vehicle-processing centre powered by wind turbines and solar photovoltaic roof panels. The terminal is also self sufficient in terms of water needs with rain water collected from its roofs and stored in underground tanks to be reclaimed.
“We want to extend our zero emissions ambition from ocean activities to port and land-based activities,” said Erik Nyheim, COO, Terminal and Inland Services at WWL. “Now, our environmental goals will better cover our factory-to-dealer product scope, benefiting our customers who are starting to measure and reduce the carbon footprint in their entire supply chains.”