Eco-premiums in the Panamax time charter market "disappeared" after the 2008 market crash
There are no longer any commercial reasons for owners in the time charter market to make their vessels more fuel efficient, as they typically see no financial benefit from doing so, a new study published this week by Researchers from UCL Energy Institute (UCL) and Carbon War Room (CWR) has concluded.
"Efficient vessels do not appear to deliver significant rewards for anyone other than the fuel payer," the groups said.
"Owners in the time charter market that choose to improve their fleet's efficiency by investing in efficiency technologies are not seeing a return from either price or preferential chartering. This means that in today's markets there is little financial incentive for other owners to follow their example."
However, this was not always the case, as CWR Senior Associate James Mitchell notes.
James Mitchell, Senior Associate, Carbon War Room
Prior to the 2008 market crash we saw efficiency premiums in the Panamax time charter market. Those premiums disappeared with the crash.
"Prior to the 2008 market crash we saw efficiency premiums in the Panamax time charter market. Those premiums disappeared with the crash, despite record-high fuel costs and record-high fuel savings for owner-operators and charterers of efficient ships," he explained.
Mitchell suggests owners use data from CWR and RightShip's shippingefficiency.org to highlight the financial benefits of more efficient tonnage and "bolster their negotiations" with charterers.
"Transparent data on operational efficiency would also help rebalance the power dynamic in negotiations, allowing all parties to profit from efficiency," he said.
Beyond the financial concerns, a lack of incentive to make vessels more fuel efficient is also counter to the sector's environmental goals.
"The International Maritime Organization is under increasing pressure to implement policies that will reduce the industry's total emissions. However, this research demonstrates that market failures present significant challenges to realising emission reductions," said Tristan Smith, UCL Energy Institute.
"It indicates that policy tools that have contributed to the improvement of other industries, such as carbon prices or fuel levies, would have a greatly decreased impact if applied to shipping unless these observed market failures are addressed. This is because these policies work by magnifying existing market dynamics that reward efficiency and we don't currently see those dynamics in shipping."