Article

 

Does it cost a billion dollars to reduce carbon emissions?

 

Have you recently purchased a luxury sedan that is limited edition and is only available with selected dealers in Germany? Did it seem very convenient to get the car delivered at your nearest dealer in a month’s time from abroad? If the answer is yes, you may want to take a step back and look at how it magically happened in a few days’ time.

What seems like a simple car purchase order has a complex chain of warehousing, shipping agents, ocean carriers and customs clearance involved at backend to make the entire process run smoothly. As soon as you place the order for purchase, selected dealer delivers car to the nearest warehouse. From there car gets loaded on cargo shipping container alongside many other vehicles and gets delivered to the nearest port to start its few thousand miles journey across the sea. Once it reaches the destination port, car is offloaded to the nearest warehouse from where it gets picked and get delivered to your nearest car dealer location.

Above scenario was a single port trip of approximately 6,700 kms on a standard container ship with the capacity of 18,000 TEUs, which emitted as much as 5,100 tons of carbon dioxide.

But, this is just one side of the picture, as present day world involves millions of different shipping containers getting loaded and offloaded from different origin and destination ports around the globe, resulting in a billion tons worth of CO2 emissions on an annual basis.

Today worldwide carbon emissions account for an estimated 43.1 billion tons with the fossil fuel industry alone responsible for 36.8 billion tons of emissions into the air. Globally, maritime shipping industry is only responsible for approximately 2% to 3% greenhouse gas emissions. It is named as the most carbon efficient industry to stay on track with achieving 20% CO2 reduction goal by 2020 as indicated by IMO (International Maritime Organization). However, in order to move towards the ultimate goal of 50% CO2 reduction by 2050, shipping industry needs drastic innovation in ocean freight forwarding vertical.

Considering the ever increasing consumer demands, global freight industry will be responsible for an increase in carbon emissions by 50% to 250% in the coming few years, translating into a revised goal of net 80% reduction in carbon emissions by the end of 2050. This means that apart from adopting capital intensive Research and Development based breakthroughs and cutting edge technology solutions, shipping industry needs to rewire the problem by looking at technological gaps from a different perspective.

According to the global consortium “Getting to Zero Coalition” which involves sixty major industry players including A.P. Moller Maersk (shipping), COFCO International (commodities), Anglo American(mining), as well as Citigroup(banking), a common goal of zero carbon emissions is agreed upon for the shipping industry.

This consortium is pushing for the technology and infrastructure readiness by 2030 to attain their Zero Carbon Emissions mission by 2050, costing these players huge capital investments worth billions of dollars to achieve this objective in just a short span of 10 years.

Considering the ever increasing pressure on stakeholders to move towards Zero Carbon future in a well regulated industry, need of the hour is to start looking into cheaper and faster solutions which do not require billions of dollars’ worth of capital injection to begin moving towards this goal.

 A simple exercise would be revisiting how global supply and demand operations are running currently across the shipping industry. Container slot reservation operations in shipping are largely dominated by players such as shippers, freight forwarders, NVOCCs (Non Vessel Owning Common Carriers).If you closely look at the process of how buying and selling gets done against available shipping container space, you will come to know that the multi- billion dollar industry is still dependent on analog methods for handling space reservation and releasing operations from single and multiple parties.

The dilemma doesn’t end there. As a result of using analog methods of reaching buyers in a fast paced world, freight forwarders suffer $20 billion loss in annual revenues. This means that before buyers could be timely reached out, empty container space is already shipped from one port to another port due to absence of modern, efficient and robust mechanisms in place.

Absence of a reliable, robust and efficient digital space trading solution has translated itself into a multi-billion dollar worth opportunity. A shipping container can have three states namely FCL, LCL or Empty. LCL container state allow multiple parties to reserve available space which is generally measured in cubic meters. Estimates suggest that globally 25%-40% of the average LCL goes empty. Once we apply this percentage on global LCL traffic of 36 Million TEUs, we immediately feel the need of a digital trader which would not only recover multi billion dollars’ worth lost revenues, but also offset carbon emissions by 6% just by becoming 25% operationally efficient. A 6% percent of carbon emissions offsetting results in saving 60 Million tons of CO2 alone on an annual basis. These results become even better if we start achieving greater operational efficiency until we reach trading 40% of empty container space, resulting in annual carbon emissions savings of up to 8%, corresponding to 81 Million tons of carbon offsetting in LCL niche.

If a container falls under the category of Empty, which contributes to 10% of the global outbound container traffic, then we see a drastic improvement in carbon emissions offsetting by 12.2%, which translates to 122 Million tons of annual CO2 savings.

Owing to the nature of business, global supply chain operations in shipping industry run inherently working with multiple stakeholders in the ecosystem. Despite the necessity of running global operations transparently, shipping industry faces a conundrum of working in an isolated and opaque environment which leaves buyers and sellers no choice, but to make uncertain decisions regarding reserving container spaces several months’ even years ahead of time.

Industry players are now realizing this urge more than ever to start operating in a collaborative environment as opposed to a competitive one. As a result, focus of the industry is now shifted towards investing in technologies such as blockchain to move towards a reliable and secure system for handling industry operations efficiently and transparently.

World Economic Forum’s Center for Fourth Industrial Revolution is exclusively working on defining policies and governance procedures for various emerging technologies including blockchain. Through Forum’s efforts and unrivaled position of gathering concerned stakeholders from public, non-government and private sectors alike, such technologies are evolving and taking shape at an accelerated pace. Need of the hour is cashing this opportunity by turning into meaningful partnerships and collaborations among governments, large private sector organizations, NGOs, startups, venture capital funds and other stakeholders in the industry ecosystem.

One such consortium which is based on early adopters of the implementation of collaborative models in blockchain technology includes TradeLens, Global Shipping Business Network (GSBN), Blockchain in Transportation Alliance (BiTA), Digital Container Shipping Association (DCSA). 

Such collaborative models have enabled a handful of startups including Cubex Global around the world in building industry first solutions by developing secured digital trading platforms built upon collaborative blockchain principles which enable buying and selling of cubic meters of container space like any other valuable commodity on this planet. Buyers and sellers have real-time access to track future and historical trade route pricing for shipping cubic meters of space anywhere in the world. And like other commodity exchanges, they are a digital version of the open outcry auction, giving all participants a chance to compete for the best price. Since platforms also enable achieving operational efficiency of anywhere between 25%-40% in LCL niche and 100% in FCL Empties niche, these platforms would have the capability to offset as much as 20% of the annual global carbon emissions in maritime industry, once they realize true potential. The level of accountability and security required in global supply chain operations is voluminous and there are only a handful of industry first solutions that are beginning to address this problem.

Above industry snapshot is primed in providing evidence that shipping industry is in a greater need than ever to come and form alliances with global supply chain players to move towards a shared goal of a transparent, secure and accountable industry. This industry will allow stakeholders, most importantly, buyers and sellers to participate in equitable trade while competing for fair pricing against reserving cubic meters of shipping space. As a result of the establishment of such an ecosystem in the shipping industry, environmental sustainability and impact will become inevitable in saving planet from harmful carbon emissions and other greenhouse gases, thus accelerating the pace of achieving UN’s Sustainable Development Goals at the same time. 

 

Above all, implementation of such solutions do not even require multi-billion dollar investment to start achieving these goals, as efficient industry solutions only require a few thousand dollars to start moving towards a greener and transparent eco system.

Above industry snapshot is primed in providing evidence that shipng industry is in a greater need than ever to come and form alliances with global supply chain players to move towards a shared goal of a transparent, secure and accountable industry. This industry will allow stakeholders, most importantly, buyers and sellers to participate in equitable trade while competing for fair pricing against reserving cubic meters of shipping space. As a result of the establishment of such an ecosystem in the shipping industry, environmental sustainability and impact will become inevitable in saving planet from harmful carbon emissions and other greenhouse gases, thus accelerating the pace of achieving UN’s Sustainable Development Goals at the same time.

Above all, implementation of such solutions do not even require multi-billion dollar investment to start achieving these goals, as efficient industry solutions only require a few thousand dollars to start moving towards a greener and transparent eco system.