Study: Fuel Costs Drive Fleet's Efficiency

A new study by consultants CE Delft for the Clean Shipping Coalition, published in time for the IMO's Marine Environmental Protection Committee meeting (MEPC 69) in mid-April, finds that market forces – in particular the price of fuel – are the most significant driver of vessel design efficiency for the global fleet, and that recent regulations have had relatively little impact.

The findings apply across all vessel classes: with rising fuel costs, design efficiency of newbuilds improved markedly in the 1980s, and deteriorated in the mid-1990s through the mid-2000s as oil stayed low, improving again only with the return of higher prices. 

The biggest design decision driving efficiency, CE Delft said, was the size of the main engine(s) relative to the size of the vessel. A larger engine to perform the same task – same speed, same deadweight tonnage – suggests a less efficient underwater profile, and less investment in relatively costly efficiency interventions. 

"The changes in design efficiency were found to reflect changes in market circumstances," the authors wrote. "Higher fuel prices make fuel-efficient ships more attractive, because efficiency reduces the total cost of ownership. Because in general fuel-efficient hull designs are more expensive to build, the payback period of the additional capital expenditure is shorter when fuel prices are high." When fuel prices are low, it makes more economic sense to buy a more powerful engine instead, and fuel efficiency declines. 

While fuel costs have significant impact on design, the IMO's recently-implemented Energy Efficiency Design Index (EEDI) requirements do not appear to be having an effect, CE Delft said. "Since the design efficiency of ships that have a mandatory EEDI is not much better than the average design efficiency of ships that entered the fleet in the same period but were not covered by the EEDI . . . it appears that the stringency of the current EEDI design efficiency targets has had little impact to date." It could have an effect in the future, though – as oil prices have fallen and are expected to stay low, average vessel design efficiency could decline again, but unlike the 1990s, it could only sink to the minimum level of the current standards.

With the announcement of the study, environmental advocacy groups called for a strengthening of EEDI requirements, arguing that as they do not appear to have influenced design efficiency, they are not yet stringent enough to result in a reduction of CO2 emissions. John Maggs, senior policy advisor at Seas At Risk, said that “if efficiency standards are not tightened there is a real risk that a change in market  circumstances will result in ship design efficiency falling back to the level of the current weak standards.” At MEPC 69, the IMO will consider EEDI for what may be the last time in six years, and advocates urged the body to revisit it in the near term instead. 

In related news, the Sustainable Shipping Initiative called on the IMO to use MEPC 69 to demonstrate a commitment to the goals of the COP21 climate conference. “The newly appointed IMO Secretary General, Kitack Lim has publicly said that contributing to the fight against climate change is a top priority for the IMO,” said Alastair Fischbacher, CEO of the Sustainable Shipping Initiative. “The IMO’s latest figures show that if left unchecked, greenhouse gas emissions from shipping will increase by up to 250 percent by 2050, representing 17 percent of global emissions . . . A number of member states and industry bodies have submitted papers for the development of a work plan that defines the industry’s fair share of efforts to reduce GHG emissions. This must be the minimum outcome from MEPC 69, which will set the foundation for shipping to contribute to the less than two-degree warming target set at COP 21."