Insights into the future of Shipping – A Deloitte survey
The global shipping industry is a cornerstone of international trade, transporting approximately 90% of the world’s commerce. With maritime hubs spanning the globe, this capital-intensive sector demands substantial investment at every stage of the business cycle. Dimitris Koutsopoulos, Deloitte Greece CEO, emphasizes that the industry experiences significant volatility and risk as it operates in a fiercely competitive and unpredictable environment, facing a wide range of business, technical, operational and geopolitical challenges. In this dynamic and ever-evolving landscape, staying ahead of industry trends and understanding market expectations is crucial.
Deloitte, the largest professional services firm globally, has a strong presence across all components of the maritime ecosystem: Merchant marine, passenger services, cruises, ports, yards, technology providers, authorities and regulators. In Greece, historically the top ship owning nation in the world, Deloitte is the leading company offering audit and advisory services to the maritime community. Utilizing our in-depth knowledge of the maritime sector and the relationship of trust with our clients, we conducted a survey aiming to identify the views of shipping executives on the trends and challenges the industry is currently facing and will shape its future.
Deloitte’s survey, commissioned on the opportunity of Posidonia 2024, received over 100 responses from a diverse array of industry stakeholders representing public and private shipping companies of all sizes and sectors. The survey results provide valuable insights into the current mindset of CEOs, CFOs and Directors of shipping companies.
Main factors impacting the shipping industry
When asked to prioritize the factors that are likely to impact the shipping industry in the short to medium term, geopolitical factors was the clear winner, identified as No.1 or No.2 by almost 70% of respondents. Perhaps this would not be the case a few years ago, but since 2022 the industry had to face the disruptions caused by the Ukraine war and then the Red Sea crisis which, added to geoeconomic factors (US increasing oil and gas production, re-shoring, near-shoring and friend-shoring, formation of new resilient trade corridors) are driving a reassessment of strategic plans throughout the industry. It should be stressed that the impact of geopolitical and geoeconomical factors on the shipping industry is not one-directional: It may pose challenges for certain stakeholders, but it is more likely to present significant opportunities for others.
As expected, global economic growth, quantified by the global GDP metric, has been identified as the second most important factor impacting the shipping industry.
What was less expected is that shipping executives placed interest rates and access to funding at a lower level of priority in terms of impact to the shipping industry. The increase in base rates, which started in January 2022 and only recently leveled off, resulted in steep rises in interest cost to shipowners and reduced loan affordability for those seeking finance. But less than one in five respondents identified access to funding and interest rates in the top two positions in terms of anticipated impact. There is a reason why the majority of shipping executives appear less worried about these factors. Maritime industry is navigating through a positive phase, with high freight rates and trade route disruptions resulting in an effective reduction of capacity. Bottom line is, these are good times for shipping from a financial perspective, companies tend to be cash rich, and many of them elect to pay down debt or finance purchase of vessels without resorting to external funding.
Completing the picture on factors expected to impact the shipping industry in the short to medium term, we observe that shipping executives do not have a harmonized view on the importance of compliance with new environmental measures, with as many respondents placing it in the top two priorities as those placing in the bottom two. This pattern is consistent across all demographic segments of the survey (company size, shipping sector, ownership type, or even average fleet age).
Readiness to address challenges
Being prepared to deal with challenges is a key responsibility of a company’s leadership and a duty of the management line of command. Our survey findings suggest that shipping executives are, in most cases, confident in the resilience of their companies. Practically all of them declared high and moderate readiness to deal with worsening economic conditions as well as to deal with uncertainty and increased market volatility. This is no surprise: Operating in unpredictable environments and surviving financial and market crises is in the DNA of merchant shipping owners and their companies.
The degree of readiness for dealing with stricter regulatory requirements is less stellar. Fewer than half of the respondents indicated high readiness, while one in ten admitted low readiness. Cross-referencing with replies on the significance of operational challenges, we observe that compliance with regulatory bodies (eg. IMO, classification society, inspections, ESG) is considered critical by the majority of shipping executives. Considering that the European Union Emissions Trading System (ETS) came into effect for the first time this year and the IMO’s net-zero milestones are just around the corner, more needs to be done in this area to address increasing challenges.
A dark spot seems to be dealing with cyber threats: A relatively low share of respondents indicated high readiness, with one in ten admitting low or no readiness. An interesting observation is that, contrary to what would be expected, the reported degree of readiness against cyber threats is not increasing with company size. An argument can perhaps be made that preparing a company to deal with cyber threats is an issue of mentality: Leaders who understand the risks can, and will, set up a cybersecurity scheme appropriate for the size and financials of their organization.
An explanation of why cybersecurity readiness is on the low side can be drawn from the responses on the significance of operational challenges: Addressing cybersecurity threats is considered critical by only a third of respondents, while one in five shipping executives view this challenge as marginal or insignificant. In our view, the shipping industry faces a gap between perception and reality in the area of cyber threats, with a risk of underestimating vulnerability to cyberattacks.
The area with the lowest degree of readiness, by far, is training shore staff and crews in new leading-edge technologies. A relatively low share of respondents believes their readiness is high, while quite a few state low readiness. We are looking at this in conjunction with the shipping executives’ views on operational challenges: Attracting and retaining skilled seafarers was identified as the most critical challenge, while attracting and retaining skilled onshore personnel also scored high. This is consistent with the reported difficulty in finding skilled crews for advanced technology vessels (e.g. LNG carriers) and represents a likely deterrent in the shipping companies’ efforts to adopt and utilize new technologies.
A key operational challenge is reducing fuel consumption and emissions, assessed as critical by the majority of respondents. No surprise here, reducing emissions is required for regulatory compliance, and reducing fuel consumption directly leads to lower emissions.
Technological evolutions providing tailored solutions to long existing problems are expected to dramatically disrupt the overall maritime ecosystem in the coming years. Respondents ranked satellite technology and Internet of Things solutions as most important. This makes sense, as both technologies are already implemented within the industry in different magnitude and scale, providing the necessary infrastructure basis for additional tech solutions to be implemented. Next came Data Analytics and Artificial Intelligence. The latter is a very dynamic technology still in an early stage of development with currently only a few, yet significant, use cases identified for the maritime industry.
It will become an issue of priority for shipping companies to upskill and reskill their personnel so as to be able to adopt, successfully implement and benefit from technological advancements.
Transition to net-zero and the “fuel of the future.”
The survey included questions on both short-to-medium term solutions and the long-term perspectives.
A clear finding is that shipping executives believe important improvements in fuel consumption and emissions reduction can be achieved by more conventional approaches. A very high percentage of respondents consider very likely or likely that retrofits reducing fuel consumption (such as propeller boss cap fins or hull coatings) are a viable short-to-medium term alternative towards transition to net-zero. They also view slow steaming as a very likely or likely alternative.
There is a clear message here, as pointed out by George Balafoutis, Audit Partner and Shipping & Ports Leader of Deloitte Greece. Many shipping executives adopt a conservative approach and are reluctant to take decisions that have long-term strategic repercussions. Indeed, retrofits are cost-effective and relatively low risk and can offer a good return on investment, depending on remaining life of the underlying asset. Slow steaming, to the extent it is acceptable to shippers, has the added benefit of effectively reducing capacity, which can yield higher freight rates.
A somewhat surprising finding was that almost half of respondents believe it is less likely, or not likely at all, that LNG will be established as the “transitional fuel”. This seems to be in contrast to market realities: According to Intermodal research, at the end of April 2024 there were 1,106 LNG-fueled vessels in the water and another 910 on order, representing 15% of the total order book. Our view is that LNG orders are mainly driven by large companies which execute ship building programs, have made the strategic decision that assets with 25-year lifespans need to be dual-fuel capable, and decided in favor of LNG which is a mature technology available now. Others are willing to wait, exploring the second-hand market to cover their needs.
Two other alternatives have been identified. Carbon capture and fuels blended with biofuel are viewed as very likely or likely transitional solutions by roughly 70% of respondents. However we need to bear in mind that these technologies are still bets: Biofuels need to be made available in large volumes at affordable prices, which will be a big challenge, while retrofitting vessels with equipment that captures CO2 emissions is at an early stage of maturity.
Looking at the long-term picture and how to achieve the net-zero 2050 target, results of the survey confirm what is common understanding: Visibility on the “fuel of the future” is low, and the debate is likely to continue until a viable solution emerges as the clear choice of the shipping industry. We should bear in mind that this problem is multifactorial: Beyond establishing which fuels are most suitable, there is the issue of deploying production, storage, distribution and supply networks and, even then, shipping will have to compete with other industries to ensure access to the huge volumes needed.
Presumably with these uncertainties in mind, respondents identified 3 alternatives as very likely or likely: Biofuels, methanol and ammonia were all named by two thirds of the respondents. Hydrogen, hydrogen-derived synthetic fuels and biomethane received more negative than positive votes. For nuclear power and electricity the result was a clear no-go.
We are starting to see large shipping companies gradually considering these alternatives. According to DNV, the current global fleet of methanol-fueled ships is 29, with 228 confirmed orders. However 70% of these orders concern containerships which operate on specific routes, making it easier to set up a methanol supply network. The first ammonia dual-fuel engines will be ready for pilot installations in 2024 and Clarksons Research recently reported 4 orders for ammonia-fueled ships, with 272 vessels being “ammonia-ready”.
The survey results on transition to net-zero and the “fuel of the future” yielded useful insights: The majority of shipping executives seem to adopt a conservative approach towards decarbonization. Indications are that the IMO 2030 target of reducing GHG emissions by at least 20% compared with 2008 levels can be reached, to some extent, without committing to new fuels. It is reported that the new “eco” ships can achieve a reduction in fuel consumption of up to 30% compared to ships built in 2018, while for existing vessels “green your fleet” is a viable option, with energy saving technologies and operational measures such as slow steaming.
Given that the maritime industry, as a collective entity, has not decisively embraced greener fuel alternatives for the immediate or foreseeable future, cautious shipping companies have refrained from taking significant leaps of faith while awaiting to see which fuels will prevail. In the meanwhile, LNG is viewed as a solution with a visible expiration date.
Another interesting finding of the survey is that, even though shipping executives show reluctance to commit their own company to alternative fuels, a large majority of respondents believe that companies leading the adoption of alternative fuels will gain a strong competitive advantage.
A factor that might encourage ship owners to invest in carbon reduction is increasing scrutiny of the sustainability performance of their companies. A very large percentage of shipping executives responded that investors and financiers do take into account sustainability performance when making decisions, with a somewhat lower percentage responding that it influences charterers and shippers when selecting shipping companies to work with.
Effects of new regulations
The final part of the survey aimed to assess the shipping executives’ views on regulatory issues. There is intense debate over whether the new regulatory measures are moving in the right direction and can guide the industry in achieving the desired results.
On the question if inclusion of shipping in the European Union Emissions Trading System (ETS) will significantly contribute towards the global decarbonization of the industry, opinions are split down the middle. Half of the respondents disagree or strongly disagree with this statement, which stems from a belief that ETS is effectively reducing the competitiveness of European ports.
Shipping executives are even more skeptical of being able to reach the IMO net-zero goal by 2050, with more than half of the respondents being pessimistic or very pessimistic.
In closing
Having highlighted the survey responses that make evident the robust state the industry is currently undergoing, but also the major challenges that shipping companies will have to overcome to succeed in the highly volatile and uncertain future ahead, Vassilis Kafatos, Growth Leader Deloitte Greece and Deloitte Central Mediterranean Shipping & Ports Leader, underlined that special focus should be given to rapid technological advancements and investment in human resources, as these are expected to be the most significant disruptors in the maritime ecosystem, which is increasingly governed by stricter regulations and sustainability requirements.
On a positive note, when asked about their companies’ strategy and business development plans, 9 out of 10 respondents stated that it is likely or very likely they will increase fleet capacity. This is a strong vote of confidence in the prospects of the shipping industry.
Shipping executives should leverage their extensive experience, flexibility and strong financial position to transform challenges into opportunities and thrive in the New Normal.
