The Future Lawyer Weekly Briefing – W/C 30th January 2023

EXPLORING SUSTAINABLE SHIPPING: WHAT COP27 OUTCOMES MEAN FOR THE FUTURE

Briefing by Divya Tejwani

Sustainable shipping is a concept that is gaining traction with the world’s governments, regulatory bodies, and businesses alike.

COP27, held in Egypt in November 2022, was a significant event for sustainable shipping. At COP27, some crucial outcomes were achieved that are set to shape the way shipping is conducted in the future.

We will explore what sustainable shipping is and how COP27 outcomes will affect the future of sustainable shipping, followed by the exploration of case studies demonstrating how sustainable shipping practices are being implemented.

What is sustainable shipping?

Sustainable shipping is the practice of minimising the environmental impact of shipping activities.

At the heart of sustainable shipping is the idea of reducing emissions. Consequently, ships must be designed and operated to guarantee the least fuel consumption and emissions. Such designs must utilise efficient engines, implement advanced navigation systems, and utilise renewable energy sources.

Furthermore, sustainable shipping also involves reducing the number of waste materials produced by ships, making sure hazardous materials are not released into the environment and improving transport efficiency.

Why is sustainable shipping important?

Firstly, it helps to reduce the environmental impact of shipping activities. This impact is crucial as shipping is a significant source of global emissions, so reducing these emissions is vital to achieving a more sustainable future.

Furthermore, sustainable shipping practices can lead to improved operational efficiency, helping to reduce costs and improve profits.

Additionally, sustainable shipping helps improve the public perception of a company by showing its commitment to protecting the environment and not damaging it.

COP27 outcomes: effect on the future of sustainable shipping

The outcomes of COP27 are set to impact the future of sustainable shipping significantly.

The adoption of ‘IMO’s roadmap’ will mean that ships need to be designed and operated in a way that guarantees minimum fuel consumption and emissions. Such designs will improve operational efficiency, reduce costs, and lower environmental impact.

The tightening of regulations on the use of heavy fuels and oils and the introduction to limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels will mean that ships must use cleaner, more efficient fuels.

This includes investing in new technologies, improving navigation systems, increasing renewable energy sources, and helping to make shipping operations more efficient and eco-friendly.

Current technologies and innovations

New technologies and innovations are advancing navigation systems to improve routing and use of renewable energy sources to make shipping operations more efficient and reduce their environmental impact. Further, more efficient, eco-friendly materials and fuels are also being developed.

Autonomous vessels, 3D printing, and advanced monitoring systems are set to revolutionise the shipping industry. All these technologies are designed to make shipping operations more efficient and reduce their environmental impact, thereby reducing costs and improving profits.

Challenges and solutions

Although sustainable shipping is becoming increasingly important, challenges still need to be addressed.

Firstly, there is the cost challenge. Implementing sustainable shipping practices is expensive, so companies must find ways to reduce costs while still achieving their sustainability goals. Therefore, companies should invest in more cost-efficient technologies and materials while achieving sustainability goals.

Next is the overturning of public perception. Many people are still unaware of these practices. So, companies must find ways to educate the public about the significance of sustainable shipping. Companies should also invest in public education campaigns to raise awareness of the importance of sustainable shipping.

Finally, companies should collaborate with other organisations and governments to create sustainable shipping initiatives to help reduce costs and improve public perception.

Implementing sustainable shipping practices

When it comes to implementing sustainable shipping practices, there are steps that companies can take.

Firstly, they should look at the design of their ships and the technologies used. By investing in efficient engines, advanced navigation systems, and renewable energy sources, companies ensure their vessels are as efficient as possible.

Companies should also review their operational practices, consider reducing fuel consumption and emissions, implement more efficient routing systems, and reduce the amount of time spent in port.

Furthermore, companies should also reduce the number of waste materials produced by their vessels, including investing in waste management systems and ensuring that hazardous materials are not released into the environment.

Finally, companies should also increase the efficiency of their transport operations; that is, invest in new technologies of blockchain and AI and implement advanced tracking systems.

Case studies

• Port of Antwerp, Belgium

This initiative involves investing in new-tech autonomous vessels, implementing advanced monitoring systems and renewable energy sources and reducing the time ships spend in port.

• Port of Boston, United States

This initiative invests in new technologies, such as blockchain and AI, implementing advanced tracking systems and renewable energy sources and reducing the number of waste materials produced by ships.

Impact on the legal sector

Sustainable shipping is becoming increasingly important for governments, regulatory bodies, and businesses. At COP27, several crucial outcomes were achieved to shape the way shipping is conducted in the future.

These include:

• The adoption of a roadmap for the implementation of “Green Shipping.”
• The tightening of regulations on the use of heavy fuel oil.
• Limiting global temperature rise to 1.5 degrees Celsius above pre-industrial levels.

Additionally, recommendations were made on implementing sustainable shipping practices, such as introducing new technologies and investing in renewable energy sources.

Ultimately, sustainable shipping is an important concept to be taken seriously by governments, regulatory bodies, and businesses. By taking the necessary steps to implement sustainable shipping practices, we ensure our actions are not contributing to the degradation of the environment and that we are taking steps towards achieving a more sustainable world.

THE LINER SHIPPING CONSTORTIA BLOCK EXEMPTION REGULATION

Briefing by Aqua Koroma

A liner shipping consortia block exemption regulation, such as the EU Liner Shipping Consortia Block Exemption Regulation (Commission Regulation 906/2009) (CBER), provides legal certainty for maritime businesses.

The CBER, initially espoused by the UK in 1995 and extended several times, is set to expire on 25 April 2024. Thus, the CBER is currently under review by the EU Commission and the UK’s Competition and Markets Authority (CMA).

The EU Commission had previously called for evidence and distributed target questionnaires to active carriers and other participants providing services to and from the EU, which lasted till 3 October 2022.

On 19 January 2023, CMA issued its consultation on its proposal to replace the CBER upon its expiry, with the proposed replacement legislation being a Liner Shipping Consortia Block Exemption Order (CBEO).

What is the CBER?

According to Shipping and Freight Resource, a liner shipping service ‘is a service that operates on a schedule with a fixed port rotation…with published dates and sometimes named day of calls at the advertised ports’.

Companies and governments use these schedules for the transportation of goods and are operated through substantial investments. As a result, these services are high-capacity, high-value, and indispensable, and their untroubled operation is detrimental to the UK and EU’s economic growth and standing in world markets.

The UK’s Competition Act 1998 and EU competition and antitrust law usually prohibit agreements between companies that restrict competition within respective markets. However, the CBER imposes an automatic exemption for such agreements amongst consortia or for the joint operation of liner shipping companies whose combined market share is 30% or below, so long as other strict conditions are met.

Benefits of the CBER

• Increased efficiency – The consortia of vessels means that the liners are better utilised in that fewer journeys are required than what would otherwise be pre-agreement. Vessel sharing also helps to increase the range of destinations, thus expanding the reach of services.
• Better pricing – Independent pricing is still open to consortia partakers. Due to increased efficiency, the companies spend less on operating such services (economies of scale); thus, cost savings are filtered through to consumers.
• Better quality of service to customers – As there are fewer resources (be they economic or otherwise) spent on, for example, the transportation of goods and other maritime terms, the focus is shifted to providing a better quality of service, which not only helps with the retention of consumers but also the economic growth of commercial maritime service providers. According to the Commission, it is evident that although ‘costs for carriers and prices for customers per twenty-foot equivalent unit (TEU) have decreased by approximately 30%…quality of service has remained stable’.
• Positive environmental impact – These vessel-sharing agreements, akin to car-pooling schemes, increase energy efficiency primarily by reducing heavy fuel oil emissions. They also help reduce the risk of spills and also the interference with and disturbance of fragile oceanic environments.

Shortcomings of the CBER

• Rescission and dishonouring of contracts – many parties to shared agreements have complained to the Commission that others privy to those agreements have dishonoured or rescinded, wholly or partially and without due process, the terms of the contracts.
• There are claims of consistently high shipping rates charged by liners to shippers, which inevitably and most regrettably must be passed to consumers despite the supposed increased efficiency of the shared agreements and services.
• There are also claims (some of which are currently unsubstantiated) of increasing levels of miscommunication and non-existing communication, including the sharing of accurate status information and the addition of undetermined surcharges from and between the liners and shippers. Such misconduct leads to missed shipping time slots and opportunities, leading to lower contingent productivity, factory closures and loss of jobs, and thus, even higher consumer prices.

*It must be noted that high shipping costs are key drivers to increased consumer prices and inflation worldwide.

The CBEO and its potential impact on the legal sector

Through previous consultations and reviews by the CMA, the CBER is considered more beneficial than harmful to the UK economy.

The form any eventual CBEO would take is mainly unknown, especially given the CMA’s recent introduction of its consultation. Any amendments suitable for the UK would likely result from the current and upcoming consultations.

Any ensuing CBEO would be a UK statute vastly similar to the CBER but finely tuned to the requirements of the UK.  Further, there is unlikely to be a substantial change to how UK liners and shippers operate within the discussed context, thus underpinning substantial continuity for UK businesses.

Irrespective of how minute or great any changes may be, the legal sector will undoubtedly keep its eyes peeled and its ears to the ground in ensuring its maritime clients continue to receive the best service possible.