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It needs to be full steam ahead for the decarbonization of shipping, which is thought to contribute almost 3% of global greenhouse gas (GHG) emissions annually [1]. If it were a country, the shipping industry would be considered the sixth largest [2] emitter. 

In 2018, the International Maritime Organization (IMO) committed to cut annual GHG emissions from international shipping by at least half by 2050, compared with their level in 2008, and work towards phasing out all GHG emissions from shipping as soon as possible in this century. It also set a goal to reduce the carbon intensity of international shipping by at least 40% by 2030, and 70% by 2050. 

“Decarbonization is by far the biggest challenge for the sector, but the shipping industry’s efforts are progressing and rapidly evolving,” ����������Բ���Captain Rahul Khanna, Global Head of Marine Risk Consulting at �ǿմ�ý Global Corporate & Specialty (AGCS). “The pace and progress of these efforts are influenced by a range of factors, including technological developments, regulatory frameworks, and market forces.”

One key indicator of progress is the reduction in carbon intensity, which is the amount of carbon emissions per unit of transport work (such as per ton-mile). “The IMO’s target of reducing the shipping industry’s carbon intensity by 40% by 2030, compared to 2008 levels, is ambitious and the industry will need to accelerate its adoption of energy-efficient technologies and fuels, such as wind propulsion, biofuels, hydrogen, and ammonia,” Khanna explains.

Another indicator of progress is the adoption of regulatory frameworks aimed at reducing emissions. The IMO has introduced a range of measures to promote energy efficiency and reduce emissions, including the Energy Efficiency Design Index (EEDI), the Ship Energy Efficiency Management Plan (SEEMP), and the Carbon Intensity Indicator (CII). The CII regulations have come into force from January 1, 2023, and this should help accelerate the pace of transition. 

Market forces are also driving decarbonization efforts in the shipping sector. Increasingly, consumers and investors are demanding sustainable and low-carbon supply chains, and shipping companies are responding by adopting cleaner technologies and fuels. New ships with engine propulsion using biofuels and methanol are already in the service. The availability and affordability of such low-carbon fuels will also play a significant role in the sector’s decarbonization efforts and in part is dependent on upstream producers. 

Establishing green corridors is also an idea gaining in popularity. These are dedicated routes or lanes where special measures are taken to promote sustainable shipping and are collaborations between industry stakeholders such as shipping companies, ports and local authorities. 

“Overall, while progress has been made in the shipping sector’s decarbonization efforts, much more needs to be done to achieve the targets set by the IMO,” says Khanna. “We also need to keep in mind these targets are less ambitious than the net zero target being set by many other industries and IMO will face further pressure to revise these.” 

According to Justus Heinrich, Global Product Leader Marine Hull at AGCS, the sector’s decarbonization journey will also have significant implications for exposure and underwriting: “The big shipping companies have solid controls and steering measures to reduce carbon intensity, and many are in the process of modernizing their fleet, retrofitting existing vessels, testing alternative fuels, and ordering new greener vessels.”

Shipping companies and cargo operators are already switching to vessels powered by liquefied natural gas (LNG), as well as trialing and using alternative fuels, wind-assisted propulsion systems, more efficient propellers and bulbous bow designs. Meeting the International Maritime Organization (IMO) greenhouse gas emission reduction targets will cost as much as $1.4trn, according to a 2020 study from the Global Maritime Forum. [3]

Much of the current activity is focused on experimenting with alternative fuels, including biofuels, methanol, ammonia and hydrogen power, as well as solar and battery powered all-electric vessels and hybrid propulsion systems. “We are seeing a lot of investment in alternative fuels. The challenge is to find the one that will take us across the line and meet decarbonization targets,” says Captain Rahul Khanna Global Head of Marine Risk Consulting at �ǿմ�ý Global Corporate & Specialty (AGCS) “LNG is helping transition away from the heavy fuels of the past. But it is not the solution that will take us there and will only provide short-term temporary relief.”

According to the IMO, [4] some 99.89% of the fuel used by shipping in 2021 was carbon-based, yet for the shipping industry to meet a 1.5°C target in line with the Paris Agreement, net zero-emission fuels must make up 5% [5] of the international shipping fuel mix by 2030.

AGCS is already supporting ship owners as they test and transition to alternative fuels, in particular biofuels. Derived from agriculture and forestry, biofuels can replace conventional shipping fuel without substantial modifications to engines, fuel tanks, pumps or supply systems. However, there are likely to be challenges with scalability and sustainability, with questions over the ability of the supply chain and logistics to meet growing demand for biofuels.

Transitioning away from carbon-based shipping will involve a challenging period of adjustment and change, according to Khanna. “It will take years to build the scale of infrastructure required to support the transition to alternative fuels, and a mix of fuels is likely to exist for the next five to 10 years, which poses a challenge for shipowners and operators, ports, and bunker operators,” says Khanna. 

The shipping industry also has only limited experience of using and handling biofuels, while the long-term effects of alternative fuels on engines and fuel systems have yet to be borne out.

“Increasing the efficiency of vessels is a move welcomed by insurers, which share the industry’s commitment to decarbonization and net zero targets. However, this is a new field that our customers are exploring, and as insurers we share in the risks. However, while there is an increase in testing, we have very little data or loss history on alternative fuels,” says Justus Heinrich, Global Product Leader Marine Hull at AGCS. “Collaboration is key when it comes to exposure and innovation and regular data, experience and information exchanges with a willing client base that wants to partner with us will go a long way towards improving this.”

Last year, the world’s first fully electric, autonomous container ship, the Yara Birkeland, completed its maiden voyage, sailing along the Norwegian coast from Horten to Oslo. By the end of this year, the number of crew on board the 80m-long vessel could be halved, [9] and potentially removed completely within two years, if trials go according to plan. 

The builder of the Yara Birkeland, Kongsberg, is also now developing battery-powered autonomous barges for Norwegian grocery wholesaler Asko. In Sweden, the city of Stockholm is due to commence electric autonomous car ferries by mid-2024, [10] although they will be remotely controlled from the shore, and will still have crew on board empowered to take over control if needed. The city also has plans to pilot an electric hydrofoil commuter ferry later this year. 

The lithium-ion (Li-ion) batteries used in electric vessels are an important risk factor, ����������Բ���Captain Nitin Chopra, Senior Marine Risk Consultant at �ǿմ�ý Global Corporate & Specialty (AGCS). Container ship and car-carrier fires in recent years have highlighted that these batteries can combust or explode when damaged, or due to faulty manufacturing. Battery fires are also more difficult to extinguish and prone to self-reigniting. 

“The battery power banks, if damaged, could cause a serious fire. It is well documented that Li-ion battery fires are very hard to extinguish and require additional firefighting measures. As electrification moves to larger vessels, it will require special measures for fire protection and fighting, especially in the battery storage area,”��������� Chopra. 

Fire detection, prevention and fighting capabilities will be an important consideration in the development of safe operation of electric-powered vessels, explains Chopra. Crew training and procedures will also need to reflect the potential fire risks.

While electric and autonomous vessel development has so far focused on smaller coastal vessels, the technology could be deployed in larger ocean-going vessels. Last year, a subsidiary of South Korean shipbuilder HD Hyundai completed the world’s first ocean crossing by a large autonomous ship. The LNG carrier Prism Courage [11] sailed 10,800 nautical miles from Texas to South Korea in 33 days, of which half was navigated autonomously.

“Coastal trade has provided a good testing ground for this technology, and from an insurance perspective, we would like to see continued testing with smaller coastal vessels, learning and refining systems over time, before moving on to scaled-up ocean transit operations,” says Chopra.

With no crew on board, autonomous technology raises questions around emergency response, Chopra adds. “If there was a cargo or engine fire, collision or grounding, any event, small or large, would be amplified and potentially turn into a total loss.”

The International Maritime Organization’s Maritime Safety Committee is in the process of developing new regulations for the operation of maritime autonomous surface ships (MASS), including the role, competencies and responsibilities of MASS master and crew, The aim is to adopt a non-mandatory goal-based MASS Code to take effect in 2025, which will form the basis for a mandatory goal-based MASS Code, expected to enter into force on January 1, 2028.