Sayle Dockyards dates back to the beginning of the Industrial Revolution when the mills of Northern England started to import and export material at scale in the late 1700s. During this time, Jusset Sayle saw the need for international shipping to support this trade. The company has come a long way since it created one of the first shipyards in Liverpool. As trade has moved around the world, it has divested from UK operations and invested in Asia. Today, the company still produces ships but mostly via interests in China, South Korea and Japan. With a turnover of $5 billion, divided fairly evenly between the three production centres, the company has created joint ventures in Asia and acquired business globally, mostly for international cargo ships.
Current operations
The Chinese operation works at capacity, mostly building container ships for rapidly expanding Chinese shipping companies. The ships are made to traditional designs that are large and robust, but outdated. The propulsion systems on these ships are not the cleanest and the hulls not the most efficient. The Korean yard builds ships to export according to international market demand. The Japanese yard has experienced some decline in demand over the past 20 years but is now seeing early signs of recovery as a result of investing in ship efficiency and innovations to make ships cleaner and minimise emissions. This improves air quality and reduces carbon emissions per tonne shipped. Although taxing carbon emissions from shipping forms a key part of global discussions, no such tax has yet been introduced because of the difficulty of attributing taxes to any jurisdiction. While emissions are not yet the primary focus of the industry, this is likely to change and the Japanese market strategy predicts that it will grow rapidly.
Strategy options
Sayle has been reviewing its long-term strategy with external consultants and the analysis suggests that the market for clean, efficient, low-emission ships will grow. It is likely that the most efficient ships will attract a premium price as the industry has not built capacity in this space. As a joint venture partner in the three yards (China, Japan and South Korea), there is scope to switch the investment mix or divest completely.
The Japanese yard has aligned its strategy with projected future growth. The rapid, organic growth from China has proven highly reliable until now, despite the lack of design innovation and technical alignment. The South Korean yard tends to build to customers’ designs and has also retrofitted efficient low-emission engines. This includes retrofitting computer-controlled sails that allow traditional ships to use wind power, enabling zero-emission propulsion. The Japanese yard integrates this technology within new ship designs, along with zero emissions hydrogen propulsion and hydrofoil catamaran hulls, offering the cleanest bulk ocean transport available.
Future focus
All of Sayle’s partners agree that low-emission, clean shipping is on the horizon. However, they disagree on the pace of change, the strategy and the goals that they should set. The Chinese yard is keen to develop the cleanest technology. It plans to offer this technology to the market; however, its full order book and fixed production plan means the first new energy ships will not be available for almost a decade. This means that its immediate response is limited and traditional ships will continue to be produced until around 2030. The yard will remain in service beyond 2050, when net zero emissions will
be required across all sectors.
The South Korean yard envisages that the biggest commercial opportunity lies in the retrofit market, which offers computerised sails and hydrogen propulsion at the point of midlife refit. The long operating life of ships and the enormous existing global merchant fleet leads the yard to believe that large-scale refits are less damaging for the environment, due to fewer emissions. However, despite reducing emissions, these overhauls do not enable the yard to reach zero emissions goals. A sudden change in regulation could play to this strategy as retrofits towards efficiency and emissions reduction may be the only affordable option for many.
The Japanese yard believes that shipping cannot remain outside of international emissions regulations for much longer and that fleets will be forced to rapidly switch to the best available technology. This perspective has been informed by international commitments such as the Paris Agreement and UN SDGs. While current uptake is limited to a few wellfunded pioneers, the yard foresees sudden, explosive growth within five years.
Sayle has survived for over 200 years by calling the market accurately and well ahead of time. It sees this as one of its most defining moments. While it could maintain its current portfolio to spread the risk, such a strategy could leave the company with significant stranded assets, especially in South Korea, if the market moves overwhelmingly towards the Chinese or Japanese market position.
(the above fictional case study is extracted from the University of Cambridge Institute for Sustainability Leadership Business and Climate Change: Towards Net Zero Emissions 2022 online content. You can learn more about the online course here)
From the International Energy Agency: https://www.iea.org/fuels-and-technologies/international-shipping
From the World Bank Blog: https://blogs.worldbank.org/transport/carbon-revenues-shipping-game-changer-energy-transition#:~:text=Yet%2C%20shipping%20is%20also%20a,warming%20to%201.5%20degrees%20Celsius.
From the International Maritime Organization:
https://www.imo.org/en/OurWork/Environment/Pages/GHG-Emissions.aspx
Talking points:
- What are the most prominent commercial opportunities that a net zero future could hold for the International Shipping sector? Identify two opportunities, considering both the short-term and long-term perspective, and justify your selection.
- What sector-specific goals would need to be achieved for the sector to reach net zero emissions? Discuss three relevant goals.
The most prominent commercial opportunities in a net zero future for the international shipping sector includes existing ship retrofitting for greater efficiency and renewable energy or hybrid energy options for new ships.
Currently about 95% of world cargo is shipped. About 55,000 merchant ships trade internationally utilising 835 active container ports around the world [1]. As the world population continues to grow, shipping facilitates the movement of goods around the world, and there’s no sign of this slowing down. While most old shipping fleets at the end of their life cycle get recycled, the merchant ships of the net zero future will have better energy and hull efficiency. At the same time port infrastructure is ready for an overhaul too, allowing efficient transition from sea to land transportation that is sustainable.
Use of zero-emission fuels [2] is the first area, whereas the exploration of the Oceanbird concept[3], a hybrid ship that achieves zero emissions by utilising prevailing wind and lithium-ion batteries can be explored for smaller ships.
Green shipping will need to involve the entire maritime value chain from ship owners to fuel producers to port and terminal operators. To achieve net-zero the three main goals are ships, fuels, and infrastructure. According to Mission Innovation, an ambitious three-tier goal has been announced for 2030 [4]:
1. Ships: By 2030, at least 200 ships primarily use zero emission fuels across main deep sea shipping routes.
2. Fuels: By 2030, ships capable of running on hydrogen-based zeroemission fuels such as green hydrogen, green ammonia, green methanol, and advanced biofuels make up at least 5% of the global
deep-sea fleet measured by fuel consumption.
3. Fueling Infrastructure: By 2030, 10 large trade ports covering at least three continents supply zero emission fuels. Besides these three identified above, the adoption of sustainable waste recycling and management at both ship and port level should not be overlooked. The technology exists to enhance the ability to process and reuse waste on large ships should be not too different to that of buildings on land, and the essence of a closed loop process applies to both.
Reference list (numbered)
[1] Nikolopoulos, S. 2022. Container Shipping: By the Numbers. Thomas Network. Available: https://www.thomasnet.com/insights/container-shipping-by-the-numbers/#:~:text=There%20are%20about%2055%2C000%20merchant,2%2C031%20liquefied%20natural%20gas%20tankers. [2022, October 31]
[2] Zero-Emission Shipping Mission. April 2022. Industry Roadmap for Zero-Emission Shipping. Available: https://dma.dk/Media/637847381174295461/ZESM%20Roadmap.pdf
[last accessed 2022, October 31]
[3] https://www.theoceanbird.com/the-oceanbird-concept/ [last accessed 2022, October 31]
[4] Mission Innovation. 2022. http://mission-innovation.net/missions/shipping/
[5] World Economic Forum. Climate Change 2021. Available: https://www.weforum.org/agenda/2021/10/net-zero-shipping-decarbonisation-new-strategy/
