Decarbonisation is a significant factor in commercial decision-making

Discussion about decarbonisation have moved from technical departments within shipping companies into their commercial and financial teams, the president and chief operating officer of Veson Nautical, Sean Riley, says in this Lloyd’s List podcast. While there is uncertainty around the IMO’s Net-Zero Framework, regional requirements — especially those being implemented by the EU — provide a certainty that cannot be ignored. The continuously evolving and expanding nature of regulations in shipping means that decarbonisation is now “both a commercial and operational reality”, he says. Speaking in early March, Riley reflected on the first year of the EU’s decarbonisation scheme, the FuelEU Maritime Regulation, which ended on January 31. By the end of March, shipping companies will have heard from their verifier about the compliance status of each of their ships based on that first year’s data and those results might lead to “some interesting decision-making challenges or dilemmas”, he says. In the podcast, Riley explains why he views FuelEU in particular as an especially impactful regulation to ship operations. He says its “choice driven” options have both positive and negative implications for shipowners and operators, while adding a level of complexity that must be addressed by companies’ systems and processes. He anticipates that the outcome will see companies shift their focus away from strict compliance towards optimising the financial benefits of compliance, creating a trading strategy based around FuelEU-related decision-making. However, Riley also emphasises that it’s ultimately not about optimising for any one regulation in particular, but rather proactively building decarbonisation into daily decisions in a way that leaves room for inevitable change. He explains in the podcast why this commercial response to a change in the regulatory landscape is different from previous environment-inspired changes, such as the sulphur limits imposed on fuel. He contrasts how the impact of low-sulphur fuel was mainly restricted to operating costs, while decarbonisation requirements today are reaching further, across fixing, operating and trading strategies. The flexibility around how to comply provides the industry choice but has also resulted in a lack of clarity about setting commercial priorities and knowing exactly what conditions to optimise for. Instead, these will vary depending on a ship’s location, so “you’ve got to invest in systems and processes that can absorb change easily”, he says. Riley considers whether some industry sectors are responding differently from others and refers to the potential of AI to resolve some of the uncertainties companies face. “There will certainly be more regulations,” he says, and emphasises: “for our clients, pretending that this is not a commercial reality is no longer an option”.