Growing ferocity of the international shipping bureaucracy becomes a clear and present danger
 While the efficacy of the rapidly spreading zero-carbon policy may be questionable scientifically, there is little doubt of dread consequences that will result in the shipping world.
Certainly that can be inferred from London's Lexology in an interview with founding and managing partner, Kwang-Myeong Moon, of Seoul's of Moon & Song law firm, as he surveys the shipping world in the 2020s. Defying official fear mongering that advances the sustainability movement's reign of terror now appear to be a clear and present danger to what freedom of choice is left.
Perhaps the most serious is the UN's International Maritime Organisation’s (IMO) sulphur oxide emission regulation last year that brought about major changes in shipping, including the installation of scrubbers on ships and the supply of low sulphur fuel oil.
In addition to this, the IMO is working on a roadmap to reduce greenhouse gas emissions by 50 per cent by 2050, and the EU has included the shipping industry in the emission trading system. Shipping companies now cannot survive without considering eco-friendly issues as the IMO’s greenhouse gas regulations are expected to be strong and irreversible.
Accordingly, in addition to these scheduled regulations, more stringent regulations are to be introduced, and the greenhouse gas issue is expected to be at the top of the IMO’s agenda henceforth.
This is a comprehensive regulation with its unprecedented wide range, and is expected to have a significant impact on newbuilding, operating vessels and ship competitiveness.
"Until now, emission regulations for ships have been applied only to new ships built after 1 January 2023, but with the revision of the convention by the IMO, it is now applied to existing ships," said Mr Moon.
"In the case of a new built ship, the Energy Efficiency Design Index (EEDI), which is calculated based on the ship’s specifications from the ship’s construction stage, must be met, and for existing ships, the ship energy efficiency index (EEXI) must be satisfied, and at the same time, the reduction rate of the Carbon Intensity Indicator (CII) calculated according to the annual operation performance must also be satisfied.
"Specifically, existing ships must meet a value that is reduced by 20 per cent compared to the standard value of ship energy efficiency. For this, shipping companies must limit engine output or install energy efficiency improvement devices to increase the efficiency of ships," he said.
In addition, the CII of existing ships should be improved by one per cent per year from 2020 to 2022 and two per cent per year from 2023 to 2026 compared to the CII as of 2019.
To satisfy this, he said, the shipowner must take measures such as operation on the optimal route and use of low-carbon fuel along with technical measures such as engine power limitation, and must be verified annually by the ship inspection agency to see whether the reduction rate has been achieved.
"Vessels that do not achieve the target can only be operated after establishing a ship energy efficiency improvement plan and obtaining approval," Mr Moon said.
So what are the key regulatory and compliance issues for the shipping market? What’s coming up in the near future?
Said Mr Moon: "Shipping is recovering from prolonged chaos due to high freight rates and a shortage of ships. In the industry, anxiety is growing as companies worry about survival. That is, shipping companies were recently notified of astronomical fines from the Fair Trade Commission [FTC]."
The FTC is an independent agency of the United States Government whose principal mission is the enforcement of civil US antitrust law and the promotion of consumer protection.
Rate volatility has been great. The Shanghai Container Freight Index (SCFI) recorded 3785.4, up 37.04 from week to week in its most active period, breaking record highs for seven consecutive weeks.
"This is because the supply of ships is not keeping pace with the rapid recovery of the global economy," said Mr Moon. "The shipping industry has been in a recession for 10 years, and as the effects of the Suez Canal accident at the end of March continue, so do backlogs at major ports.
As small and medium-sized exporters suffered difficulties due to the shortage of ships and the endlessly soaring freight rates, Korean shipping companies such as HMM and SM Line started to solve the difficulties by putting in multi-purpose ships in addition to containerships, he said. But even these temporary measures were unable to meet the overwhelming demand.
In this situation, 23 domestic and foreign shipping companies were recently notified of a fine of up to KRW560 billion (US$406 million) from the FTC. This is in response to the fact that the timber import industry reported to the FTC that domestic container liners raised freight rates on Southeast Asian routes all at once in 2018.
At that time, the timber industry cancelled the FTC report through communications with shipping companies, but the FTC continued the investigation. The target companies are 12 domestic container liners such as HMM, SM Line, Heung-A Shipping and Sinokor.
"The shipping industry is of the opinion that the FTC’s action is unfair based on article 29 of the Shipping Act. Article 29 of the Shipping Act stipulates that ‘a shipping company may enter into a contract or joint action regarding freight rates, ship arrangement, cargo loading, and other conditions of transport.’ Shipping companies are not subject to general laws such as the Labour Standards Act, but to special laws, such as the Seafarers Act and the Shipping Act. It is also pointed out that this indictment of the FTC completely contradicts the government’s shipping reconstruction policy," said Mr Moon.
"If the fine is imposed as the FTC insists, it is expected that a huge fine will be imposed due to diplomatic friction with foreign countries and retaliatory measures against domestic shipping companies.
"Shipping companies may have to sell their vessels to pay the astronomical fines imposed by domestic and foreign governments. If that happens, the situation for domestic exporters and importers who are suffering from the shipping crisis could get worse," said Mr Moon.
Mr Moon objects to the extraterritoriality of US domestic law through the extension of American antitrust legislation. Distressingly, he seems to accept the need for measures to counter supposed global warming despite his evident concerns over its ferocity reach and its ever-enveloping inclusivity.
Nonetheless, shorn of his "ifs" and "buts", Mr Moon presents us with truly scarifying prospects of ever-increasing bureaucratic control and the imposition of scores of unfunded mandates. The bureaucracy seems to be the enemy with shipping giants remaining silent.
Curiouser and curiouser, said Alice. Cui bono, je me demand... Pourquoi? |
