Uncertainty - is there a positive as well as a negative?
19th March 2012 17:27 GMT

I overheard a remark during MEPC 63 week that I enjoyed: “…there must be a lot of shipping company owners hauling their technical directors over the coals and asking why they weren’t specifying ships with all the energy saving technology…”. The point is elegantly made: Surely the evidence provided by 1000s of shipping companies not investing in energy saving interventions outweighs the opinions of a handful of consultants/academics who calculate that not fitting these interventions ‘leaves money on the table’.

This point was also discussed in the presentation at MEPC by Maddox Consulting regarding market barriers (see article from March 7 ). Uncertainty was emphasised as one of the reasons preventing take-up of these seemingly cost-effective interventions. Examples of that uncertainty include that the fuel price will not be high enough for long enough for the intervention to crystallise enough cost saving to justify the initial investment. Another example being that the intervention doesn’t perform as expected and that the energy saving is lower than expected.

Rarely in these discussions is the obverse ever pointed out – what if an energy efficiency intervention outperforms expectations, or what if fuel prices go higher than expected? The consequence would be greater cost benefit, possibly to the extent of keeping a company in business at a time of revenue famine, or being able to gain more market share against competitors.

It's speculation, but I wonder if there are more technical directors / engineers who have been ‘hauled over the coals’ for wasting company money on an energy efficiency technology that under-performs than there are stories of success and congratulation e.g. from the implementation of a successful slow steaming programme an individual is given some reward – perhaps a bonus linked to the magnitude of fuel/cost savings achieved.

Incentives are important for achieving economic efficiency in decision making. This is true at a company level where carbon prices or EEDI regulation can provide incentive to adopt energy efficiency interventions, but its also true at an individual level. If there is no positive counterbalance to the downside risk of making the ‘wrong call’ on an intervention, then why would an individual take the risk of sticking their neck out - uncertainty will always have negative connotations.

This is also at the crux of the MEPC’s discussions on MBM, but often lost. Either the shipping industry is perfect in its economic efficiency and makes the most rational decisions in technology investment and energy efficiency of operation. Or the shipping industry is imperfect and market barriers and failures exist.

If the case is the latter, then there is scope for the right intervention (regulatory or non-regulatory) to broach any market barriers and achieve some level of efficiency increase without increasing transport costs and creating associated negative economic impacts. But if the case is the former, then following the theory that there is no such thing as a free lunch, any regulatory intervention will increase transport costs with whatever consequences on trade and economics that this creates. Whether these consequences are significant is then down to Impact studies, or similar, to establish.

Tristan Smith ,
19th March 2012 17:27 GMT

Comments on this Blog
Caroline Clarke
23rd April 2012
Salutations Tristan,
I am and advocate of supporting reward - Behaviour change divining initiatives aiding in positive triple bottom line outcomes is fair and equitable. Market initiatives are supportive in the context of ETS - here is a demonstration http://www.lloydslistdcn.com.au/classifieds/notice-to-trade
With the greatest of pleasure is this announced.
Kind regards
Jon Watson - Razaghi Meyer International
6th August 2012
Some interesting comments over at Linked in on the resistance to fuel efficiency solutions.
Some years back Tee Kay developed their own system which is pretty much what Fueltrax and Flow Technology's Fusion offer.... linking the fuel flow meters and engines, generators etc to the GPS data for fuel efficiency display allowing some modifications in how the engines are managed.
But despite some genuine savings on offer there seems to be a lot of resistance.
But the whole reason for most of the trends in shipping are surely to do with efficiency in any event - larger vessels, more efficient engines and so on are all, surely, the consequences of a desire to be more efficient. Perhaps most people don't see that as being the case but with fuel as 60/70/80% of operating costs, surely the most substantial investments are in bigger more efficient ships rather than in the many tweaks that these other measures represent?
Would the Panama canal be being upgraded if it were not for efficiency? There may be some reason for increasing capacity if the sheer number of vessels was a problem but the changes are about admitting larger vessels. Larger vessels are invested in because they are more efficient than smaller vessels, is that not so? Does this not represent a better utilisation of the available capital and a more certain return?
So perhaps it is just a matter of perspective. The investment in larger vessels is surely considerably more than can be spent on "improvements" to existing vessels. In an ideal world perhaps both can be expected.

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