The ongoing crisis in the Red Sea is wreaking havoc on shipping companies, leading to a potential threefold increase in costs for 2024, according to findings by OceanScore, a maritime technology firm based in Hamburg. The primary driver of these escalating costs is the heightened exposure to the European Union Emission Trading System (EU ETS), which came into effect on January 1, 2024. This system stems from increasing regulations imposed by the International Maritime Organization (IMO) and the EU, aimed at curbing greenhouse gas (GHG) emissions from vessels navigating European waters and docking at European ports.
Under the EU ETS, cargo and passenger ships over 5,000 gross tonnage (GT) are subject to emissions caps and trading regulations starting in 2024, with offshore ships facing similar restrictions from 2027.
OceanScore’s analysis reveals that persistent missile attacks by Yemen’s Houthi military group on ships transiting the Red Sea have forced shipping companies to divert their routes, resulting in significantly increased fuel consumption and emissions. As vessels opt for alternative routes, such as the longer journey via the Cape of Good Hope, fuel consumption has spiked, adding approximately 9,000 nautical miles to the trip and raising costs substantially.
According to data from Clarksons Research, container ship transits through the Gulf of Aden to the Mediterranean have plummeted by 91% since December, with hundreds of vessels being diverted. Conversely, arrivals at the Cape of Good Hope have surged by 81% during the same period.
The disruption in trade routes has triggered a surge in spot freight rates, which have risen two to three times higher than pre-crisis levels. Charter rates are also up by 28% since December.
OceanScore’s analysis indicates that the diversion of marine traffic has significantly increased shipping companies’ exposure to the EU ETS. The firm estimates that for a 14,000 twenty-foot equivalent unit (TEU) container ship, the number of required EU Allowances (EUA) to cover emissions could rise from 1,800 per voyage to 5,200 per voyage, resulting in a near-threefold increase in costs.
Albrecht Grell, co-Managing Director of OceanScore, emphasized that while EUA liabilities contribute to rising costs, the safety of crews and vessels remains the paramount concern amid the ongoing crisis in the Red Sea.
The outlook for ocean freight remains uncertain, with the continuation of Houthi attacks posing a significant threat to shipping operations. Consequently, shipping companies are urged to prepare for higher emissions liabilities in the foreseeable future, while prioritizing the safety and security of their personnel and vessels.
Source: OceanScore, OffshoreEnergy.biz.
