Shipping has always played a role in facilitating globalization. Today, 90 percent of all the world’s traded goods are transported by international shipping, including minerals, oil and energy resources, as well as manufactured goods.1
As with many other trends in the world today, Indian and Chinese growth is driving the largest boom in commercial shipping in decades. Shipyard orders more than doubled from $100 billion dollars in 2005 to $264 billion dollars in 2007.2 China’s thirst for raw commodities, such as steel, are increasing shipping to China and China’s manufacturing boom made it the number one exporter of cargo containers to the U.S.3
Corporations today use global supply chains to develop their products. A simple supply chain might include: mining of the raw materials in one country; transforming the materials into parts in a second country; and, then assembling those parts in a third country. Imagine a shirt, the cotton is grown in one country, processed in a second country, and then assembled in a third. The buttons, zippers, and other accoutrements also must be made and then shipped to the assembly line as well.
One of the reasons why global supply chains can be so profitable is because fuel used by ocean freights and airplanes are not taxed. Although, fuel used by trucks, cars, and buses can be taxed. The Convention on International Civil Aviation, signed in 1944 to help the airline industry, states that fuel used for international travel and transport of goods is exempt from taxes. This incentive plays a huge role in fueling international trade.
This exemption though distorts the real price of international trade. Commercial shipping is responsible for twice as much carbon dioxide emissions than aviation. Burning bunker fuels leaves a black residue, which some researchers say are settling on ice and accelerating the melting of polar ice caps. Ships also emit nitrogen when burning fuel, which is responsible for algal blooms in the oceans. These blooms use up oxygen when they decompose, turning heavily trafficked waters into “marine dead zones,” such as in the Baltic Sea.4
To address these environmental costs, the European Commission (EC) will be requiring, by 2012, that freight-carrying flights in and out of the EU countries will have to participate in the EU’s emissions trading program and therefore will have to pay for the pollution generated by the flight. The EC is also negotiating with the International Maritime Organization and, if no solution is found, the EC will include sea freight in the emission trading program as well. The EC is also considering a freight tax specifically to address the environmental toll of shipping food; although critics maintain that shipping food might still use less energy than growing the food locally in greenhouses that require a lot of energy.5 Critics also maintain that by taxing the shipping industry, companies may switch to dirtier alternatives, such as trucks.
The International Maritime Organization recently announced it will be reducing the sulfur content of marine fuels from 4.5 percent to .5 percent by 2020 and it will be taking steps to reduce nitrogen oxide emissions in new ships, beginning in 2011.6 A recent American Petroleum Institute study found that it will take 13 years and $126 billion dollars in new equipment and chemicals to replace bunker fuels with cleaner dieselA denser, less refined form of oil that is widely used to fuel trucks, airplanes, and other industrial-strength machines.. Other options include more efficient marine engines and running vessels at slower speeds, but these options are still costly and are not realistic in an era when people want their goods fast.7
Fuel emissions are not the only environmental challenge facing the shipping industry. Safety and ship design are problems as well. The growth in global shipping has lead to an increased demand for new ships, which cannot be filled by traditional shipyards alone. New shipyards in Asia, especially in China, do not all have qualified ship designers and builders and are cutting corners as well. About 30-40 percent of all ships built in these yards are sub-quality.8
One design that is particularly troublesome is the single-hull oil tanker, which lacks a second layer of protective steel. Since 2001, eight of the 12 worst oil spills worldwide involved single hull oil tankers. Eighteen percent of the world’s crude oilOil that has been extracted from the ground but not yet refined into usable form. is transported in single-hull tankers. Since the Exxon Valdez spill, the U.S. forbids single hull tankers in its ports, although in 2007, the U.S. still imported six percent of its oil in single hull tankers. The EU will also phase out single hull tankers by 2010, but will exempt new single-hull tankers until 2015. Single hulls are cheaper to build and charter and are mostly used in Asia.9
Who will pay the cost for the greening the shipping industry? With rising energy costs and the increasing demand for commodities, such as steel, the shipping industry will be facing huge increases in their costs. The food crisis, the credit crisis, and the sub-prime mortgage crisis will be further exacerbated by increased prices for shipping goods and the subsequent price increase for the goods themselves. Yet the environmental costs to society are great as well. There are no easy solutions to balance these trade-offs.
1 Ambrogi, Stefano. “UBS starts marine freight index to tap China boom.” The Guardian. April 28th, 2008. http://www.guardian.co.uk/feedarticle?id=7489600
2 DeSimone, Rich. “Globalization keeps future bright for shipping.” March 24th, 2008. http://www.marinelink.com/pda/PdaStory.aspx?StoryID=211268
3 “China boost demand, supply for shipping.” April 21st, 2008. http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-24666080.htm
4 Kanter, James. “Sludge at sea: Shipping slow to clean up.” International Herald Tribune. April 25th, 2008. http://www.iht.com/articles/2008/04/25/business/wbshipping.php
5 Rosenthal, Elizabeth. “The Food Chain.” New York Times. April 26th, 2008. http://www.nytimes.com/2008/04/26/business/worldbusiness/26food.html?_r=1&pagewanted=print
6 “Global shipping industry agrees to deep cuts in pollutants.” Supply Chain Review. April 21st, 2008. http://www.supplychainreview.com.au/article.cfm?StoryID=34754&SiloID=0
7 Kanter, James. “Sludge at sea: Shipping slow to clean up.” International Herald Tribune. April 25th, 2008. http://www.iht.com/articles/2008/04/25/business/wbshipping.php
8 Basti, Abdul K. Abdul. “Troubled waters ahead for the ship industry.” Emirates Business. April 28th, 2008. http://www.business24-7.ae/Articles/2008/4/Pages/Troubled%20waters%20ahead%20for%20the%20ship%20industry.aspx
9 Stanley, Bruce. “Single-Hull tankers persist as global risk.”Wall Street Journal. May 2nd, 2008. http://online.wsj.com/article/SB120966690713660077.html?mod=googlenews_wsj