For a number of years the SSI has been vocal in championing the role of finance as an integral part of improving ship performance. We know that clean technologies are an important part of the solution in improving the operational efficiency of vessels, and in doing so, reducing fuel consumption and costs as well as associated emissions. It is one of the best ways of demonstrating that sustainability really does pay.
However, a real barrier to increased uptake is not just financing the retrofits in a market of little liquidity, but also deciding who reaps the rewards. It is the ship owner that is typically responsible for the upgrading of their vessels, however it is the charterer who benefits from the fuel savings. Ideally, both parties should benefit, but in a market of short-term time charters this becomes increasingly complex.
It is therefore great news to see that the Carbon War Room, an NGO committed to reducing carbon emissions within the shipping industry has delivered a landmark multiple technology retrofit project that will see the installation of a number of clean technologies on three Hammonia Reederei vessels, chartered by Intermarine. As well as delivering an anticipated 25% in fuel savings and reduced emissions, the collaboration also includes a revenue sharing scheme based on the fuel savings. Intermarine has agreed to award Hammonia a rate that is above the market rates through a retrofit clause within the charter party, sharing the fuel savings between both parties, while also earning Hammonia a five-year time charter.
It is a similar concept to the SSI’s Save As You Sail (SAYS) model, which also solves the split incentive challenge; delivering a financial model, which owners, charterers and financiers can use to model returns on investment and profits from more efficient vessels. Using SAYS, an owner and charterer can identify the estimated fuel cost savings and ROI associated with different upgrade options. The loan, which the owner can access through SSI member ABN AMRO is paid back over an agreed period, and if the first charter is shorter than the loan, SAYS enables changes of charterers during the financing period.
Indeed, our finance Working Group has been in collaboration with like-minded organisations, including the Carbon War Room, to further develop SAYS based on the shared belief that re-thinking financial models that can be used entirely or in part, will reduce emissions, while also improving vessel performance and profitability.
The Carbon War Room’s recent success proves the viability of such financial models. We hope that it is the foundation for the retrofitting and uptake of more innovative clean technologies that will work towards our goal of delivering a more sustainable and profitable shipping industry by 2040.