CARBON EFFICIENCY IN COMMODITIES TRADING: THE CURIOUS CASE OF DRAGONS AND DINOSAURS


The impact of maritime decarbonisation on charterparties has attracted attention recently, in view of IMO and EU regulations (EEDI, EEXI CII, EU ETS, FuelEU). But charterparties represent only part of the contractual architecture that enable commodities trading.


In the same way that maritime trade can only be understood as a web of contracts – at the centre of which is the sale contract for the cargo on board – maritime decarbonisation must also be viewed through the prism of contracts, including the sale contract.


Commodities trading may seem unable to do much in relation to the technical challenges of decarbonization, but it can play a big role in a different way: the largest carbon inefficiency in maritime trade is a practice that is a feature of both shipping and commodities trading, and has its contractual foundations in both charterparties and sale contracts.


BUT LET'S START FROM THE BEGINNING The leading maritime economist Martin Stopford describes maritime trade as operating “…within a strict economic regime, which would be immediately recognizable by 19th century classical economists … an economic Jurassic Park where the dinosaurs of classical economics roam free …”.


In that Jurassic Park, there is also an operational practice that remains essentially unchanged: Ever since the age of sail, ships have sailed as fast as they can across the oceans to get to the safety of


an anchorage. Seafaring was the riskiest human endeavour. As the old maps noted right in the middle of every ocean – "here be dragons".


And centuries passed, sail gave way to steam, steam gave way to oil, we have had several technological revolutions – and yet ships still Sail Fast, Then Wait (SFTW). There are no dragons any more, but SFTW is a dinosaur that refuses to go extinct.


We've known for a long time that fuel savings of about 20% could be achieved by introducing a just-in-time berthing system. But until recently, no one cared. Fuel was cheap. Shipping and commodities trading have been invisible.


But on the horizon, with the inevitability of an approaching tsunami, looms the challenge of decarbonisation. And we now see the joining-up of the links to the supply chain, where a vessel's emissions are not only a concern for the shipowner, but also for the charterer, shipper and receiver. The previously invisible world of commodities trading, is now an obvious link in the chain


of Scope 3 emissions, which ends with the final customer, often a consumer.


Put simply, decarbonisation is not simply a technical challenge for shipbuilders and shipowners, but is becoming a key element in commodities trading.


Savings of the order of magnitude that can be achieved by eradicating SFTW become impossible to ignore. Let's put the numbers in context. Emissions from shipping are equivalent to those of Germany. Removing 20% of that would be equivalent to removing the totality of the emissions of a mid-sized country.


The operational practice of SFTW is underpinned by the contractual architecture and structure of maritime trade for four main reasons:


1. There's a jurisdiction gap - SFTW is an operational and commercial practice. The IMO, flag states, coastal states have no jurisdiction in the high seas - beyond matters of safety and environmental protection.


10 | ADMISI - The Ghost In The Machine | Sustainability Edition 2023


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