Stranded Assets and the Shipping Industry

According to IMO forecasts, CO2 emissions from world shipping could double by the year 2050. Although shipping is in most cases the most efficient mode of transport per unit of transport supply, it is still heavily reliant on heavy fuel oil to power its propulsion. The IMO has introduced regulations to bring about reductions in the emissions of ships, including an Energy Efficiency Design Index which sets a mandatory CO2 intensity reduction target for new ships and imposing a sulphur regulation on ships operating in certain sea areas. At the same time, charterers are beginning to factor energy efficiency into their commercial decision-making through use of the EVDI (an approximation of EEDI). Exemplifying this trend, Cargill, Huntsman and UNIPEC UK publically announced in October 2012 that they would no longer charter the least efficient ships in the fleet. This regulatory environment, along with the uncertainty in energy prices and increased awareness of the industry’s carbon footprint, poses a threat to existing ships’ profitability and may result in certain ships becoming stranded assets. The objective of this paper is to identify the supply and demand-side risk factors contributing to existing ships becoming stranded assets, and to frame how an assessment could be carried out on the risk of stranded assets in the shipping industry.