Shipping decarbonisation partnerships – a structured approach
That the gradual elimination of greenhouse gases (GHG) emissions requires collaboration between actors and sectors has become common knowledge. This holds true for decarbonisation efforts across the economy and therefore also includes the maritime / shipping industry.
In this sector, broader alignment is definitely required as decarbonisation in one value chain depends on developments in other chains. As examples, green ships require green steel and clean ship operations need alternative fuels. The required collaboration / alignment is best achieved through partnerships, as part of such things as forums, alliances, coalitions etc.
Recently, various types of partnerships with different goals have emerged in the maritime industry and decarbonisation ecosystem. But, as recognised by the report Decarbonising Shipping: All Hands On Deck, so far less attention has been paid to the type, mix, and behavioral aspects of the partnerships required.
This article outlines a framework to categorise and position decarbonisation partnerships. The simultaneous application of this framework in multiple interrelated sectors can ensure a holistic approach to decarbonisation, as the alignment enabled by such a framework avoids shortages or oversupply of decarbonisation input factors or decarbonisation assets by encouraging coordinated development.
We investigate what type of partnerships in the maritime decarbonisation ecosystem or across the clusters of interrelated value chains of different industries exist or not, and why. This can help companies to make more conscious decisions on what partnerships to join and when and what requirements and benefits result from this effort.
While we found that there is no natural path of evolution for (decarbonisation) partnerships, there are, though, natural routes of learning. Moving up the learning curve allows actors to gradually expand their competencies in knowledge building and partnership management enabling them to cope with growing complexity and move from more natural / easier to establish partnerships which are limited in impact, to those that are more effective but also more complex and demanding.
The most natural decarbonisation partnerships emerge from existing business relations while the most complex are multi-stakeholder groupings spanning across multiple industries and sectors.
Based on our characterisation / categorisation of partnerships, this article also therefore makes a call for companies and other actors in the broader decarbonisation ecosystem to establish and / or to join decarbonisation partnerships in a more systematic way.
Interrelated value chains as focal points
A value chain is a step-by-step business process and model that brings a product or service from idea to reality. Ideally, every step along the chain adds – as the name indicates – its specific value. Negative environmental impacts, such as GHG emissions but also social aspects, should be key considerations in the business model design.
Effective decarbonisation requires covering the entire ecosystem of interrelated value chains (VCs) to ensure that all relevant decarbonisation enablers and the actors that drive them are brought into the mix.
The enablers are spread across the cluster(s) of critical VCs. The VCs deliver the economic, social and environmental value in the economy. Environmental value can be achieved by avoiding damage, such as harmful emissions; limiting negative impact, such as oil spills; or repairing parts of the environment through such measures as reforestation or by closing burdened parts of the oceans to economic activities.
Thus, a value chain approach that considers environmental impacts helps us to drive decarbonisation across our economy. Different stakeholders involved in different forms of partnerships (vertical, horizontal, or diagonal) with different value chains (company, industry, or ecosystem) deliver on different requirements of decarbonisation.
As VCs are interdependent, achieving the lowest possible levels of emissions requires the alignment of supply and demand of clean input factors and decarbonisation assets across the entire ecosystem in question.
How this plays out in real life can be explained with the help of the three interrelated critical maritime VCs involved in decarbonising shipping. These three chains are the marine fuel value chain, the shipbuilding value chain, and the maritime operational value chain.
Demand for alternative fuels and clean ships is driven by the operational value chain. The alternative marine fuel VC thus needs to be set up in a way that it supplies enough fuel for the ships with alternative fuel engines.
The various VCs also require transport, either of goods or data, which also needs to be aligned in terms of capacity and is, furthermore, an activity that needs to be factored into the GHG emissions footprint calculations and elimination.
It is therefore necessary that the three VCs need to be developed quasi-simultaneously to avoid shortages or oversupply in either ships, engines, and fuel, or bottlenecks in transport capacity. This all requires coordination between the stakeholders operating the different VCs and can only be achieved through collaboration and partnerships.
Different forms of partnerships
Collaboration can be vertical, horizontal, or diagonal. Each form of partnership can focus on three areas of VCs: company, industry, and ecosystem. Recently, we have observed a proliferation of different types of partnerships across the field of decarbonisation. This trend includes the shipping / maritime industry.
In the matrix below (Figure 1) the different forms of collaboration have been arranged according to two dimensions: first, the form of partnership (vertical, horizontal, and diagonal), and second, the focus of partnership (company, industry, and ecosystem).
Vertical partnerships are built along the value chains, downstream or upstream or both. They are usually driven by one single stronger player in the chain that aligns, for example, upstream with energy companies to ensure that enough supply of fossil free energy is available, and downstream with customers that use services consuming energy.
Such vertical partnerships, putting the partners’ value chains in focus, can result in vertical integration where, for example, a shipping company acquires an energy provider or establishes its own fuel production. One example of a vertical partnership from the shipping industry focused on decarbonising a company’s value chain is the partnership between AP Moller-Maersk and renewable energy firm Ørsted on capabilities to produce zero emission maritime fuels.
Horizontal partnerships are built between competitors that share common goals, for example, the increase of asset productivity to reduce costs and GHG emissions. An example of a horizontal industry focused partnership is the Tankers International VLCC Pool bringing competitors together in a joint pool of resources of wet bulk vessels.
Diagonal partnerships cut across different stakeholder groups, horizontally and vertically, and regularly include other actors like international or intergovernmental organisations. But we also find these actors in the other two types of partnerships as it is usually easier for them to initiate multi-stakeholder alliances as they instill trust through an impartial approach and proper governance.
The Global Maritime Forum, with the Getting to Zero Coalition, pursued in collaboration with the World Economic Forum is an example of a diagonal partnership within a focus on the shipping industry.
The Mission Possible Partnership (MPP) which is an alliance to trigger a net-zero transformation in seven industry sectors with the Energy Transitions Commission, RMI, We Mean Business Coalition, and the World Economic Forum as the four core partners, is an example of an ecosystem focused diagonal partnership. The industries in focus are aluminum, chemicals, concrete/cement, steel, aviation, trucking, and shipping. Partnerships at the ecosystem level can include more than one neutral partner representing the different industries involved.
Each type of partnership plays a role in responding to the challenge of decarbonising the economy, particularly the world’s highest-emitting and hardest to abate industries like those covered by the MPP.
Emergence of Complementary Partnerships
As each partnership requires different levels of knowledge and partnership management capabilities, its nature and characteristics determine its probable emergence. The magnitude of complexity that needs to be dealt with in each case depends on the focus and form of the various different partnerships as shown in our matrix above (Figure 1). The complexity grows from company to industry to ecosystem as well as from vertical to horizontal to diagonal partnerships.
Regulation, pressures exerted by the market or the population, as well as strategic priorities can also influence the sequence in which partnerships emerge. At the same time, anti-trust and competition concerns can interfere, in particular making horizontal partnerships more difficult.
Vertical partnerships, which represent an easier starting point for collaboration, can evolve into industry or ecosystem partners or trigger a development giving impetus to additional vertical partnerships on a company, industry, or ecosystem level.
Vertical decarbonisation partnerships focused on companies’ VCs are currently mushrooming (vertical / company (A1)). Engaging in collaboration on industry and ecosystem level (vertical / industry (A2) and vertical / ecosystem (A3)) requires a willingness and ability to develop a broader knowledge base and more sophisticated orchestration / relationship management capabilities.
Diagonal partnerships, which are possibly the only way to achieve alignment across interrelated VCs and different industries, are more likely to emerge when neutral partners are engaged. We observe a rising number of partnerships emerging in this area, particularly focused on the industry level (diagonal / industry (C2)), but also on ecosystem level (diagonal / ecosystem (C3)).
This can possibly be explained by an increasing awareness that we are living and operating in a world of interdependent systems of systems, which require large-scale multi-stakeholder engagement to avoid system failures and drive system change.
Horizontal partnerships on company, industry, and ecosystem level (B1 / B2 / B3) are usually hardest to achieve due to competition and anti-trust concerns but are important as they can satisfy pressing requirements like common infrastructure and standards. A big idea or wider vision can be instrumental to overcome before-mentioned concerns.
Figure 2 below, based on the matrix in Figure 1, shows the current trends in the establishment of complementary partnering in shipping and the economy. It also indicates the evolution of complexity and natural routes of learning for establishing partnerships, as discussed above.
Besides the partnerships already mentioned above, other examples are the CMA CGM ship-to-ship LNG bunkering project with the goal to establish a Mediterranean LNG hub (vertical / industry (A2)), the Global Centre for Maritime Decarbonisation (GCMD), the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, and the newly announced collaboration on Singapore and Rotterdam partnering with industry stakeholders on Green and Digital Corridor (diagonal / industry (C2)), and the Digital Container Shipping Association (DCSA) (horizontal / industry (B2)).
Our observation is that the level of partnering activities in the maritime industry has been increasing significantly. This momentum should be acknowledged but also leveraged to reach the critical mass of partnerships for the right level of alignment across stakeholders.
This article calls out the need for expanding the industry’s knowledge base and partnering capabilities so as to reach a critical mass and initiate a decarbonisation “chain reaction”. In our view competencies are not prerequisites for entering into partnerships as they can be learned and obtained along the way. But entering partnerships at progressively increasing levels of complexity will probably make things easier.
Informed by the decarbonisation partnerships matrix that we have described, actors can design their partnering roadmap and prioritise and sequence partnerships that they wish to engage in. The urgency for action on decarbonistion suggests that companies should join existing partnerships and consider establishing partnerships where there is an unmet need. This will not only benefit partners, industry and ecosystem but also the companies themselves as they grow their collaboration competencies and their knowledge base.
Partnerships in the shipping industry are composed of many more stakeholders than might at first appear. Decarbonisation is everybody’s business. However, considering the limited resources of the smaller players in terms of capital and talent it requires the larger actors to take the action and include them into their efforts.
If this does not happen at scale, it will need the public sector or international regulators to offer support by crafting the appropriate policies and programmes to empower the long tail to also accelerate their decarbonisation efforts.
Furthermore, we suggest that the current partnerships, that mostly consist of larger players, should increase their efforts to also bring the myriad of other actors on board. This will make it more likely that the ambitions currently set by the International Maritime Organization (IMO) and the Paris Agreement can thereby be achieved.
This article is adapted from Article No. 92 published in the UNCTAD Transport and Trade Facilitation Newsletter N°95 – Third Quarter 2022.