Regulation in shipping is often seen as an inconvenient necessity, with unintended negative consequences, but by getting in early regulations can support competitive advantage, argues Sofia Fürstenberg
International boundaries mean that regulatory development in the maritime industry is different to many others. As an international body IMO is a necessary vehicle to ensure safe, sound, responsible and fair operations around the world. Common standards are needed to ensure predictability and accountability, not least when it comes to technology development and innovation.
Clear boundary conditions are handy when you are setting up your innovation objectives. When boundary conditions change, so does your risk evaluation, your cost estimates, and your timeline.
In this industry we’ve got both stupid mistakes and brilliant examples. One instance of regulatory folly was the rushed drafting of the Ballast Water Convention, including an overly optimistic implementation timeline and compliance requirements which drew scepticism from marine biologists and toxicologists.
We all know the result of this blunder; a dispute in performance standards around the world leading to dubious compliance control, investment uncertainty and even bankruptcy of treatment technologies. But, worst of all as a result of these uncertainties and disputes, this badly needed, important convention has so far not had a chance to stop the transfer of alien species across our oceans.
But we don’t have to look far for a brilliant example of how things can work. Industry curiosity around the opportunity for the use of LNG as propulsion fuel for the merchant fleet, took a very different path. That saw a massive collaborative effort to develop rules, regulations, standards and policies to support a fast and cost-efficient uptake of LNG-propulsion related technologies.
Joint Industry Projects were launched to learn about risks and feasibilities, and private and public funds supported a fast technology development. LNG propulsion today is considered a mature proven technology. Without the initial wide-ranging collaborative effort, that situation would probably look different today.
Let’s be clear; environmental regulations are not popular with the maritime industry overall. The common attitude towards environmental requirements and standards by owners and operators is that they are “difficult”, “complex”, and often called “expensive” and even “useless”. Because of this common sentiment, the typical angle of attack from a ship owner’s perspective, is to procrastinate. When it comes to the art of procrastination, we are past masters.
With the IMO regulatory process being consensus-based, international regulatory development is slow. Slow however, is not necessarily bad. Slow can also be a consequence of being thorough.
But when lobby groups act with purpose to postpone or abolish a regulation, the process is not necessarily very productive. Something is clearly missing here. Could it be that regulatory development is not embracing and utilizing the technical and operational expertise residing with the industry, sufficiently?
But being late to the party has consequences. Currently, compliance with environmental regulations is often seen as a necessary evil, as a “ticket to trade”. The typical behaviour in the industry is to wait as long as possible to implement a regulation, in the belief that fulfilling requirements before they have come into force is a waste of money. But this is not necessarily true. The benefits of acting early may not be readily apparent, but I can list several.
Small-scale implementation enables preparedness for fleet-wise implementation. By embarking on that small-scale, early implementation operational procedures and control protocols as well as the control and maintenance of compliance technologies can be tested early on, which will also build new operational knowledge. Operational cost optimization, as well as improved installation regimes, can be accomplished through co-development with a technology maker, and co-development with port authorities can improve compliance control regimes and their efficiency, acquiring data and operational knowledge.
Finally, early implementation can enable baseline development of compliance cost performance, which in turn can support setting up realistic and ambitious improvement objectives.
By acting early, environmental regulations can work in a company’s favour, helping them to find competitive advantage. On the other hand, by delaying and postponing them environmental regulations can give the entire industry negative knock-on effects.
As ship-owners postpone implementation of a new rule, any negative operational implications of a technology, system or procedure will not be discovered early on. Without that insight the opportunity to have purposeful and cost-efficient improvements of a compliance technology is lost. That creates delay in the development and introduction of successful new technologies into the market.
On the supply side, uncertain enforcement regimes or dubious interpretation of compliance requirements, mean developers of a new technology solution are faced with an increased level of risk in bringing their technology to market, as regulatory uncertainty will act as an effective investment barrier to a ship-owner.
So what’s the winning tactic? Technology innovation needs clear boundary conditions to have success. This includes having a predictable regulatory environment, but more than that, to have regulations which are smart. Smart regulations are those which are carefully crafted by a collaborative effort, where all impacts (political, technical, social, environmental, legal and economic) of a regulation are suitably considered and evaluated from the outset. This requires that all expertise along the value chain has presence in the regulatory development process, including ship owners who could embrace this as an opportunity for cost-efficient compliance. Proactive engagement and early deployment could see shipping’s ‘early birds’ catching the worm.
In this scenario regulatory development becomes an enabler for innovation, and for the economic and environmental sustainability of shipping as an industry.