sustainability

Article Speed Optimization vs Speed Reduction: the Choice between Speed Limits and a Bunker Levy

Harilaos N. Psaraftis DTU Management, Technical University of Denmark, 2800 Lyngby, Denmark; [email protected]



Received: 18 March 2019; Accepted: 10 April 2019; Published: 15 April 2019


Abstract: “Speed optimization and speed reduction” are included in the set of candidate short-term measures under discussion at the International Maritime Organization (IMO), in the quest to reduce greenhouse gas (GHG) emissions from ships. However, there is much confusion on what either speed optimization or speed reduction may mean, and some stakeholders have proposed mandatory speed limits as a measure to achieve GHG emissions reduction. The purpose of this paper is to shed some light into this debate, and specifically examine whether reducing speed by imposing a speed limit is better than doing the same by imposing a bunker levy. To that effect, the two options are compared. The main result of the paper is that the speed limit option exhibits a number of deficiencies as an instrument to reduce GHG emissions, at least vis-à-vis the bunker levy option.

Keywords: greenhouse gases; speed reduction; speed optimization; speed limits

1. Introduction International shipping is currently at a crossroads. The decision of the 72nd session of the Marine Environment Protection Committee (MEPC 72) of the International Maritime Organization (IMO) in April 2018 to adopt an initial strategy for the reduction of maritime green house gas (GHG) emissions [1] epitomizes the last among a series of recent developments in regards to sustainable shipping. It also sets the scene on what may happen in the future. The IMO initial strategy is in the form of Resolution MEPC.304(72), and includes, among others, the following elements: (a) The vision, (b) the levels of ambition, (c) the guiding principles, (d) a list of short-term, medium-term and long-term candidate measures with a timeline, and (e) miscellaneous other elements, such as follow up actions and others. As regards the levels of ambition, we highlight two important targets: (i) To peak GHG emissions from international shipping as soon as possible and to reduce the total annual GHG emissions by at least 50% by 2050 compared to 2008 and (ii) to reduce CO2 emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008. Among the set of candidate short-term measures, those that are to be finalized and agreed to between 2018 and 2023, one can find the following: “Consider and analyze the use of speed optimization and speed reduction as a measure, taking into account safety issues, distance travelled, distortion of the market or trade and that such measure does not impact on shipping’s capability to serve remote geographic areas” The rationale for the measure is very simple. Given the non-linear (at least cubic) relationship between ship speed and fuel consumption (and hence emissions, GHG, and other), reducing ship speed looks like a very promising alternative. So “speed reduction” comes naturally as an obvious candidate GHG reduction measure. It is actually not that simple. In the debate at the IMO prior to MEPC 72, some countries in South America (and most notably Chile and Peru) objected to the use of the term “speed reduction”

Sustainability 2019, 11, 2249; doi:10.3390/su11082249 www.mdpi.com/journal/sustainability Sustainability 2019, 11, 2249 2 of 18 as a possible measure, on the ground that this may constitute a barrier to their exports to Asia (and particularly to those that involve perishable products such as agricultural products and others). They suggested the use of “speed optimization” instead. In a compromise solution, at MEPC 72 both wordings were included in the IMO decision text, and hence the above wording. However, what is meant by “speed optimization” in that text is far from clear and hence may be subject to different interpretations. It turns out that the term “speed reduction” is not well defined either. In many IMO submissions and in some other documents such as studies, papers, etc. there is widespread confusion on how the term “speed reduction” is interpreted. Sometimes it is interpreted in a literal sense that is reducing speed, irrespective of how the reduction is achieved. In that sense, it is often used as a synonym for “slow steaming,” which is a voluntary measure. But some other times the term is interpreted as mandating speed limits, another name used being “regulating speed”. In fact, a recurrent measure that has been and is being promoted by various Non-Governmental Organizations (NGOs) is mandating speed limits. Since GHG emissions can be reduced by reducing speed, can we achieve the same desirable outcome by imposing speed limits? This is an argument that is being heard frequently over the last several years. The Clean Shipping Coalition (CSC), an NGO, advocated at IMO in 2010 that “speed reduction should be pursued as a regulatory option in its own right and not only as possible consequences of market-based instruments or the EEDI.” However, that proposal was rejected by the IMO at the time. In spite of this decision, lobbying for speed limits has continued by CSC and other groups, and speed limits have been discussed at IMO/MEPC 72 and have succeeded in being included in the roster of candidate short-term measures of the IMO Initial Strategy. Thus, even though in the eyes of countries like Chile and Peru policies that involve mandatory speed limits are termed “speed reduction” (or even “slow steaming”), in a literal sense speed reduction may also be (a) the voluntary choice of ship operators as a result of depressed market conditions and/or high fuel prices, or (b) the outcome of other, non-prescriptive policies, such as for instance imposing a bunker levy. Confusion on which of these cases pertains not only may prevent one to examine the pros and cons of the various options, but it may also shift regulatory focus. It is one thing to see how to influence the factors that can lead to a rational speed and hence GHG emissions reduction, and another thing to contemplate a direct prescription of the outcome itself, in this case a specific speed limit. Focusing on speed reduction as an outcome and not on the factors that can cause it makes a rational policy decision on the subject more difficult to achieve. The purpose of this paper is to shed some light into the speed limit debate, and specifically on whether reducing speed by imposing a speed limit is better than doing the same by imposing a bunker levy. We note here that a bunker levy comes under the umbrella of market based measures (MBMs). MBMs have been discussed at the IMO between 2010 and 2013 but their discussion was suspended in 2013, mainly for political reasons. For a discussion of that debate see Psaraftis [2,3]. MBMs are included in the Initial Strategy as a candidate medium-term measure (those are to be finalized and agreed to between 2023 and 2030), as follows: “New/innovative emission reduction mechanism(s), possibly including Market-based Measures (MBMs), to incentivize GHG emission reduction” Note the word “possibly”, which means that, as things stand, the fate of MBMs at the IMO is unclear at best. As this paper was being written, two submissions to the IMO have asked for the MBM discussion to reopen: One was by France [4] and the other was by a group of Pacific islands [5]. The French submission did not propose a specific MBM, whereas the Pacific islands proposed a bunker levy. Other than these two submissions, interest on MBMs, at least at the IMO, seems currently slim. The EU has agreed to align itself with the IMO process, and essentially refrain from taking action on a possible inclusion of shipping into the EU Emissions Trading System (ETS) before seeing what the IMO intends to do on GHGs. ETS is an MBM, and the EU ETS is a major instrument in EU energy policy, covering electricity production and several other major industries (but not shipping). The European Commission will closely monitor the IMO process, starting from what is agreed on the initial strategy Sustainability 2019, 11, 2249 3 of 18 in 2018 and all the way to 2023. Whether or not this latest agreement at the EU level might put some pressure on the IMO to resume the suspended discussion on MBMs and adopt a global MBM before the EU moves on ETS is unclear at this time. And even though the ETS looks like the default scenario for the EU if progress at the IMO is not deemed satisfactory, precisely what action the EU will take and when that action will be taken is equally unclear. Dealing with ship speed is not new in the maritime transportation literature and this body of knowledge is rapidly growing. In Psaraftis and Kontovas [6] some 42 relevant papers were reviewed and a taxonomy of these papers according to various criteria was developed. Many additional papers dealing with ship speed appeared after the above publication. That paper’s Google Scholar citations as of April 2019 stood at 224, and even included papers in seemingly unrelated journals, for instance a paper in “Meat Science” that examined factors that may affect the spoilage of vacuum-packed lamb transported to distant markets [7]. The growing number of references indicates a strong interest of researchers in this topic. The rest of this paper is organized as follows: Section2 provides some background and Section3 presents the arguments put forward by the speed limiters. Section4 performs a comparative assessment among the two schemes and Section5 presents the conclusions of the paper.

2. Background

2.1. Definition of “Speed Optimization” The term “speed optimization” may mean different things to different people. This may create confusion whenever the measure is discussed. The first confusion is already built-in by the IMO, and comes in the context of the so-called Ship Energy Efficiency Management Plan (SEEMP), the application of which is mandatory for all ships and was adopted by the IMO at the same time as the Energy Efficiency Design Index (EEDI). According to SEEMP [8],

“Speed optimization can produce significant savings. However, optimum speed means the speed at which the fuel used per tonne mile is at a minimum level for that voyage. It does not mean minimum speed; in fact, sailing at less than optimum speed will consume more fuel rather than less. Reference should be made to the engine manufacturer’s power/consumption curve and the ship’s propeller curve. Possible adverse consequences of slow speed operation may include increased vibration and problems with soot deposits in combustion chambers and exhaust systems. These possible consequences should be taken into account.”

Defining the optimum speed as the speed that minimizes fuel used per tonne mile is not very useful. In many cases, minimizing such an objective implies sailing at the minimum permissible speed. In other cases, there is a lower limit to speed reduction as a fuel saving measure, with very low service speeds being associated with high specific fuel oil consumption. Also, the above definition ignores the fact that the speed decision is influenced by a multitude of factors, both technical and commercial, in addition to prevailing weather conditions. A definition that does not exhibit such deficiencies is the following:

Speed optimization can be defined as the selection of an appropriate speed profile for the ship so as to optimize a specific objective while meeting various requirements (or constraints) on the ship’s operation. The speeds that correspond to the chosen speed profile are called “optimal speeds”.

Given the above definition, what is the objective being optimized, and what are the constraints? The objective critically depends on who pays for the fuel. If the ship owner pays for the fuel (spot charter scenario in a tramp shipping setting, or ship owner operating his own ships in a liner shipping setting), a typical objective is to maximize average per day profit. If the charterer pays for the fuel Sustainability 2019, 11, 2249 4 of 18

(time charter scenario in a tramp shipping setting, or liner operator using chartered vessels), a typical objective is to minimize average per day cost. Of course, it is conceivable that the ship operator may not, for various reasons, act so as to optimize any of the above objectives, or maybe also have additional objectives, secondary or not. Whereas another conceivable objective (to be minimized) would be GHG emissions, this would be a relevant objective for society, and no private ship operator will necessarily adopt such an objective on a voluntary basis. Note however that this objective is equivalent to minimizing fuel consumption, or fuel costs, so whenever fuel costs are the predominant operational cost component, a solution that minimizes operational costs is close to a solution that minimizes GHG emissions. In this case we may have a win-win scenario, or close to a win-win scenario. By win-win we mean a solution that is optimal both for the ship owner and for society. Win-win solutions are obviously desirable, however obtaining them may not always be feasible. It is one of the tasks of policy makers, at the IMO and elsewhere, to create the conditions that can make win-win solutions feasible. Constraints in speed optimization may include specified deadlines or time windows for loading or unloading the cargo, scheduling or timetabling requirements for serving specific ports or meeting feeder connections (liner markets), and maximum and minimum allowable speeds dictated by the maximum power and technology of the main engine. We may also have constraints on maximum allowable hull stress and vertical or transverse accelerations for the safety of the ship and of the cargo and for the comfort of the passengers and the crew. All of these constraints would, in distinct ways, define the feasible envelope for the ship’s speed, and may actually even determine the speed itself.

2.2. Slow Steaming: A Voluntary Practice Slow steaming is defined as the voluntary practice of sailing slower than a vessel’s design speed. It is typically seen in periods of depressed market conditions and/or high fuel prices. That slow steaming is being practiced in periods of depressed market conditions can be confirmed by the fact that whatever fleet overcapacity existed has been virtually absorbed. Since early 2009, the total containership capacity absorbed due to the longer duration of total roundtrip time for long haul services has reached 1.27 million TEU in October 2013 (taking early 2009 as a starting point), based on Alphaliner’s estimates [9]. More recently (2016), UNCTAD [10] documented a continuing sluggish demand challenged by an accelerated massive global expansion in container supply capacity, estimated at 8% in 2015—its highest level since 2010. Even more recently (2018), the two largest container carriers, Maersk and MSC, have agreed to further slow steam to cut costs, with some speeds as low as 13 knots [11]. Slow steaming is not only practiced in the container market, although it may seem to make more sense there due to the higher speeds of containerships. Slow steaming is reported in every market. On a global scale, and according to the third GHG study of the IMO, the reduction of global maritime CO2 emissions from 885 million tonnes in 2007 to 796 million tonnes in 2012 is mainly attributed to slow steaming due to the serious slump in the shipping markets after 2008 [12].

2.3. Factors that May Influence Ship Speed To understand the main factors that may impact ship speed, Figure1 captures the impact of both freight rate and bunker price on optimal speed for a specific very large crude carrier (VLCC) trading from the Persian Gulf to Japan. Optimal here means to maximize average per day profit for the ship owner, and speeds are optimized separately in both laden and ballast conditions. Two market conditions are shown for the spot rate, one at Worldscale (WS) 60 and one at WS120 (WS is a nondimensional index measuring the spot rate and is exclusively used in the tanker market). In Figure1 bunker prices (HFO, Heavy Fuel Oil) range from USD400 to USD1000 per tonne. If both laden and ballast speeds are allowed to vary freely, it can be observed that the impact of both freight rate and bunker price on optimal speed can be quite dramatic, and that the range of optimal speeds can be very broad, Sustainability 2019, 11, x FOR PEER REVIEW 5 of 18 Sustainability 2019, 11, 2249 5 of 18 rate andSustainability bunker 2019 price, 11, x on FOR optimal PEER REVIEW speed can be quite dramatic, and that the range of optimal5 of 18speeds can be very broad, depending on the combination of values of these two input parameters. In Figure depending1 it canrate onbe and observed the bunker combination thatprice optimal on optimal of values ballast speed ofspeeds can these be arequit two typicallye dramatic, input parameters.higher and that than the optimal range In Figure of ladenoptimal1 it speeds can speeds be by observed 1.0 knot incan the be lowervery broad, rate scenariodepending and on bythe 1.5combination knots in ofthe values higher of theserate scenario. two input parameters. In Figure that optimal1 it ballastcan be observed speeds that are optimal typically ballast higher speeds than are typically optimal higher laden than speeds optimal by laden 1.0 knotspeeds in by the 1.0 lower rate scenario andknot by in the 1.5 lower knots rate in scenario the higher and by rate 1.5 knots scenario. in the higher rate scenario. 17.5 17.0 17.5 16.517.0 16.016.5 15.516.0 laden leg 15.015.5 14.515.0 ladenspeed leg WS60 14.014.5 speed WS60 13.514.0 ballast leg 13.013.5 ballast leg 13.0 speed WS60 12.512.5 speed WS60 12.012.0 11.511.5 ladenladen leg leg 11.011.0 speedspeed 10.510.5 WS120WS120

10.0(knots) Speed

10.0(knots) Speed 9.59.5 9.09.0 8.58.5 8.08.0 200 400 600 800 1000 1200 200 400HFO 600 cost 800(USD/tonne) 1000 1200 HFO cost (USD/tonne)

Figure 1. OptimalFigure 1. Optimal very large very large crude crude carrier carrier (VLCC) (VLCC) speed speed as asa function a function of spot of rate spot and rate bunker and price. bunker price. Figure 1. Optimal very large crude carrier (VLCC) speed as a function of spot rate and bunker price. WS is the WorldScaleWS is the WorldScale index. index. Adapted Adapte fromd from Gkonis Gkonis and Psaraftis Psaraftis [13]. [ 13]. WS is the WorldScale index. Adapted from Gkonis and Psaraftis [13]. Figure 2 shows annual CO2 emissions for the same VLCC as a function of bunker price and spot Figure2 shows annual CO 2 emissions for the same VLCC as a function of bunker price and spot Figurerate. It 2can shows be seen annual that CO CO2 emissions2 emissions can for be thereduced same significantly VLCC as a if fu fuelnction price of goes bunker up. This price points and spot rate. It canout be to seen the possible that CO importance2 emissions of a bu cannker be levy reduced as a tool significantly to reduce CO if2 emissions. fuel price The goes figure up. also This points rate. It can be seen that CO2 emissions can be reduced significantly if fuel price goes up. This points shows that emissions will be reduced (sometimes significantly) whenever fuel prices are up and/or out toout the to possiblethe possible importance importance of of a a bunker bunker levylevy asas a tool to to reduce reduce CO CO2 emissions.2 emissions. The Thefigure figure also also the state of the market is down. Such a reduction is attributed to slow steaming. showsshows that that emissions emissions will will be reducedbe reduced (sometimes (sometimes significantly) significantly) wheneverwhenever fuel prices prices are are up up and/or and/or the statethe of thestate market of the market is down. is down. Such Such a reduction a reduction is attributed is attributed to to slow slow steaming. steaming. WS120 WS100 WS60

Annual CO2 90.000 WS120 WS100 WS60 emissions 80.000 -29% Annual(tonnes) CO2 90.00070.000 60.000 emissions 80.000 -57% 50.000 -29% (tonnes) 70.000 -60% 40.000 60.000 -64% 30.000 -57% 50.000 20.000 -60% 40.000 10.000 -64% 30.0000 20.000 400 600 800 1000 10.000 HFO cost (USD/tonne)

0 Figure 2. Annual CO2 emissions (single VLCC tanker) as a function of fuel price and spot rate. WS is 400 600 800 1000 the WorldScale index. Source: Gkonis and Psaraftis [13]. HFO cost (USD/tonne) Fuel price and the state of the market being the prime factors that influence ship speed, other FigureFigurefactors 2. Annual 2. that Annual are CO importantCO2 emissions2 emissions include (single (single in-transit VLCCVLCC inventorytanker) as as costsa afuncti function ofon the of cargo offuel fuel price (higher price and and valuedspot spot rate. cargoes rate.WS is WS is the WorldScalethe WorldScale index. index. Source: Source Gkonis: Gkonis and and PsaraftisPsaraftis [13]. [13].

FuelFuel price price and and the statethe state of the of marketthe market being being the primethe prime factors factors that that influence influence ship ship speed, speed, other other factors that arefactors important that are includeimportant in-transit include in-transit inventory inventory costs of costs the cargoof the (highercargo (higher valued valued cargoes cargoes inducing higher speeds), and possible time windows on the pick up and/or delivery of the cargoes. For a discussion of these issues see Psaraftis and Kontovas [6] and Psaraftis [14].

2.4. Other Contexts and Side-Effects Psaraftis and Kontovas [15] investigated, among other things, the option to slow down in sulfur emissions control areas (SECAs) to reduce the quantity of SOx produced. Realizing that a reduced speed Sustainability 2019, 11, 2249 6 of 18 can not alter the percentage of SOx emissions in a ship’s exhaust, it was shown that if the ship speeds up outside the SECA to make up for lost time within the SECA, more emissions will be produced overall, including SOx. Fagerholt et al. [16] and Fagerholt and Psaraftis [17] examined route-speed alternatives for ships operating in and out of emissions control areas (ECAs) and Magirou et al. [18] developed stochastic optimal control schemes for speed optimization in a dynamic setting. Giovannini and Psaraftis [19] developed a model for a fixed route liner shipping scenario, which, among other things, considers flexible service frequencies, to be selected among a broader set than the standard assumption of one call per week. The impact of the line’s decisions on CO2 emissions was also examined. A possible side-effect of speed reduction concerns possible shifts to other modes of transportation, to the extent these are alternatives to shipping. If ships are made to go slower, shippers may be induced to prefer land-based modes, mostly road, and that may increase overall GHG emissions. Even in long-haul scenarios such as the Far East to Europe trade, some cargoes may be tempted to use the rail alternative (via the Trans Siberian Railway) if the speed of vessels is low enough (see Psaraftis and Kontovas [20] for a discussion). Such considerations may also be relevant in regards to the recent Belt and Road Initiative (BRI), which aims to promote Chinese trade to Europe via a combination of land-based and maritime corridors. It is also noted that in the period 2010 to 2017, 9% to 18% of the Chilean cherry exports to China were carried by airplane [21], meaning that a potential reduction of ship speed may further shift some of these exports to aviation and/or make them less competitive vis-à-vis other cherry producers. This may also increase overall GHG emissions. In short sea shipping, possible modal shifts due to speed reduction and other measures were investigated by Zis and Psaraftis [22,23] in the context of European SECAs and the Ro/Ro sector. Psaraftis and Kontovas [24], among other things, provided a discussion on the possible impact of slow steaming on port operations. If a port is congested, it would clearly make no sense to sail there at full speed, wasting money on fuel and p