The international shipping industry has made clean fuel a priority

Marked by the effects of the COVID-19 pandemic, an increase in fuel prices and various supply-chain disruptions, 2021 was a year of major disruptions for the global shipping sector. Why have these disruptions happened?

There are three major risks for the shipping sector. The first are geographical and geo-political risks; second is operational risk; and third is the pandemic risk, the latter of which applies to all industries.

Let’s start with the pandemic risk. In reaction to COVID-19, local and national governments enforced restrictions on human movement. In the logistic field, this affected ship operators and crews, and hampered them from conducting their work operations smoothly.

Normally, crew members work on ship for about 6 to 8 months, and then take a few months off. However, ship operators have faced difficulty in replacing crew members due to port quarantine being strengthened by each country in an effort to prevent COVID-19 from entering their borders. Consequently, it takes more days than in the past for quarantine and crew replacement at ports. This measure can double or even triple shipping times. On shore severe COVID-19 measures were also introduced, which have caused shortages of staff in various fields. These staff shortages are affecting seaports, warehouses and trucking companies. With all these factors combined, it is no surprise that transportation is slow.

Furthermore, COVID-19 has triggered a series of restrictions on air freight, which further increases dependency on ships. Today, shipping capacity, especially container carriers, is not high enough to meet the demand of the market. Naturally, this sent prices soaring but because logistic firms still need to ship their goods across continents, the price increase continued. As a result, since 2021, we have seen higher costs across the board.

In terms of operational risk, the spread of COVID-19 has caused human resource shortage, which means that replacing crew members is not easy. As such, the crew must work harder and with less rest, which can lead to more accidents. Recently, I have heard of various cases where ships ran aground or collided with other structures. Therefore, at IINO LINES, we take all possible measures to reduce the psychological stress felt by our crew members. Crew members live and work in a closed environment aboard a ship. If there was to be even one COVID-19 case on the ship, the entire team would be affected.

Geopolitical risks include transiting across the ‘choking points’ of global shipping routes. Examples of these ‘choke points’ include the Malacca Strait, the Suez Canal, the Arabian and African peninsulas, the Bab-el-Mandeb Strait and the Gibraltar Canal. These narrow corridors are responsible for handling massive portions of global shipping capacity. Due to the sensitive nature of these ‘choke points’ and to their proximity with political powers, the local situation can sometimes be politically complex.

Experts argue that the disruptions caused by COVID-19 made apparent the overreliance that the global shipping system has on China. Today, some European and American investors analyze this overreliance as a threat, and are looking for alternatives. Do you believe that Japan could benefit from these worries?

Europeans consider Japan to be one of the potential gateways to the Far East. In terms of connection with the huge Chinese market, the port of Kobe is only days apart from those of Eastern China when travelling by ship and has the potential to become an effective entry port to expand into Asia.

For Western companies, however, Japan has several disadvantages. One is the low employment of non-Japanese workers. Since there is a shortage of manpower within the port and logistics industry, Japan may soon be forced to employ more foreign manpower. Once Japan is able to introduce more lenient policies towards employing foreign workers, we will have an opportunity to excel globally.

By the nature of our business, IINO LINES has become a truly international company. As an ocean-going shipping firm, we employ more than 1400 employees at sea and amongst them, only 50 to 60 are Japanese. However, for coastal shipping or domestic shipping business, foreign crews cannot be on board by law, so we do not have any foreign workers in this business.

Historically speaking, Japan went through more than 200 years of isolationist policies (1639 ~ 1854), a time during which the country had little contact with the global society. Against the backdrop of this circumstance and culture, Japanese people are still apprehensive of working with foreign staff.

In recent years, there have been a lot of articles about new shipping routes in the Arctic. How realistic do you think these new Arctic routes are? And what are the safety measures in areas where there are operational risks, including geopolitical matters and pirates?

Technically speaking, traveling on the new artic routes is certainly feasible. Already today, certain ships can go through the ice and pass by the North Pole. Through this route, it is possible to carry cargo from Europe up through the North Pole and on to Asian regions and vice versa. To be a viable alternative for global shipping, the route must remain free. The principle of freedom of the high seas is critically important for the shipping business.

Another risky area is Djibouti, which is close to the Bab-el-Mandeb Strait, a choke point located between Africa and the Arabian peninsula that is marked by pirate activity. For ships to travel securely, shipping routes must be free of any kind of influences, and I believe that Japan has a major role to play in that regard. With our influence and capital, we must contribute to the creation of a safe navigation system. Today, I am the chairperson of the Marine Safety Committee of the Japanese Shipowners’ association (JSA). I visited Djibouti as the chairperson two years ago to see the situation first hand. This association has been providing funds to the Malacca straits council and support so that the Straits of Malacca, which is one of the choking points, can be navigated safely.

The environmental impact of large carriers has come into focus in recent years. At the beginning of 2020 the International Maritime Organization created new regulations for the percentage of sulfur oxide allowed in shipping fuel. The previously accepted level of 3.5% was pushed down to 0.5%. IINO LINES recently took delivery of “Fujisan Maru”, a VLCC equipped with a special scrubber to better comply with Sulfur Oxide regulations. Could you please tell us more about the measures and initiatives that IINO LINES is taking to lower its environmental impact?

We call this the ‘SOx’ regulation. This regulation mandates either the use of a scrubber to reduce sulfur oxides to less than 0.5% from vessel exhaust gas that is used as power for the main engine, or the use of clean energy, which is low-sulfur fuel oil. The global trend is to use low sulfur fuel oil. However, the customers who use our ships are oil companies and the by-product of their fuel is the heavy oil used to operate ships.  Consequently, we have added this scrubber to comply with the latest regulations.

However, even with low sulfur oil, carbon dioxide - which is a greenhouse gas - needs to be eliminated or reduced. As such, our objective is to utilize cleaner types of fuel, including methanol, LPG or LNG. These three types of energy are already used in current technologies.

Our company is shifting towards using cleaner energy sources, such as methanol, LPG, and LNG as transitions to ammonia and hydrogen. In fact, we have already started operating a methanol dual-fueled ship in 2019, which we provide to Waterfront Shipping, a subsidiary of Methanex Corporation, which is the world’s largest producer and supplier of methanol, headquartered in Vancouver, Canada. That ship is used to carry methanol. Starting February 2022, we are supplying an LPG dual-fueled gas carrier to Equnior ASA, which is an energy company in Norway, and next year, we will provide another LPG dual-fueled gas carrier to Borealis AG, an Austrian chemical company.

In addition, the fuel consumption performance rating system (CII: Carbon Intensity Indicator) by the IMO will be enforced from January 2023, and ships will be required to operate in an even more environmentally friendly manner. Each company is stepping up efforts to reduce GHG emissions. To solve this problem, we are implementing a phased introduction of a CII optimization tool developed by Bearing. In addition to understanding the actual CII rating results from the first day of each fiscal year to the most recent, the CO₂emissions under various operational scenarios and the resulting future CII ratings can be predicted, enabling each ship to take measures to achieve its target CII rating.

The CALLUNA GAS　(LPG dual-fueled gas carrier) was delivered in February 2022

Looking at the future, the next generation of fuels for the shipping industry will be zero emission fuels such as ammonia, hydrogen and battery-based.

Can you tell us more about your collaboration with Mitsui & Co., Ltd., one of Japan’s largest trading companies, in the development of ammonia-based carrier? What role do you think alternative fuels, such as ammonia and hydrogen, will play in the future of global shipping?

We are now focused on ammonia. Gas carriers that transport ammonia as a raw material for fertilizer and chemical feed already exist. However, the next use for ammonia will be fuel energy. In the future, with the global shift towards the promotion of cleaner energy, we expect the demand for ammonia to drastically increase. As such, our goal is to develop technologies and alliances that enable us to carry clean energy in a sustainable manner.

At IINO, we truly believe that our mission is to provide a clean method of transportation. In order to use ammonia as a source of fuel for shipping, several hurdles must be overcome. One is the fact that ammonia is a poisonous and harmful substance. Secondly, when ammonia is not completely burnt or combusted, a different type of greenhouse gas is emitted. Around the world, shipbuilders and engine manufacturers are researching ideas in order to overcome these obstacles. For our sector to advance, expediting this process is of paramount importance.

Our ammonia carrier will be built in Korea. It will be designed and built based on the basic certification for ammonia-fuel-ready ship by the American Bureau of Shipping (ABS), a global classification society, and will be a next-generation ship that can also transport LPG.

Japan’s major shipping companies are collaborating both with domestic dockyards and with international associations responsible for providing environmental standards in order to develop technologies with a global impact. The international shipbuilding and shipping industry has made clean fuel a priority.

Today, about 50,000 commercial vessels are operating around the world. In order to convert these ships into environmentally friendly vessels that do not emit carbon emissions within the next 30 years, we must foster a global R&D model based on open innovation. We must encourage every actor of our industry to be open about their technology, to work collaboratively to address environmental issues and to establish global standards.

A model of IINO LINES’ next-generation ammonia carrier

Engines that can burn ammonia fuel are still under development. That being said, our goal is to conduct R&D activities by leveraging our connections in Japan and in Europe so that the commercialization of ammonia fuel will happen simultaneously to the introduction of ammonia fueled ships.

Japanese shipbuilders predict that by 2025, an ammonia fueled engine will be built. By 2026, they predict that this engine will be fitted onto a ship and taken for operational sea trials. So it will probably take until 2030 to establish world standards on using ammonia to fuel vessels.

Are there any particular markets or regions that you consider key as part of your international expansion plans?

European nations are a key target because Europe has already built a common consensus on environmental matters. When it comes to environmental regulations, Europe creates rules that are then globally adopted. Inversely, I believe Japan to be more of a rule-abider! From a social standpoint, my opinion is that Japanese people consider that rules must be followed, not made.

Because of that difference in mindset, Japanese firms must collaborate with their European counterparts. At IINO LINES, collaboration is a vital part of our strategy and we are already working with Norwegian and Austrian companies.

In order to further promote our global business, we have relocated our subsidiary in London in July 2021. The goals of this relocation were to address the increasing number of expatriates in our office, to reinforce the relationship with our sustainability conscious European customers, to secure environmentally-friendly new businesses, and also to strengthen information gathering and marketing in Europe.

We are also focusing on the Middle East. With its huge reservoir of fossil fuel, the Middle East is home to the majority of current energy sources. Interestingly, the environmental policymaker of the United Nations, namely, the COP, will hold its 27th Conference in Egypt in 2022 while the 28th will be held in Abu Dhabi in 2023. These areas are fossil fuel exporting countries so it will be interesting to see how the discussions will unfold.

In the Middle East, IINO has over 30 years of experience operating in countries such as Saudi Arabia, Qatar, Kuwait and Oman, which are crude oil exporting countries. Looking ahead, we will continue to work on co-creation projects with local governments and companies.

We have set up an overseas subsidiary, IINO LINES GULF DMCC, in Dubai’s Multi Commodities Centre (DMCC) Free Zone in the United Arab Emirates in August 2021, with the aim of strengthening our response to the core customers of IINO’s chemical shipping business in the Middle East, as well as developing new businesses and meeting European time zone differences.

On the long term, our aim is to become a bridge between the advanced knowledge of Europe and the experience and resources of the Middle East.

What goal have you set yourself for your tenure as President of IINO LINES?

IINO has two key business pillars: Shipping and Real Estate. Both are asset-based businesses in which IINO invests and operates essential social infrastructures. For the Shipping business, earnings can be volatile due to variables such as shipping market conditions, FOREX, interest rate, and the trend in the global macroeconomy. On the other hand, the Real Estate business is less affected by external factors and enjoys stable earnings. We own six office buildings in central Tokyo, including the IINO Building, where our head office is located, and the Hibiya Fort Tower, which was completed in June 2021, and one in London. In the shipping business, we currently operate 99 vessels in total.

As aspects of sustainability efforts, we established Sustainability Promotion Department to strengthen management with an emphasis on sustainability. A cross-group working team has been formed within the organization to address environmental (SBT certification, review of GHG reduction targets, etc.) and overall CSR (human rights, supply chain response, etc.).

Our company is currently celebrating 122 years in business. In order for us to continue for another 122 years, we should not be satisfied with the status quo. We must keep evolving and adapting to the quick changes occurring in society and in the market.

The IINO BUILDING (left) and the HIBIYA FORT TOWER (right)

I believe that the extent to which we can adapt will determine the extent to which we are successful. To achieve this goal, we must foster a capable and innovative generation of new employees. When I leave IINO, I want this new generation to be active and ready to take on challenges. I want them to welcome the positive changes demanded by society. Fostering this new and innovative generation is my goal as President.