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IMO 2020: The Big Shipping Shake-Up

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IMO 2020 shipping Infographic

IMO 2020: The Big Shipping Shake-Up

Over 90% of all global trade takes place on our oceans.

Unfortunately, the network of 59,000 vessels powering international commerce runs on sulfur-laden bunker fuel, and resulting emissions are causing problems on dry land.

As today’s infographic by Breakwave Advisors demonstrates, new emissions regulations taking effect in 2020 will have a big impact on the world’s massive fleet of marine shipping vessels.

The Regulatory Impact

The International Maritime Organization (IMO) – the UN agency responsible for ensuring a clean, safe, and efficient global shipping industry – will be implementing new regulations that will have massive impact on maritime shipping.

The regulations, dubbed IMO 2020, will enforce a 0.5% sulfur emissions cap worldwide starting January 1, 2020 ─ a dramatic decrease from the current emissions cap of 3.5%.

Here are a few ways marine fuel will likely be affected by these regulations:

  • High-sulfur fuel oil will drop in price as the demand drops dramatically after January 1, 2020
  • Diesel, a low-sulfur fuel oil, will be in higher demand and should see a price increase
  • Refiners should also expect higher profits as refining runs increase to satisfy the new regulations

The Economic Impact

IMO 2020 will be one of the most dramatic fuel regulation changes ever implemented, with a significant impact on the global economy.

New regulations are certain to influence freight rates ─ the fees charged for delivering cargo from place to place. These rates can fluctuate depending on:

  • Time and distance between ports
  • Weight and density of the cargo
  • Freight classification
  • Mode of transport
  • Tariffs and taxes
  • Fuel costs

Rising fuel costs means rising freight rates, with much of these costs being passed to consumers.

In a full compliance scenario, we estimate the total impact to consumer wallets in 2020 could be around US$240 billion.

─ Goldman Sachs

The Environmental Impact

Not surprisingly, the world’s 59,000 transport ships, oil tankers, and cargo ships have a consequential impact on the environment.

Bunker fuel accounts for 7% of transportation oil consumption (~3.5 million barrels/day). Burning this fuel generates about 90% of all sulfur oxide and dioxide (SOx and SO2) emissions globally. In fact, the world’s 15 largest ships produce more SOx and SO2 emissions than every car combined.

These sulfur emissions can cause several harmful side effects on land ─ acid rain, smog, crop failures, and many respiratory illnesses such as lung cancer and asthma.

Changing Currents in the Shipping Sector

As IMO 2020’s implementation date nears, shippers have a few courses of action to become compliant and manage costs.

1) Switch to low-sulfur fuel

Bunker fuel use in the shipping industry was 3.5 million barrels per day in 2018, representing roughly 5% of global fuel demand.

Annual bunker fuel costs are predicted to rise by US$60 billion in 2020, a nearly 25% increase from 2019. Price increases this significant will directly impact freight rates ─ with no guarantee that fuel will always be available.

2) Slower Travel, Less Capacity

The costs of refining low-sulfur fuel will increase fuel prices. To offset this, shippers often travel at slower speeds.

For example, large ships might burn 280-300 metric tons of high-sulfur fuel oil (HSFO) a day at high speeds, but only 80-90 metric tons a day at slower speeds. Slower travel may cut costs and help reduce emissions, but it also decreases the capacity these vessels can transport due to longer travel times, which shrinks overall profit margins.

3) Refueling Detours

Adequate fuel supply will be a primary concern for shippers once IMO 2020 takes effect. Fuel shortages would cause inefficiencies and increase freight rates even more, as ships would be forced to detour to refuel more often.

4) Installing Scrubbers

A loophole of IMO 2020 is that emissions are regulated, not the actual sulfur content of fuel itself.

Rather than burning more expensive fuel, many shippers may decide to “capture” sulfur before it enters the environment by using scrubbers, devices that transfer sulfur emissions from exhaust to a disposal unit and discharges the emissions.

With IMO 2020 looming, only 1% of the global shipping fleet has been retrofitted with scrubbers. Forecasts for scrubber installations by mid-2020 run close to 5% of the current ships on the water.

There are a few reasons for such low numbers of installations. First, scrubbers are still somewhat unproven in maritime applications, so shippers are taking a “wait and see” approach. As well, even if a ship does qualify for a retrofit, cost savings won’t take effect until several years after installation. On the plus side, ships with scrubbers installed will still be able to use the existing, widely-available supply of bunker fuel.

Moving Forward

No matter which route shippers choose to take, the short-term impact is almost certainly going to mean higher freight rates for the marine shipping industry.

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Visualizing Countries by Share of Earth’s Surface

There are 510 million km² of area on the Earth, but less than 30% of this is land. Here’s the share countries make up of the Earth’s surface.

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countries by share of earth's surface

Visualizing Countries by Share of Earth’s Surface

There are over 510 million square kilometers of area on the surface of Earth, but less than 30% of this is covered by land. The rest is water, in the form of vast oceans.

Today’s visualization uses data primarily from the United Nations Statistics Division (UNSD) to rank the world’s countries by their share of Earth’s surface.

Breakdown of Countries Share of Earth’s Surface

The largest countries by surface area are Russia (3.35%), Canada (1.96%), and China (1.88%).

Together they occupy roughly 7.2% of Earth’s surface. Russia is so big that even if we divided the country between its Asian and European sections, those new regions would still be the largest in their respective continents.

Country / DependencyTotal in km² (mi²)Percentage of Earth's Surface
Russia17,098,246 (6,601,670)3.352%
Antarctica14,000,000 (5,400,000)2.745%
Canada9,984,670 (3,855,100)1.958%
China9,596,961 (3,705,407)1.881%
United States9,525,067 (3,677,649)1.867%
Brazil8,515,767 (3,287,956)1.670%
Australia7,692,024 (2,969,907)1.508%
India3,287,263 (1,269,219)0.644%
Argentina2,780,400 (1,073,500)0.545%
Kazakhstan2,724,900 (1,052,100)0.534%
Algeria2,381,741 (919,595)0.467%
D.R. Congo2,344,858 (905,355)0.460%
Greenland (Denmark)2,166,086 (836,330)0.425%
Saudi Arabia2,149,690 (830,000)0.421%
Mexico1,964,375 (758,449)0.385%
Indonesia1,910,931 (737,815)0.375%
Sudan1,861,484 (718,723)0.365%
Libya1,759,540 (679,360)0.345%
Iran1,648,195 (636,372)0.323%
Mongolia1,564,110 (603,910)0.307%
Peru1,285,216 (496,225)0.252%
Chad1,284,000 (496,000)0.252%
Niger1,267,000 (489,000)0.248%
Angola1,246,700 (481,400)0.244%
Mali1,240,192 (478,841)0.243%
South Africa1,221,037 (471,445)0.239%
Colombia1,141,748 (440,831)0.224%
Ethiopia1,104,300 (426,400)0.216%
Bolivia1,098,581 (424,164)0.215%
Mauritania1,030,700 (398,000)0.202%
Egypt1,002,450 (387,050)0.197%
Tanzania945,087 (364,900)0.185%
Nigeria923,768 (356,669)0.181%
Venezuela916,445 (353,841)0.180%
Pakistan907,843 (350,520)0.178%
Namibia825,615 (318,772)0.162%
Mozambique801,590 (309,500)0.157%
Turkey783,562 (302,535)0.154%
Chile756,102 (291,933)0.148%
Zambia752,612 (290,585)0.148%
Myanmar676,578 (261,228)0.133%
Afghanistan652,230 (251,830)0.128%
South Sudan644,329 (248,777)0.126%
Somalia637,657 (246,201)0.125%
Central African Republic622,984 (240,535)0.122%
Ukraine603,500 (233,000)0.118%
Madagascar587,041 (226,658)0.115%
Botswana581,730 (224,610)0.114%
Kenya580,367 (224,081)0.114%
France543,940 (210,020)0.107%
Yemen527,968 (203,850)0.104%
Thailand513,120 (198,120)0.101%
Spain505,992 (195,365)0.099%
Turkmenistan488,100 (188,500)0.096%
Cameroon475,442 (183,569)0.093%
Papua New Guinea462,840 (178,700)0.091%
Sweden450,295 (173,860)0.088%
Uzbekistan447,400 (172,700)0.088%
Morocco446,550 (172,410)0.088%
Iraq438,317 (169,235)0.086%
Paraguay406,752 (157,048)0.080%
Zimbabwe390,757 (150,872)0.077%
Norway385,207 (148,729)0.076%
Japan377,976 (145,937)0.074%
Germany357,114 (137,882)0.070%
Republic of the Congo342,000 (132,000)0.067%
Finland338,424 (130,666)0.066%
Vietnam331,212 (127,882)0.065%
Malaysia330,803 (127,724)0.065%
Ivory Coast322,463 (124,504)0.063%
Poland312,696 (120,733)0.061%
Oman309,500 (119,500)0.061%
Italy301,339 (116,348)0.059%
Philippines300,000 (120,000)0.059%
Ecuador276,841 (106,889)0.054%
Burkina Faso274,222 (105,878)0.054%
New Zealand270,467 (104,428)0.053%
Gabon267,668 (103,347)0.052%
Guinea245,857 (94,926)0.048%
United Kingdom242,495 (93,628)0.048%
Uganda241,550 (93,260)0.047%
Ghana238,533 (92,098)0.047%
Romania238,397 (92,046)0.047%
Laos236,800 (91,400)0.046%
Guyana214,969 (83,000)0.042%
Belarus207,600 (80,200)0.041%
Kyrgyzstan199,951 (77,202)0.039%
Senegal196,722 (75,955)0.039%
Syria185,180 (71,500)0.036%
Cambodia181,035 (69,898)0.035%
Uruguay176,215 (68,037)0.035%
Somaliland176,120 (68,000)0.035%
Suriname163,820 (63,250)0.032%
Tunisia163,610 (63,170)0.032%
Bangladesh148,460 (57,320)0.029%
Nepal147,181 (56,827)0.029%
Tajikistan143,100 (55,300)0.028%
Greece131,957 (50,949)0.026%
Nicaragua130,373 (50,337)0.026%
North Korea120,540 (46,540)0.024%
Malawi118,484 (45,747)0.023%
Eritrea117,600 (45,400)0.023%
Benin114,763 (44,310)0.022%
Honduras112,492 (43,433)0.022%
Liberia111,369 (43,000)0.022%
Bulgaria111,002 (42,858)0.022%
Cuba109,884 (42,426)0.022%
Guatemala108,889 (42,042)0.021%
Iceland103,000 (40,000)0.020%
South Korea100,210 (38,690)0.020%
Hungary93,028 (35,918)0.018%
Portugal92,226 (35,609)0.018%
Jordan89,342 (34,495)0.018%
Serbia88,361 (34,116)0.017%
Azerbaijan86,600 (33,400)0.017%
Austria83,871 (32,383)0.016%
United Arab Emirates83,600 (32,300)0.016%
Czech Republic78,865 (30,450)0.015%
Panama75,417 (29,119)0.015%
Sierra Leone71,740 (27,700)0.014%
Ireland70,273 (27,133)0.014%
Georgia69,700 (26,900)0.014%
Sri Lanka65,610 (25,330)0.013%
Lithuania65,300 (25,200)0.013%
Latvia64,559 (24,926)0.013%
Togo56,785 (21,925)0.011%
Croatia56,594 (21,851)0.011%
Bosnia and Herzegovina51,209 (19,772)0.010%
Costa Rica51,100 (19,700)0.010%
Slovakia49,037 (18,933)0.010%
Dominican Republic48,671 (18,792)0.010%
Estonia45,227 (17,462)0.009%
Denmark43,094 (16,639)0.008%
Netherlands41,850 (16,160)0.008%
Switzerland41,284 (15,940)0.008%
Bhutan38,394 (14,824)0.008%
Taiwan36,193 (13,974)0.007%
Guinea-Bissau36,125 (13,948)0.007%
Moldova33,846 (13,068)0.007%
Belgium30,528 (11,787)0.006%
Lesotho30,355 (11,720)0.006%
Armenia29,743 (11,484)0.006%
Solomon Islands28,896 (11,157)0.006%
Albania28,748 (11,100)0.006%
Equatorial Guinea28,051 (10,831)0.005%
Burundi27,834 (10,747)0.005%
Haiti27,750 (10,710)0.005%
Rwanda26,338 (10,169)0.005%
North Macedonia25,713 (9,928)0.005%
Djibouti23,200 (9,000)0.005%
Belize22,966 (8,867)0.005%
El Salvador21,041 (8,124)0.004%
Israel20,770 (8,020)0.004%
Slovenia20,273 (7,827)0.004%
Fiji18,272 (7,055)0.004%
Kuwait17,818 (6,880)0.003%
Eswatini17,364 (6,704)0.003%
East Timor14,919 (5,760)0.003%
The Bahamas13,943 (5,383)0.003%
Montenegro13,812 (5,333)0.003%
Vanuatu12,189 (4,706)0.002%
Qatar11,586 (4,473)0.002%
The Gambia11,295 (4,361)0.002%
Jamaica10,991 (4,244)0.002%
Kosovo10,887 (4,203)0.002%
Lebanon10,452 (4,036)0.002%
Cyprus9,251 (3,572)0.002%
State of Palestine6,020 (2,320)0.001%
Brunei5,765 (2,226)0.001%
Trinidad and Tobago5,130 (1,980)0.001%
Cape Verde4,033 (1,557)0.001%
Samoa2,842 (1,097)0.001%
Luxembourg2,586 (998)0.001%
Mauritius2,040 (790)0.000%
Comoros1,862 (719)0.000%
São Tomé and Príncipe964 (372)0.000%
Kiribati811 (313)0.000%
Bahrain778 (300)0.000%
Dominica751 (290)0.000%
Tonga747 (288)0.000%
Singapore728 (281)0.000%
Federated States of Micronesia702 (271)0.000%
Saint Lucia616 (238)0.000%
Andorra468 (181)0.000%
Palau459 (177)0.000%
Seychelles452 (175)0.000%
Antigua and Barbuda442 (171)0.000%
Barbados430 (170)0.000%
Saint Vincent and the Grenadines389 (150)0.000%
Grenada344 (133)0.000%
Malta316 (122)0.000%
Maldives300 (120)0.000%
Saint Kitts and Nevis261 (101)0.000%
Marshall Islands181 (70)0.000%
Liechtenstein160 (62)0.000%
San Marino61 (24)0.000%
Tuvalu26 (10)0.000%
Nauru21 (8.1)0.000%
Monaco2.02 (0.78)0.000%
Vatican City0.49 (0.19)0.000%

Antarctica, although not a country, covers the second largest amount of land overall at 2.75%. Meanwhile, the other nations that surpass the 1% mark for surface area include the United States (1.87%), Brazil (1.67%), and Australia (1.51%).

The remaining 195 countries and regions below 1%, combined, account for the other half of Earth’s land surface. Among the world’s smallest countries are the island nations of the Caribbean and the South Pacific Ocean. However, the tiniest of the tiny are Vatican City and Monaco, which combine for a total area of just 2.51 km².

The remaining 70% of Earth’s surface is water: 27% territorial waters and 43% international waters or areas beyond national jurisdiction.

Areas Beyond National Jurisdiction

In the past, nations adhered to the freedom-of-the-seas doctrine, a 17th century principle that limited jurisdiction over the oceans to a narrow area along a nation’s coastline. The rest of the seas did not belong to any nation and were free for countries to travel and exploit.

This situation lasted into the 20th century, but by mid-century there was an effort to extend national claims as competition for offshore resources became increasingly fierce and ocean pollution became an issue.

In 1982, the United Nations adopted the Law of the Sea Convention which extended international law over the extra-territorial waters. The convention established freedom-of-navigation rights and set territorial sea boundaries 12 miles (19 km) offshore with exclusive economic zones up to 200 miles (322 km) offshore, extending a country’s influence over maritime resources.

Does Size Matter?

The size of countries is the outcome of politics, economics, history, and geography. Put simply, borders can change over time.

In 1946, there were 76 independent countries in the world, and today there are 195. There are forces that push together or pull apart landscapes over time. While physical geography plays a role in the identity of nations, Sheikh Zayed bin Sultan Al Nahyan, the former ruler of UAE, a tiny Gulf nation, put it best:

“A country is not measured by the size of its area on the map. A country is truly measured by its heritage and culture.”

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5 Drivers Behind the Sustainable Investing Shift

Sustainable investing in the U.S. is smashing records, with $20.9 billion of net flows in H1’2020. Here are 5 key drivers behind this growth.

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5 Drivers Behind the Sustainable Investing Shift

View the high resolution infographic by clicking here.

Against all odds, sustainable investing in the U.S. smashed records in 2020.

Estimated net flows reached $20.9 billion in the first six months alone—that’s nearly equal to the amount of new money invested in all of 2019.

What is driving the shift to sustainable investing? This visual dashboard from Raconteur explains five key drivers, from generational shifts to investors’ preferred strategies.

DRIVER #1:

Millennial Investors and Personal Beliefs

Interest in sustainable investing is booming across the general population. However, there’s a clear generational trend, as well.

While the portion of each group that is “very interested” in sustainable investing has shot up since 2015, this share is significantly higher for millennials.

YearGeneral PopulationMillennials
201519%28%
201723%38%
201949%70%

Another correlated trend emerges with this.

These days, investors are more likely to follow their conscience. Acccording to a recent report by Schroders, the majority of investors will not budge on investing against their beliefs, even if returns were theoretically higher.

 Level of Investment Knowledge
Would you invest against your personal beliefs?BeginnerIntermediateExpert
Yes, if returns are higher18%20%29%
No, I would not invest against my beliefs.82%80%71%
DRIVER #2:

Top Themes of Interest

Powered by these personal beliefs, which categories are attracting investors? It turns out many investors are very interested in including environment-related themes into their portfolios:

  • Plastic reduction: 46%
  • Climate change: 46%
  • Community development: 42%
  • Circular economy: 39%
  • Sustainable Development Goals: 36%
  • Multicultural diversity: 30%
  • Gender diversity: 30%
  • Faith-based values: 24%

However, these aren’t the only considerations. Other themes that fit into broader ESG categories such as gender diversity or faith-based values make an appearance, too.

DRIVER #3:

Which Investor Groups are Driving Interest?

Now, we turn our attention to the specific groups that are responsible for the growing momentum towards sustainable investing. This may be surprising to some, but it is institutional investors that are leading the pack by far:

GroupShare of Group
Institutional investors85%
Institutional consultants39%
Internal stakeholders30%
High net worth (HNW) investors19%
Politicians or regulators13%
Industry trade bodies6%

This also disproves a common myth that millennials are the only ones interested in the sector. Institutional investors equally want to see a double bottom line: an ROI on their money, while also making the world a more sustainable place.

DRIVER #4:

Sources of Information

So where are institutional investors sourcing their information around sustainable investing? Sharing their ideas in like-minded communities, such as webinars and conferences emerged as the preference for nearly two-thirds of those surveyed in this group.

But how do investors know that their investment is truly sustainable? For this, 34% of global investors feel that third-party labels from independent organizations help lend credibility, and confirm that the chosen investment in question is indeed carried out in a responsible manner.

As more and more institutional investors are digital natives, a significant share of them are also beginning to use social media to influence their decision-making process—and some even rely on it as their key source of research.

DRIVER #5:

Sustainable Investing Strategies

We’ve left the best for last—armed with this knowledge and confidence, which sustainable investing strategies are the most attractive? Here’s how organizations are approaching ESG:

  • Sustainability integration: 52%
  • Negative screening: 50%
  • Shareholder engagement: 31%
  • Impact investing: 19%
  • Positive screening: 12%
  • Thematic investing: 5%

While negative screening—avoiding investments in “sin” stocks such as tobacco or fossil fuels—is still a popular strategy, actively integrating sustainability into one’s portfolio is emerging more front and center.

The Overall Trend of Sustainable Investing

The data makes clear that institutional investors are the main driving forces behind sustainable investment for the time being. But as millennials accumulate wealth, their values may naturally lead them towards more sustainable investment.

Another important point to note is that sustainable investing has been resilient to change. In fact, despite the COVID-induced stock selloff in early 2020, ESG leaders exceeded expectations.

While these drivers evolve over time, it’s clear that sustainable investing is more than having its moment in the spotlight—it’s here to stay.

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