EU Emissions Trading Scheme (ETS) raises sea freight prices

From 1 January 2024, shipowners will be part of the EU Emissions Trading System (ETS). Reducing emissions is in the common interest, but it will increase maritime transport prices and affect schedules," says Merja Kallio-Mannila, Commercial Director at Finnlines.

Kallio-Mannila believes the EU ETS is a good thing, as we need regulation to meet the emission reduction targets of the EU's Fit for 55 program. — However, the future emissions trading scheme will treat Finland harshly, as 95 per cent of our foreign trade imports and exports are carried by sea. At the beginning of 2024, it will be the turn of shipping to jump into emissions trading.

EU emission allowances will be phased in gradually for shipping. Of a shipping company's annual emissions, the following are covered by emissions trading.

• 40 % in 2024
• 70 % in 2025
• 100 % in 2026

— Offsetting emissions will increase the cost of maritime transport. The green shift will also slow down logistics by slowing down some routes. However, this is an intermediate step. Once the shipping industry has introduced enough non-fossil fuels, the pace of maritime transport can pick up again, Kallio-Mannila says.

EU ETS environmental levy to be applied to all ships

Finnlines and other shipping companies are launching the EU ETS environmental levy. This new environmental charge will be levied on all shipments. For sea containers, bulk units and combinations, the charge will be determined on a metric basis. In traditional bulk transport, the charge is based on tonnes. Finnlines keeps the EU ETS environmental charge the same for three months. Kallio-Mannila says that a fixed quarterly price helps customers to anticipate costs. — The environmental fee depends on the price of allowances, which varies according to the exchange trading. Recently, the price of allowances has been stable, but the entry of shipping into emissions trading could change the situation.

Economy of scale helps to manage price levels

Kallio-Mannila believes it is important to keep ships as full as possible. When the filling rate is high, emissions per transport unit are lower. — Our aim has been to keep the environmental charge priced competitively so that customers continue to use maritime transport and volumes do not fall because of emissions trading. The recession is rocking freight flows anyway.

Kallio-Mannila says the need for emission reductions has long been known. Finnlines has therefore invested in larger vessels and new technology, because the economy of scale can reduce emissions per transport unit.

What about the competitiveness of Finnish exports?

Through the blue and white glasses, Kallio-Mannila is annoyed that our country's competitiveness is being put to the test. Finland is a remote island in logistical terms. — In emissions trading, carbon dioxide emissions from fuel consumption are calculated. The longer the journey, the higher the fuel consumption and the higher the emissions. Finland is a long way from mainland Europe compared to other Nordic countries, says Kallio-Mannila. — In terms of the national economy, I am concerned about how Finland will remain competitive in exports. In imports, costs are passed on to the consumer, which means that trade will be slightly more expensive in the future," says Kallio-Mannila.

Green transition requires investment capacity

Kallio-Mannila understands the pain of rising prices. Especially during an economic downturn, when everyone is struggling with cost pressures, this is not a good thing. But at some point, the economy will start to recover. — The green transition requires companies to be profitable and invest. Despite the economic situation, we must do all we can to reduce emissions. And at the same time, we must be able to remain competitive. — So there is no easy life ahead for the logistics sector. At the same time, however, we are at the forefront of a historic shift towards non-fossil modes of transport.

Shipping companies have indicated that the costs will be passed on to their users, so from January 1, 2024, we will introduce an ETS surcharge that will be adjusted every month. The amounts from all shipping companies are not final, but as soon as we know more, we will provide an update.

If you want to know more or have any questions, please get in touch with your DB Schenker contact person.