Introduction

Digitization is coming fast to the maritime industry. A combination of tightening environmental regulations and shaky market fundamentals is steadily nudging shipowners toward big data and innovation in hopes of extracting hidden value. There has been growing investment in new technologies throughout its many sectors. While connecting a ship to the digital environment is technically straightforward, there remain many hurdles before widespread adoption. Nevertheless, the years ahead bring with them many monumental challenges. For the maritime industry to stay profitable in an era of sustainability, adoption and integration of IoT is the critical first step to meet the demands of the future.

The primary driver of maritime IoT is in response to the IMOs goals to fight climate change. The initial strategy calls for a reduction of 40% by 2030 and 50-70% by 2050 based on 2018 emission levels. Averaged out from this past year, that’s a 6% annual reduction for all ships per ton/mile. To reiterate, that’s 6% every year – until 2050. What’s even more staggering is that a recent study by the IMO revealed that based on projected growth and demand for shipping, the continuation of “business as usual” would produce an increase in GHG emissions of 50% by 2050. As there is yet to be established a viable alternative fuel, the only option in the near term is the utilization of technology on all fronts for maximum optimization.

This is a tremendous challenge, but there is a modest precedent. The response to the IMO 2020 sulfur cap was somewhat chaotic and required significant investments. Shipowners had to choose between installing exhaust scrubbers or retrofitting vessels to burn experimental fuels, both of which were unknown variables at the time. Despite this, the new regulation was met in good standing and serves as an example of the rapid change the industry is capable of when given little choice.

While restrictive environmental regulations will serve as the backbone for technological innovation in the coming years, companies slow to adopt will become increasingly less profitable versus their counterparts. Even today, digitization is enabling ships to sail with lower operating costs and reduced downtime. Advances in connectivity and sensors are allowing for integration with big data analytics for improved logistics, predictive maintenance, and reduced fuel consumption. Vessels that utilize such technology will have a considerable advantage over those that don’t, and the markets will no doubt deviate to where there is value.

Unfortunately, only the financially well-off companies have pursued these solutions. Uptake of new IoT technologies is frequently done at the shipyard during initial construction. Legacy equipment such as analogue sensors and gauges are still common throughout the world’s fleet, and only 40% of the world’s merchant fleet is equipped with broadband enabling VSAT. Shipowners operate with tight margins and are keen to continue a vessel’s operation for as little money as possible. These practices foster a situation in which return on investment must be clear, and only the most forward-thinking companies bother to experiment with new technologies.

Regardless, progress marches ever on its way, and events from this past year have instilled a new sense of urgency throughout all world sectors. The radical truth is that oceanborne trade is undergoing a fundamental transformation as shipping shifts from a volume-based to value-based industry. IoT serves as the keystone for the bridge between the past and future.

Definition of IoT

Take a moment to consider your mobile phone. Its built-in features include GPS tracking, a gyroscope sensor, voice recognition, and a camera. Each of these is useful on their own, furnishing you with location, direction, usability and photography, but within a common application, they combine into a better system than they can individually provide. In this example, you could tell your phone to take a picture whose image is stabilized and tagged with geolocation. Add the connectivity of the internet, and the possibilities are endless. Although this example is contained within a single device, it serves to simplify the concept of the Internet of Things.

A single piece of equipment or technology is inherently limited by its designed purpose. For instance, aboard a ship, a simple pressure gauge will provide readings of the system it’s inline with. If digitized, it can feed data into the engine control room for the engineer to see. With set parameters, the information from a sensor gauge will interact with a relay to adjust flow accordingly. If the ship operates with an Unmanned Machinery Space, a computer records and manipulates these parameters with minimum human input. The data feeds are then stored on the control room computer for later reference. Even the most advanced of these scenarios is limited in functionality and the system’s processing power. If IoT links interrelated equipment, it can allow remote management and access to advanced technologies like machine learning and big data analytics. By broad measures, IoT enables technology to reach its full potential, allowing for a deeper level of use.

There are three pillars of functionality from which IoT is built: connect, analyze and integrate. This framework requires that interrelated devices and objects are in connection with the IoT platform. Then that data must feed into a collection to be analyzed, forming a smart system useful for business intelligence. While a person could view this information and act accordingly, various usability modules can be integrated to maximize the system. This integration can allow for anything from an alert notification or a fully automated process, such as compiling and transmitting documents to port officials or procurement centres.

Notable technology providers

ScanReach
The shipboard environment is one made of steel. If you’ve ever tried to use a cellphone in the belly of a ship, then you understand that wireless technology is of little use. The metal structure forms what’s known as a Faraday cage, effectively blocking the transmission of electromagnetic waves. For this reason, IoT used aboard today’s ships are hardwired from

device to the network. This situation limits the widespread use of smart technology. This is an issue characteristic of the maritime industry and has mostly been overlooked, favouring innovation’s low hanging fruit. However, a startup in Norway has set out to change this: Scandinavian Reach Technologies (ScanReach).

The company began its journey in 2015, but this last year their efforts have started to pan out. Shortly after receiving type-approval from the classification society DNV GL, ScanReach began commercial trials with a $2M (NOK 18,5) grant from their government’s industry accelerator Innovation Norway. Using a combination of algorithms and frequency control, they’ve developed In:Connect, a technology that allows wireless data transfer throughout complex steel environments.

By enabling wireless connectivity, ScanReach has the potential to change the implementation of maritime IoT entirely. The current method for integrating devices and sensors aboard a ship requires significant cabling and time for installation. As a first of its kind, ScanReach’s steel penetrating In:Connect is a wireless network that can allow for connectivity from bow to stern. At a mere fraction of the cost of data-carrying cables, shipowners can have devices installed practically anywhere throughout a ship. All that’s required is a power source, which can be provided anywhere there is a light fixture.

Their flagship product, ConnectPOB, builds off the network with a razor focus on a critical yet often neglected component of the maritime industry: the crew. The product truly has the potential to save lives, optimize emergency response and enable a greater understanding of operational risk. The product is a wearable smart device akin to a watch. In combination with the steel permeating IoT connection, ConnectPOB can remotely track the crew’s location. In the case of a shipboard emergency, personnel are accounted for regardless of where they are. Traditional mustering methods are slow, and should a crew member be missing a search can take up precious time.

This device has unsung implications as a disruptive technology, as obtaining data on the crew is an elusive matter. It’s currently in its early stages of commercial use, aboard several vessels serving Northern Europe. Companies like OSV operator Østensjø Rederi, Olympic Shipping, Havila Shipping and Awilco Drilling are trialling it. Connecting IoT with personnel has yet to be fully explored, but the potential is enormous. The human element is both the maritime industry’s greatest asset and risk. From an operational perspective, ScanReach can increase safety. With factual data, risk can be assessed and transformed into cost-saving value, potentially allowing adjustments to insurance rates.

Frugal Technologies
Founded in 2017, the Danish company Frugal Technologies is just getting started. Their offering is an automated propulsion system, Frugal Propulsion, which can intelligently adjust a vessel’s speed based on a smart performance curve. There are many similar technologies on the market, but Frugal’s is unique in that it can automatically control both
RPM and propeller pitch for maximum efficiency. While it’s relatively simple to determine optimum RPM, the fine-tuning of propeller pitch is an essential factor that other solution providers have overlooked.

There are currently over 20,000 ships with controllable pitch propellers. These types of propellers have long been proven valuable by their versatility, allowing operators to adjust thrust without changing engine direction. Despite their popularity, it is difficult to precisely set the blades for optimal performance, and a small offset can make a big difference. Sensors installed throughout the vessel measure variables like exhaust gas temperature, draft, torque and speed. This data is transmitted to the cloud, where machine learning algorithms determine the best action. The system is integrated into the ship’s propulsion control system (PCS), which in turn allows Frugal Propulsion to automatically adjust engine RPM and propeller pitch to achieve a balance of reduced fuel consumption and emissions.

To meet the goals set forth by the IMO, the maritime industry must reduce greenhouse gas emissions by an average of 6% each year until 2050. By any measure, this is a tremendous challenge. While there has been significant research and development into alternative fuels, none has yet proven viable. Even with built out infrastructure for the cleaner fossil fuel LNG, the average working age of a ship is roughly two decades, and owners will continue to utilize their oil-burning assets until no longer profitable. To meet the near-term goals of emission reduction, the only feasible option for most ships is to adopt vessel performance optimization enabling technologies.

To date, Frugal Technologies has its system installed on only four ships. Still, the company serves as an example of how IoT helps the industry adapt to the challenges ahead. The product is guaranteed to reduce fuel consumption by a minimum of 10%, but as much as 20% has been achieved. By any measure, the company is a start-up and has only just begun field testing. Nevertheless, innovative solutions for vessel performance optimization are in high demand. Frugal Technologies is just the newest company in the space to help meet this need over the coming years.

Cydome
When it comes to cybersecurity, IoT has been described as the Bermuda Triangle of technology. As the maritime industry continues to integrate itself with the digital environment, it has become increasingly vulnerable to being hacked. Well-executed cyber breaches of Information Technology (IT), such as your computer or phone, are common and generally result in data loss or worse, ransomware. For major industrial sectors such as shipping, the ramifications of compromised software can be far more severe. The convergence of physical equipment with computerized systems is known as Operation Technology (OT). Today’s maritime industry is heavily integrated with such hardware, from engine computers, helm control relays to cargo loading modules. This makes compromised OT particularly dangerous, which is why it’s typically isolated from external connections; however, the functionality of IoT is destined to change that.

Founded in 2017, Cydome is an Israeli startup that has gained some serious momentum in the past year. In conjunction with similar standards from other prominent organizations, the demand for cybersecurity within the sector has been galvanized with the implementation of the IMO’s 2021 MSC-FAL.1/Circ. Guidelines on maritime cyber risk management. Cydome doesn’t sell or produce any smart device, but rather IT and OT cybersecurity for the maritime sector, focusing on IoT.

The company has drawn the attention of lead investor VentureIsrael and has recently received a sum of $2.2M.3 The funding has come on the coattails of a successful year of implementation with ship managers ASM Maritime and leading Israeli offshore operators M.Dancor Ltd. The potential behind Cyome’s offering is bolstered by the credentials of their leading employees, including the former head of Cyber Warfare and Infrastructure of the Israel National Cyber Directorate and several former executive staff from prominent tech firms. As the maritime industry continues its journey of digitization, the risk exposure will increase exponentially. Cydome is lining up to play a significant role in fostering trust in a future enabled by IoT’s deep integration.

Wiliot
There is an underlying issue with fully integrating all “things” into IoT: the power source. Regardless of how advanced and efficient a connected device is, all receive electricity by cable or battery. In terms of how we currently think about IoT, this doesn’t present too much of a challenge. Wiring up sensors and equipment is straightforward enough, but imagine the possibilities if you didn’t have to. What if you could integrate an object with IoT with something as simple as a sticker.

The Israeli startup Wiliot, has set out to do just that. As thin as a piece of paper, their device can sense temperature, location, movement, and weight changes. The connection is enabled through BlueTooth while powered by ambient radio frequencies, all battery-free. In September, the company announced that they’d begun initial trial projects with select partner customers, distributing large volumes of their IoT enabling stickers. Wiliot has presented the product for use in manufacturing, logistics and retail. The disruptive technology could change the traditional supply chain into a demand chain, allowing everyday items to be digitized and linked to the cloud. By digitizing objects to monitor their life cycle, you gain insight into their use and demand through IoT.

Shipping giant Maersk has taken notice of the company as part of a Series B funding round of $20M. All told, Wiliot has received $89M from investors including Amazon, Verizon, and Samsung. While there’s no doubt that the company’s battery-free IoT sticker could revolutionize logistics and commerce, the device has potential in an untold number of applications. Aboard a ship, inventory and stock of supplies could be tracked, automating procurement. Safety equipment that requires physical inspection could be monitored for completion. The use or proximity of gear could be known, allowing insurance underwriters to manage claims better or adjust risk. The tags could be sewn into crew work vests to assist in emergencies. While Wiliot’s currently not advertising the products used in the marine environment, the implications of digitizing virtually any object could genuinely and fully make IoT the internet of things.

Metis Cyberspace Technology SA
With over 620 enabled devices across 238 vessels, Metis provides IoT enabled performance monitoring and intelligent analytics for ship management. Their growing customer base currently consists of 25 ship owners and management companies. Powered by Microsoft’s cloud computing architecture Azure, Metis applies artificial intelligence to the data stream of shipboard IoT. Their services empower companies with an end-to-end assessment of their vessels in real-time and historical operating conditions by transforming raw data into actionable information for management and crew. Following a series of rigorous testing, Lloyd’s Register certified the smart system in 2018. This marked a first of its kind for the classification society and type-approved it for use worldwide.

One of the more recent companies to sign on with Metis is Neptune Lines, which provide short sea shipping services aboard their fleet of 17 modern Pure Car & Truck Carriers (PCTC). The company plans to integrate the data acquisition and advanced analytics platform across its fleet to capitalize on AI’s power to optimize vessel management and sustainability. With a better portion of their trade serving the eurozone, Neptune Lines is facing tightening environmental regulations. The company policy to steadily reduce emissions, as such utilizing the power of integrated IoT aboard their ships is a logical step in mitigation.

Metis’s platform is a leading example of the disruptive potential of IoT. While there are many vessel monitoring services on the market that can help model performance and emissions, Metis is pushing the boundaries with condition-based monitoring. By using vibrational analysis, the complete service will be able to provide diagnostics of machinery with the goal of zero downtime. Another unique feature of Metis’s platform is its virtual support agent. The AI powered digital assistant allows crew members to tap into the database by directly asking questions with their voice. Personnel can use this interface to diagnose and respond to critical issues in real-time. With IoT-enabled sensors monitoring a range of systems, the assistant can identify anomalies from engine compression to fuel flow.

Other companies of note which use Metis are Star Bulk Carriers, Pioneer Marine Hellas, and Olympic Shipping. The latter owns over 30 ships, with the system installed across their fleet. A common factor that has drawn in clientele is the 24/7 reliability of the data storage and acquisition, combined with the virtual assistant’s capabilities. While there is an acknowledgement that vessel monitoring is in its infancy, these companies have leveraged the AI power IoT platform to optimize vessel performance, proactively address issues, and cut costs.

Industry adopters

Kawasaki Kisen Kaisha, Ltd. (“K” Lines)
The Japanese marine transportation and logistics company “K” Lines owns over 140 cargo vessels and is an early adopter of IoT and big data analytics. While they are one of the world’s larger container ship operators, their fleet contains various other ships, including bulk carriers, ro-ro vessels, tankers and LNG carriers. In a joint project with Kawasaki Heavy Industries

Group, they developed an inhouse ship operation and performance management system: Kawasaki Integrated Maritime Solutions (K-IMS). The system was launched in 2016 when “K” Lines began installing the system aboard the entirety of their fleet. In early 2021, ClassNK granted K-IMS certification under the first ever Innovation Endorsement for Products & Solutions, opening the doors for broader use in the industry.

Continually improved and expanded upon since it’s initial release, K-IMS helps manage big data from integrated onboard systems through the cloud. Ship management, operations teams, and crew can access the platform with various means, including smartphone apps or internet browsers. Originally K-IMS was a combination of three core functionalities: data and monitoring, performance analysis, and navigation optimization. By linking onboard equipment from engineering and bridge systems to the cloud, the platform enables shoreside personnel and operators to access high-precision real-time statistics, notifying personnel of abnormalities as they occur. Recorded data is used to visualize vessel performance trends

compared with previous models to improve safety, economy and manage environment variables. To optimize voyage planning and vessel performance, extra modules were added to the system, such as meteorological information and smart analytics, which generate recommendations for trim, engine rpm and ocean passages.

The recent certification by ClassNK has opened a door of opportunity for K-IMS. With nearly half a decade of operational experience with the system, “K” Lines has confirmed its viability for future users. The first-of-its-kind certification is just the beginning of type-approved technologies for application within the industry. While it does not allow for remote command and control, the data and monitoring cloud platform has proven itself a powerful tool to optimize vessel performance. The integration of onboard sensors and feed connectivity with online software is a catalyst for cost savings and enhanced operational safety and efficiency.

Damen Group
In operation for just under a century, Damen is a family-owned business with 36 shipyards worldwide. Since 1969 the company has produced more than 6,500 vessels, with an average of 175 per annum in recent years. Their long history of success has made them one of the more progressive shipbuilders in the sector. With an understanding of future trends, they’ve made a concerted effort in leading the integration of digital technologies with new builds.

The company specializes in construction workboats and small-sized ships, but that focus has driven them to the sector’s forefront. The company’s experimentation has notably earned them a leading role in the consortium Joint Industry Project (JIP) Autonomous Shipping based in the Netherlands. Additionally, they’ve worked to progress the application of 3D Printing and 16 Virtual & Augmented Reality in naval architecture. What has set them apart from their competitors is their digitized “cradle to grave” approach for their vessels’ lifecycle. Damen’s leadership in this field is fundamentally changing its business model from a pure-play shipbuilder to a maritime service provider.

Capitalizing on technological developments, the shipbuilder teamed up with Silicon Valley startup Flicq and Tata Consultancy Services (TCS) to build their digital initiatives under Damen Digital. Today, the company’s vessels can contain up to 15,000 sensors, which are interconnected through IoT onto the cloud-based Connected Vessel Platform Damen Triton. Just as modern road vehicles feed data to their manufacturers, this digital ecosystem enables Damen to provide ship owners with lifecycle support of their assets.

In addition to Damen’s support, the IoT platform allows vessel managers to access remote performance monitoring through a live dashboard with historical playback and insight modules. The company is particularly well-suited for this offering because, as a shipyard, they can install sensor hardware that they’ve personally vetted for quality and reliability. While the platform is currently proprietary to Damen’s software, they have plans to enable an API to support third-party applications. The Connected Vessel Platform Damen Triton has been an acknowledged success, earning the CIO Magazine Innovation Award 2020 from ICT media.

Maersk
IoT’s most extensive success story in the maritime industry has arguably been Maersk’s container division. On an annual basis, the Danish shipping giant carries approximately one-quarter of the world’s refrigerated containers (reefers). In 2019, that number was marked at 27%, along with 25% of the world’s food commodities. As is the case with most modular containers, the journey start to finish is a travelogue from factory and farm, aboard truck, train, and ship, before reaching its destination. Any cargo presents its own logistical challenges, but reefers are uniquely difficult. As a global leader in the sector, Maersk has installed IoT across its 380,000 reefer containers, ensuring refrigeration and protecting goods from spoilage.

Oceanborne shipments of reefers have historically been a management nightmare. From an engineering perspective, the power draw of hundreds or thousands of reefers aboard a ship can require remendous amounts of electricity. Reefers must nearly always be connected to a reliable source of electricity. As compressors come on and offline to maintain temperature, generators must meet the demand. These containers must be inspected by crew to ensure functionality. If a deficiency is identified, personnel must repair the equipment quickly to preserve its valuable contents. Should a problem be overlooked and cargo spoils, it can be a real challenge to identify when it happened and who’s at fault.

To address these complex issues, Maersk partnered with information and communication technology firm Ericsson. Previously in 2012, Maersk had engaged the tech company to install new VSAT systems to allow mobile connectivity across their fleet. This marked a significant advancement for the industry as an early move away from “as-needed” communication to real-time data feeds of the ships navigation and engineering systems. In 2015, the two had launched their preliminary Remote Container Monitoring (RCM) system with the help of AT&T’s IoT technology enabled by GPS, 3G and a GSM antenna. Publicly released in 2017, the RCM proved its value by monitoring reefer temperature and operating conditions, reducing the need for regular inspection of the containers and easing claims handling.

The original data system ran by on-site data centres stationed in Europe, Asia, and the US. With an increasing number of reefers using the RCM, these centres were reaching capacity. In this setup, cybersecurity was an underlying issue. Frequent performance issues stemmed from latency and occasional power outages, such that alternative solutions were required. By late 2017, Maersk had contracted Microsoft to integrate the system with their cloud platform, Azure. In what’s been described as perhaps the single largest cloud migration for the shipping giant, they transferred over 80 business applications and 14.4M user files.

By the end of 2019, more than 3,600 customers had signed up for the service installed on 94% of Maersk 380,000 refrigerated containers. Today the RCM enables direct customer-user control and monitoring of the reefer container in shipment. By the end of that year, the mobile friendly application, “Captain Peter”, was launched as a virtual assistant. With it, customers are alerted to their cargo condition, allowing users to make desired adjustments from monitored conditions for humidity, temperature, and CO2 environment.

Predictions for 2021/22

We are living in interesting times. If anything that has been collectively learned this past year, it’s that the unexpected is never too far off. There is no way of knowing what the future will bring, but past trends and current conditions can serve as a barometer for change. While the maritime industry is characteristically stubborn and settled in its ways, it’s now known that it must adapt to keep up with the challenges of the future. From a macro perspective, the uptake of new technologies within the sector is driven by two primary factors: regulation and market demands.

The maritime industry is undergoing a fundamental change, from being volume-based to value-based. Globalisation is causing an increasing demand for cost savings. With conventional optimisation methods at their limit, it is clear that only innovation can push current margins beyond the mark. Companies that can invest in new technologies will have a leg-up as the markets divide the winners and losers. Unfortunately, the last decade’s economic volatility has much of the industry focused on the bottom line, with short-term profits overshadowing long-term benefit. As such, only the well-off sectors will be inclined to be the first to fully adopt a digitised strategy, which will provide the case studies from which the remainder can gain the confidence to chart their path.

On the other hand, the entire industry knows that increasingly strict regulation is on the horizon. Even in the fallout of a global pandemic, the threat of climate change has remained omnipresent and pressure to take meaningful action is increasing exponentially. Fossil fuels will remain necessary for years to come, and fuel-oil-dependent assets such as ships will continue to work at sea until no longer profitable. As such, the only way forward will be the widespread adoption of new technology to enable optimisation at all levels of operations. In the near term, the most practical way to maintain competitive profitability and regulatory compliance is through digitisation, big data and analytics. The connectivity of IoT is the foundation on which these changes will be built, but before we can understand how the uptake of IoT will occur, we must examine the industry’s current state.

At the start of 2020, the world was on the backside of recovery from the ’08 financial crisis, and an era of rapid growth spurred by fiscal intervention was slowing. Maritime trade was facing weak market fundamentals. A toxic combination of an overbooked shipbuilding boom between 2004-2011 and the economic recession had shipowners contending with an overcapacity of tonnage. By most measures, the maritime industry was looking at a bleak and uncertain future.

To comply with the IMO 2020 sulphur emissions cap, shipowners had been required to make significant investments. The money spent was a long bet on the energy markets, fueling infrastructure and the ROI. Before mid-year, nations were in the throes of lockdown as the Covid19 pandemic swept across the globe. Oil prices tanked as the world’s economies screeched to a halt. As countries took varying measures to contain the virus, a regional imbalance of recovery took shape. Shuttered industries struggled to keep pace with demand, and an uneven distribution of trade resources sent shipment prices both soaring and to negative territory.

Container transport costs from Asia to California were up over 300% by the year’s end, while low energy consumption and issues within OPEC had crude tankers looking at negative returns. Now in early 2021, with meaningful progress in vaccine distribution, conditions have modestly begun to improve; however, there is still much uncertainty. Pent up demand continues to cause logistical problems in ports, with virtually every available container ship underway carrying goods. Companies in this space are raking in sky-high rates. The sale price of 10 year old 6600-box container ships has more than doubled from the start of 2020, while order books for newbuilds continue to stay low. While profitability for this sector is stunning, it is uncertain for how long it will be sustained.

Dry bulk shipping is experiencing a strong start to the year but will likely end if the recovery slows. Rates and profits might face significant volatility depending on the region and how governments decide to move forward in recovery efforts. The tanker market has been particularly bleak from low crude imports and energy demand. While oil prices have returned to pre-covid levels of around $60 a barrel, they are forecast to nearly double in the coming months, likely tamping down consumption rates. The overcapacity of tonnage remains an underlying problem across all the major maritime sectors, as shipbuilders face seventeen-year lows in bookings for new ships.

In the near-term, the container sector is most likely to implement various IoT solutions. The uneven recovery of different world regions has resulted in soaring demand for goods transported by these ships. Congested ports and container shortages have spurred logistical chaos. While other forms of shipping will look to utilise IoT for regulatory reasons, there is a severe need to better manage modular cargo that only IoT can best provide. The recent high profits will give the container sector added flexibility to invest in these types of solutions. Additionally, the continued overcapacity of tonnage remains a problem throughout the industry. The spike in older container ships’ value will only serve as a catalyst for deeper digitisation to ensure their assets’ long-term return.

As a whole, the situation spells continued uncertainty for the industry and tight operating margins for many companies. Despite these variables, there remains one oncoming factor the entire sector is expecting: environmental regulation. The hardline implementation of the IMOs sulphur cap was only a little over a year ago, and there has been increasing pressure on the organisation to act on climate change.

Citing a lack of initiative on the part of the IMO, the EU has begun measures to integrate the maritime industry into its Emission Trading Scheme (ETS). The ETS incentivises polluting businesses to reduce emissions by allotting a set limit of CO2 before a carbon penalty tax is imposed. Companies who’ve remained beneath this cap can auction their unused carbon permits to the heavier polluters. The industry has previously been excluded from the legislation, but the EU parliament is now actively calculating further implementation. While there has been considerable pushback from various groups, the general consensus within the region’s industry is that it’s inevitable. At this point, the matter is inconclusive, and it’s unlikely to see a formal reckoning until 2022, although Europe may soon be outdone. China has recently rolled out its own ETS, which could eventually overshadow the EU’s in the coming decade.

Though currently, the measure is narrow in its application and excludes the maritime, Beijing plans to expand the scheme across all industries gradually. Meanwhile, the IMO is gradually moving forward with its own methods for greenhouse gas emissions reductions. The organisation’s initial strategy calls for a decrease of 40% by 2030 and 50-70% by 2050 based on 2018 emission levels. With minimal framework upon its rollout, the IMO more-or-less began requirements for efficiency indexes but is now considering how to move forward. The Energy Efficiency Design Index (EEDI) reflects the efficiency for technical aspects of a new vessel’s design. Pertaining to most major ship types, the index serves as a baseline and optimisation driver for new builds referencing the design of the hull, propeller, engine and other energy efficiency technologies. The index gradually tightens the standard by the same baseline factor incrementally until 2025, at which point an overall reduction of 30%.

While the EEDI serves for technical measurement of efficiency, the Ship Energy Efficiency Management Plan (SEEMP) functions for operational emissions improvement. Mandatory for all ships 400 gross tonnes and greater, the ship-specific document effectively monitors a vessel’s efficiency over time. The primary purpose of the SEEMP is to create a method from which existing ships could make regular incremental improvements in emission reduction although, this aspect is at the discretion of the shipowner and is purely voluntary.

In November 2020, the IMO Marine Environment Protection Committee (MEPC) approved draft amendments to the MARPOL convention for tighter emission regulations. If enacted, ships will be required to reduce GHG on an annual basis. This is to be done by an operational and technical approach through a new Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Index (CII).

The implications of the regulation have stirred concern as to how vessels will accomplish the reductions, with talk about slow-steaming and other types of conventional inefficiencies. These amendments will be voted upon during the MEPC 76th meeting this coming June. Should they pass into law, the measures will come into effect no sooner than October 2022. Given the industry’s current state combined with oncoming environmental regulation, we are nearing the cusp of a boom for IoT. There are many factors at play that require optimisation that only technology can remedy. While there are questions about whether or not companies will opt for the additional expense of these new and untried products, there is an increasing number of proven examples negating doubt as to the value they provide.

Increasing pressure to reduce greenhouse gas emissions has positioned the wealthier companies in the maritime to be amongst the first to integrate operations with IoT. Although much of the industry has yet to do any IoT implementation, a new wave of restrictive legislation will soon drive them to it as the IMO and the EU formulate the best actions to manage the industry’s contribution to climate change. The overcapacity of tonnage is directly linked to the low order book for new contracts at shipbuilding yards. With few companies interested in replacing their old ships, the existing fleet will have to utilise technology to maintain profitability and compliance. With oncoming regulation expected as early as 2022, IoT will see a sudden boom in demand akin to the sulphur exhaust scrubbers in 2020. With minimal expense or a major overhaul, IoT is increasingly becoming a critical aspect of how existing vessels will meet tomorrow’s challenges.

Conclusion

While these troubled times likely spell a long road to a full recovery, the year has produced an explosion in technological adoption throughout all sectors of the economy. For many reasons, the oceanborne trade is undergoing a fundamental transformation as shipping shifts from a volume-based to value-based industry. The combined effect of the pandemic, globalization, and environmental regulations is tightening the operating margins for shipping. The backdrop of climate change has not waivered, and goals for emission reduction set out by the IMO and concurrently the EU remain a tremendous challenge.

If this last year can serve as a gauge of the industry, it shows resilience but also underlying weakness. The response to the IMO 2020 sulfur cap was somewhat chaotic and required significant investments on the part of ship owners, but was ultimately met in good standing. With new environmental regulation and a likely carbon tax on the horizon, the maritime industry will have few choices to maintain compliance, profitability and competitiveness. IoT will become absolutely critical moving forward, and the depth of integration will divide the winners from the losers.

Fortunately, there has been excellent progress with IoT and its preliminary adoption. Development by the tech sector and inhouse marine businesses have been steadily building out digitally enabled systems. An increasingly wide range of issues are being met with innovative solutions. Companies like ScanReach, with their wireless connectivity offering, will be paramount in the coming years by allowing significant cost reductions for installation and an even greater level of digitization. Vessel performance monitoring solutions from the likes of “K” Lines and Frugal Technologies will become practically mandatory to meet compliance requirements.

It goes without saying that the events from this past year have been bleak, but it has served to highlight the fact that we must be quick to adapt. The maritime industry is no exception to this, if anything it has further amplified that things must change. Shipowners and operators understand this, and even the companies with less capital flexibility are considering how to maintain in the oncoming environment. These next few years will be critical, and while companies hope that regulators will go easy, those who take early advantage of technology will be the leaders and ultimately gain a competitive advantage over the others.