{"id":12633,"date":"2016-11-04T17:37:22","date_gmt":"2016-11-04T21:37:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/maersk-shippings-unique-relationship-with-climate-change\/"},"modified":"2016-11-04T17:37:22","modified_gmt":"2016-11-04T21:37:22","slug":"maersk-shippings-unique-relationship-with-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/maersk-shippings-unique-relationship-with-climate-change\/","title":{"rendered":"Maersk: Shipping\u2019s Unique Relationship with Climate Change"},"content":{"rendered":"
\"Source:
Source: https:\/\/mpoverello.com\/tag\/container-ship\/<\/figcaption><\/figure>\n

Ninety percent of world trade is transported by sea. \u00a0This translates to over 5,000 massive container vessels transiting the vast, salty sea lanes annually.[1]<\/a>\u00a0 Maersk Line, a business unit of Maersk, is the largest provider of these shipping services world-wide.[2]<\/a>\u00a0 Shipping companies such as Maersk are intimately linked to climate change in two major ways.\u00a0 The first way is through CO2 emission: ships burn fuel for power and contribute CO2 and other emissions to the atmosphere.\u00a0 The great news is that Maersk is taking large steps to reduce its carbon footprint significantly.[3]<\/a>\u00a0 In fact, a Maersk container ship is one of the most carbon emission efficient methods of transportation, producing only 3 G\/ton-km (compared to 485 G\/ton-km for an airplane and 80 G\/ton-km for a truck).[4]<\/a> \u00a0Furthermore, Maersk has pledged to continue striving for significant CO2 reductions in the future through robust sustainability plans.[5]<\/a>\u00a0 The second way climate change affects Maersk is through the associated environmental changes, such as the increase in frequency of severe weather, that Maersk must endure to remain competitive.\u00a0 These challenges present a significant threat to Maersk\u2019s operations and must not be ignored.<\/p>\n

While the reduction of CO2 equivalent emissions is vital to the sustainability of our planet, the climate changes that come with greenhouse gas effects is, at this point, inevitable.[6]<\/a>\u00a0 Specifically, according to scientific and economic journals, increasing arctic temperatures and rising sea levels are \u201cvirtually certain\u201d; increased weather intensity is \u201clikely.\u201d[7]<\/a>\u00a0 Shipping companies are particularly exposed to these effects given their global port distribution, 72 ports and terminals in 69 countries on five continents, and their ability and proclivity to move vast distances around the globe.[8]<\/a>\u00a0 These effects will have multiple implications on the operating model of Maersk.<\/p>\n

\"Source:<\/a>
Source: “Update \u2013 Important Clues to MOL Comfort\u2019s Demise,” https:\/\/mpoverello.com\/tag\/container-ship\/<\/figcaption><\/figure>\n

The most obvious implication is the physical risk of the ship and its cargo associated with traversing the high seas in extreme weather.\u00a0 The greater the frequency, the higher the probability of damage to ships or cargo. \u00a0This equates to higher costs for Maersk.\u00a0 At a strategic level, Maersk will have to make capital investments to insure against such events.\u00a0 For example, it may prove beneficial for Maersk to invest in state-of-the-art weather systems that provide real-time, global weather coverage with associated severity estimates in order to assess the riskiness of a given shipping route that Maersk intends to execute.\u00a0 Secondly, the increase in frequency of major natural disasters will significantly impact the logistics of Maersk.\u00a0 When a natural disaster hits a port, it could potentially cause so much damage that the port becomes inoperable.\u00a0 For example, Hurricane Katrina caused over $250 million dollars of damage to the Port of Gulfport and the in port ships and cargo.[9]<\/a>\u00a0 Port closures or damages could have rippling negative effects in the global supply network because the movement of ships, which move the massive supplies of basic economic staples such as oil and food,<\/p>\n

\"Source:
Source: “How Much Bigger can Container Ships Get,” http:\/\/www.bbc.com\/news\/magazine-21432226<\/figcaption><\/figure>\n

would be curtailed.\u00a0 Maersk will have to be equipped to deal with these crises more frequently.\u00a0 Finally, rising sea levels could potentially cause more frequent port flooding and threaten the existence of the current infrastructure.\u00a0 Although Maersk does not own port logistics, the costs associated with having to deal with these complications (e.g. delays, loading inefficiencies, etc.) will be a substantial.<\/p>\n

Finally, in my opinion, the most thought-provoking effect climate change will have on the shipping industry comes in the form of changing economic trade landscape and shifting shipping lanes.\u00a0 As climates change around the globe, the local suitability of food production will substantially shift from equatorial climates to higher and lower longitudinal climates.[10]<\/a>\u00a0 Since food is a major product transported by Maersk, this could vastly alter their economic trade channels.[11]<\/a>\u00a0 Furthermore, looking far into the future, as polar ice caps melt, new arctic shipping lane openings may become available that could potentially significantly reduce the distance needed to travel between continents, again further altering the economic trade channels.\u00a0 According to the US Navy\u2019s Arctic strategy, the Arctic\u2019s Northern Sea Route could be ice free for a couple of months per year as early as 2030.[12]<\/a>\u00a0 Thinking long-term, Maersk needs to have a pulse on the changing shipping lane landscape.\u00a0 In order to continue to be the leading container ship company, it needs to be where the activity is, it needs to know where the activity will go on a macro scale, and it needs to capitalize on opportunities for innovative shipping lane changes associated with climate change.<\/p>\n

\"Source:
Source: Maersk, “Vessels, Rigs, Platforms, and Terminals,” http:\/\/www.maersk.com\/en\/hardware<\/figcaption><\/figure>\n

Maersk is uniquely incentivized to be a leader in CO2 emission reduction because the negative effects associated with climate change directly impact its operations in the long term.\u00a0 Given Maersk\u2019s exposure to the environment, I think it is vital that Maersk continue to demonstrate emission reduction excellence and invest in ways that will prepare for the changing landscape that climate change is inevitably bringing.<\/p>\n

Word Count: 798 words<\/p>\n

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[1]<\/a> Maersk, \u201cTransport & Trade,\u201d http:\/\/www.maersk.com\/en\/industries\/transport, accessed November 2, 2016.<\/p>\n

[2]<\/a> Marine Industry Profile, Capital IQ, a division of Standard & Poor\u2019s.<\/p>\n

[3]<\/a> Maersk, \u201cSustainability Report 2015\u201d (pdf file), downloaded from Maersk website, http:\/\/www.maersk.com\/en\/the-maersk-group\/sustainability, accessed on November 3, 2016.<\/p>\n

[4]<\/a> Maersk Line, \u201cSustainability and Climate Change Mitigation in Maersk Line\u201d (pdf file), downloaded from an institutional investor website, https:\/\/www.joep.dk\/Om-os\/Aktuelt\/2016\/Klimadebat-med-mange-vinkler, accessed November 3, 2016.<\/p>\n

[5]<\/a> Ibid.<\/p>\n

[6]<\/a> Mark J. Koetse, Piet Reitveld, \u201cThe Impact of Climate Change and Weather on Transport: An Overview of Empirical Findings,\u201d Transportation Research<\/em> Part D<\/em> 14, no. 3 (2009): 207.<\/p>\n

[7]<\/a> Ibid., p. 206-207.<\/p>\n

[8]<\/a> Maersk, \u201cVessels, Rigs, Platforms, and Terminals,\u201d http:\/\/www.maersk.com\/en\/hardware, accessed November 4, 2016.<\/p>\n

[9]<\/a> Colin Gannon, \u201cClimate Change and the Maritime Industry,\u201d http:\/\/427mt.com\/2015\/05\/climate-change-maritime-industry, accessed November 2, 2016.<\/p>\n

[10]<\/a> Mark J. Koetse, Piet Reitveld, \u201cThe Impact of Climate Change and Weather on Transport: An Overview of Empirical Findings,\u201d Transportation Research<\/em> Part D<\/em> 14, no. 3 (2009): 210.<\/p>\n

[11]<\/a> Paul Brown, \u201cArctic\u2019s melting ice shrinks shipping routes,\u201d http:\/\/climatenewsnetwork.net\/arctics-melting-ice-shrinks-shipping-routes, accessed November 2, 2016.<\/p>\n

[12]<\/a> United States Navy, \u201cThe United States Navy Arctic Road Map for 2014-2030\u201d (pdf file), downloaded from Navy Website, http:\/\/greenfleet.dodlive.mil\/files, accessed November 3, 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

Can a 400 meter ship that carries 18,000 semi-truck-sized containers reduce its carbon footprint? 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