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From Blue to Orange. What is the Answer?
Written by Ana Casaca Posted on 29 September 2023 | Updated on 06 October 2023 Reading Time 35 minutes
1. The Blue Economy
The blue economy has become a hot topic. However, only recently did it come to the public discussion, even though reference had been made to the potential of the ocean. The report “The Ocean: Our Future” by the Independent World Commission on the Oceans and edited by the late President of the Portuguese Republic, Mario Soares, in 1998, can be seen as the starting point of this movement. Seen from today, the potential of the ocean is enormous. The Organisation for Economic Cooperation and Development (OECD) claims that the ocean is the next great economic frontier, given its wealth, economic growth, employment, and innovation potential. Its contribution of about $2.5 trillion (about 5%) to the global gross domestic product makes it the seventh-largest economy if it were a country. Besides, the ocean can generate greater economic returns if sustainably managed, producing six times more food and creating twelve million more jobs.
In its initial stages, the blue economy revolved around the maritime cluster concept; however, the numerous reports and studies addressing this issue were somehow misleading. They not only presented different definitions but also the activities pertaining to it varied, thus resulting in an unstructured approach. Comparing the added value that the different maritime clusters brought to their countries was a daunting task that resulted in a biased outcome. The different countries had different policy interests, reflected in the different activities each country’s maritime cluster embraced. Moreover, terms such as ‘maritime’ and ‘marine’ were often used interchangeably when they mean different things; their descriptions were ambiguous, providing an unclear boundary between them.
In 2011, Maria Damanaki, the European Commissioner for Maritime Affairs and Fisheries, in her speech about ‘The Future Economics of the Sea’ clarified the misuse of these concepts and provided a new understanding when stating that the seas i) allowed maritime transport, ii) are a source of raw material, energy, and food, water reservoirs and the climate engine of the world, and iii) are a place for leisure activities. From her speech, it could be understood that the so-called maritime cluster concept embraced three essential areas of economics (and consequently three sub-clusters), namely maritime economics because the ocean is a way of transport, marine resource economics because the ocean is a source of raw material, energy and food, and nautical tourism economics because the ocean is a place for leisure. The added value was that it could now be possible to identify each of the activities belonging to each sub-cluster, being aware that some are cross-cutting economic activities such as ship design, shipbuilding, ship management, and ship dismantling/recycling.
The blue economy concept, also known as the sustainable ocean-based economy, was introduced in 2012 by the United Nations because healthy marine ecosystems are more productive. However, the blue economy goes beyond the definition provided above. First, it builds on the principles of environmental stewardship and the creation of synergies between economies and sustainability. Second, it is a source of green energy helping to fight climate change. Third, as it is known today, the blue economy has a broader geographic coverage and embraces everything blue, i.e., that involves water, and for this reason, includes activities conducted by the world population in the ocean, seas, rivers, lakes, lagoons, and waterways.
Still, ocean activities outweigh those performed in a freshwater environment. While most scientists estimate that the planet’s water percentage is about 71%, there is an uneven distribution between salt and fresh water; clearly stated, saltwater represents about 97% of all the water available, and 3% of the remaining water is fresh. This difference may explain why, for instance, the OECD, the World Bank and The Commonwealth present blue economy definitions related to the ocean. Conversely, the aim is now to present broader blue economy definitions when considering the coasts besides the ocean and seas, as presented by the United Nations and the European Commission.
Moreover, the European Commission moved forward and identified thirteen economic sectors, classified as established and emerging, which allow a non-biased comparison of the different activities among the different Member-States. These are blue biotechnology, coastal tourism, desalination, infrastructure and robotics, marine living resources, marine non-living resources, marine renewable energy, maritime defence, maritime transport, ocean energy, port activities, research and innovation, and shipbuilding and repair. In 2018, the European Union Blue Economy established sectors accounted for a turnover of €650 billion, a gross value added of €176 billion, and 4.5 million jobs. Two years later, in 2020, during the COVID-19 pandemic, the European Union Blue Economy established sectors still accounted for a turnover of €523 billion, a gross value added of €129.1 billion, and directly employed almost 3.34 million people.
2. The Green Economy
Unlike the blue economy, much has been said and written about the green economy. The United Nations Environment Program (UNEP) defines the green economy as “low carbon, resource efficient and socially inclusive”. It aims to minimise environmental risks and ecological scarcities, support sustainable development without impacting the environment, and promote fair trade. The UNEP also claims that a green economy does not replace sustainable development. Instead, it has a new focus on the economy, investment, capital and infrastructure, employment, and skills, resulting in positive social and environmental impacts. Employment and income growth is driven by public and private investments into economic activities, infrastructure and assets that reduce the overall pollution levels, including carbon emissions, thus maintaining existing biodiversity and ecosystems. For these reasons, the green economy focuses on the land’s natural resources to ensure enough quantities to meet the current and future needs of the world population.
Green economy implementation must be performed from a macro-economic perspective due to the investments, employment and skills needed to support it, which explains its underlying principles of well-being, justice, planetary boundaries, efficiency and sufficiency and good governance. The issue of governance is relevant since a green economy requires integrated, accountable, and resilient institutions to make the world more equitable and inclusive. Subject to this, the United Nations Conference on Sustainable Development (UNCTAD) considered the green economy a tool to achieve sustainable social, economic, and environmental development.
However, the fulfilment of a green economy depends on the achievements of the blue economy. This explains why KPMG claims that the green economy “should include the sustainable use of oceanic resources” to overcome, for instance, poverty, climate change, biodiversity loss, and growing inequality. The reason is simple: the blue economy is a central pillar of the green ecosystem. The development of /transition to a green economy can only be achieved with a well-established blue economy, which only recently began to be prioritised, with some countries and regions being more advanced, namely Norway and the European Union, while others still have a long way to go. It is acknowledged that the ocean, the seas, the lakes, et cetera, influence the natural cycles, which are also directly and indirectly involved with all economic sectors and play a critical role in limiting temperature rises. The ocean absorbs 23% of human-caused carbon dioxide emissions every year, capturing 90% of their excess heat.
The water cycle is a straightforward example given the three different states through which it goes (see Figure 1); water is known to exist as a solid (ice), liquid, or gas (vapour), where each has unique physical properties. Moreover, the water cycle is more complex than explained in schoolbooks since it shows a continuous water movement within the Earth and atmosphere, influencing the intensity of climate variability and change. This intertwined relationship occurs because this water cycle allows human life. Likewise, the ocean produces up to 80% of the oxygen people breathe, and about 40% of the world’s population who live in the coastal areas within 100km distance depend on marine and coastal biodiversity to sustain their lives. These figures stress the importance of implementing measures that relieve the planet from the severe consequences of climate change that, in some regions of the world, lead to extreme droughts and, in others, to heavy precipitation and floods, as recently occurred in Libya. These meteorological events are also enhanced in the presence of meteorological phenomena such as the El Niño / El Niña, which in one way or another negatively affect different countries’ economic activities.
Figure 1: The Water Cycle
Source: Dennis Cain/NWS | National Oceanic and Atmospheric Administration (2019)
These events also affect shipping, the lubricant of world trade. The current restrictions in the Panama Canal forcing ships transiting the Canal to draft restrictions and reducing the number of daily transits for water management purposes highlight the claims mentioned above. Eventually, they will affect the Panama Canal Authority’s annual revenue and the Panamanian gross domestic product. Furthermore, the increasing number of ships waiting for their transit turn, which on 10 August 2023 accounted for 154 commercial vessels and an average waiting time of 21 days, will contribute to supply chain disruptions and possible changes in world trade activities. To overcome these disruptions, shipping companies will need to consider the redesign of their trade lanes, particularly in what concerns the North American market, vessel redeployment from one route to another depending on the final destination of the goods and the ability to implement micro- and minibridges within a short notice, with the Suez Canal being a possible winner if shipping companies drive shippers to favour the North American east coast as their preferred entry and exit gateway.
Overall, acknowledging the link between the blue and the green economies, all forms of life known on this planet, i.e., humans, plants, and animals, can be protected. The issue concerns climate change and the management of the existing resources since population growth, high consumption, high pollution levels, and economic development are depleting certain areas of the world of water supplies. Lack of water supplies negatively impacts the economy, energy production and use, human health, transport, agriculture, biodiversity, ecosystems, and leisure activities.
3. Shipbuilding and Shipyards
In his book ‘Maritime Economics’ Martin Stopford identified four markets: newbuildings, freight, sale, purchase, and demolition (recycling) markets. While presented separately for a better theoretical understanding, the four markets are interrelated, driven by freight rates as witnessed during the numerous recent and not-so-recent events that have taken place in the last three centuries of shipping history. In each of these markets, a wide range of economic activities are performed by various players during the ships’ life cycle, i.e., from cradle to graveyard.
Two relevant activities carried out during ships’ life cycle are shipbuilding and repair. From a broad perspective, they are part of the many blue economy sectors worldwide, as is the case of the European Union; however, a difference exists between them. While shipbuilding gives birth to new ships, the latter helps to keep their nautical qualities, namely buoyancy/water-tightness, navigability, stability, tranquillity, movability, seakeeping ability/manoeuvrability and habitability, leading to ships’ seaworthiness and cargo worthiness, so that their certificates can be renewed by their classification societies. For these reasons, both activities are carried out in specific sites, i.e., shipyards, established near the sea or in tidal rivers, for easy access.
Given the different business focus of ship repair and shipbuilding activities, it is not uncommon to have shipyards dedicated to ship repair and shipbuilding only, even though the former may favour shipbuilding instead of ship repair in prevailing market conditions. The different business focus also determines their geographical location. While ship repair yards need to be strategically located along shipping routes to prevent ships from deviating long distances from their operational areas and minimise the time spent en route to the yard and on drydocking activities, the situation differs for shipbuilding yards. The latter can be located anywhere as their location does not affect ships’ operations; ships can sail to their first destination once built.
As a rule, shipbuilding yards tend to be in countries which offer skilled labour and lower labour costs since the latter is a significant component of ships’ building costs. China, South Korea, and Japan, which in 2013 accounted for 85.2% of the global shipbuilding capacity in compensated gross tonnage (CGT), maintained their market leadership in 2020 with 86.0% of the global shipbuilding capacity in CGT, despite the reduction of shipyard capacity. The importance of these countries is such that in 2022, China alone accounted for 47% market share. From an output perspective, China, South Korea, and Japan are the largest players concerning tankers, bulk carriers, containerships, and offshore vessels, even though Chinese shipyards are entering the high-value, more complex shipping market segments.
The number of shipyards available globally has been changing over the years. In April 2022, the number of active shipyards amounted to 283 units against the 514 units in 2014, representing a decrease of about 45%. Accordingly, 230 yards closed due to ongoing consolidation processes derived from low demand levels for new ships because of market conditions, the existing uncertainty concerning the prevailing alternative fuels, propulsion systems, and the undefined regulatory framework expected to support the energetic transition of the shipping industry. This reduced number of available shipyards and consequently reduced number of shipyards’ building slots compared to 2014 (514) implies that most shipowners will stand on a queuing list for slot availability. In May 2023, shipbuilding slots for 2025 were unavailable, and the 2026 available ones represented a small percentage, expected to disappear, with Mark Williams urging yards to massively increase capacity so that shipping meets International Maritime Organization (IMO) green goals. Whether the expected global shipbuilding capacity compound annual growth rate (CAGR) of around 3.2% between 2020 and 2030, which represents $142.52 and $195.48 billion, respectively, is sufficient to meet future demand levels and avoid the emergence of a shipbuilding bottleneck as predicted by Dag Kilen from Fearnleys only time will tell.
With a reduced number of shipyards available, shipyards were forced to look at their inefficiencies, some of which derived from internal processes management, such as the lack of integration between departments, inefficient material management and control, and lack of process control and visibility, thus affecting the overall performance of their supply chain management. Moreover, with material and labour costs accounting for 60% and about 20% of the total production costs, respectively, shipyards had to define their core and non-core activities and, concerning their non-core activities, which ones should be insourced and outsourced. Therefore, it is no surprise that between 45% and 60% of shipyards’ needs are procured, with higher percentages expected in the future, for better cost control and increased market competitiveness. Shipyard procurement includes, but is not limited to, steel, various equipment, pipes, cables, fittings, and other materials.
Furthermore, shipyards were forced to change their production methods. Apart from production optimisation, the traditional way of building ships disappeared and was replaced by prefabrication, modularisation, and partitioning to shorten delivery times and maintain high quality while ships’ size grew. These changes met Levander’s expectations when he stated that “the base for the ship design will be modules and modularised systems. Modularised products form the base for mechanised production and only mechanised production processes can be automated”. Per se, shipyard production is a complex environment, and these changes meant that shipyards became dependent on large, medium, and small-sized suppliers. As the number of suppliers rose, so did the importance of shipyard logistics and supply chain management, mainly if shipyards serve different market segments with ships of different types, sizes, and specifications.
Shipbuilding produces large-scale products, i.e., ships that require space and workers. Moreover, shipyards may require different material handling equipment and/or different organisation for conducting their activities depending on the type of ships built and the number of available docks that allow the simultaneous production of different or similar ships. In analysing shipyard logistics, shipbuilding activities are framed into the so-called engineering-to-order supply chains because shipbuilding orders are unique. Engineering-to-order is a manufacturing process in which a product is designed, engineered, and finished after an order has been received, which concerns the contractual arrangements established with shipping companies. This obliges shipyards to have greater control over the different upstream tiers of suppliers to manage their inventory levels and just-in-time philosophies to continuously reduce lead time, maintain control over the production process, and keep their delivery deadlines. While shipyards also benefit from production models that incorporate aggregate planning, master production schedule and material requirement planning to meet the detailed production timetable and assembly of components and sub-assemblies to fulfil their orders and increase their productivity, they are being challenged by a lack of human resources.
The issue of human resources is not only a matter of the shipbuilding industry but of the overall maritime industry and is well documented in the different reports released by BIMCO in cooperation with the International Chamber of Shipping. Currently, the industry suffers from an ageing workforce due to its inability to attract the younger generations, particularly Millennials and Gen-Z, to an industry that requires high commitment levels and a stable workforce. Over the years, the shipbuilding industry has become less attractive because of its image. It is seen as a dirty industry, subject to low innovation levels, and for these reasons, the younger generations prefer continuing their studies at college/university to enter more attractive career paths. Only layoffs in other economic sectors, such as the technological sector, can make Millennials and Gen-Z look for less attractive jobs in traditional sectors, such as insurance, in their quest for the much-desired job security that 74% look for. This is an opportunity for the shipbuilding industry to overcome this problematic challenge and allow itself to flourish. Doing nothing implies losing years of acquired knowledge passed from generation to generation, eventually losing knowledge not learned at schools but on the job. Moreover, since Millennials and Gen-Z are technologically savvy, they can facilitate the adoption of new digital solutions by shipyards, thus increasing their output.
All the above issues are forcing shipyards to embark on digital transformation, a process through which organisations embed technologies across their business to drive essential changes to reverse the trend of being considered a declining industry compared to the overall industry life cycle. Underlying digital transformation are the concepts of digitisation and digitalisation. While digitisation concerns translating analogue information and data into digital form, for instance, scanning a document, digitalisation uses digital technologies to change business processes and projects, for instance, skilling employees to use new software platforms designed to launch products faster. However, while digital transformation might include digitalisation efforts, it certainly goes beyond the project level to impact the whole organisation.
The advantages gained from these advancements are large in number; these include increased efficiency, the ability to anticipate market needs, thus allowing mass customisation, the possibility to retain customers, and the creation of new incentives for representatives and investors. However, while the digital transformation of the shipbuilding industry can result in the establishment of best practices, the point is that each shipyard’s digital transformation is unique since it depends on its business vision, mission, value proposition, goals, and objectives. Possible strategies to be implemented are i) artificial intelligence or cloud computing to enhance the relationships between its customers and suppliers, ii) business process reengineering to redesign supply chains to better use machine learning, among other technologies and iii) aggregate planning based on their existing demand to lower associated inventory management costs and unnecessary resources that add waste to supply chain management. Whatever the strategies employed, the digital transformation journey will require a new way of thinking and doing things and a radical change of their processes, as it will deepen into the company’s heart.
In every case, this raises the question of what digital technologies are available to shipyards and where the concept of a digital shipyard fits to implement digital solutions along all the stages of their value chain. An answer to this question is even more critical when regulatory changes are leading the shipping industry to decarbonisation, also putting shipyards at a crossroads like other maritime industry activities. If the maritime industry is to become net zero, this net zero approach must start from the beginning of ships’ life cycles. So, the question is, ‘How to create net zero shipyards?’.
4. Net Zero Shipbuilding and Shipyards
In addressing net zero shipyards, the focus is to remove greenhouse gas emissions as close to zero as possible. In this respect, it is essential to understand the definitions of greenhouse gases, carbon neutral, net zero carbon and net zero emissions (net zero from this moment onwards) because they differ.
Greenhouse gas is any gas that results from human activity that absorbs infrared radiation (net heat energy) emitted from the Earth’s surface and reradiates it back to the Earth’s surface, contributing to the greenhouse effect that results in global warming and climate change. Greenhouse gases include carbon dioxide, methane, nitrous oxide, and industrial gases such as hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride and nitrogen trifluoride. Each of these gases remains in the atmosphere for different periods, each having different global warming potentials. Of the listed gases, carbon dioxide accounts for 76% of global greenhouse gas emissions and remains in the climate system for a long time, lasting thousands of years, which explains why so much attention is given to carbon dioxide.
Subject to this definition, i) carbon neutral means that any carbon dioxide released by companies into the atmosphere is offset by an equivalent amount being removed; ii) net-zero carbon emissions means reducing carbon emissions as much as humanly possible and offsetting only remaining emissions; and iii) net zero emissions, net zero greenhouse gas emissions or simply net zero means achieving an overall balance between greenhouse gas emissions released and the amount removed from the atmosphere, for instances by oceans and forests; it means removing greenhouse gas emissions as close to zero as possible.
Therefore, to create net zero shipyards, it is necessary to investigate their processes. This exercise results in mapping all their internal and external processes, where for each of these processes, the inputs, controls, resources, and corresponding outputs are identified as if they represented a sub-logistics system belonging to a broader logistic system (i.e., the shipyard) to deliver an output which is a newbuild. Internal processes relate to processes performed within an organisation without any external partners, while external processes refer to processes that cannot be performed without external partners located upstream (suppliers) and downstream (customers) of shipyards. Given the growing trend favouring outsourcing, it is no surprise that shipyards’ upstream external processes are highly relevant. As shipyards tend to establish relationships with their first tier of suppliers, they know that beyond them, there will be further tiers of suppliers, as many as needed, depending on their first tier of suppliers’ capacity to insource or not to deliver the parts and components necessary for the ships’ construction. Any delay caused by any one supplier will affect the overall production of the partners located downstream.
All this mapping, while contributing to the shipyard’s production effectiveness and efficiency, allows for identifying the activities that produce all types of pollution and wastes along each of the identified processes. From a shipyard’s perspective, the list of pollution and wastes is almost endless since there will be water pollutants, waste of water, solid wastes, hazardous materials, liquid wastes, noise and falls, air emissions (including volatile organic compounds, nitric oxides, carbon oxides and particular matter), among many others. The observation of these aspects, supported by digital technologies, enables shipyards to define processes that support the production of the same activities in a more environmentally friendly way, which in some instances requires the elaboration of entirely new processes since the continuous improvement approaches underlying total quality management are not sufficient to overcome their complexities, and therefore becoming bottlenecks of the system.
In an extreme situation where nothing is done, the absence of an initiative-taking approach may lead to developing a shipbuilding regulatory framework like the Hong Kong International Convention for the Safe Environmentally Sound Recycling of Ships. However, given the urgency to overcome the impacts of climate change and the different interests of the countries where shipbuilding activities are located, the time involved in reaching an agreement to establish a framework regulating shipbuilding activities would be sufficiently long before it could be reached, thus delaying the decarbonisation targeted deadlines. Since the total results from the sum of the parts, and because each shipyard has its business strategies, the most likely (and viable) solution is the implementation of internal and external measures individually. A range of limited solutions is available to all shipyards, which can be classified as best practices and whose implementation can open the scope for more innovative approaches. The paragraphs below discuss some of these best practices.
1. Look for New Energy Sources. The most immediate measure leading to net zero shipyards derives from using new energy sources, given that shipbuilding is an intensive energy industry. Currently, shipyards use three sources of energy: grid electricity, diesel, and acetylene (a hydrocarbon). The alternative is establishing on-site green energy (i.e., solar, wind, biogas, biomass, low-impact hydro, and geothermal energies), a renewable energy generation subset offering higher environmental benefits. The implementation of on-site renewable energy generation solutions is not new. For some years now, numerous worldwide ports have been installing a mix of solar and wind energies supported by novel energy storage and smart energy management to meet ports’ shore power demands derived from their activities, including ships’ energy demand while in port. Nevertheless, in heavy industries such as shipbuilding, renewable energies currently contribute only 1% of the needed energy. In a shipyard context, the alternative could be a mix of solar (photovoltaic) panels and wind turbines.
However, the available space within a shipyard to implement these alternative energy sources can be a barrier to their implementation unless the countries where such shipyards are located have well-established renewable energy policies supporting solar and wind projects whose energy produced enters each country’s energy distribution grid. In established shipyards, receiving green energy through the national grid may be more viable, while in new shipyard projects, the on-site renewable energy generation can be better integrated not to reduce the number of building slots. The alternative can be the use of green hydrogen. The problem with green hydrogen is that its production cost is very high. Green hydrogen is a capital-intensive industry in which levelised production cost, acquisition of solar panels or wind turbines to generate electricity and electrolysers account for 45% to 50%, 30% to 40%, and 10% to 20% of the capital expenditure, respectively, thus requiring an estimated global investment US$9.4 trillion to implement global hydrogen supply chain by 2050.
2. Change the Management Strategy. Another measure leading indirectly to net zero shipyards’ is adopting an environmental, social and governance policy. Environmental, social and governance can be defined as a framework to assess an organisation’s business practices and performance related to various sustainability and ethical issues while measuring business risks and opportunities. Ultimately, environmental, social and governance criteria can be used by investors in deciding on which investments to focus. Within the scope of shipyards, adopting environmental management systems addressing better waste management and recycling policies, quantifying a company’s carbon emissions, water consumption or customer privacy breaches contribute to an environmental, social and governance policy.
However, its implementation dramatically depends on people, and managing people towards managing change can be more complicated than adopting the policies themselves. Managing change or change management, which is a systematic process of guiding an organisation to deal with the transition or transformation of an organisation’s goals, processes, or technologies, results in adopting new ways of thinking and doing things. How people perceive this transition or transformation is critical, given that the reactive nature of human beings often constitutes a barrier to implementing innovative approaches for fear of being replaced by machines and losing their jobs. Until people start seeing it as an opportunity which provides them with novel resources and skills, eventually leading to a digital transformation, companies may face internal battles to implement these new management strategies.
3. Change Ship Design. Ship design can be lengthy if shipping companies decide to build ships with well-defined specifications to target specific markets. For the right designs to be achieved, numerous calculations and model tests must be made, thus resulting in laborious and time-consuming processes. The introduction of computer-aided design/computer-aided manufacturing/computer-aided engineering (CAD/CAM/CAE) while facilitating the design process, the production planning and work breakdown sequences once the detailed 3D model is complete also showed that the shipbuilding process originates a variety of data that includes engineering and calculations, 3D geometrical and meta-data, logistical sequencing, work breakdown information, and production data generated according to specific machinery needs. Likewise, computational fluid dynamics software contributed to enhancing ships’ hull and hydrodynamics and optimising their energy efficiency through the simulation of regular and irregular marine conditions to predict the flow of air and water around them, overcoming the costly and time-consuming experiments of conventional methods carried out in towing tanks.
The use of this software also resulted in various innovative vessel designs, i.e., advanced marine vehicles, commonly known as high-speed craft, some of which result from combining two of the three available supporting ships’ principles (i.e., hydrostatic lift, static lift, or buoyancy; hydrodynamic or dynamic lift; and powered or airlift). With maritime industry decarbonisation, shipyards, naval architects, and consultancy houses must advance ship design by designing ships for disassembly. Ship design for disassembly implies designing ships to facilitate ship repair and maintenance, ship conversion, jumboisation and dismantlement (in part or whole) for recovery of systems, components, and materials, thus ensuring that they can be recycled as efficiently as possible at the end of their life. By adopting such an approach, shipyards maximise ships’ economic value and minimise environmental impacts through reuse, repair, remanufacture and recycling, contributing to the circular economy.
4. Consider Green Steel. Steel is the most used material in shipbuilding, including high-tensile and mild steel. The use of wood in the construction of large ships reduced over the years since steel became the primary shipbuilding material. The development of advanced marine vehicles fostered the use of new materials other than steel, such as aluminium alloys, composite materials, fibre-reinforced plastics, and bio-based fibre composites. However, if the current size of the shipping fleet is considered, as well as the nature and quantities of cargo being carried on board, the possibility that these materials have the required resistance demanded by ships operating in the open sea is low. Therefore, only a minority of ships may eventually benefit from them, as is the case of the high-speed craft. Given that 60% to 80% of a ship’s weight is steel, the most viable alternative for the current dimension of the merchant fleet is using green or blue steel as an alternative to the conventional steel employed. However, a difference exists between the two. Blue steel refers to the primary production of crude steel by direct reduction of iron with grey hydrogen followed by melting in the electric arc furnace, whose hydrogen production carbon emissions are captured and sequestrated, making the hydrogen blue as opposed to grey. Green steel refers to steel manufactured with non-fossil fuels. It refers to the primary production of crude steel by direct reduction of iron with hydrogen produced from electrolysers powered by clean electricity followed by melting in the electric arc furnace, thus bringing carbon emissions close to zero.
Simply said, the establishment of net zero shipyards depends significantly on the decarbonisation process of the steelmaking industry. About 75% of the steel used by the most diverse industries is still produced in the conventional blast furnace-basic oxygen furnaces (BF-BOF), dependent on fossil fuels such as coal and coke. To this must be added the vast amounts of energy they need to heat the furnaces above 1000ºC. As a result, steel manufacturing produces more carbon dioxide emissions than any other heavy industry. This amounts to 8% of the global carbon dioxide emissions into the atmosphere, well above the 3% carbon dioxide emissions the shipping industry releases. The steelmaking industry has been gradually replacing the conventional BF-BOF with electric arc furnaces to alleviate this negative impact. Nevertheless, data show that only 31% of the existing steelmaking capacity uses electric arc furnaces, and only 28% of the capacity under construction will use this technology. Moreover, renewable sources do not always power these electric arc furnaces, so the steel produced cannot be considered green. Therefore, the shift from conventional BF-BOF to electric arc furnaces is stagnant and significantly behind decarbonisation targets and using green steel in shipbuilding is not such a straightforward issue.
Overall, changing from conventional steel to blue steel and from blue steel to green steel implies using alternative energy sources with lower carbon footprints. It requires governments’ commitment to design policies towards using renewable energies and incorporate them into their national energy distribution grid. Producing green steel is an expensive process, resulting in costly shipping units, meaning that government intervention is needed, and the steelmaking industry needs to scale up rapidly to hit the net zero target. Cleaning up one of the largest industrial sources of carbon dioxide pollution is vital to contributing to a more environmentally friendly shipping industry, tackling climate change, and reducing its emissions by 50% by 2050.
5. Keep Streamlining the Supply Chain. Shipyards are highly complex systems that need to accommodate administrative, design and production areas. However, the production area needs attention since its layout determines the shipyards’ productivity. In addition, the size and location of the allocated area for their development must be considered; on one side, shipyards are bounded by water and on the other side by urban settlements or industrial facilities, leaving little opportunity for future infra- and super-structure expansion. Moreover, the number of docks to be incorporated is vital as these will be expected to stay there for a long time as they are not prone to site changes. The rivalry among shipyards to maintain or gain market share led them to focus on their logistics activities to maintain their competitiveness. As a production industry, shipyards do not differ from other manufacturing activities, meaning that strategies being adopted in disparate industries can also be implemented in shipyards.
Two crucial aspects contribute to implementing net zero shipyards. The first aspect concerns streamlining shipyards internal logistics processes by adopting lean management philosophies so that all non-value-added activities are eliminated while eliminating a range of possible wastes. In this case, wastes refer to wastes of overproduction, waiting, transport, inappropriate processing, unnecessary inventory, unnecessary motions, defects, unrealised human potential, inappropriate systems, and energy and water and services and offices. For this to be achieved, inventory control management techniques, such as kanban or just in time, must be implemented, in the same way that shipyards maintain their operational flexibility regarding product, volume, target, process, and material handling. Just-in-time inventory management, lean manufacturing and flexible operational approach allow shipyards to adapt and adjust to market needs while reducing carbon footprint.
The second aspect concerns streamlining shipyards’ upstream external logistics, given that the downstream external logistics concerns the relationships they establish with their customers, i.e., the shipping companies. With increasing suppliers, there is an inherent need to control the supply chain. Controlling the overall production process is critical since prefabrication, modularisation, and partitioning require enhanced quality control management systems to ensure that ships delivered meet the specifications demanded by shipowners. However, the level of control must be balanced so that it does not become power over the chain. While supply chain power can be positive in some cases, as it happened when Wal-Mart forced its suppliers to adopt RFID technology, thus violating the distribution channel equity principle to obtain significant cost savings, it is often counter-productive. Power often raises conflict among the different supply chain members, as they may have to make investments for which they were unprepared. The option is to look for collaborative relationships based on mutual trust and have unambiguous policies on selecting suppliers, as these must be understood and aligned with their customers’ philosophies, i.e., the shipyards. If conflicts of interest arise, the overall shipyard production is affected, meaning the suppliers’ responsibilities must be clearly identified.
Likewise, supplier management raises two issues. The first one is the extent to which shipyards can rationalise the number of suppliers they deal with; the second one concerns classifying their suppliers according to the nature of the products they supply, i.e., generic or non-critical products, commodities, distinctive, and criticals, core or strategic products, to determine shipyards bargaining power over them and in this process to decide with which suppliers shipyards establish strategic alliances to guarantee the supply of core products. All these processes must be supported by supply chain visibility since knowing the whereabouts of supplies is a means to overcome disruptions along the production process. Besides, it contributes to shortening delays, lowering materials costs due to better inventory management and procurement strategies, decreasing production costs, and improving the overall financial performance of shipyards.
6. Embrace the Digital Transformation. Digital transformation is one of the most challenging aspects to incorporate in ship design and production. The growing dependence on suppliers requires shipyards to integrate product lifecycle management/product data management/enterprise resource planning (PLM/PDM/ERP) software, which the design software does not cover. The PLM/PDM/ERP software contributes to speeding up information sharing while promoting integration between departments. Moreover, it increases the visibility of the engineering work, thus minimising any rework arising from a lack of project management control and promoting efficient material management so that ship production is not affected by any disruption derived from supplier default. However, the digital transformation goes beyond the internal and external shipyard’s logistics. It embraces adopting various technologies that further streamline the planning and yard operations. The objective is to take advantage of the Industry 4.0 technologies influencing the maritime industry at various levels: design, production, operations, service delivery, logistics, and value chains. Fortunately, technologies are available to be used in a shipyard context, contributing to net zero shipyards; the paragraphs below describe them briefly.
While 3D modelling is not new and has been around in ship design with the introduction of computer-aided design, allowing mapping out every ship and project stage before the production work to avoid delays and overruns, its integration with 3D scanning technology is a novelty. This integration allows creating 3D models from existing ships and virtual holistic ships’ representations, i.e., digital twins, to run engineering simulations and modifications. As the objective is to decarbonise the shipping industry, digital twins ensure that even existing vessels can be operated optimally to reduce carbon emissions.
Additive manufacturing is one of the most disruptive manufacturing technologies in Industry 4.0. It enables a quick and easy production of geometrically complex objects, shapes and textures that can be digitally modelled in 3D instructing hardware to deposit material, layer upon layer, in precise geometric shapes. 3D printing and rapid prototyping are subsets of additive manufacturing. In a shipyard context, additive manufacturing allows the production of spare and missing parts for new and existing ships. This has been the case with the direct laser forming technique for producing turbine blades and 3D printing for manufacturing an X-band horn.
Digital twin as a concept does not apply only to the simulations done on new and existing ships. Seen from a shipyard perspective, digital twins create a digital model of the shipyard to i) run simulations of new production processes in collaboration with its suppliers to improve its productivity, ii) optimise the distribution of equipment among the different docks, and iii) identify the best location for storing the inventory allocated to each unit being produced as to minimise internal transport among other operational aspects since small incremental improvements contribute to efficiency, savings and carbon footprint reduction. However, for digital twins to deliver their maximum value, the flow of information between disconnected systems must be streamlined; digital platforms must connect supply chain management and yard manufacturing operations to provide complete end-to-end visibility of every process and outcome.
Virtual reality and augmented reality positively contribute to shipyards’ operations. Virtual reality allows designers to have a deeper understanding of a ship before she is built (repaired and maintained) by providing an immersive virtual design environment. Conversely, augmented reality allows users to access all necessary information on-site in real-time, thus speeding up decision-making regarding ships’ construction and repair and maintenance phases. All this results in saved working hours, improved work and product quality, and reduced waste and emissions.
Artificial intelligence enhances digital twin model simulation, allowing real-time simulations to save time, materials, and labour. The industrial Internet of Things improves manufacturing processes and speeds up decision-making. For instance, shipyards can use sensors embedded in the welding equipment to determine how much welding material is used for any task, providing better information about cost at a task level. Robotics is also a valuable option at a shipyard level since it frees workers from monotonous or inefficient tasks, thus reducing production costs and letting them concentrate on value-added tasks.
Cloud computing is a generic term for anything that involves delivering hosted services, such as servers, storage, databases, networking, software, analytics, and intelligence, over the internet, offering faster innovation, flexible resources, and economies of scale. In the shipbuilding industry, cloud solutions contribute to concentrating a wide range of information which is normally scattered, handle big data needed to be used in data analytics, artificial intelligence/machine learning, twin digitals, and other simulating that contribute to improving ship design, production processes or making decisions regarding market expansion. The last digital technology deals with the security of the digital ecosystem. While not 100% secured, blockchain enables greater security within closed collaborative environments like the digital shipyard since different players, design engineers, suppliers, and stakeholders can centralise their collaborative activities on a single, secure platform.
Overall, deploying Industry 4.0 technologies positively impacts shipyards’ activities such as ship design, supply chain performance, shipyard-suppliers relationship, production planning and logistics, quality, reliability, and safety of the final product, and enhanced productivity by automation of activities. Moreover, it reduces the emissions released into the atmosphere and machinery downtimes due to remote monitoring and total productive maintenance implementation.
5. The Orange Economy
Like many other industry sectors, the shipbuilding industry, being an engineering-to-order industry, has adopted a linear economy approach for many years. A linear economy (see Figure 2) is one where industries pick up the raw materials to manufacture a certain product, which people buy, use, and then throw away without concern for their ecological footprint and environmental impacts. This explains why, historically, the shipbuilding industry negatively impacted the marine environment, resulting in a significant environmental footprint. However, this linear economy approach is not exclusive to the shipbuilding industry but, in general, to the most diverse economic activities carried out within the broad scope of the maritime industry.
Figure 2: The Linear Economy
Source: Santander (2021)
The unilateral actions taken by some shipping companies towards lowering their carbon footprint, while highly valid and valuable and making them industry pioneers and market leaders, are insufficient. Establishing an international regulatory framework, given the international character of the industry, per se, does not accelerate the decarbonisation process, given the time it takes to get consensus and implement at the national level. The need to decarbonise the maritime industry implies that the whole maritime industry activities, other than shipping companies, also take unilateral actions to enforce the already underway movement, albeit on a small scale.
This implies that the whole maritime industry must move towards the circular economy approach to align its activities with the United Nations Sustainable Development Goals (see Figure 3). These include SDG 3 (Good health and well-being), SDG 6 (Clean water and sanitation), SDG 8 (Decent work and economic growth), SDG 9 (Industry, innovation and infrastructure), SDG 11 (Sustainable cities and communities), SDG 13 (Climate action) and SDG 14 (Life below water). The Hong Kong International Convention for the safe and environmentally sound recycling of ships adopted in May 2009 and expected to come into force in June 2025 after being ratified by Bangladesh and Liberia is a step towards adopting the circular economy approach within the maritime industry. The convention aims to ensure that ships, when recycled after reaching the end of their operational lives, do not pose any unnecessary risk to human health, safety, or the environment. However, on its own, it is not sufficient.
Figure 3: The Circular Economy
Source: Santander (2021)
A circular economy implies closing the cycles of the raw materials used in the production of products by minimising waste and using resources repeatedly to preserve products’ inherent value as long as feasible. While businesses will go on producing products, i.e., goods and services, these products’ production has a minor impact on the environment by leaving a small, very small or close to zero carbon footprint. The critical difference is that the linear economy focuses on profitability irrespective of the product life cycle, whereas the circular economy targets sustainability. The shift of the maritime industry from a linear economy to a circular one is not simple, given the fleet dimension and the economic players involved. The maritime industry must adopt the reduce, reuse, and recycle circular economy principles, in which products’ design, production, and consumption are all based on sustainability; the maritime industry must be seen as a whole and not the sum of the parts.
A straightforward way to achieve this circular economy, which potentially has direct and indirect economic impacts on many related and unrelated economic sectors, is through establishing industrial clusters sustained on a sustainable ship recycling activity. The emergence of sustainable ship recycling facilities is not new. Environmental concerns promoted the development of the GreenDock and Circular Maritime Technologies Yard concepts. However, ship recycling does not create the necessary added value and requires the participation of other industries, even though this provides an artificial delimitation of the cluster. Considering the value-added chain approach, the target would be to link a green and sustainable ship recycling activity with a green and sustainable shipbuilding activity via a green and sustainable steelmaking industry that produces steel out of scrap, resulting in different value chains. Such an industrial integration allows closing the cycle of the circular economy at the same time that contributes, among other things, to 1) knowledge concentration in the proposed core activities, 2) knowledge spillovers, 3) creating pools of workers specialised in green and sustainable ship recycling and shipbuilding activities, 4) converting the old working processes of traditional industries with more advanced ones due to the incorporation of information technologies/information systems; and 5) establishing numerous specialised suppliers within the scope of the shipbuilding industry, which may further increase if the yards decide to invest in value-added ships.
In doing so, the companies involved in these projects will be asked to implement circular business models. The circular business model concept rests on the sustainable business model concept. It looks for product solutions from which value can be economically recovered and incorporated into the circular economy with the support of the circular value chain. Given the array of available circular business models, which include resource models, design models, lifetime extension models, platform (sharing) models, product-as-a-service models, end-of-life models, and lifecycle models, the choice of the most appropriate one will depend on businesses chosen pathways since they must be aligned with their mission, vision, value proposition, goals, capabilities and resources. Moreover, their implementation depends on stakeholders’ participation. Whatever the business model chosen, it will impact upstream, and downstream supply chain relations as each chain member will also be compelled to adopt circular economic principles to promote waste and carbon footprint reduction across the entire supply chain.
One way through which this disruptive approach can occur is through the orange economy. The orange economy is a production model in which the products, i.e., goods and services, have intellectual value since they result from their creators’ ideas and expertise. As a concept, the orange economy is not as known as the blue and the green economies. The name orange economy stems from its traditional meaning as the colour of creativity. The orange colour is used to identify the art and culture industries. Felipe Buitrago and Iván Duque initially coined the concept in “The Orange Economy; an infinite opportunity”, published by the Inter-American Development Bank in 2013.
Underlying the orange economy is the creative economy, popularised by John Howkins in 2001, which includes activities that can be expressed through art, culture, or innovation. However, the orange economy is broader in scope, and besides the creative industries, it also includes the cultural economy and areas supporting creativity. Activities belonging to the orange economy include advertising, architecture, crafts, design, fashion, film, games and toys, music, publishing, research and development, coding, entrepreneurship, TV and radio, video games, and visual and performing arts, grouped into three major subgroups: creative manufacturing, cultural industries, and creative services.
Companies tend to be more competitive, so the orange economy is the new economic paradigm. It ruptures with the chase-and-imitate economic model often derived from adopting best practices, thus allowing more innovative economic development models to contribute to high corporate performance. Out of the activities, research and development, coding and entrepreneurship offer the opportunity to modernise and transform traditional manufacturing sectors, such as the shipbuilding one, in the quest for new production models to become more sustainable, eco-friendlier, and competitive. Given the future competitiveness of the shipbuilding industry/shipyards rest of the digital shipyard and the vast array of technologies that are (and can become) available, it is with certainty that the digital transformation contributes to improving shipyards’ productivity due to its enormous benefits.
Therefore, a question remains. Is the shipbuilding industry ready to be part of the orange economy and allow Millennials and Gen-Z to pave the way towards its transformation? This question needs a deep analysis since it is asking its players, i.e., shipyards, suppliers, and customers, to challenge themselves by changing their mindsets, business strategies, and working procedures established long ago! Therefore, only time will tell if this transformation is possible.
This work results from a presentation on ‘Towards a Net-Zero ShipBuilding Industry’, delivered at the Green and Blue Innovation Hub, 7 June, La Spezia, Italy. The Author thanks Alexio Picco, Circle Group Managing Director, for his invitation and consequently to make this text possible.
The full referenced text can be found here.
About the Author
Ana Casaca was, first and foremost, a Deck Officer responsible for navigational watches. Being at sea gave her a thorough perspective of the operational side of the shipping industry. She holds a B.Sc. (Honours) in Management and Maritime Technologies from Escola Nautica Infante D. Henrique (Portuguese Nautical school), an MSc in International Logistics from the University of Plymouth and a PhD in International Transport/Logistics from the University of Wales-Cardiff. Next, she became an Experienced Lecturer, Researcher and Peer Reviewer in Maritime Economics and Logistics. In between, numerous functions and roles. For 20 years, she has been an External Expert for the European Commission, evaluating R&D/CEF proposals within the scope of maritime transport. In parallel, she has carried out other projects. She has delivered training and has been invited, since 2002, to peer review academic papers submitted to well-known international Journals. She is the author of several research papers published in well-known academic journals and member of some journals’ editorial boards, namely, Maritime Business Review Associate Editor, Journal of International Logistics Editorial Board Member, Universal Journal of Management Editorial Board Member, Frontiers in Future Transportation Review Editor, and Journal of Shipping and Trade Guest Editor. She is also the founder and owner of ‘World of Shipping Portugal’ a website initiative established in 2018 focused on maritime economics. In addition, she is a Member of the Research Centre on Modelling and Optimisation of Multifunctional Systems (CIMOSM, ISEL), Fellow of the Institute of Chartered Shipbrokers (ICS) and Member of the International Association of Maritime Economists (IAME). Apart from Shipping, she likes Travelling, Sewing and Arts. All these elements bring her on the quest for creativity, always with the expectation of doing something extraordinary!
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