The impact of the Green Transition and the Russian war in Ukraine on maritime affairs

Ulla Pirita Tapaninen (Associate Professor at TalTech Estonian Maritime Academy) writes on shipping challenges affecting ‘sea nations’ such as Estonia during recession and wartime.
12th December 2022
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The green transition is part of the solution, not part of the problem

More than half of Estonia's foreign trade goes by sea. Passenger traffic between Tallinn and Helsinki is one of the world's busiest sea transport connections. Based on the data of the 2016 Economic Impact of the Maritime Sector Survey, maritime-related businesses accounted for approximately 4% of GDP and the number of employees in the sector was estimated at over 9000.

However, shipping is undergoing a big transition. Only by preparing and anticipating these changes, the Estonian shipping sector has a chance not only to survive but also to grow as a prosperous economic sector.

A few years ago, due to the pandemic, Estonian passenger traffic to foreign countries was reduced to less than half. Since then, there have been big problems in container transport. The container ports have operated only with reduced capacity and that has affected consumption and industrial production all over the world. When there were problems at container ports, customers were willing to pay multiple prices for their shipments, and container shipping companies made record-high profits. Now, finally, container transports have started to run smoothly again and at the same time, the shipping companies' profits have decreased.

When the time of the Covid-19 pandemic finally ended, the war in Ukraine began. For a long time, there has been a declining trend of Russian transit cargo via Estonia. Previously it was mainly volumes of oil cargoes that have been decreasing, but now, due to the war in Ukraine, also the volumes of chemical cargoes are coming down.

When imports from Russia have decreased, the world's energy and production facilities have had to look for new suppliers further away. In practice, this means that sea journeys get longer and more ships are needed to transport the same amount of cargo. The utilisation rates of bulk carriers transporting energy and raw materials are, therefore, improving. There may even be a shortage of ships, and this leads to an increase in transport prices. So in practice, as crazy as it sounds, the profitability of maritime transport operating in Europe has improved due the war in Ukraine.

However, this increase in transport prices and the good situation of bulk shipping companies is temporary. Now already we can see severe shortages of raw materials in Europe, which will lead to problems before long. Consequently, we are entering a global recession, which is felt both in the price of energy, industrial production and transportation.

The climate crisis has been talked about for decades. Due to global warming, people and industry should reduce their dependence on fossil fuels. Change has been slow and many have lost faith that dependence on fossil fuels can never be ended. However, with the war in Ukraine, the whole of Europe is reducing its dependence on fossil fuels - and at the same time, the development of alternative fuels has taken wild leaps.

Still today, the prices of alternative fuels are high, but the more demand there is, the more the technology develops and the prices of fuels will fall while the prices of traditional fossil fuels rise. In addition, the EU both supports alternative energy solutions and sets additional costs for the use of fossil fuels, meaning that alternative fuels can also become economically competitive.

When the prices of fossil fuels rise, fuel saving and alternative energy solutions are more profitable every day. The industry, a shipping company, a port or a shipyard that knows how to adapt its operations to decreasing volumes and knows how to switch to alternative energy solutions and offer its customers new transport routes or a service independent of fossil fuels, will also benefit the most in this rapidly changing world situation. When we suffer from rising energy prices, the green transition is therefore part of the solution, not part of the problem.

The first step towards the maritime cluster of the future is to let go of the old world. There is no return to the supremacy of fossil fuels. The future belongs to those who know how to build their future both by giving up the transit traffic of Russian cargo and dependence on fossil fuels.

Ulla Pirita Tapaninen (Associate Professor at TalTech Estonian Maritime Academy)

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