The EU ETS and its Effects on RoRo and Container Shipping: A Comparative Study on the Cost Structure and Volume Shifts

Abstract

The shipping industry was recently included in the EU Emission Trading System (EU ETS), as an incentive to reduce emissions from the transport industry. This regulation introduces maritime operators to a new cost structure, through the requirement of purchasing EU emission allowances (EUAs). This policy seeks to promote the use of renewable fuels by increasing the relative cost of using conventional, carbon-intensive fuels. This thesis examines the impact of EU ETS on the cost structure within the Roll-on Roll-off (RoRo) and container shipping segment and evaluates the potential for volume shifts resulting from the regulation. The study is based on a qualitative approach and is conducted through semi-structured interviews with ten companies, six shipping lines, two terminals and two transport buyers. The findings reveal that all carriers largely transfer their ETS costs to their customers through surcharges, limiting the impact of ETS. Container carriers benefit from economies of scale and their global operations, which results in relatively low surcharges per transported unit. Likewise, deep-sea RoRo carriers have limited exposure to ETS as only a small portion of their voyages occur inside the regulated geographic scope. However, their customer base and contract length can impose challenges in fully transferring the surcharges. In contrast, intra-European operations, primarily RoRo carriers, encounter greater exposure to ETS costs, due to higher operational speed, sailing frequency and lower capacity utilization. Although these carriers apply different methods to transfer their costs, they are often forced to absorb a portion of the expenses, either by lowering their speed or reducing their net freight rates. Although container shipping offers lower ETS costs, it is rarely a feasible alternative to RoRo in short-sea shipping due to operational limitations. Consequently, the findings show no significant volume shifts between the segments, as operational differences outweigh the marginal cost impact. However, rising ETS costs could incentivize a shift of low-value, high-volume, and time-insensitive cargo toward container shipping.