NEW Carbon tax for ferries

EU ferry costs to rise in 2024 with new ‘carbon tax’

According to the UK Gov, 95% of all goods in the UK arrive by ship.

With ferry costs set to increase, this will add significant pressure to supply chain margins in 2024 and beyond.

Coming at a time when the economy is already struggling with the pressures of inflation and a cost of living crisis, businesses will need to prepare to meet the rising ferry ticket costs.

We asked our Managing Director, Alex McDonald, to tell us what changes we can expect to see over the next few years.

Hi Alex. What can you tell us about the new ‘carbon tax’?

It’s based on the vessel CO2 emissions per ton of cargo carried per km. The new tax is being introduced by the EU and will be implemented under a scheme called the Emissions Trading Scheme (ETS) whereby the ferry operators will need to buy allowances for their carbon emissions.

In the first year, operators must buy allowances for 40% of their emissions, then 70% in 2025 and then the full amount in 2026. Notably, as all operators have had to report their emissions this way for the last three years, it is already possible to find out how much CO2/T/km your transports have generated.

Why is the new system being introduced now?

Shipping (whilst one of the greenest methods of moving cargo) still accounts for 3% of all greenhouse gas emissions (GHG) globally. In a bid to reduce these emissions and encourage vessel operators to invest in greener tonnage, the EU is introducing the ETS in 2024. These investments, and the price of carbon emissions, will result in an increase in costs for ferry operators who will pass this cost on to customers.

So, businesses across GB and the EU will be expected to pay more for transport. Is there any way the new tax can be avoided?

Potentially, yes, as the tax is on carbon emissions. Any operator who is able to reduce the usage of carbon-based fuels will be able to lower the amount of ‘carbon allowances’ they need to purchase.

Some operators have already made the change to alternative fuels – for example, Brittany Ferries’ newest vessels run on LPG, which offers a reduction of 25% of carbon emissions. Meanwhile, Scandlines have some 100% battery-powered ships, with more currently being built in Turkey. DFDS and Stena Line are both developing battery powered ferries, with Stena Line also having just ordered some vessels that are designed to run on methanol for their Heysham – Belfast route.

However, this won’t completely negate the increases in costs to freight users as those operators will need to somehow recoup the cost of these high capital investments.

Is every ferry route affected?

Not exactly. This tax is for any routes in and out of the EU – so for example GB⇄NI and domestic routes will not fall under this new regime. This could potentially lead to even more traffic on Northern Ireland routes.

Does freight need to pay for all of this?

This is a good question – the costs will be borne by each ferry operator, who can choose to charge it on to their customers as they see fit. Some who operate RoPax vessels (freight and passenger) may add surcharges to tourist travellers as well as freight.

Good vessel utilisation means that the cost will be spread across more shipments. So, less popular routes may be adversely affected, particularly if they are operating older tonnage which burns more fuel. It is possible that schedules may be adjusted to allow for longer passage times (just like trucks – vessels use much more fuel at higher speeds). Some operators are already trialling this, including Seatruck Ferries.

What advice would you give to businesses?

We expect that the operators will release a more detailed view of the costs either in late Q3 or early Q4.

For example, Stena Line has created a “Shadow ETS” surcharge to help simplify the transition by providing an example monthly estimate for the cost of the future carbon tax. This will be updated monthly and is available on the Stena Line website.

These charges don't start until 2024, but now is the time to advise your customers to prepare them for what is coming!

With the ETS carbon tax for shipping creating additional costs for the transport industry - on top of the administrative burden of Brexit and the SECA sulphur surcharges that were applied back in 2015 and 2020 - staying aware of these changes is essential.

At Freightlink, we are always helping our clients find the most cost effective and sustainable routes for their transport. Our team is keeping a close eye on the upcoming scheme and we will keep you updated as we know more.

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29 June 2023

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