No Big Bang on the High Seas

International Transport Forum Maritime

Maritime transport is dominated by shipping line consortia and alliances that are exempt from European competition rules. The EU wants to keep it that way, but its case does not look too strong.

By Olaf Merk

On 20 November, the European Commission released its proposal on the “Consortia Block Exemption Regulation” for shipping lines. What sounds like some obscure bureaucratic rule of little interest managed to upset almost everyone in the maritime logistics chain – from shippers to freight forwarders and the towage sector to port terminal operators. The latter qualified the proposal as “alarming and bewildering” and even threatened court action.

What is the fuss about?

Liner shipping has traditionally been organised in so-called “shipping conferences”, de-facto cartels. Within the European Union, conferences are no longer allowed. But shipping companies can co-operate in the form of consortia, or in bundles of consortia called alliances.

The difference between a cartel and a consortium is that cartel participants collude to improve their profits and dominate the market. Consortia, on the other hand, are tools for co-operation in practical matter, for instance for sharing ship capacity.

The EU’s Consortia Block Exemption Regulation (BER) for liner shipping sets the rules for such co-operation. It exists since 1995 and was revised in 2010. Since then, it has been renewed, without modifications, every five years. The Commission’s proposal that created such a storm is to once more renew the BER without modifications.

Cartels in disguise?

So what caused the backlash now, when in the past the extension of the BER was a mere formality?  At the heart of the controversy is the fear that a cartel-like constellation might be re-emerging under the guise of the current regime. For consortia could, in practice, act like cartels if they effectively co-ordinated not just schedules and other practicalities of operation between competitors, but also the price or the available capacity.

And indeed the cost calculation models in the three global shipping alliances allow carriers of the respective alliance “to develop a fine sense of the costs of other carriers”, according to a recent ITF study on liner shipping alliances. And the European Commission raised concerns that carriers might have engaged in price signalling via their announcements of general rate increases.

Joint capacity planning for “adjustments in response to fluctuations in supply and demand” is allowed by the BER. But there is evidence that carriers might have co-ordinated orders for new mega-ships as well as the timing of ship dismantling within alliances.

Also, most of the so-called blank sailings – the cancellation of a scheduled weekly service – are done simultaneously by different consortia and alliances, as shown in Figure 1. While some interpret this as joint “capacity adjustments in response to fluctuations in supply and demand”, others might suspect concerted action to influence freight rates. Because the different shipping consortia and alliances are heavily intertwined (Figure 2) even detailed co-ordination between them is not particularly difficult.

Figure 1: Blank sailings per month per alliance (2012-2019)

Figure 2: Overlapping consortia links between carriers (for trades to/from Europe)

Will there really be legal certainty?

For many observers, renewing the BER without modifications in this context raises three major questions. The first relates to legal certainty, which the BER is said provide for carriers. Without the BER, consortia would need to carry out self-assessments to ensure they meet the EU’s general competition regulation.

Yet an unmodified BER may not provide this legal certainty, because it is unclear which consortia are still covered by it: it applies only to consortia with a market share below 30%, which is difficult to monitor in practice. The reason is that the Commission uses the “combined market share”, which takes the cross-linkages between consortia into account (illustrated in Figure 2).

That is the right benchmark to look at in principle, but also creates uncertainty as to which consortia fall below and above the ceiling (Figure 3). The Commission recognises that it does not have the data. Collecting it would help to provide legal certainty, but that does not seem to be on the cards.  

Other updates would also provide added legal certainty. It is not quite clear whether alliances are still covered by the BER, for instance. And the definition of “relevant markets” no longer reflects the reality of today’s port competition.

Figure 3: Ranges of uncertainty on combined market shares on consortia covering Europe

Diapositive1.jpg

A matter of market share

The second question is about economic concentration. Consortia were invented as tools to allow smaller shipping lines to achieve scale and compete. Since then, consolidation in the shipping sector has surpassed any previous expectations. The market share of Danish shipping giant Maersk alone was 19% in 2018, larger than the share any alliance had until 2012. So consortia have not been the alternative for market consolidation, they have in fact come on top of consolidation and provided an additional tool for an increasingly consolidated sector to benefit from scale.

The result is that a few alliances have huge buying power and can play off their service providers, such as ports, against each other. For the alliances’ customers the result is reduced choice to transport their goods, because the ocean transport offers are mostly similar.

These aspects are mostly absent from the considerations by the European Commission, which concludes that service quality has remained stable. But the number of direct port-to-port connections has fallen, as have weekly service frequencies. The Commission paper also finds no indications for market power of carriers vis-à-vis ports, yet several examples are documented, including the ports of Malaga, Taranto, Gioia Tauro, Zeebrugge or Genoa.

The politics of liner shipping

The third question being asked is about the transparency of the process leading to the decision to extend the BER. The Commission’s stakeholder consultation ended in December 2018 but the document was not released until almost a year later, in November 2019. This was only days before a new Commission took office. Some might think the continuation of the BER will protect European liner shipping companies. But in fact the BER has arguably done the opposite, by helping the emergence of Chinese liners. Asian liner companies have ordered large numbers of mega-ships recently (see Figure 4) and to fill that capacity they will need the alliances and consortia more than the Europeans. Interestingly, the Chinese liner company COSCO submitted a document to the European Commission arguing for extending the BER.

Figure 4: Mega-ship deliveries for Asian and European carriers (2013-2022)

The BER might benefit global liner shipping companies, a few of which are headquartered in Europe. It will do less for European shipping companies operating exclusively in Europe, such as feeder companies and tonnage providers (i.e. ship owners who charter out their vessels to liner companies).

Evolution or Big Bang?

The agenda of the new European Commission that took office in December 2019 emphasises industrial policy, geopolitics and a European Green Deal. How the extension of the current BER aligns with these priorities is not so clear. But if it is deemed essential to keep a shipping-specific exemption from EU competition rules, maybe this is the time to re-imagine its conditions.

One could think of a block exemption that only applies to liner companies that pre-dominantly operate in EU waters, or only for consortia on intra-EU routes, or for types of ships (“Europe class” vessels) that meet certain criteria, for instance with regard to energy efficiency, shares of EU seafarers and use of EU-approved ship recycling facilities. Not exactly a Big Bang, but at least some steps that could help implement the agenda of the new Commission, as exemplified by the Green Deal, and give the blanket exemption a new legitimacy that is currently in some doubt.

Olaf Merk is ports and shipping expert at the International Transport Forum. He is the author of Container Shipping in Europe: Data for the Evaluation of the EU Consortia Block Exemption Regulation (ITF, 2019). This article draws on research for this report. It does not necessarily represent the views of ITF members

China: Explaining Ride-Hailing’s Rapid Rise

International Transport Forum Uncategorized

Shared Mobility in Practice

How ride-hailing has gone from nonexistence to a mammoth industry in the space of a few years in the People’s Republic of China

By Emma Latham-Jones and Will Duncan

Along the Champs-Élysées of Shanghai, Huaihai Road, a woman is hovering on the pavement’s edge with her smartphone in hand, as she glances from her screen to the road and back again. Suddenly an anonymous car pulls up. A name is shouted out from the driver’s seat, which is received with a nod and a smile. The passenger seat door opens and closes again, and the car seamlessly continues on its journey.

Only a decade ago, no one had heard of app-based ride services. Today, ride-hailing is valued at USD 61.3 billion globally. By 2025, that number is expected to almost quadruple. So what’s causing this explosive growth in shared mobility?

The place to start looking for an answer is the giant of Asia, China. A stunning 62% of Chinese regularly hail a ride with their smartphone, according to a recent survey by Bain & Co (PDF). China’s operator DiDi alone carried out 10 billion rides with 550 million users in 2018.

No surprise, then, that the People’s Republic is the world’s largest ride-hailing market. Valued at USD 23 billion, its market is bigger than those of the rest of the world combined. America’s Uber counted a comparatively modest 95 million users worldwide in 2018 and is valued at just over USD 40 billion – DiDi’s global operations are now worth roughly USD 58 billion.

So what is it about China that makes it such fertile ground for app-based ride-hailing?

Firstly, Chinese city dwellers are rapidly changing their attitude to cars. Once thought of as a status symbol, less than half of China’s urban residents now see owning a car as a form of social progress, according to the Bain & Co survey.

China still has comparatively few cars. Only 118 cars per 1 000 inhabitants were registered in 2016. With car penetration in China at roughly 12%, compared to 74% in North America, or 53% in Europe, China has not developed the same culture of private car ownership as in the West.

The taxi features more heavily in the transport systems of big Chinese cities than in most Western agglomerations, making empty passenger seats less common. Car occupancy is significantly higher in China than in Europe: On average, 2.3 Chinese share a car ride, while the figure is only 1.6 in Europe (and as low as 1.2 passengers in some Western cities).

“China already had a culture of carpooling. With higher than average occupancy rates and lower vehicle ownership, Chinese users are more open to ride-hailing services or car sharing,” explains Jari Kauppila, Head of Quantitative Policy Analysis and Foresight at the International Transport Forum.

Incomes in China have risen steadily over the past decades. The emerging middle class is adaptable and very open to new services and products – which helped ride-hailing to quickly become mainstream.

The wild popularity of app-based payments also helped. WeChat Pay, a service offered by China’s internet giant Tencent is used by a striking 900 million people each month – a different league from Apple Pay’s 127 million users worldwide. Growth in e-hailing is, therefore, part of a broader trend across China’s cities.

A third factor is the cost of a private car in China. From taxes and insurance to parking fees, owning a car in China has become increasingly expensive, putting off many of China’s urban residents from buying their own vehicle.

Critically, the authorities have put a cap on the number of new cars that can hit the streets of Shanghai, Beijing and other cities. To own a car, you need a license. These are allocated via auctions, putting a heavy price tag even on the right to ownership.

“Car ownership in many Chinese cities is very restrictive”, explains Wei-Shiuen Ng, Advisor for Sustainable Transport and Global Outreach at the International Transport Forum.

“The price and quota associated with getting a license to own a car have quite significantly reduced vehicle growth and congestion levels, especially in the short term.”

Nevertheless, ten Chinese cities make the list of the 25 most congested cities in the world, according to the 2017 TomTom Traffic Index. Many Chinese urbanites can think of better ways to spend time than waste it in traffic jams. Hence the car is rarely their first choice for running errands and commuting to work. Instead, they order a car when conditions make that a good choice and let someone else do the actual driving, look after maintenance and bear the fixed costs.

A further element is the changing landscape for investments. China’s mobility market is strikingly dynamic. It’s full to the brim of eager-eyed competitors looking to experiment with new ride-hailing ventures: from delivery app, Meituan Dianping, and mapping service, Gaode, to traditional carmakers, such as GAC. During the three years from 2014 to 2017, this market was powered by an astounding USD 50 billion in investments. It didn’t take long for DiDi, China’s biggest ride-hailing company, to raise staggering amounts of money: indeed, in just six years DiDi has managed to raise a total of USD 20.6 billion in funding over 17 rounds.

Everyone wants a piece of the pie. Manufacturers in particular are looking to find new revenue models as car sales decline. They are setting their sights on the emerging high-end ride-hailing market, which is not yet as crowded as mainstream ride-hailing. In December 2017, BMW launched its ReachNow service in Chengdu showing that it is ready to take on the Premium ride-hailing service segment.

But European car manufacturers have Shenzhou, Shouqi, and DiDi Premium to compete with. Western companies battling it out in China’s tier-one cities somewhat resembles the Uber versus DiDi struggle of 2016, which ended in DiDi acquiring Uber China in August 2016 in a USD 35 billion deal.

“Part of DiDi’s success was that it was so familiar with the domestic market, the culture and local consumer preferences,” explains Wei-Shiuen Ng.

This article is part of a series on Shared Mobility in Practice, which looks at how cities around the world are incorporating innovative transport solutions in real life, today. See also: Los Angeles: Harnessing Data for Transport Innovation, and: Paris: Managing the Shared Mobility Révolution. Shared mobility is one of the transport disruptions explored in the 2019 ITF Transport Outlook.

Los Angeles: Harnessing Data for Transport Innovation

International Transport Forum Uncategorized

Shared Mobility in Practice

By Emma Latham-Jones and Will Duncan

An urban transport revolution is underway in Los Angeles, the epitome of a car-reliant city – and it revolves around data.

Los Angeles, California’s largest city, has long been infamous for its traffic. But now app-based services revolving around shared vehicles are taking off. The city government is embracing these new services as a way to reduce the number of polluting cars clogging its gridded streets. To regulate — and benefit from — shared mobility, L.A. has found that data transparency and data management are essential. 

The way in which Los Angeles was planned and built has made it a car-dependent city. Throughout the 20th century, L.A. grew outwards rather than upwards; residents preferred suburban-style neighbourhoods to tall apartment buildings – and urban sprawl with low population density has precipitated a car-centred lifestyle.

“The city layout is very challenging,” says Wei-Shiuen Ng, Sustainable Transport Advisor at the International Transport Forum. “It’s just not planned in a way that public transport can thrive.”

Eighty-four per cent of Los Angeles’ commuters drive – that is double San Francisco’s percentage. Meanwhile, only 5% walk or cycle. This car dependency is causing serious problems: poor air quality, constant traffic congestion, and increasing obesity. The government estimates that owning and operating a car in L.A. costs its citizens an average of USD 9 122 per year.

The promise of shared mobility

But it’s not all bad news. Los Angeles is rising to the challenge and has quickly become a North American leader in rethinking urban mobility. Mobility options enabled by new technologies are reshaping how people navigate L.A.’s 7 500 miles of streets— whether they use free-floating shared bicycles and e-scooters or ride-sharing apps like Uber Pool or Lyft. L.A. is one of three US cities to earn the perfect score on the Shared Mobility City Index (SMCI), which evaluated 20 cities. This reflects the wide range of new shared vehicles and on-demand transport services available.

“New shared mobility tools are helping our residents realise that they have choices about how they move around our city,” explains Seleta Reynolds, General Manager of L.A.’s Department of Transportation (LADoT).

The L.A.’s Department of Transportation recogonises the potential of shared mobility to reduce congestion, improve the city’s environment and enhance access to jobs and services for its less well-off citizens. In 2016, L.A. released Urban Mobility in a Digital Age: a ground-breaking playbook for transport in the digital age that charted specific strategies to be implemented by the city (available here with its implementation plan here). In 2018, it teamed up with environmental organisation NRDC and with the input from transport, technology and other experts, released the Los Angeles Shared-Mobility Climate and Equity Action Plan (available here). Another L.A. first, the Action Plan aims to leverage shared mobility as a tool to address climate change and inequitable access to transport.

Data management: cities’ new toolkit

So how can L.A.’s elected leaders stay in control while novel shared mobility services enter its transport market? The city government has found that the answer lies in data. On the one hand, access to the data generated by the service providers enables LADoT to gain a comprehensive picture of how shared mobility is used in L.A.. On the other hand, the technical capacity to handle data enables authorities to communicate with service providers in real time and use digital language to enforce rules and regulations. 

“We’re leveraging the innovative spirit that has defined our city for generations,” says Ms. Reynolds. “We’re using it to plan 21st century streets for all Angelenos, with a focus on creating more options and more access.”

In 2018, L.A. unveiled the Mobility Data Specification (MDS), a data and API standard that allows the city to gather, analyse, and compare real-time data from shared mobility operators. Realising the need to go beyond L.A., MDS is now governed by the Open Mobility Foundation (OMF), a multi-city-led governance body. MDS has now been taken up by more than 80 cities around the world.

“The genius of MDS is that it allows cities to put out machine-readable regulations,” says Philippe Crist, Innovation and Foresight Advisor at the International Transport Forum. “This allows much better control of these app-based platforms by public authorities. Imagine it like information from a street sign but in a more instant digital form.”

Using algorithms to manage mobility services has a lot of potential to improve cities’ ability to better enforce rules. For example, digitally-coded instructions can help ensure that e-scooters are parked properly and do not become obstacles. They can also declare certain roads off-limits to vehicles in the event of road works, a demonstration, or an on-going emergency.

“We have to create a digital set of management tools,” Marcel Porras, Chief Sustainability Officer at LADoT, told Smart Cities Drive in a recent interview: “Our Mobility Data Specification provides the foundation for [it].”

Shared mobility can do more than take pressure off the city’s roads, the L.A. Department of Transportation believes. It can also bring meaningful equity benefits. Porras describes this as a critical question for cities when it comes to managing shared mobility: “How do we equitably distribute resources?”

Access to data is the first step, as it can make the needs of citizens more transparent. The second step involves ensuring innovative transport services are not only made available to customers with deeper pockets than others. Again, algorithmic regulation may be able to help ensure that ride-hailing operators serve all of the city’s neighbourhoods, not just the more prosperous or safer ones. For example, a city government of the – perhaps not so distant – future could require a specified minimum number of automated shared vehicles to serve select geographic areas.

ITF’s Philippe Crist thinks it is likely that “machine-readable regulations could require operators to meet certain equity-based key performance indicators”. This kind of regulatory environment “requires different, and digital, building blocks than those we are used to,” Crist explains. “And all of this is ultimately in the hands of cities.” 

This article is part of a series on Shared Mobility in Practice, which looks at how cities around the world are incorporating innovative transport solutions in real life, today. See also: China: Explaining Ride-Hailing’s Rapid Rise, and: Paris: Managing the Shared Mobility Révolution. Shared mobility is one of the transport disruptions explored in the 2019 ITF Transport Outlook.

Why Flight Shaming Will Not Take Off

International Transport Forum Uncategorized , , ,

Exploding demand for air travel, low ticket prices and the simple ease of flying make it hard for the flight shaming movement to develop truly global momentum

By Emma Latham-Jones

Since 2017, there has been a surge in the number of northern European campaigners boycotting air travel for leisure. But this so-called flygskam (“flight shaming”) movement is up against the lure of low prices for air tickets, the sheer convenience of flying and a rapidly growing number of air travelers particularly in the newly prosperous Asian countries.

Flygskam has arisen from a broader concern that man-made climate change poses a serious threat to people’s livelihoods around the globe. Rising temperatures cause droughts, rising sea levels threaten low-lying regions, and ever more extreme weather leads to severe disruptions.

International aviation is responsible for only 2% of all man-made CO2 emissions. But this does not take into account the warming impact of aircrafts’ non-CO2 emissions. Planes also emit other substances such as contrails, aerosols, nitrogen oxides and particle emissions that are a major contributor to the warming impact of aircraft. Scientists have shown that non-CO2 emissions occurring at high altitudes have a much stronger climate impact than those produced by other modes of transport.

A record number or air travellers

Since 2010, international flights (measured in passenger-kilometres) have increased by 61%.  In 2018, a record 4.3 billion airline passengers were counted, up 6.1% from the year before. Between now and 2050, demand for air travel could again triple, according to the most recent projections by the International Transport Forum.

Global demand for air travel is set to quadruple over the next 30 years

If airlines were treated as a country, they would already now be among the ten biggest greenhouse gas emitters ahead of Brazil, Mexico and the UK, the Union of Concerned Scientists notes. “Even trying to stabilise aviation CO2 emissions at today’s level is challenging”, explains Andreas W. Schäfer, Professor of Energy and Transport at University College London and Director of the Air Transportation Systems Laboratory. “This is due to the strong growth of the sector, its capital intensity, the comparatively limited number of mitigation options and longtime constants—half of the aircraft introduced today will still be operating at mid-century.”

Of all transport-related CO2 emissions, aviation contributes over 10%. And transport’s carbon footprint has grown faster than that of any other sector over the past 50 years. The main reason is the rapidly growing demand for mobility – not least for air travel. In 2017, an average person flew once every 22 months – twice as frequently as in the year 2000.

Flygskam gains momentum

Flygskam was originally championed by Swedish singer Staffan Lindberg and Olympic athlete Bjorn Ferry and gained momentum thanks to social media and the so-called “Greta Thunberg effect”: The Swedish teenage climate activist made her – widely publicised – trip to the 2019 World Economic Forum in Davos entirely by train.

Rather than flying, climate activist Greta Thunberg took a train to Davos and a boat to New York

This gave birth to tagskryt (“train-bragging”), soon popularised by a Facebook group in which Swedes share stories of, and tips from, their journeys via train. The group now has 14.6K followers. Greta Thunberg has since moved to on to another emissions-free transport mode, sailing across the Atlantic to New York for the United Nations’ Climate Action Summit on a sleek hydrofoil yacht, the Malizia II.

Could Flygskam kick-start change in behavior on a scale big enough to counteract the predicted boom in global air travel?  Three main reasons make this seem doubtful.

Lack of alternatives

First, the lack of more sustainable alternatives for many flight routes. Europe and East Asia have well-developed high speed rail network. All bar two of the 20 countries with the best high-speed rail links are in Europe and East Asia. Among the extensive high-speed rail networks in Europe there are now many international links across orders. In these regions, travellers can fairly easily switch from air to rail, certainly for shorter flights. Indeed, Japan’s high-speed Shinkansen train has a greater market share than air transport on domestic routes under 600 kilometres.

Europe has a densely-woven network of high-speed rail lines

The picture in other parts of the world looks much less positive. In North America, the United States have no train line that is entirely high speed. The Acela Express that links New York and Washington, D.C., has an average speed of 106 km/h, less than half the speed of most high-speed trains. California is building a high-speed rail system, but its first phase won’t be completed until 2029.

The fastest train from San Francisco to Los Angeles takes 9 hours and 18 minutes. Any of more than one dozen airlines gets you there in 90 minutes. And “even where there is good alternative infrastructure, high-speed rail often simply cannot compete with the low prices and convenience of short-haul flights,” explains Jagoda Egeland, Aviation Policy Lead at the International Transport Forum.

No Chinese word for flygskam

A second reason why flight shaming may not take off is the soaring demand for air travel in Asia. There simply is no sign that newly prosperous Chinese, Indonesians or Uzbeks intend to forgo the pleasures of flying to Paris or Phuket.

The Asia-Pacific recorded the biggest numbers of overall aviation passengers in 2017, with 1.5 billion passengers and a 36.3% market share. The region also saw the highest year-over-year increase in traffic and had the five busiest international airline routes.  The Asia-Pacific region “will account for up to half of total annual increase in air traffic by 2020,” predicted Shukor Yusof, an aviation expert at Endau Analytics, in a conversation with Deutsche Welle.

China is the engine of much of this demand growth. The 400 million members of its relatively new middle class have an increasing thirst for exploring the world. Within the next decade, China will overtake the USA as the largest aviation market in the world. But currently there isn’t a word for flygskam in Chinese.

Passengers check in at an airport in China

Biofuels against flight shaming

A final factor that may contain flygskam are biofuels. Significantly, Northern Europe, where flight shaming originated, is now pushing hard towards making the fuel mix used for air travel less objectionable. The Swedish government has set a tax on avfuel – previously untaxed – and is contemplating to require 30% biofuels to be blended into kerosene by 2030.

Norway already requires 0.5% biofuel for airlines operating in the country and also targets 30% by 2030. The International Civil Aviation Organization (ICAO) also calls for a significant proportion of conventional aviation fuels to be substituted with sustainable aviation fuels by 2050 in its  2050 Vision for Sustainable Aviation Fuels. 

The problem is that scaling up the production of biofuels may be difficult, and that growing more of the organic matter required for biofuels can actually increase greenhouse gas emissions. Which is why offsetting emissions is important. The ICAO’s 192 member countries agreed a global deal called CORSIA in 2016 that committed aviation to achieving carbon-neutral growth from 2020 and to halve net emissions levels by 2050 compared to 2005. Any rise in international aviation emissions above 2020 levels will be offset, mostly through planting trees. While some of the largest environmental NGOs argue that the carbon stored in trees or biological carbon is not equivalent to fossil carbon, this may still help travellers to feel less guilt about flying.

Will short-haul flights be electric a couple of decades from now?

Electricity plus efficiency

Electrification of aircraft is another hotly pursued aviation innovation since explorers Bertrand Picard and André Borschberg demonstrated the viability of the concept with their circumnavigation of the globe in their solar-powered “Solar Impulse 2” aircraft in 2016. Electric aircraft are now being introduced by airlines in the US and in Canada. Norway has made the electrification of short-haul aviation by 2040 its official policy target.

This would have a truly drastic effect: Electrification of short-haul flights and more stringent carbon pricing would cut  CO2 emissions from domestic aviation by as much as 81% and those of (mostly longer-haul) international aviation by 19% by 2050, according to the ITF’s Transport Outlook 2019.

In the meantime, upgrades that increase the efficiency of conventional engines will likely continue, and the question of life-cycle emissions is also being addressed: The Advisory Council for Aeronautics Research in Europe has set itself some challenging environmental goals that include ensuring all aircraft are designed and manufactured to be recyclable.

Cancelled out

Ultimately, flight shaming remains a concept that has traction mostly in European countries with already environmentally engaged citizens. The idea is unlikely to make a difference to consumers’ travel behaviour across the globe, as it is not catching on in some of the world’s largest aviation markets and is easily cancelled out by exploding demand for air travel.

However, the aviation industry is taking note of the movement. Airlines fear reputational damage and are keen to find ways to ensure their services will be less obvious targets for being branded as “shameful” by climate activists – and they are even willing to forgo some business: In reaction to flygskam, Dutch airline KLM recently launched a platform called “Fly Responsibly”: The website invites passengers to compensate for their travel CO2 – and also highlights that getting to Brussels from Amsterdam is faster by train than by plane.

Emma Latham-Jones is a Young Associate at the International Transport Forum at the OECD.

Getting Maritime Subsidies Right

International Transport Forum Maritime , , ,

by Olaf Merk, ports and shipping expert at the International Transport Forum

Many countries support their shipping industry via maritime subsidies. The value of well-functioning maritime transport for trade is undisputed. But is this, in itself, a justification for passing taxpayers’ money on to operators? Clearly, the private sector can provide shipping services. Subsidies would only make sense if they serve a clearly defined public interest that cannot be achieved otherwise. They would also need to be designed in ways that will not distort shipping and logistics markets.

In practice, this appears to be challenging. To begin with, nobody really knows how much governments spend on maritime subsidies. Support often comes in the form of favourable tax treatment, which is largely invisible in most government budgets. Even countries that make an effort to monitor maritime subsidies, notably in Northern Europe, have difficulties in establishing the actual numbers. Many countries seem to be little fussed, perhaps even happy, that the monetary value of their maritime subsidies remains unknown.

More worryingly, maritime subsidies often do not have a clearly defined public interest purpose. The usual justification is that they support the competitiveness of the shipping industry. The standard threat evoked is the relocation of a shipping registry or of ship management activities to low-tax jurisdictions. The problem with that is that hosting these is no guarantee for good maritime connectivity or for a maritime cluster that adds significant value to the economy.

Many subsidy schemes assume specific outcomes, but do not actually make direct or indirect financial support conditional on achieving them – be it on ships flying a domestic flag, operators hiring domestic seafarers or vessels reducing emissions. Unsurprisingly then, only a few subsidies seem to actually achieve their stated goals. Despite an impressive range of subsidies, only 16% of the world fleet sailed under the national flags of OECD countries in 2019, down from 54% in 1980. The share of domestic seafarers has continuously declined in maritime countries like Germany, France and the UK.

A vicious circle is also at work. Maritime subsidies by one country provoke subsidies by others. This happened already in the 19th century, and it continues to be the case. This perverse dynamic has been fuelled by “flagging out” of vessels to countries with low taxes and little regulation. This development has led to the emergence of the tonnage tax in the European Union: a very favourable tax the shipping sector pays in lieu of corporate income tax. In some cases, regulations have been put in place to avoid a race to the bottom. The proliferation of tonnage tax schemes within the EU has prompted the European Commission to formulate maritime state aid guidelines to avoid tax competition between EU member states. Yet the tendency over time has been to allow more generous schemes that opened the door for other countries to apply similar generosity.

Finally, there is evidence that maritime subsidies distort wider logistics markets. A new study by the International Transport Forum at the OECD found that many tonnage tax schemes for shipping companies can also be applied to their cargo-handling operations in ports. The European Commission has approved this practice in its decisions when it reviewed the tonnage tax schemes of individual EU countries. This creates a competitive advantage for shipping companies that are vertically integrated with terminal operators, by allowing theses to profit from a lower tax burden compared to corporate income tax. This distorts the market for cargo handling, as independent terminal operators do not have these fiscal advantages.

How can these challenges be solved? Governments should be more transparent about the money they spend on maritime subsidies, as well as the impacts generated. And subsidies could be better justified if more conditions were set regarding those impacts, tying support closely to specific outcomes governments want to see. Distorted markets should not be among those, and subsidy schemes ought to be carefully crafted to this. Finally, governments should understand that it is in their own best interest to avoid a maritime subsidies race.

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“The Paris Agreement Can’t Save the Planet Without Transport”

International Transport Forum Uncategorized

More than 190 governments will meet in Santiago de Chile in December 2019 to agree how to make the objectives of the seminal 2015 Paris Climate Agreement a reality. More than ever, transport will be the focus of attention: it contributes nearly a quarter of man-made CO2 and its share is still rising. Emma Latham-Jones talked to Pierpaolo Cazzola, a renowned expert on the links between energy and mobility, on what needs to happen to clean up transport.

pic-of-drought.png

Climate change is threatening the fundamentals for human life on earth

If we don’t prevent runaway climate change, what will be the effect on lives around the world?

Pierpaolo Cazzola: There is a broad consensus that human activities are causing changes in the climate that lead to major risks. These include droughts, rising sea levels that threaten low-lying regions, extreme and less predictable weather, and loss of biodiversity with potential impacts on human health, food security, water supply and economic development.

Transport is a major contributor to CO2 emissions. How can we accelerate the transition to carbon-neutral mobility?

PC: That is a major undertaking. We can only achieve it through joint actions targeting several areas at the same time. And we must not forget to the human side in order to ensure that the transition is fair and equitable for everyone.

What are the main areas of action?

PC: I would say that there are six pillars upon which the decarbonisation of transport will have to build.

Firstly, we need to better manage travel demand. Policies that favour the development of compact cities with mixed-use buildings, for instance, reduce travel distances by cutting trip lengths and allowing more trip chaining.

Secondly, what experts call “modal shift”: Creating incentives for people to use transport modes that use less energy for the same service, such as public transport, and ensuring that it can be provided at affordable costs, promoting transit-oriented urban developments.

Thirdly, we need to maximise the capacity utilisation of vehicles. This reduces the energy needed to move each passenger or each unit of goods. Digital technologies can help to achieve this, and the right policy actions can do a lot to reduce the use of single-occupancy vehicles.

Fourthly, vehicles need to become much more energy-efficient. It is crucial that policies support the deployment of technologies that use less energy per kilometre. Policies must also seek to accelerate the transition towards technologies that produce zero emissions, in particular electric mobility.

Fifthly, the so-called energy vectors for transport need to be decarbonised. Energy vectors are the technologies that store energy and make it available for transport – e.g. liquid fuels, electricity, or hydrogen. If their generation cause emissions, not much is gained.

Finally, emissions from vehicle manufacturing and infrastructure construction also need to be minimised. This requires improvements in the design and usage phases to minimise the use of materials. It also requires greater recycling rates, along with the use of recycled inputs and a growing reliance on materials that can be manufactured through processes with low energy and greenhouse gas emission intensity.

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Charging of Electric Vehicle

Let me also add that the transition of transport towards zero emissions does not only need to go hand-in-hand with the decarbonisation of the rest of the energy system, but it can even contribute to foster it, through sector coupling. The latter creates mutual benefits by linking energy consuming sectors such as transport, housing or manufacturing with the power production when thinking about decarbonisation.

And how could that work?

PC: For example electric vehicles could be used as distributed energy storage for the power system. This in turn would help the energy providers to better deal with the supply imponderables associated with wind or solar power and thus encourage them to embrace renewable energy. Similar opportunities exist if hydrogen became part of the transport fuel mix. Digitalisation can be a powerful enabler for sector coupling – if policy creates the right conditions in time.

You mentioned improving energy efficiency of vehicles. But what’s the point if cars keep getting bigger and heavier?

PC: That’s a good point. We should also pay attention to resource efficiency. From a climate change perspective there is no point in making engines more energy efficient if the gain is used to propel heavier vehicles – emissions won’t fall. So the growth of vehicle size should be managed, as should the material requirements. A lot can be gained by choosing the powertrain technologies that is optimal for the use of the vehicle. Full electrification, for example, is best suited to vehicles that operate within a defined range and are used intensively, for instance taxis or urban buses.

Can we stop climate change without addressing transport emissions?

PC: Honestly, no.

So how much of an impact does the transport sector have on global carbon emissions?

PC: Transport is almost entirely dependent on oil and emits between 20 and 25% of the direct CO2 emissions due to fuel combustion, which is the bulk of all emissions from greenhouse gases. Without immediate action, its share could reach 40% by 2030.

Transport’s contribution to CO2 emissions is even larger from a life cycle perspective. We mustn’t overlook the emissions stemming from the production and distribution of transport fuels, resulting from the manufacturing of vehicles, and finally those caused by the construction of transport infrastructure. To give an example, this could be the cement used for roads, railways, ports and airports.

To put it bluntly, the Paris agreement can’t save the planet without the transport sector making major changes.

Will transport be a topic of discussion at COP25, the follow-up to the 2015 conference that resulted in the Paris Climate Agreement?

PC: Yes. The Chilean presidency of COP25 is organising a high-level event to bring together transport ministers at the conference in Santiago in December. This will be the first time transport ministers are invited to participate, and that is a significant, symbolic and important step. They have discussed transport and climate change at their own Summits, most recently in Leipzig in May 2019, where a group of ministers led by Sweden’s Thomas Eneroth and Chile’s Gloria Hutt agreed a statement on transport and climate change. But they have so far not been included in the wider climate change negotiations.

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Gloria Hutt Hesse (Minister of Transport and Telecommunications, Chile) and Tomas Eneroth (Minister for Infrastructure, Sweden) present a joint declaration of several ministers on “Transport and Climate Change” at the International Transport Forum’s Summit 2019

Do you think the debate around mitigation policies for transport is sufficiently grounded in empirical evidence?

PC: The policy debate on climate is well informed. In particular the Intergovernmental Panel on Climate Change (IPCC) has provided politicians with a solid factual basis for decision-making.

At the ITF, we also support policy action through the work of our Decarbonising Transport initiative. We provide quantitative evidence, through data analysis and advanced modelling that makes detailed projections on future transport activity and calculates the impact on transport CO2 emissions, among many other things.

If we have the evidence, why isn’t transport already carbon-free?

PC: Liquid fuels for use in combustion engines have a high energy density. They are also cheap. Competing with these characteristics proved to be very hard. As a result, transport today relies on oil for 92% of its energy, and that makes the sector particularly hard to decarbonise. Other energy sources have only managed to establish themselves in some niches, for example electricity in rail.

But the negative side effects of fossil fuel use such as pollution were fairly evident right from the outset, weren’t they? Why did that not help to push alternatives?

PC: Problems that could have questioned the dominance of combustion technologies and fossil fuels, were addressed by treating the symptoms, rather than the causes. The local pollution generated by exhausts, for instance, was tackled by developing exhaust after-treatment technologies.

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Oil pumpjack in Texas

Now there are new constraints on fossil fuel use that won’t be so easily overcome, notably the CO2 emissions from the combustion process. The availability of oil and our capacity to extract more capital-intensive oil resources fast enough will further contribute to diminishing benefits.

What opportunities are there for us to move away from fossil fuel use in transport?

PC: A good example is the combination of batteries electric motors and renewable electricity. Bioenergy presents another opportunity. Low-carbon biofuels are especially relevant for long-distance travel, where batteries are less well suited. Hydrogen could emerge as a climate-friendly transport fuel, or as an important element in the production of other climate-friendly fuels, for example ammonia or synthetic fuels. In parallel, digital technologies make it easier to share assets and use resources more efficiently – think about ride sharing.

So what exactly can decision-makers do at the national level to make the most of these opportunities?

PC: They should use fiscal levers such as carbon pricing and differentiated taxes on new vehicles. Distance-based charges will also be an important tool for steering mobility behaviour. Then, standards for fuel economy of vehicles and for the carbon-content of fuel are needed. Urban planning should favour compact cities and make using public transport easy. Providing a clear framework for shared mobility solutions will ensure that these services complement public transport and do not compete with it. If governments take action on these fronts now, we can shift transport emissions onto a solid downward path.

We talked about the COP25 conference in Chile in December. What is the host country doing to encourage greener transport?

PC: Chile has the largest fleet of electric buses in Latin America. There are more than 200 electric buses on the roads of the capital Santiago today.

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People waiting for their bus in Santiago de Chile

All 6 000 buses of the capital’s network will be successively replaced. President Sebastian Pinera has in fact pledged to electrify the public transport system across the country by 2040 – and, importantly, also set the goal of sourcing all of Chile’s electricity from renewable energy by that date.

Thank you so much for your time, Pierpaolo.

Pierpaolo Cazzola is Advisor for Energy, Technology and Environmental Sustainability at the International Transport Forum (ITF). His interests include creating synergies between the transport and energy expert communities, life cycle emissions of urban mobility options, and the global fuel economy. Currently he is investigating how India is mitigating transport CO2 emissions as part of the ITF project “Decarbonising Transport in Emerging Economies”. Pierpaolo is the author of numerous reports, including most recently the 2019 Global EV Outlook. He has worked at the International Energy Agency (IEA), the United Nations, the European Commission and the OECD.

How Indonesia’s Gojek is redefining “on-demand”

International Transport Forum All Transport

By Will Duncan

Following our look into transport innovation in the Global South, we take Indonesia’s Gojek as a case study to examine Southeast Asia’s bustling on-demand transport market.

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Photo: findracadabra/Shutterstock

Born on congested streets

Jakarta might just have the worst traffic in the world. In serious need of solutions, perhaps it’s no surprise, then, that the Indonesian capital became home to Southeast Asia’s most successful innovative transport start-up: Gojek.

More than 30 million people live in Greater Jakarta — the third-largest megacity in the world, behind Tokyo and Shanghai. Cars can barely move on its congested streets so locals tend to get around on scooters or motorcycles. After all, they’re smaller, simpler, and importantly, cheaper. As in countless other Southeast Asian cities and towns, the scooter is king.

Ojeks — informal motorcycle taxis — are widespread; often more appropriate than conventional four-doored taxis. In 2010, Gojek was born as a ride-hailing call centre with twenty drivers. Just a few years later, the Jakarta-based company launched an app and with astonishing pace transformed on-demand transport and service delivery in the region. Today, its principle service GoRide, has more than two million drivers in 203 cities and districts in Indonesia. It has expanded internationally into Vietnam, Singapore, and Thailand, garnering an estimated worth of US$10 billion, making it Indonesia’s first “decacorn” start-up.

Armed with a fluency of the local market, Gojek has succeeded where Western competitors have not. Ride-sharing services in the busy cities of Southeast Asia tend to move on two wheels. While Uber has been in the region since early 2013, it was late to embrace motorbike taxis, waiting until 2016 to introduce two-wheelers. Gojek’s strongest rival, Singapore’s Grab, also happens to be a regional neighbour. Understanding how Southeast Asia works, how its people typically get around and access services, has proven to not only be an advantage — but essential. After years of competition, in 2018 Uber yielded to its rivals, ceding its ride-hailing and UberEats businesses to Grab in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, in return for a 27.5% stake and a seat on Grab’s board.

Lifestyle on demand

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Photo: findracadabra/Shutterstock

Offering rides on the back of motorcycles was just the beginning. After sufficiently disrupting Indonesia’s typically informal ojek market with a good quality app and a reliable payments system, Gojek, like its rival Grab, has quickly become a one-stop-shop “super app” with over twenty different services, broadening its offering to meet varied and evolving demands. What is striking throughout this expansion is Gojek’s business model, which places a strong emphasis on the role transport plays in all other service markets.

Food delivery quickly became a core element of Gojek’s business. Its GoRide motorcycle drivers could easily double as GoFood delivery people — there’s little difference in carrying passengers to carrying nasi goreng. But why stop there? GoMed offers home delivery for medicines and pharmacy products. Urban logistics are covered by GoSend and GoBox.

GoLife, a smartphone application, allows users to order from GoClean, GoAuto, and GoLaundry — each service is ordered and arrives at customers’ homes on-demand. GoGlam will send a mobile stylist your way; GoMassage lets you order a masseuse!

Despite expanding in several different directions, Gojek’s services are unified both in terms of the user experience, and the logistical networks. A single “super app” with consistent branding supports a sense of familiarity to customers. And each service is powered by Gojek’s locally-driven on-demand transport infrastructure.

This type of service integration within a single umbrella application is radically changing how companies and regulators alike understand app-based mobility services globally. Rather than non-transport sector players using transport providers as a service, Gojek has used its local expertise of how transport works as a springboard for expanding beyond its original business model. In the process, it has flipped traditional roles on their head by sub-contracting non-transport businesses rather than being contracted itself.

A new regulatory challenge

The service industry around the world is experiencing a major shift towards mobile-based on-demand business models. These changes can mean excellent news for consumers; they’ve typically offered greater choice, convenience, comfort, and often lower prices than what was offered before the on-demand disruption began. However, they also pose new regulatory challenges for countries in the Global South and North alike.

First of all, there are safety concerns. Policy makers must ensure that as the market shifts to on-demand gig-economy services, vehicle safety standards are adhered to. Drivers must be properly vetted and trained for the job. It’s worth noting that the rating systems built into most gig-economy applications tend to incentivise personal and professional responsibility on the part of drivers and, indeed, passengers who are also made more accountable for their behaviour. Nevertheless, governments must recognise their role in setting appropriate safety standards.

Then, regulators must confront the global headache that is the gig economy. In Indonesia, millions of people drive passengers, goods, medicines and the like for Gojek, for example, but they aren’t considered employees. This lack of formal employment represents a significant regulatory challenge, both in the Global North and South. It may also offer opportunities, however: in the Global South, to improve the welfare of workers in the informal sector; in the Global North, to create more flexible job opportunities. Gojek again leads the way in this respect, by providing health and accident coverage for its drivers while offering them highly flexible work arrangements.

There are externality issues to consider, too. New home delivery services and on-demand transport options ultimately contribute to more traffic on the roads — motorcycles or otherwise. This means that regulators must consider the traffic and pollution implications of new mobility services — from on-demand ojek services to mobile masseuses.

These challenges are common to countries across the world. And policy makers everywhere should approach regulation carefully. While the changes in the service industry require stricter parameters and oversight, governments risk forcing innovation out of their cities and industries, should their rules go too far.

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To learn more about global transport innovation, check out the ITF Corporate Partnership Board’s new report Expanding Innovation Horizons: Learning from transport solutions in the Global South.

Will Duncan is currently studying a Master in Public Policy at Sciences Po in Paris, and is an intern at the International Transport Forum at the OECD.