Is data the key to future regulation?

January 31, 2018

Another year, another regulatory milestone. Unless shipowners have been living in oblivion for the last couple of years they cannot have avoided the European Union’s MRV Regulation which came into force on January 1.

The reality is that any owner trading to ports of the EU should have been compliant for months, since the EU required their compliance plans to be submitted well before the deadline. MRV is a means of collecting carbon emissions from ships based on fuel consumed and tonne-miles travelled.

To owners hard-pressed by ballast water management regulations, MRV is a symptom of the problems of regional regulation. Frustrated by the slow progress of IMO member states in tackling greenhouse gas, the EU acted alone – and has threatened to do so again if the IMO does not meet its 2023 deadline for a solution to reducing emissions.

But MRV is important for another reason. It is one of the first data-driven regulations in the sense that the EU set specific requirements for how it must receive submissions. No-one who has seen the modern ship’s bridge during a port stay or Port State Control inspection would agree we are living in the era of digital shipping; paper still rules the waves.

But while options for manual reporting of MRV exist, these introduce a substantial administrative burden in order to be sufficiently accurate. Even many commonly-used procurement or maintenance software programs are not automatically able to perform the functions required for compliance.

But MRV is not the end of the story. Under pressure from the EU, the IMO has introduced its own Data Collection System to form the basis of future global carbon regulation, though its form and extent are yet to be agreed.

Like the EU, the IMO believes that in order to regulate the problem it must first measure it, though because the two systems are not compatible, owners will have to generate two different reports, adding to their administrative burden.

Even so, MRV could be a model for the future of regulation. Using a system of automated reporting could ultimately reduce the compliance burden and improve the accuracy of the data received.

The same data could be used to build not just pollution profiles and their impact regionally and globally but could be used to drive and inform the shape and content of future regulation.

It’s not the first time this idea has been considered. Several years ago, former IMO secretary-general Koji Sekimizu suggested to the Maritime Safety Committee that a data-driven approach to its primary regulatory instrument, SOLAS, could have benefits for generations of vessel design and operations.

His premise was that by specifying safety on the basis of the actual operational experience, it might be possible to move away from the practice of building all ships for the harshest conditions, which many of them will never encounter.

The committee, it must be said, took a rather different view and the industry continues to use the same tried and tested principles. So far, so not very smart shipping, though the industry’s current obsession with the ability of data to transform vessel performance suggests that owners, not unlike the EU, are unprepared to wait and are instead taking matters into their own hands.

If MRV is an inconvenient fact of life for owners, what comes in between it and DCS is much more problematic. When January 2020 rolls around the problem of switching as many as 50,000 ships to low sulfur fuel oil or operating a sulfur scrubber will almost pale into insignificance compared to the problem of enforcement.

In the US, Northern Europe and parts of Southeast Asia, we can be pretty sure that compliance will be strong, if not uniform. But in any area where there are less robust systems of enforcement and control, the temptation of non-compliance will be real.

So great is this risk that some owners have already begun to organise their strategies to manage the impact on their client relationships – in effect pointing out that their fuel and therefore freight costs will rise and that a low cost competitor is likely to be cheating (or has found the shipping equivalent of magic beans).

Solutions to such problems are emerging but the enforcement challenge in 2020 is likely to be pedestrian rather than super-charged. Regular readers will recall the comments made at last year’s CMA outlining the scale of the challenge. UK MCA Director Katy Ware told delegates that it only inspects 10% of ships calling UK ports for ECA compliance, of which 30% have their fuel tested, the majority of which will have sailed before the results are back.

Director of Commercial Regulations and Standards, US Coast Guard and head of the IMO Council Jeffrey G. Lantz added that the Coast Guard recorded 71 deficiencies with ECA compliance all of last year and detained 11 ships.

“In total, we make 9,300 inspections a year [but] we are being told we are not catching the violators. We cannot inspect every ship but in the future real-time monitoring would help separate the operators who comply and provide transparency. It would allow Port State Control to focus on the non‐compliant and this will be even more important from 2020,” he said.

It appears obvious that notwithstanding its original intent, the industry needs more, not fewer, regulations like MRV. There is little hope of creating the smarter regulation that the industry needs if it is not done with data collection, analysis and interpretation at the core of the process.

Even if we do not soon see autonomous ship plying ocean trades, it would make sense if the ships of the next 25 years were collecting and transmitting compliance data in real time, perhaps with verification during port calls or direct to flag, class and port state for verification, one images, via distributed ledger.

Perhaps then owners would start to see regulation as a benefit to be embraced – or at least just a part of the business – rather than a problem to be overcome or avoided.