Global shipping is currently facing one of its greatest challenges. Climate change looms over the maritime industry, and it has set Mr Andreas Sohmen-Pao thinking hard.
Shipping is responsible for 2 to 3 per cent of the world’s greenhouse gas emissions. With the International Maritime Organisation’s target to reduce shipping greenhouse gas emissions by 70 per cent by 2050, the sector is cleaning up its act.
“The maritime industry has always been a tough business. You commit a huge amount of capital to an asset with a 25-year lifespan – and then something happens, be it with supply, demand, geopolitics,” said the 49-year-old, who is Chairman of Singapore-based shipping giant BW Group.
“Sometimes these events can improve the returns. But often, they put that investment at risk. And it is typically made worse by the industry’s tendency to over-order new vessels and create too much capacity.
“In the face of these winds, we try to hold it all together. But right now, we have a new headwind, maybe the biggest storm we have ever faced, which is decarbonisation. This will impact the propulsion of ships as well as what we carry inside the vessels.”
Mr Sohmen-Pao noted that the decarbonisation push means some assets “may not make it safely through 25 years because the fuel systems need to change”.
Here is where shipping is caught in a bind, as players weigh the returns on a long-term investment without knowing what the future could look like. Collectively, the industry has yet to find an answer to what kind of fuel new ships should run on, such as liquefied natural gas, hydrogen, or ammonia.
Striking a balance between fulfilling current market demands while meeting regulatory and social expectations for the future is critical.
“I think sometimes people oversimplify by just grabbing at the new without understanding the scale and importance of what we have today. We can’t just switch off our current forms of energy, or the systems that have been built to deliver it. But it’s equally dangerous to get stuck and not to find better ways of doing things for the future,” he noted.
“We’re in this interesting in-between period where we have to work with what we have, and design new solutions in parallel without having the best visibility yet.”
For BW Group, which was set up by Mr Sohmen-Pao’s grandfather, the late Sir YK Pao, making a long-term business decision has to be weighed carefully without “violently swinging the pendulum one way or the other”.
Innovation continues at the organisation with an eye on the future. For instance, BW LPG, the world’s biggest owner and operator of LPG vessels, is starting to use Liquefied Petroleum Gas (LPG) to power its Very Large Gas Carriers (VLGCs) in a move that will significantly reduce pollutant emissions.
In December 2020, the BW Gemini, the world’s first VLGC to be retrofitted with pioneering LPG dual-fuel propulsion technology, completed her historic crossing of the Pacific Ocean on LPG propulsion. LPG propulsion technology is a complementary step towards the use of zero-carbon fuels such as ammonia.
The group has also invested in biofuels, batteries, wind and solar energy to play its part in the energy transition.
“The question is how do you start moving without abandoning the valuable service you’re providing today, and without rushing up blind alleys,” said Mr Sohmen-Pao, who is also Chairman of the Singapore Maritime Foundation.
“It’s really about constantly innovating, as our mission statement puts it: ‘Delivering the energy the world needs today while finding solutions for tomorrow’.”
Q: What brought you to the maritime industry?
Mr Sohmen-Pao: I was always told I didn’t have to join the family business and could do whatever I wanted to. But shipping seemed to be a fascinating business, and we had a great platform to build on. It’s been a privilege to be able to work with the BW teams around the world and to expand into new markets and sectors.
Q: Share with us a memorable story from the early days of your maritime career.
Mr Sohmen-Pao: One memorable moment was sitting in Norwegian shipowner Morten Bergesen’s house in Norway for the closing of the Bergesen acquisition in 2002. We had finished all the negotiations after many months of going to and fro. Just as we were about to sign the agreement, Morten’s cousin and fellow shareholder Petter Sundt said: “I have just one more thing.” Our hearts sank.
He went on to ask for all the bottles of Aquavit in the office cellar – which I happily agreed to. When I shared this with the company CEO, he was less than happy because these were corporate gifts that took a long time to produce. Linie Aquavit is a Norwegian spirit that matures onboard a ship as it crosses the equator twice, and these had been carried on the largest ore carrier in the world, the Berge Stahl. But for me, it seemed easy enough to give all the bottles as part of the transaction – I was happy it was nothing more serious.
Q: What’s the most important piece of advice you’ve learnt from your grandfather?
Mr Sohmen-Pao: Work hard and be true to your word. He was very hardworking. He was also always dependable as a person, and as a business partner. We believe in doing things the right way and doing right by our stakeholders and the community. I feel that’s the only way to do business in the long run.
Q: What keeps you up at night and what gets you out of bed every morning?
Mr Sohmen-Pao: What keeps me up at night are late-night Zoom calls. What gets me up in the morning are the birds and the sunshine in this beautiful country of Singapore.
On a more serious note, I’m excited by the chance to apply myself to the challenges and opportunities that every day brings. And I’m preoccupied with how the world will deal with the massive social and environmental stresses that are building up. These problems are of course not only a concern but also a motivator.