IT IS crystal ball gazing time again, and the one thing we can be fairly confident about is that there will be some major disruption to trade that nobody expected.

Hands up everybody who predicted a year ago that a crisis in the Middle East would see merchant ships being attacked and seized in the Red Sea by the end of 2023.

Unfortunately, it is also likely the other war affecting shipping, in the Black Sea, will still be raging in 12 months’ time. Both of these situations will continue to have profound effects on shipping and seafarers.

However, there are more mundane challenges facing shipping in this year. One of them turned real on Monday (Jan 1) this week. The European Union’s Emissions Trading Scheme (ETS) now includes all ships of over 5,000 gross tonnage calling at EU ports.

Ship managers will generally have responsibility for ensuring that ships comply. In his New Year address, Mark O’Neil, the president of their representative body, InterManager, said that it had “engaged in high-level discussions with the EU over the past year to assist regulators in producing an achievable system, even seeking legal advice to ensure the scheme can be realistically enforced on a practical level, and our members have collaborated to identify workable solutions”.

He added: “We expect the first quarter of 2024 to be challenging as the new scheme is established, and will be supporting our members and speaking out strongly where problems arise.”

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The inclusion of the shipping industry into the ETS is something that most in the sector did not want. This is not so much because it means additional costs, though it does. In fact, the shipping industry bodies support proposals to introduce a global levy to promote decarbonisation.

The real concerns revolve around the fact that the ETS is a trading system. It is complicated while the shipping industry likes things to be kept simple. It also means an opportunity for trading firms to move in and offer their services to shipping companies.

So what could possibly go wrong? O’Neil’s words imply that he is expecting trouble.

Pragmatic responses by shipping lines to the ETS could become the most contentious issue. EU ports, and a clutch of EU governments in the south of the bloc, are worried that shipping lines will tranship cargoes using non-EU ports. As commented in this column a few weeks ago, those fears are probably overstated, but companies attempting to switch to transhipment could face political flak.

The ETS is intended to incentivise the transition to net-zero greenhouse gas emissions. Last year, the International Maritime Organization (IMO) committed to a much more ambitious decarbonisation strategy. Implementing that strategy means that shipowners face difficult choices in the coming year.

Investment decisions will have to be made, and they will be very difficult. Some people have likened the decarbonisation of shipping to the move from sail to steam, noting that both caused great change in the industry. Well, yes and no.

Decarbonisation is certainly going to transform the industry. However, the big difference now is that nobody really knows where we should be going. Replacing masts with steam engines was a straightforward decision.

COP28 in Dubai last month appeared to commit the world to moving away from fossil fuels. In his closing speech, UN Climate Change Executive Secretary Simon Stiell said: “While we didn’t turn the page on the fossil fuel era in Dubai, this outcome is the beginning of the end. Now all governments and businesses need to turn these pledges into real-economy outcomes, without delay.”

But how exactly do shipping companies looking to order new ships that should be in service for about a quarter of a century achieve these “real-economy outcomes”? Do they order ships that can run on liquefied natural gas, ammonia, methanol, batteries or fuel cells? Or do they continue to order ships with conventional engines in the expectation that the use of carbon-neutral biofuels and/or onboard carbon capture will prove to be an acceptable path to decarbonisation?

While grappling with these challenges, shipowners will also need to try and remain profitable. That is a feat that liner shipping companies have regularly failed to achieve since containerisation.

In the past three or four weeks, their costs have soared due to the Red Sea crisis. Unsurprisingly, the lines are passing on these rises through increased rates.

Following the first Houthi militia missile attacks on merchant ships in the Bab al-Mandab Strait, intelligence platform Xeneta predicted that ocean and air freight rate rates could increase by 100 per cent.

Just before Christmas, the company’s chief analyst, Peter Sand, said: ”The massive spike is already here. Ocean freight carriers are desperately trying to recoup the cost of sending vessels from the Far East to the Mediterranean, North Europe and the US East Coast via the Cape of Good Hope, rather than heading through the Suez Canal.

“As we saw during the Covid years when there were huge disruptions in supply chains, if there is still an urgent need to get shipments moving, then businesses will have to pay an awful lot more to do so,” he added.

So in the short term, it looks likely that shipping lines will be able to claw back much of the extra expense. But before this latest crisis, most of the signs were that freight rates were trending downwards and that the lines were falling back into what has been their normal situation of low profitability.

All in all, 2024 promises to be a challenging year for shipping, even given what we know is likely to happen. Throw in the possibility of a completely unexpected disruption emerging, and we could be in for another “interesting” year.