It was both timely and pertinent for The Sunday Times of Malta to highlight the threat posed by the new EU environmental tariff (known as the EU ETS for Shipping Directive) to Malta’s import and export market.

If it is allowed to remain as is, the directive, which forms part of the European Green Deal and Fit for 55 Package, will deal a big blow to Malta’s Freeport’s competitiveness – with the consequence that connectivity for local industry will suffer and costs are likely to rise.

Under the new rules, as of January next year, all vessels above a certain cargo capacity will have to buy emissions allowances on 40 per cent of their carbon emissions, rising to 100 per cent by 2027. Crucially, however, the directive does not fully apply to non-EU ports in the Mediterranean region – placing transhipment facilities in the EU, including Malta Freeport, at a distinct competitive disadvantage.

Put simply, operators will easily be able to bypass the directive if they discharge cargo originating from Asia – which today represents the major origin for all products shipped worldwide – at a non-EU Mediterranean transhipment port and then use load feeder vessels (smaller ships) to reach the final destination.

Should this scenario unfold, there is a clear and evident risk that carriers could choose to omit Malta as a transhipment hub and, instead, divert to a non-EU port in North Africa such as East Port Said, Tangier Med or Damietta.

The inevitable consequence would be a significant loss of business for EU transhipment hubs – including Malta Freeport Terminals. Inevitably, there will also be a negative impact on local importers and exporters. For two reasons.

Firstly, in terms of connectivity. The services calling at Malta operated by CMA CGM and MSC currently provide us with direct connections to more than 115 ports worldwide. That network could be severely diminished.

Secondly, in terms of cost. Since our domestic market for containerised cargo is not big enough in terms of volume to attract stand-alone shipping services, fees will inevitably have to rise as Malta will no longer be able to benefit from lower transportation rates offered by high-volume transhipment traffic handled by the Freeport.

Loss of connectivity would have an adverse effect on any nation but it assumes far more serious proportions for a small island like ours whose economic survival depends on imports and export-led activity generated by the manufacturing industry.

Furthermore, the directive will fail to achieve its stated objective – improving environmental sustainability – since there will still be a significant amount of carbon leakage.

It is important to make clear that our industry is not opposing the introduction of the ETS system because we have some sort of anti-environmental agenda. The contrary is the case. Malta Freeport Terminals has been a committed and vocal supporter of measures that promote environmental sustainability in the shipping industry.

We have invested large sums at our terminals to minimise the impact of our operations on the surrounding area and, in the past few years, all incoming seagoing vessels have had to reduce their fuel sulphur oxide level from 3.5 per cent to 0.5 per cent or less. Meanwhile, an increasing number of vessels are now powered by LNG (liquified natural gas), which reduces gas emissions by 50 per cent.

For several months now, we have been in active and productive discussions over the discriminatory impact of the ETS Directive on Shipping with the government, the authorities, the opposition and the Malta Maritime Forum, which are all working together to safeguard Malta’s interests.

We are insisting that the inclusion of neighbouring ports – such as East Port Said, Tangier Med and Damietta – in the directive’s annex is not enough to safeguard the competitiveness of Southern European transhipment hubs since services that currently call at EU hubs could be shifted to North African hubs without incurring any additional costs as the EU has no jurisdiction over these ports.

As a result, shipping lines are likely to choose the most cost-effective transhipment hub for their services.

Malta Freeport calls on the European Commission, in collaboration with all EU countries exposed to these risks, to act promptly with effective and balanced solutions to secure a fair competitive environment between EU and non-EU ports and, above all, to ensure that the measures in place achieve the desired environmental objectives.

Adopting a cohesive and unified approach is paramount.

by Alex Montebello is CEO of Malta Freeport Terminals.

This article appeared on the Times of Malta on 12 November 2023

Karin Grech
Author: Karin Grech