November 18, 2013 Leave a comment
The following Takeaways and the following notes should be read in along with the presentations that are now on the Mare Forum website (http://goo.gl/lhxUBj).
- Cost of Ballast Water Management (BWM) systems estimated to be same as main engine.
- BWM will form 10-15% cost of new ship.
- Retrofitting BWM to an older ship will be even higher percentage of value.
- Who will finance? Banks will not re-finance yesterday’s ships.
- Two BWM systems needed per ship as failure of a solo BWM will prevent loading / discharge.
- No cost-benefit analysis has been conducted that proves case to shipowners.
- No proof BWM will prevent alien species invasion.
- No phase in of BWM.
- No approved BWM systems on the market.
- Shipowner view – practical consideration is to use one fuel, which means fitting scrubbers.
- Use of MDO could increase fuel costs by US$150,000/day on some ships.
- Can extra cost be passed onto end user in the logistics value chain?
- An old design with appendages is not Eco-design – it is a fix for a bad original design.
- Proper Eco-ship design needs re-think of bow, hull, engine and propeller design.
- EEDI ship will be less efficient in practical use – not enough power for seaway.
- Slow steaming can mean exhaust gas not hot enough and need to run boiler – overall consumption is higher.
Summary of Presentations
You could feel the tension and the barely controlled anger of the shipowners at the Mare Forum in Rotterdam (5 November 2013). The object of their anger is the forthcoming environmental regulation. Several ship-owners present have been analysing the available options and doing the sums – and it isn’t good news. One owner present at Mare Forum estimates meeting the cost of the ballast water management (BWM) environmental legislation is going to cost the same as a main engine or around 10-15% of a new-build. This is capital that the owner will have to put into the ship to continue trading without, it seems, any pay-off in terms of lower consumption or guarantees charterers will pay a premium.
Furthermore, there is no guarantee the banks will be providing loans for the upgrades. An owner must maintain the seaworthiness of a ship under finance, and failure to do so is a default of the agreement. With many post-2008 new buildings already below their original value, the bank is hardly likely to agree (or be able to agree) to increase and extend the loan by a further 10-15%.
A brave man took part in the first session – Torsten Klimke, head of the Maritime Transport and Logistics team at the EU. It is his department that is formulating the regulations. In his presentation, “The Regulators Perspective vs. Market Realities”, he reminded regulation is not a competition. “It is not a football game, where one side is trying to win – we are trying to help the market.” he said. The EU knows how important shipping is and he pointed out shipping has a strategy paper, which is unique in the European Commission (EC). He gave a quick run-down of the EC’s approach to shipping, and what it is trying to achieve today. In 1992 it was about opening the market. In 2002 the EC was concerned with the balance of the market – policy actions based on bringing more transport onto shipping. In 2011 the focus was on an integrated transport network. The aim is to provide shipping with the same fluidity within the EU as other modes. For instance, a truck can carry cargo unhindered from Lisbon to Hamburg, so why not a ship. As one participant later pointed out, a ship need between 70 and 90 documents cleared before it can leave a port. The EU is now working toward better and simpler information systems for shipping with in the EU, and promoting the same idea outside the EU.
There followed a presentation by Commander Frank Rego of the US Coast Guard on the ballast water and air and emission requirements for the US. While his message was clear, the position of the USCG is not. It seems the USCG and the US Environmental Protection Agency (EPA) are going down a different route to the IMO. There are labs in the US and elsewhere with the ability to approve systems, but so far no systems have been approved. The USGC will accept foreign approved systems. Commander Rego pointed out there were alternatives to fitting a BWM system. When discharging cargo in the US, owners will have the option of ballasting the ship by paying for and taking in fresh water from the local authority resources. Also the ship could sail light and then take on water 200 miles out at sea, and vice versa when arriving at the US to load cargo. But it is hard to see how this would work on a practical level.
Tineke Netelenbos (ex-Dutch Minister of Shipping) is aware that making prescriptive rules can stifle innovation. She also queried the rationale of not using the a recognised body like the IMO. The EU, USCG and US EPA, to name a few, but also private initiatives like the Carbon War Room, are creating and suggesting environmental rules for shipping. Surely, she suggested, that was something best left to the main voice – the IMO.
Mr Gratos was the first of the practitioners from the industry to speak. He pointed out that shipping is an industry which must make money. Imposing regulations without understandable and believable cost benefit analysis is not going to work. Some of the studies used to present a case for the new regulations do not always make sense and need to be re-examine. Low sulphur fuel costs more to produce, requires more energy and produce has higher emissions in the process. Plus there is the need for catalytic fines, an environmental issue it itself.
He also had a practical suggestion – use the warranted performance clause in the charter party – not the EEDI formula, which will produce an underpowered ship, and will not meet the IMOs own regulations.
Enrico Paglia is the head of research at Banchero-Costa gave an interesting presentation on the outlook for the shipping markets. He noted the consensus of GDP growth forecasts are for a 3.3% growth world-wide, which suggests a 5.4% increase in world trade in 2015. Demand for iron ore expected to be strong, with 50% derived from, where there has been an 8% increase in demand. Indeed, it could be argued that demand growth is beginning to absorb over-capacity. The shock to the equalisation process is the possibility of China building more ships.
On the tanker side Mr Paglia noted that until 2012, the US was the largest importer. US production of crude oil is increasing and the export ban results in an increase in oil products exports. The refinery industry in Europe cannot compete, and there is a general move of refineries moving closer to the well-heads. The new refinery capacity is being built in the Middle East and India. The challenge, he said, is to manage the crude oil fleet and the type and size of ship.
Like many shipping analysts, he found the containers story continues to make no sense. The over-capacity is too large for reasonable levels of growth. The 8.5% historical growth has been replaced by lower levels. The expectation is for 5% demand growth, versus 7% capacity growth. The driving force is cost savings, which is pulling in the demand for larger ships from the three alliance group. He estimated the P3 alliance has cost advantage of around an average of 2000/teu per ship. Therefore, the other alliances will always be more expensive, unless they order similar size ships.
Conference chairman, Gust Biesbroeck, the head of shipping at Dutch bank ABN AMRO floated the concept of the eco-owner. Shipping needs to be seen in the context of the value-chain. If we position ourselves as the facilitator of the transport, we have to explain ourselves in the right way.
Maybe it is time for a split incentive – charterers and owners to share costs and profits.
Matthijs Schuiten, and engineer from the Damen Shipyards presented an interesting alternative to ballast water management. This is the fitting of the water treatment on to a barge, which is moved around the port to treat the ships. This only needs a standard deck connection, which is cheaper than having to fit whole unit. The mobile unit is being made for a Dutch seaport.
Panos Zachariades of Atlantic Bulk Carriers Management Ltd., was one of the owners attending Mare Forum. He has practical knowledge of Eco-ships, which the company ordered from a South Korean yard. The ships have a wedge shaped bow, which save 7.5% in fuel costs, at the cost of 300 tonnes of cargo space. He warned that the best design he has seen produces less consumption, but the gases are not hot enough, so the boiler has to be run. Therefore the total consumption is the same.
Future conference questions;
I learnt a lot at the Mare Forum conference in Rotterdam and I enjoy the free discussion format. It is clear the Ballast Water Management issue and the low sulphur introduction needs more discussion. Going forward we need certain questions answered. I would like to see presentations where the following questions were answered in detail;
- How much does a complete BWM system cost on a newbuilding?
- How much does it cost to retrofit?
- How will the retrofitting be financed?
- When will BWM systems be approved, and by whom?
- What are the cost differences between burning MDO and fitting scrubbers?