Fuel cost is the primary driver of today’s push to go “green.” While the side benefits extend much further, industry nevertheless moves ahead with extreme caution.
Shipping lines trying to stay a step ahead of legislation aimed at reducing carbon emissions are embracing the development of “greener” vessels, but the urgency with which the industry is pursuing fuel-efficient ships is being driven by pure commercial considerations. Fuel accounts for more than two thirds of the operating costs of a vessel. As carriers struggle with weakening demand and sharply falling profitability, the need for innovation in ship design has become more pressing than ever. “We are entering into a renaissance of design,” said Luis Benito, Global Strategic Marketing Manager, Marine at Lloyd’s Register. “The question is; what is the optimum speed of a container ship right now, and what will it be up until the ship is 15 or 20 years old?” The answer lies in the design, and it has become a search for the elusive area where greater speed and fuel efficiency meet. It is a complex issue and one that is pegged to the price of fuel, which has such a huge impact on the profitability of a shipping line. For the last couple of years, profitability has only been a word spoken in whispers in the corridors of container shipping companies that are struggling to deal with an avalanche of new capacity flooding into service. Market researchers Alphaliner estimate that the global cellular fleet capacity passed 16 million TEUs in June with an additional 620,000 TEU to be delivered in the second half. Most of this capacity is, or will be, deployed on the main East-West trades.
Yet the sovereign debt crisis in Europe has had a devastating effect on Asia-Europe while the transpacific trade slowed as US consumers tightened their belts. Burdened by excess capacity, the resulting fall in freight rates saw the liner industry collectively losing US$8 billion last year.
With the first half of the year out of the way, the predictions for 2012 are not encouraging. Container lines have been slowing vessels for the last three years to cut down on fuel consumption, but lengthening transit times is a practice that gets liner customers steaming. Adding days, and sometimes more than a week, to a voyage costs cargo owners money and disrupts supply chains.
Designing the Fix
What the container shipping business needs is for vessels to sail at the same speeds of three years ago and use less fuel in the process, and it is the quest for this speed-to-consumption operating band that is driving innovation in design. Classification societies are playing an increasingly active role in this process, advising shipyards and shipowners to find the right design that meets efficiency needs and is compliant with energy and environmental requirements.
“We work with yards and owners to understand the design range that we need to have,” Benito said. “We cannot just design ships with certain types of specifications. We need to expand the minds of designers – it depends very much on the brain power of the designers and of our people.”
Ernst Meyer, regional manager South East Asia for Det Norske Veritas, said there had been a huge improvement in energy efficiency forced by the high fuel price, speeding up the development of innovative solutions. “Fuel is a big cost element for a shipowner so a yard understands it needs to come up with propulsion systems and hull designs that help with fuel efficiency,” he said.
“Some designs are developed in Europe and these designs are picked up by Asian yards, under license, but we also see examples where Asian yards are coming up with their own designs and they are improving on the efficiency side.” The economics of profitably running a ship have changed with the high cost of fuel and ship designers are trying to raise the economics back up so a vessel can sail at higher speeds while consuming less fuel.
Meyer adds, “Challenging the designers and developing tools where we can look at designs early and analytically to see how they can work within regulations and with yards. But it is more a consulting basis where we use the competence we have in house to develop a better design.”
Germanischer Lloyd believes there is growing recognition in the maritime industry that “off the rack,” whether in ship design and operation or in the management of a fleet, is no longer the only option for carriers. Being able to tailor individual vessels was essential to continuing profitability.
Steen Brodsgaard Lund, executive vice-president managing director Asia Pacific for Germanischer Lloyd, said measures were being applied to enhance fuel efficiency and reduce emissions and these were considered during the ship design, the operation of the fleet in the upgrading of existing vessels. “The GL Group is engaged with ship owners, operators, designers, shipyards and other industry players to put to good use the data and experience we have gained,” he said.
Competition: by Design
The result is a resurgence of design, leading to fierce competition between the older shipyards in Korea and Japan and the new yards in China. Despite the bottom having dropped out of the container market, low newbuilding prices and new fuel-efficient designs are attracting orders. Owners are using the opportunity to contract ships at low prices while also renewing their fleets with more economical ships.
“The industry has woken up and ship owners, yards and designers are working very hard,” said Meyer. “The yards are being forced to give guarantees they did not have to in the past. It is becoming very important. It is a different game now, because if you neglect fuel efficiency as an owner or a yard, you can be out of business.”
Benito said the yards were grabbing the design challenge and understood that it would only be through higher design power that they would be able to compete. “It is a buyer’s market so the ship owners are in the driving seat and they want to get the best optimized design. But there are so many shipyards that need orders and they are using their design capabilities more than before. Our role is to facilitate that relationship and help both parties to develop ships that comply with the rules and that are safe.”
The drive to find vessels with better fuel economy and lower emissions has also seen great strides being made in the development of ship engines that run on cheaper, liquefied natural gas (LNG). “If there was enough LNG available in the world, as a ship owner you would have converted your ships immediately because it can easily compete at the current price levels,” said Ernst Meyer, regional manager South East Asia for Det Norske Veritas. He adds, “We have developed classification rules for LNG fueled ships so design, build and operating rules are in place for LNG. The big challenge is that LNG is only available in certain ports.”
Before the world’s container fleet could convert to LNG, the availability of the gas in the world’s ports would have to be greatly enhanced. According to Søren Christian Meyer, global sales director for OW Bunker, the physical infrastructure for LNG globally does not exist and governments have so far been unwilling to provide any significant investment in the necessary shore-based infrastructure. Meyer insists, “Access to all large LNG terminals is limited to LNG carriers. LNG bunkering is limited and small ships are unable to berth due to a lack of small ship piers at these terminals or the appropriately sized piping and flanges for supply.”
In terms of curbing emissions, LNG beats marine oil hands down. A study into the costs and benefits of using LNG as fuel for container vessels by Germanischer Lloyd and MAN found that using LNG as ship fuel would reduce sulphur oxide (SOx) emissions by 90 to 95 percent.
“The environmental benefits of using LNG as a bunker fuel outweigh the use of low sulphur alternatives and scrubbers, as there are no sulphur emissions with LNG, around 30 percent less carbon and 80-95 percent less nitrogen emissions,” the OW Bunker executive said.
“While innovation in vessel design is important, the key challenge for LNG uptake is in the development of the supply chain and a common supply platform, which requires significant investment. It is important to remember that market analysis of LNG pricing is based on the commodity price of LNG, and does not factor in the supply chain costs, let alone the costs associated with recouping the outlay required to build the physical infrastructure in the first place.”
Also requiring significant investment is the LNG fueled ships themselves. The cost of constructing an LNG powered ship is estimated at US$180 million for small coastal bulk carriers and oil tankers, and $200 million-plus for larger ships. However, there are pricing issues and supply chain costs that raise questions of long-term viability of converting fleets to LNG. “It could save owners a lot of money if the prices differential remains the same as it is today, but that is a big question mark,” said Luis Benito, Global Strategic Marketing Manager, Marine at Lloyd’s Register.
Moving Forward: With Caution
Christian Meyer also recommended a cautious and studied approach. “The decision to move towards LNG supply requires close consideration and a sound financial assessment of the opportunities and threats, which will likely take a few years of careful analysis. Particularly in this current market, the risk of committing to LNG supply on a large scale is not a viable option for most bunker suppliers.” Yet many flag states are developing LNG-fueled vessels, and in the Baltic Sea, as much as 40 percent of ships will be running on LNG by 2020.
“About five or six ports are looking at LNG bunkering on the Asia-Europe route,” Benito said. “Gas will end up covering the core shipping fleet.” The industry is vigorously preparing for the inevitable regulation on ship emissions, and various initiatives and working groups are looking at how to reduce carbon emissions while improving shipping’s green credentials.
Christian Meyer adds, “It will take time and happen in steps, with the renewal of the fleet being phased in. We have 20 ships in the LNG class, typically running on a commuting basis, for example a ferry or offshore supply vessel. It is gathering momentum and every year there will be many ships added to the global fleet.”
But as important as it is to cut down the polluting impact of vessels, in this era of high oil prices the commercial viability of a shipping line depends on its ability to trim the fuel bill. Sustainability applies as much to the balance sheet as it does to the environment.
(As published in the 3Q edition of Maritime Professional - www.marinelink.com)