Archives for category: eco

It’s not much fun being a merchant ship. You slog across the oceans with cargo, year after year, in all kinds of weather. Then just when you really feel you are developing a bit of proper expertise, suddenly they say you’re too old and must be scrapped to make way for some shiny new lump of steel fabricated in China. Where’s the stakeholder loyalty in that?

Solving the Industry’s Problem

This may sound extreme, but for many “players” in today’s shipping market, scrapping old ships is the best hope for escaping from dreary market prospects. Currently the shipyards are locked into delivering around 90m dwt of ships a year, around 5% of the already overweight merchant fleet. With plenty of spare capacity in the system, and trade growing at around 4% per annum, a quick and easy way out is heavy demolition of those geriatric old ladies.

Demographic Disaster

Unfortunately for proponents of this comfortable solution, the merchant fleet is one of the most modern on record. In a decent market most ships trade for 25-30 years, and very few are scrapped before 20 years. But if this is the criteria, there’s not much to go at, with just 6% of the total bulker, tanker and containership fleet aged over 20 years (see chart). Bulkers have the highest proportion, with 8% of the fleet in terms of dwt aged over 20 years. For tankers, it’s only 4% and containerships 3%. So for the pro-scrapping lobby, this makes life difficult.

Nil Desperandum

But luckily, there’s a second line of attack. With sky high bunker costs and environmental regulations escalating, surely the middle age ships will become obsolete, making charterers reluctant to take them. Getting rid of the 28% of the fleet in the 10-20 year age group would solve the overcapacity problem at a stroke. But are these under-age ships really unsuitable? Maybe not always.


In fact, many of these older ships are not so different from their modern counterparts. Of course the older ships don’t have electronic engines, but this is not a deal breaker and the market pays decent prices for them – $20m for a 10-year-old Supramax, compared with $31.5m for a new Ultramax resale. And even at 15 years old Handymax ships fetch $13m.

Much of the “new” fuel economy technology can be retrofitted to existing vessels and many owners are doing exactly that. Mewis ducts; hull coatings; engine modifications; lube oil management systems; and improved on-board management of fuel consumption can all make a massive difference.

Old Gold

So there you have it. Maybe a rush to the demolition yards is not the only solution to the supply overhang. A better way to exploit the highly skewed age profile of the tanker, bulkcarrier and containership fleets is to focus on their strengths. By careful retrofitting, many dirty, inefficient ships might be transformed into cost effective semi-ecoships which owners could make money from and which the IMO could be proud of. Have a nice day.


SIW1117In the 2000s new ships were the “in” thing. Public companies boasted about their youthful fleets and since ships were floating cash machines, who could argue? Why buy old ships that might break down during a boom, costing cash instead of coining it? But today youth weighs heavily on balance sheets and suddenly older ships look interesting.

Good and Old

But should they? With a surplus of tankers and bulkcarriers it would suit many investors if the old ships quietly left the market. That’s what happens in recessions – the new technology chases out the overage and obsolete ships, leaving a more efficient and eco-friendly fleet to lead the industry into the upswing. But, convenient though this would be for owners of new tonnage, realizing this scenario in today’s market faces two obstacles.

Not So Obsolete, Actually

The first is that ship technology has not changed much in the last 20 years, so well maintained old ships do not carry a big cost penalty, especially when slow steaming. On paper the new generation eco-ships might knock 10% off consumption, but many of the improvements can be retrofitted. The market seems to agree, bidding the price of a 10-year-old Panamax bulker up by 52% since the end of September 2013.

Meanwhile new ships face eye-watering capital costs. Although interest is low, bank lending margins are high and interest rates will probably rise. Also new ships face heavy depreciation. For example at today’s prices, depreciating a new VLCC, might cost $13,000 per day. Admittedly it’s not cash, but ignoring depreciation is a dangerous game.

Not Much to Scrap About

The second obstacle to ditching the old ships is that in these sectors there are not so many of them left. The normal scrapping age for merchant ships is 20-30 years, which today means ships built 1984-94. In those days there were few deliveries, and the age profile of the bulk fleet is very skewed. Only 79m dwt of bulkers and 28m dwt of tankers are 20 years old or above. At recent scrapping volumes that’s about three years of demolition. There’s another 127m dwt of 15-19 year old tonnage, but would investors pay $14.5m for a 15 year old Panamax if they thought it was a possible scrap candidate?

New Ships or Old?

So there you have it. The shipping market is in the trough and investors’ eyes are on the future. Shipyards have made headlines, recording orders for 158.2m dwt of new ships in 2013, almost 3 times as much as in 2012. With a sizeable overhang of surplus tonnage, the market is going to need all the help it can get to squeeze rates to a level which will provide some sort of profit for investors. In the last 3 years scrapping has helped by removing 37m dwt of tankers and bulkers a year. But the really old ships are now thin on the ground and the younger generation don’t look very obsolete. So don’t rely too much on scrapping to solve the surplus problem. Have a nice day.

SIW1099It’s amazing what people throw away. London skips are full of stuff which, presumably, didn’t fit in with the latest loft style decor. Who’s got time to put it on eBay? So it just gets chucked out. Chucking away household oddments is fair enough, but chucking out ships that don’t fit the decor is a very different story.

Demolition Demographics

The idea that “obsolete” ships should be scrapped to make way for a new generation of “eco-ships” raises the key question of whether ships built in the cheap oil era really are obsolete. 20 years is the normal “sell by” date, but there are only 111m dwt of ships over 25 years old and another 69m dwt aged 21-25. With demolition of 58m dwt in 2012, that is not much. So serious scrapping would need to dip into the fleet under 20 years.

Pick Low Hanging Fruit

The positive message is that many of today’s older ships can be retrofitted to improve performance, often at a manageable cost. This argument was made eloquently by Maersk at the prestigious IMAREST NK Founders Lecture in London this week. Maersk have a unique platform to test the proposition. Their 1000+ ship fleet burns 10m tonnes of bunkers a year costing over $6 billion and their retrofitting programme covers 300+ ships.

Retrofitting can be productive because most ships in the world fleet were built to “maximum speed at minimum cost” and contract spec is a poor guide to actual performance. When Maersk analysed the in service operations of 21 designs they found some performed 15% better than contract, but others 15% worse. So sea trials don’t reproduce real world conditions. There has been no major technical change for new ships to exploit and the recent Royal Academy of Engineering report on “Future Ship Powering Operations” does not see any in the short term. But many fuel-efficient add-ons can be retrofitted to boost older tonnage. Better injectors, Mewis ducts, or raising a containership’s bridge to accommodate an extra tier of boxes are a few examples.

Benchmarking Bonanza

Information is the core of the Maersk philosophy. Improvements are meticulously planned and benchmarked. Then the operation of the ships is monitored day by day for benchmark deviations. For example, there is no point in fitting a waste heat recovery unit unless it actually produces the predicted savings. Of course, assessing the value is tricky, but small improvements accumulate and their tanker fleet upgrading yielded an 8% fuel cost saving – crucial cash in a weak market.

If It Ain’t Broke, Fix It

So there you have it. The era of anonymous floating steel boxes is over. At $600/tonne (or $1,000 for distillate) Maersk’s message is that eco-management is a game changer. And many owners will enjoy the “back to basics” challenge of running a tightly monitored eco-fleet which delivers cargo like clockwork and is green too. Have a nice day.

SIW1089The big issue (well, one of them) floating around the shipping market at the moment is the move to “eco-ships”. These technological marvels promise a step change in cost savings and environmental friendliness compared with their pre-crisis competitors. For example the latest Japanese Supramax offering does 14.5 knots on 28 tonnes per day. That sounds good, but how big a step up is that?

Thirsty Old Ladies?

The key is not so much outperforming modern ships; it’s the thirsty old ladies that investors hope the new super-ships will drive from the market, accelerating the return to balance. But this depends on whether the eco-ships are really that much better than the old ladies. To find out we analysed 1298 bulkers of 55-70,000 dwt delivered between 1965 and 2013. Some have been scrapped, but they help plot the long-term trend. To make the comparison more consistent, each ship’s fuel consumption was adjusted to a standard 14.5 knots, using the “cube rule”. The resulting bunker consumption for each ship is plotted against its delivery date. The dates run from 1965 to 2013, and the consumption levels range from below 25tpd to well over 60tpd.

Easy Pickings?

Back in the 1960s, when oil cost just $1.80/bbl and bunkers were only $17/tonne, ships were thirsty and getting thirstier. By 1973 the average consumption of a 60,000 dwt bulker was 49.3tpd. So when the oil price shot up to $10/bbl in 1973 and $40/bbl in 1979 improvement was essential and easily achievable. By 1987 consumption by new ships was down by one third to 35.5tpd at 14.5 knots. Then unexpectedly in 1986 oil prices slumped to $10/bbl and fuel economy was no longer such an issue. Consumption edged down to 33tpd in 1990, briefly touched 30.9tpd in 2005 as new Japanese Supramaxes came in, then shot back to 36 tpd in 2010 as top of the market Chinese-built ships were delivered.

The Bottom Line

These trends highlight three eco-ship issues. Firstly, the fuel consumption in the last 20 years was pretty flat and on paper at least, many of the modern ships are less efficient than older generations. Secondly the big improvement 1975-88 which started from $2/bbl gas guzzlers will be difficult to repeat because the technology has been squeezed so hard over the last 25 years. Thirdly the big fuel saver is slower speed and good old ships can play this game as well as new ships.

Bunker Bonus vs Big Balance Sheet

So there you have it. Most of the old fleet was built to operate in the 32-35tpd band, giving the 28tpd eco-ship a 15-20% advantage. But these new ships carry a lot of capital costs and in the long-term the return on capital counts, not who you beat at the loading point today. Against this background, and the many uncertainties over the true performance of the new eco-technology, it’s no wonder investors are struggling. Eco-features are definitely a nice bonus if you need a new ship, but it’s the “need” issue that’s tricky. Have a nice day.