Archives for posts with tag: International Maritime Organization

Who would have thought it? Nowadays a surprising number of people around the world seem to know about shipbuilding. Even taxi drivers can sometimes tell you there’s been a shipbuilding boom, and they’re right. For two decades the maritime industry watched in awe as shipyard output grew eightfold from 19m dwt in the early 1990s to 166m dwt in 2011.

Nice Steady Investment Story

Then came the crash. Deliveries dropped to 109m dwt in 2013, a big fall, but not the disaster many expected. Somehow the industry bailed itself out, and while lower deliveries grabbed the limelight, the yards were running flat out to keep up with the new investment profile which was throwing them a lifeline. In the run-up to the boom, 42% of estimated investment was in the tanker and container sectors; 50% in bulk and specialised, and 7% in gas. This pattern was largely maintained during the boom. All nice and steady, but then everything changed.

All Change for the Recession

Since 2008, there has been a major re-alignment in market shares, as structural changes in these segments have altered investment patterns. Tankers and containerships have suffered, falling to 22% (the tanker share fell from 24% in the boom years to 12%, and containers from 18% to 10%). Meanwhile, the bulk and specialised share jumped to almost 70%.

Time for Transition

On the tanker side, high oil prices, sluggish OECD growth and greater US energy self-sufficiency have all nibbled at demand. Meanwhile container trade growth has slowed since the boom and the sector is still struggling to absorb overcapacity. No wonder investors are easing back.

Luckily for the shipyards, bulkers and specialised vessels have stepped up to fill the gap. Bulkers have accounted for 25% of investment since 2008, similar to their share during the booming 2000s. This has been helpful for Japan and China, who dominate bulker building. And they have achieved it without taking too much of a cut on prices, which have been edging up in 2013 and 2014.

A Specialised Focus

But the real star is the specialised sector, which has accounted for 43% of estimated investment since 2008, up from 27% in 2003-2008. Cruise did pretty well, but the super-star, especially for the Korean yards, was the boom in offshore investment, including alternative energy like offshore wind farms. Offshore investment jumped from $34bn in 2008 to $47bn in 2012. Really quite exciting, but challenging for the yards.

Where Next?

So there you have it. For the time being the shipyards have struggled through, thanks to this switch in product range. Although tricky, the bulkers are keeping Japan and China busy and specialised was a nice bonus, especially for the big Korean yards. But switching product range is always difficult, and that really is the issue for the future. The first rule of shipbuilding recessions is “you never know what they’ll order next” but it’s often completely different. Have a nice day.

SIW1131

SIW1091Taking a cab from central London to Heathrow airport calls for judgement. To catch a “crack of dawn” flight at 5 AM, three quarters of an hour should be fine. But at 5 PM on a wet Friday, three quarters of an hour would hardly get you to Hammersmith. It’s a nightmare. The cab can do 80 miles an hour, but on Friday in the rain, 10 miles an hour’s a much better bet.

Flat Out on the High Seas

These are problems which the ship-ping industry, mercifully, rarely has to deal with. The high seas are wide open spaces and, once out of port, the master can order full ahead and the ship proceeds at full speed. “Full speed” is the only speed reported in, for example Clarkson’s World Fleet Register, usually based on 85% of the engine’s maximum continuous rating (MCR). So when analysts calculate how many ships will be “needed” to carry world trade, this is the speed they use and so do voyage estimators. Of course, port congestion and heavy weather slows things down, so a “sea margin” is deducted. But for years, “full speed” has been the norm.

Bin the Full Speed Focus, Bosun

Does that make “full speed” the right speed for today? Two recent developments suggest that it might not be and that the “85% MCR” norm should be consigned to the dustbin. The first is the fuel price revolution which has been creeping up on shipping for a decade. In the past, bunkers at $200/t were cheap enough to make full speed ahead the obvious strategy. Now fuel costs $600/t and earnings are lower. Full speed has become a high cost strategy (see SIW 1089). Also, environmental pressures are strangling performance, as SOX, NOX and carbon emissions all increase with speed.

Look, No Layup…

All this suggests that ships should be regarded as a flexible resource, whose performance can be adjusted within a wide spectrum to meet commercial and environmental goals. In a way this is already happening, as the Graph of the Week shows. Trade, shown by the line (left axis) is compared with the bulk carrier fleet (the bars). At 14.5 knots the mid 2013 “full speed” fleet of 700m dwt is 150m dwt more than is needed. But at an (estimated) speed of 11 knots, this 150m dwt surplus is soaked up.

And there’s a little-appreciated bonus. As well as saving about 50% on bunkers, slowing-down cuts carbon, SOX, NOX and particulate emissions,   way ahead of IMO regulations. It’s magic! Tinkering with today’s engine room technology can achieve only a fraction of these savings.

“Right” Speed Ahead, Skipper

So there you have it. The way ship-ping views speed is changing. In a business driven by big fuel costs and small emissions, the “right” speed is a vital tool, demanding at least as much forethought as booking the “right” time to get to the airport. Confusingly, slow speed is also mixed up with market economics and is seen as an alternative to layup. The focus is on trading “full speed” for “right speed” and persuading charterers it makes sense. Have a nice day.