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contents
April/May 2016 volume 10 issue 2
11 Regulars
39
5 COMMENT 7 BEST OF WEB 11 CONTRACTS & COMPLETIONS 15 ANALYSIS 21 LEGAL BRIEFING 76 LAST WORD
Crew safety
45
23 DPO testing reveals concerns over competence 24 A tanker crew provides insight into managing fatigue 27 Managing migrants when at sea 28 An expansive approach needed on enclosed spaces
power management
damage & safety control
automation
condition monitoring
propulsion control
tank gauging
ServoCore
Database
62
Inert gas generators 31 The evolution and contribution of mobile systems 35 Will chemical owners remain passive on IGG selection?
Propulsion 39 An industry held to ransom by ‘green zealots’ enveloped in a ‘green haze’ 42 An Aframax with a scrubber could recoup US$20 million 43 The advent of data analytics services assessed
Cargo control 45 Digitisation and wireless sensors are the future 48 Why Scanjet invested in psm instrumentation
Greece 50 The spectre of a Greek exodus remains 52 A Greek company on what AIS offers the tanker trades 54 Tsakos, Kyrtatos and Vafias on what drives the market
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Tanker Shipping & Trade | April/May 2016
contents Cyprus 57 An emergent, resurgent Cyprus 60 Cyprus as a centre of maritime cyber security
Product tankers 62 Class: LNG-ready tankers; asphalt tankers; reconciling ballast water challenges (again) 65 Design: CSRs drive up costs 69 Operations: A Google-hosted online service 73 Operations: Fujairah handled 50 million tonnes of product last year 74 Business: The interplay between the United States and Latin America
Next issue main features include: oil spill/emergency response; ballast water management; fuels, lubes and bunker management special reports: Sweden; Hong Kong; The Netherlands tanker type crude tankers: classification, designs, operations, business, markets and trades
Maritime Cyber Risk Management Summit 21 June 2016, London
April/May 2016 volume 10 issue 2 Editor: Edwin Lampert t: +44 20 8370 7017 e: edwin.lampert@rivieramm.com Sales Manager: Chris Tims t: +44 20 8370 7015 e: chris.tims@rivieramm.com Head of Sales - Asia: Kym Tan t: +65 6809 3098 e: kym.tan@rivieramm.com Production Manager: Sasha Tan t: +44 20 8370 1718 e: sasha.tan@rivieramm.com Subscriptions: Sally Church t: +44 20 8370 7018 e: sally.church@rivieramm.com Korean Representative: Chang Hwa Park Far East Marketing Inc t: +82 2730 1234 e: chpark@unitel.co.kr Japanese Representative: Shigeo Fujii Shinano Co., Ltd. t: +81 335 846 420 e: scp@bunkoh.com Chairman: John Labdon Managing Director: Steve Labdon Finance Director: Cathy Labdon Operations Director: Graham Harman Editorial Director: Steve Matthews Executive Editor: Paul Gunton Head of Production: Hamish Dickie Published by: Riviera Maritime Media Ltd Mitre House 66 Abbey Road Enfield EN1 2QN UK
The case for outsourcing your cyber security (see page 60) See also www.shipcybersecurity.com for information on Riviera's upcoming Maritime Cyber Risk Management Summit, 21 June 2016, London www.rivieramm.com ISSN 1753-7029 (Print) ISSN 2051-0578 (Online) ©2016 Riviera Maritime Media Ltd
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Tanker Shipping & Trade | April/May 2016
Disclaimer: Although every effort has been made to ensure that the information in this publication is correct, the Author and Publisher accept no liability to any party for any inaccuracies that may occur. Any third party material included with the publication is supplied in good faith and the Publisher accepts no liability in respect of content. All rights reserved. No part of this publication may be reproduced, reprinted or stored in any electronic medium or transmitted in any form or by any means without prior written permission of the copyright owner.
A member of: Total average net circulation: 4,000 Period: January-December 2015
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COMMENT | 5
THE TANKER OWNER’S PARADOX LAID BARE
F Edwin Lampert, Editor
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rustration was one of the abiding themes of the panel discussions and private conversations at March's CMA event in Connecticut. Although the tanker market is strong, assets are undervalued, which frustrates tanker owners. Investors, too, are frustrated – in their case because tanker stocks have not performed as expected. The situation was neatly dissected by Clarksons Platou Securities managing director of shipping research, Omar M. Nokta, in a presentation titled Ideas and opportunities in the tanker market for the next twelve to eighteen months. Excluding Nordic American Tankers, which Mr Nokta said “has done a fantastic job of really unlocking value and getting a very high stock price,” crude and product tankers in the US are trading at about 94 per cent of true value. The average age of the fleets of DHT, Euronav, Frontline and Gener8 (‘the big four’ in the VLCC market) is six years. In mid-March, the sales and purchase value of a six-year-old VLCC was US$72 million, though the stocks reflect a US$69 million valuation. Mr Nokta pointed out that “It is not that much cheaper than where the actual physical market is, but it is nevertheless cheaper on an already cheap asset.” Turning to the MR market, Mr Nokta looked in detail at Ardmore, Navios, Scorpio and TEN, where the average age of the fleet is three years old. The benchmark value for these vessels in mid-March was US$31.5 million, but the stock market valuation imputed a US$28 million value. In theory, such a situation should result in investors comparing these valuations and buying either vessels or stocks cheaply. Cash flow is strong, companies are paying out big dividends and doing substantial buybacks. The textbook scenario is that they all should be trading at a premium on where the physical market is right
now. But that is not happening in practice. The explanation, Mr Nokta said, is the lack of liquidity in the market and the lack of confidence. “One of the biggest frustrations that I have is that I am still speaking to basically the same 30 or 40 hedge funds,” he said. “It is a hedge fund mafia with a handful of mutual funds that you can’t break past and get to a much broader net of investors. And it is a similar situation to the physical tanker market, where you don’t have as many buyers as the market would hope for.” The lack of confidence rests on the changeability of the market, or as Mr Nokta put it: “how things can change on a whim.” Tankers are strong and the outlook is very strong but as other sectors – notably offshore and drybulk – have shown fortunes can transform almost overnight. This combination means that the current cycle can be seen as the ‘operators’ cycle,’ a marked contrast with the ‘asset-flipper cycle’ seen recently, where asset players quickly bought and sold vessels and made outstanding returns in short order. To succeed, Mr Nokta said the likelihood is “you are going to have to own the assets and generate the cash flows, and then, if you have got the patience, make a really good return.” He cited as an example a company buying a five-year-old VLCC for US$75 million today: “In a year, at current rates, you would make US$18 million before EBITA, but the asset value would fall to US$57 million.” In other words, shipowner investors that can take the long-term view will generate strong cash flows – but they can forget about the single big return on an asset sale that characterised the boom years. Today’s situation may be frustrating – even paradoxical in conventional market economic terms. But for the long-term health of the industry, perhaps it is actually a better place to be. TST
Tanker Shipping & Trade | April/May 2016
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BEST OF THE WEB
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WHAT HAPPENED
WHAT HAPPENED
Drones will save Maersk Tankers money
Ballast water convention may not need more ratifications
The first drone delivery to a vessel at sea was successfully completed by Maersk Tankers in late January. The test took place near Kalundborg, in Denmark, and was approved by the authorities. Using drones to deliver urgent parcels to vessels and conduct inspections has big cost and timesaving potential for Maersk Tankers. Further tests will follow before the drones become part of the supply chain for Maersk Tankers’ vessels. The drone used for the test was from French company Xamen, and is ATEX approved (zone 2). The test involved the delivery of a small parcel. Due to bad weather conditions, it was not possible to launch the drone from the shore as planned. Instead, the drone was flown in from a tugboat. The drone dropped the parcel onto the vessel from a height of 5m.
An IMO secretariat spokeswoman told Riviera title Ballast Water Treatment Technology that “potentially and theoretically” IMO’s Ballast Water Management Convention (BWMC) could enter into force with no further flag-state ratifications. In a break from its normal procedures, IMO is updating its database of flag-state fleets every month, instead of at the end of each year. Due to the normal daily variations in flagstate tonnages, the percentage covered by states that have ratified the BWMC could pass the 35 per cent threshold as a result of an end-month reappraisal of its existing parties.
WHAT THE INDUSTRY SAID Due to the need for a barge, Maersk Tankers faces high costs for delivery of small parcels filled with urgent spare parts, mail or medicine. In the tankers business, it can be difficult to predict far in advance which port will be called at next. Even when a tanker is in port, it can be complicated and expensive to deliver items to the vessel if it is not alongside the quay. The test involved the delivery of a small parcel
WHAT THE INDUSTRY SAID IMO’s change in policy was revealed in an aside in an announcement earlier this week when Belgium became the forty-eighth state to ratify the convention. The announcement stipulated that the basis would be “global tonnage data as at end-February 2016.” One observer commented that, with the BWMC’s shortfall now so low, “the general ebb and flow of flag states’ tonnage could drift it over the line.”
WHAT NEXT
WHAT NEXT
The policy affects all IMO conventions, although none are as sensitive to small changes in the data as the BWMC. Taking Solas as an example, although the number of parties to the convention (162) has not changed since the start of the year, the proportion of the world’s tonnage they represent has risen from 98.60 per cent to 98.74 per cent, based on the end-February data.
Drones have the potential not only to deliver urgent parcels but to be used for inspections, too. They could take high-quality photos or videos of certain areas to identify cracks. Such early detection of problems could minimise the costs of solving problems. There is a lot of potential for all Maersk businesses. For instance, Maersk Oil and Drilling are already testing drones for inspections of flare tips or other installations. APM Terminals and Maersk Supply Service are also investigating the use of drones.
http://bit.ly/TST-Drones
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http://bit.ly/TST-Ballast
Tanker Shipping & Trade | April/May 2016
BEST OF THE WEB
tankershipping.com
WHAT HAPPENED
WHAT HAPPENED
Maritime HR Association reveals who earns what
OCIMF’s agenda under Andrew Cassels
The Maritime HR Association has published an in-depth analysis of the salary survey data provided by its 90-strong global membership, including pay projections and pay and bonus trends across the full spectrum of shore-side maritime job and company types.
Tanker Shipping and Trade spoke to the director of the Oil Companies International Marine Forum (OCIMF) Andrew Cassels. Appointed in June last year, Mr Cassels has – by any standards – hit the ground running. It is possible to discern his agenda: renewing publications, refreshing aspects of the structure and ensuring that the organisation remains focused and relevant well into the 21st century.
WHAT THE INDUSTRY SAID WHAT THE INDUSTRY SAID The number of shipbroking companies making bonus payments continues to decline, with just under two-thirds of employers paying bonuses to some or all of their staff (compared with 85 per cent two years ago). Big bonuses (100 per cent of base salary or more) still exist for a fortunate 0.5 per cent of employees, but this a significant decrease on 1.3 per cent of employees just two years ago. The usual suspects (global chief executives and charterers) are receiving big bonuses, but senior shipbrokers are receiving over half of the big bonuses. Unsurprisingly, long-term incentive plans remain associated primarily with senior management teams and those working with LNG vessels (larger corporations and listed companies that are more likely to be able to offer share schemes). The cost of living in Hong Kong has increased over the past couple of years. Mercer reports it to be the second costliest city for expatriates (compared with the sixth most expensive in 2013 and third most expensive in 2014).
Mr Cassels entered the role on the back of almost five years as BP Shipping’s vice president of safety and operational risk. This background means that while he is already implementing changes, he is doing so in a very deliberate and collegial way. His BP experience also means he is familiar with OCIMF’s structure and subject matter. So far the format of executive committees has been refreshed to allow for more discussions and debate.
WHAT NEXT
Following on from its annual salary survey, maritime recruitment specialist Spinnaker (through its HR Consulting company) publishes a market analysis report to members. This contains analysis of the salary survey data including commentary on current and future market trends, pay projections, bonus patterns and regional, yearly and company type comparisons.
The organisation is reviewing its role with the anti-piracy maritime trade information sharing centre it established in the Gulf of Guinea. “Sensibly it shouldn’t really be operated out of OCIMF,” Mr Cassels says. “We will not abandon it but the management of the service needs to transition elsewhere. It is not what we are here to do.” OCIMF’s ISGOT and mooring equipment guidelines (MEG) will be revised. “It is approaching 10 years since MEG was last reviewed, while the new ISGOT guide will take two years,” he says. Also up for review is the Tanker Management Self Assessment scheme: a third iteration, TMSA 3, is now on the cards. Fairly early on he also sat down with his counterparts at Intertanko. These discussions are helping underpin a new Human Elements sub-committee in OCIMF. “Understanding the human element is the key to a safer future,” he says adding: “Why does a perfectly well qualified, trained and competent individual still manage to cause an incident?” Perhaps proof that Mr Cassel’s methods are working is that he now has “eight pages of things we are going to do next year that everybody agrees with because they were part of developing it within their teams.”
http://bit.ly/TST-annualHRearningssurvey
http://bit.ly/TST-OCIMF-agenda-under-Andrew-Cassels
WHAT NEXT
Tanker Shipping & Trade | April/May 2016
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CONTRACTS | 11
JAPANESE YARDS ARE PROSPERING
TANKERS DELIVERED GLOBALLY*
11
Aframax
1,246,005 dwt
16
Handymax
796,913 dwt
9
Handysize
259,422 dwt
The newbuilding orderbook in Japan is gaining ground on Korean and Chinese yards. But are owners overordering MR2s? by Barry Luthwaite
J
apan’s newbuilding orderbook has almost doubled in a year. There are 255 tankers (18,558,087 dwt) on order today, whereas a year ago there were 137 (7,877,861 dwt). Growth has been driven by a weak yen and the resurrection of the country’s once powerful domestic fleet. Prices, on average, remain 5–10 per cent higher than their Chinese and Korean counterparts, but foreign owners are increasingly willing to pay the premium in
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exchange for on-time delivery and quality workmanship. While Aframax LR2 product carriers dominate the orderbook, VLCC and stainless steel chemical carrier contracts also feature. This is a strong indicator of Japan’s re-emergence. China increased its order backlog from 304 tankers (30,999,280 dwt) to 382 units (38,699,332 dwt). Domestic orders feature heavily, and the total includes an order for 60 VLCCs,
the first of which are now entering service. A number of Greek owners have placed orders for mostly Suezmax tonnage. They have been drawn in by the favourable financing offered by Chinese lenders. Most shipyards are under state control, meaning refund guarantees can be processed faster. Five privately held shipyards have closed. Small and medium sized builders are struggling for finance. On the other side of the Yellow Sea, South Korea is reeling from huge losses at Daewoo and Hyundai. The last fiscal year has proved to be one of the worst on record, with tanker orders the only respite. The focus is on attracting new orders, as last year saw more vessels delivered out of South Korean yards than out of Chinese and Japanese ones. Overall, the number of vessels on order fell from 416 to 406, although the deadweight *Source for all figures in these tables: BRL Shipping Consultants. Data as at 22 March 2016
2
Medium Chemical
32,750 dwt
2
Medium Products
38,950 dwt
4
Panamax
275,536 dwt
1
Small Chemical
3,481 dwt
8
VLCC
2,497,948 dwt Grand total
53
vessels
5,151,005 dwt
Tanker Shipping & Trade | April/May 2016
12 | CONTRACTS
went up 10 million tonnes from 44,976,743 dwt to 54,144,837 dwt. One disturbing feature of the current orderbook is the 229 (11,460,728 dwt) medium range (MR2) products carriers on order. Owners have seized the opportunity to order new wider-beam sizes for the small capacity advantage they offer over existing equivalent vessels. Some 1,997 units aggregating 89,743,639 dwt are already in service. Saturation point may damage trading prospects for this sector, despite the scrapping of many older units built in the mid-1990s or before. More positively, there has been a welcome increase in LR1 business. More routes and shippers are welcoming wide-beam Panamax types, which offer more capacity and act as the hybrid choice between Handymax and
Aframax. Only 239 LR1s are in service, aggregating 16,230,229 dwt, of which several are ageing and are being replaced. There are 88 LR1s on order, representing 6,330,948 dwt. In parallel, a new market in products has opened up for coated LR2 Aframax tankers. There are 214 on order, totalling 24,086,793 dwt. They account for almost 20 per cent of today’s trading fleet of 1,191 vessels (120,874,308 dwt). In the crude oil sector, 145 Suezmax and 157 VLCCs are on order. The first quarter of 2016 saw 25 Suezmax and six VLCCs contracted. Greece remains far and away the biggest investor in newbuildings, with a total of 218 tankers aggregating 28,930,270 dwt. The outlook for the industry remains positive and
Tanker Shipping & Trade | April/May 2016
the supply–demand balance is generally encouraging. So far in 2016, 93 tankers have entered into service. 163 were ordered in the last fiscal year. Deliveries now extend through to 2020, with 23 vessels having berthing slots. The order backlog shows 1,266 vessels aggregating 122,286,609 dwt, compared with 1,065 units totalling 94,666,103 a year ago. Prices have stood still in real terms because builders have been frightened to raise prices. The price of VLCCs with tier III engines has risen by US$2 million, working out on average between US$94 and US$96 million. The initial rush to switch bulk and container newbuilding orders to tanker orders has halted. In fact, only 30 orders were amended. This will do little harm to the present balance. TST
Japanese yards are being favoured for their high-quality output and timely delivery
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ANALYSIS | 15
Supply-side headwinds are forecast to erode tanker earnings amid volatile demand The tanker market may be buoyant but weaker earnings are around the corner, writes Tim Smith*
MSI’s view is that OPEC – led by its secretary general, Salem El-Badri, pictured, will cut production this year
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D
espite extreme movements in the spot market over the last six months or so, tanker earnings remain elevated compared with dry bulk and container earnings. In the first quarter of 2016, the direction of these movements was mainly downwards, following a good fourth quarter of 2015 for most segments. Against this backdrop it may come as a surprise that market analyst Maritime Strategies International (MSI), in its latest quarterly forecast, increased its freight rate forecast, predicting that annual average 1 year time charter (T/C) rates in 2016 will be comparable to those seen in 2015. The high starting point in 2016 drove some of this upgrade: average T/C rates in the first quarter were much higher than they were in the first quarter of 2015. MSI believes tanker T/C rates have probably peaked. Period earnings are expected to drift lower across 2016, before falling more sharply in 2017. Upward revisions to freight rates are driven by relatively modest downward revisions to tanker supply growth and upward revisions to demand. MSI continues to expect freight market conditions to soften, although the extension of the forecast to 2020 projects a fluctuation in rates as opposed to a prolonged downturn. Higher utilisation rates have been supported by an optimistic view on Asian crude imports, with incremental growth driven by China and South Asia, even as contributions from Europe and OECD countries slow in 2016. Strong Chinese demand for crude imports cannot be discounted in the current price environment. Over the course of 2015, Chinese oil demand growth was revised upwards dramatically (as it was in the US and Europe) despite weakening economic conditions. Increasing liberalisation of the
refining system and expanding strategic petroleum reserves are reasons why China could exceed more pessimistic views on imports in 2016, even if GDP continues to slow. The US presents another potential positive: as domestic production declines under price pressure, crude imports should comprise a relatively larger proportion of the country’s oil mix. These structural factors have improved demand-side conditions for the crude sector, though MSI’s view on the macro environment becomes more clouded. Despite relative upgrades from MSI’s previous forecast, the shape and descent of rates to 2018 remain consistent. An increase in deliveries in 2016 is one driver of this analysis. Deliveries, driven by the larger sizes in the crude and products sectors (VLCCs, Suezmaxes and LRs) will jump in 2016 and will be sustained at high levels over a two- to three-year period. MSI forecasts high levels of scrapping in the second half of the forecast horizon (now extended to 2020). The scrapping will play an important role in driving fluctuations in freight rates over the next five years. In the context of a more aggressively expanding fleet, the outlook for demand is subject to a higher degree of uncertainty. Dynamics in the oil market and their impact on the tanker industry can be framed around four key issues. On the oil production side, will major oil exporters act to curb production, and how will North American production react to low prices? On the oil demand side, the issues are the health of the global macroeconomic environment, and the strength of any price-driven stimulus to demand. From the reaction of OPEC producers to falling prices in late 2014, the market learned that a movement in one element will not necessarily elicit
Tanker Shipping & Trade | April/May 2016
16 | ANALYSIS
a certain reaction in another. The MSI Base Case assumes that 2016 will not see any major action from OPEC and others, and that Middle East crude production will continue to expand. Despite the increased rhetoric in the first quarter of 2016, MSI’s view is that some kind of OPEC cut remains a possibility, though concerted action would be beset by problems. Cohesive action, if it does occur, will take time, and its effects would accelerate the downside view of the Base Case. Meanwhile, the US shale industry has not experienced a full cycle. It continues to adapt and improve operations in lower
price environments. Even so, MSI sees a sizable contraction in North American output offsetting this and helping to rebalance the market. There is increasing discussion of OPEC action, and the price threshold for production cuts in shale is moving lower. The global economy looks on shaky ground, and the consumer response to lower prices means seasonal demand is unlikely to be as strong in the OECD. MSI has forecast a macroeconomic downside scenario that takes into account the impact of markedly weaker GDP growth on global oil demand. The featured chart shows the
composition of 10+ k dwt tanker market fundamentals (i.e. all major segments in aggregate) under both the MSI Base Case and its downside scenario. Effectively, the downside view accelerates the existing MSI Base Case decline in the utilisation rate, bringing down freight rates as supply growth overwhelms the market. Floating storage has the potential to become an even more prominent feature of the market should production (OPEC or nonOPEC) fail to respond to prices. TST *Tim Smith is a senior analyst at Maritime Strategies International
TANKER FLEET DYNAMICS (10,000 DWT) THROUGH TO 2018 Min dwt
Deliveries
Total fleet growth (end-year, RH Axix) 161
Scrapping
Total fleet growth (end-year, RH Axix) 154
Tanker Shipping & Trade | April/May 2016
2020
2019
2018
2017
-6% 2016
-30 2015
-4%
2014
-20
2013
-2%
2012
-10
2011
0%
2010
0
2009
2%
2008
10
2007
4%
2006
20
2005
6%
2004
30
2003
8%
2002
40
2001
10%
2000
50
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18 | ANALYSIS
Looking back tanker re-sales dominated business done In the last 12 months, publicly listed companies purchased 26 tankers with a value of US$1,390 million, and sold 20 tankers with a value of US$659 million writes Craig Jallal*
I
n the past 12 months, tanker trading was one of the few highlights in the shipping market: an impressive 372 tankers changed hands. The low oil price opened up storage opportunities for older VLCCs. While the trading of VLCCs usually made headlines in the shipping press, in volume and value terms it was the MR2 tanker sector that kept the sale and purchase brokers busy. Tankers with a value of just over US$10 billion were bought and sold between 1 April 2015 and 31 March 2016, reports VesselsValue. The list of top 10 tanker types traded by value was led by MR2 tankers
(chemical/product), which accounted for nearly a quarter of the sales. VLCCs ranked in second place by value, followed by Suezmaxes. But, overall, crude oil tankers accounted for less than half the value of tankers traded. Of course, given their size, VLCCs led the tanker fleet in terms of capacity sold at 10 million dwt, accounting for around a third of the capacity (by dwt) traded. Tankers with a broad spread of age ranges were traded in the past 12 months, but the majority of MR2 tankers (chemical/ product) sales were resales and sales of vessels under five years old. The VLCC sales included 11 vessels older than the oil majors
unofficial chartering cut-off age of 15 years, and these appear to have been sold for storage duties. The trading of VLCCs showed a more traditional spread of peak sales at the 5-, 10-, and 15-year-old age levels. The prices paid for these VLCCs sit closely on the median price line derived from the observed sale prices of VLCC sales. Sellers may have realised the best price possible at the time, but these prices were, historically, rather low. The bulk of the sales in terms of numbers of vessels and total value were from companies based in the US, Norway and Greece. The table of top 10 sellers ranked by
TOP SELLING COUNTRIES RANKED BY VALUE (SALES 1 APRIL 2015 TO 31 MARCH 2016)
no capacity (dwt) value (US$ mil)
45 3,635,800 2,010.84
Tanker Shipping & Trade | April/May 2016
35 3,226,100 1,388.07
44 4,895,000 1,298.96
35 2,043,000 781.68
15 3,129,500 774.1
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ANALYSIS | 19
no of tankers capacity (dwt)
TOP 10 SELLERS RANKED BY VALUE (SALES 1 APRIL 2015 TO 31 MARCH 2016) value (US$m) Navig8 Product Tankers
15
1,698,300
756.5
Principal Maritime
13
1,901,700
684
Philly Tankers
4
200,000
568
Metrostar Management Corp
4
1,214,700
384
Blue Marine
4
1,284,600
316
Navig8 Chemical Tankers Inc
8
348,500
306.8
Dryships
6
694,800
Yasa Tankers
4
633,500
Knutsen NYK Offshore Tankers
2
Scorpio Tankers
6
Other sales
306
TOTAL
372
291 242 218
169,200
value contains a list of familiar names. The Navig8 product tankers sale of a total of 15 ships included three 115,000 dwt Aframax tankers sold to Scorpio Tankers for US$59.5 million each. In July 2015, CSSC Shipping in Hong Kong was able to purchase Chinese-built vessels from Navig8 for a considerably lower US$47.5 million each. The middle of 2015 also saw Teekay Tankers buy 12 Suezmax tankers from the private-equity backed Principal Management fleet. Despite the prominence of the large Teekay Tankers purchase, Greek buyers (as usual) were the most active. American
186
297,100
6,228.77
20,370,100 28,812,500
10,181.07
companies also purchased a considerable amount of tonnage. It should be noted that intra-US sales involved a premium for Jones Act vessels, for which VesselsValue has calculated the premium (if no sale price was disclosed at the time). If there is a single discernable pattern to tanker sales in the past 12 months, it was the trading of resales, many of which were said to have been initially ordered to beat the deadline for the introduction of the Tier III emissions regulations. In total, there were 58 resale trades in the past 12 months. In April 2015, Scorpio Tankers raised US$150 million to purchase three LR1 resales from
Navig8, which had merged its VLCC fleet with General Maritime to form Gener8 Maritime. Scorpio Tankers later added an LR2 resale from a third party, while Navig8 sold two LR1 resales to CMB Leasing (these two will be delivered in the summer of 2016). Scorpio Tankers purchased a further three LR1 Aframax tankers from Navig8. The pattern of resales is also coloured by the activity of publicly listed companies. Overall, publicly listed companies purchased 26 tankers with a value of US$1,390 million, and sold 20 tankers with a value of US$659 million. TST *Craig Jallal, senior data editor, VesselsValue
TOTAL
29 1,232,700 384.84
www.tankershipping.com
23 920,000 344.13
9 696,800 280.7
11 902,700 238.87
112 5,756,600 2,316.28
372 28,812,500 10,181.07
Tanker Shipping & Trade | April/May 2016
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LEGAL | 21
RECOVERING POTENTIAL AND CONSEQUENTIAL LOSSES FOR VOYAGE CHARTERS AN UPDATE ON THE ASSESSMENT OF DAMAGES FOLLOWING REPUDIATORY BREACH BY CHARTERERS*
L
ittle has been written on the quantification of damages for breach of voyage charters. The recent decision of Louis Dreyfus Commodities Suisse SA v MT Maritime Management BV, “MTM Hong Kong” [2015] EWHC 2505 (Comm) provides a welcome addition to the body of law addressing this important point and much needed clarification of the damages available to an owner of a tanker on voyage charter, following breach by a charterer. This decision has particular relevance for tanker owners and their recovery of damages when faced with repudiatory breach by charterers. The ship MTM Hong Kong was chartered on an amended Vegoil form for the carriage of crude/ refined vegoil from one or more safe ports South America to one or more safe ports Gibraltar-Rotterdam. Prior to this charter being performed, the ship suffered a grounding in the River Congo which caused a delay, the consequences of which led to the owners accepting the charterers’ repudiatory
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breach that brought the charter to an end. The owners continued to direct the ship to South America in aid of a substitute charter. After a lengthy delay, a substitute charter was concluded from Argentina to Rotterdam. The substitute charter was performed and the ship completed discharge on 12 April 2011 in Rotterdam. If the original voyage charter had been performed, the voyage would have taken 43.6 days, completing on 17 March 2011. The ship would then have carried a cargo of urea ammonium nitrate (UAN) from the Baltic to the United States, followed by a chemical cargo from the United States to Europe. The owners claimed damages consisting of the difference between: • the profit which the ship would have earned if not only the contract voyage but also the next two voyages had been performed; and • the profit actually earned on the substitute charter to Europe. The charterers disputed this method of calculating the owners’ damages, contending that it was wrong to take into account the
position up to the end of the substitute fixture which had terminated long after the charter voyage itself would have terminated. The charterers submitted that the correct approach was to apportion the earnings under the substitute charter, so as to reflect the amount earned up to the date on which performance of the voyage charter between the parties would have been completed. The ultimate decision in MTM Hong Kong has reinforced the principle set out in Smith v M’Guire, while acknowledging the deficiency in that it limits the assessment of damages when the compensation principle can be expected to extend further. The Court has helpfully split damages between the two heads of loss which an owner can (potentially) recover, being (i) those recoverable under Smith v M’Guire, and (ii) those recoverable as consequential losses and which extend beyond the end of the charter period. TST
Peter Glover (NRF): The charterers disputed this method of calculating the owners’ damages
*This is an edited version of a longer paper by Peter Glover, legal counsel, Norton Rose Fulbright
Tanker Shipping & Trade | April/May 2016
22 | SAFETY crew
DPO testing reveals
concerns over competence
I
f you ask any shipowner today what his biggest headache is, he will say: competence.” That was the stark assessment of Nils Gunnar Bøe, DNV GL’s area manager for east, mid- and north Norway and the head of its Certification service for maritime training and competence service, SeaSkill. In the tanker sector, evidence is emerging that many dynamic positioning operators (DPOs), such as those employed on shuttle tankers, “are in need of more regular DPO training,” according to his colleague, Aksel David Nordholm, the class society’s manager of simulator certification. The situation has significant implications for vessel and crew safety. Mr Bøe and Capt Nordholm made these points while discussing the progress made with DNV GL’s Test Centre for Certification of Personnel scheme that the organisation has been offering to simulatorbased testing centres since 2013. The scheme is specifically aimed at DPO testing and, to comply, training organisations must establish a separate testing centre equipped with a sophisticated Class A simulator so that challenging scenarios can be modelled. Those centres can then offer certificates of competence. DNV GL is not involved in issuing seafarer certificates, only in approving the test facilities. It is the only class society to offer this service, Mr Bøe said. So far, two centres in Norway have been certified. One is Simsea, in Haugesund. But the first to be certified was Kongsberg
Tanker Shipping & Trade | April/May 2016
DNV GL’s unique test centre certification scheme is supporting DPO certification but also revealing a wide range of competence levels
Maritime’s Ship Modelling and Simulation Centre (SMSC) in Trondheim. Its managing director, Stig Einar Wiggen, describes DNV GL’s concept as “a very important milestone in the education of DPOs.” He states that “we expect to achieve a documented higher quality of DPOs, that the certification process will be shorter and cheaper and we aim to provide a well-functioning certification regime with less bureaucracy.” About 10 other training organisations around the world are working towards certification, with three more expected to reach the standard by the end of this year. Between them, the two Norwegian centres have tested about 300 DPOs. But there are an estimated 20,000 certificates in circulation. In the past, these have been awarded based on a ship master’s assessment and sea time, with no formal test required. It could take up to seven years to achieve certification but, once awarded, the certificates have been valid indefinitely. DNV GL’s initiative has changed that. As a result of its initiative, certificates that test centres are issuing are valid for just five years, enabling more regular checks of DP operators’ levels of competence. Thousands
of certificates need renewing annually, so the use of simulators to demonstrate competence provides more options for owners and managers to arrange testing, and is quicker for new DPOs. Instead of taking years, “we are looking at days or hours on the simulator and only days at sea,” Capt Nordholm said. But the simulators also demonstrate a need for more training. Tests so far show a failure rate of about 10 per cent, Mr Bøe said. He views this rate as surprisingly high because most of those taking the tests are renewing existing certificates. Mr Nordholm shares his concern. If that proportion is repeated across all certificated DPOs, it would be “a worry,” he said. They said this worry is felt by the industry, which has welcomed this initiative. DPO competence is not included in the mandatory sections of the Standards of Certification, Training and Watchkeeping (STCW) convention, but tanker charterers generally require owners to confirm that DPOs are certificated. Apart from exceptions such as Norway, which has made DPO certification mandatory, it seems to be oil companies, rather than flag states, that are ensuring standards are met. TST
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crew SAFETY | 25
Tanker crew support
fatigue research Data from seafarers will help form new ways of managing long-term fatigue on board ships
D
utch tanker operator MF Shipping is playing a role in a study of the effects of long-term fatigue on crew performance. The study, which is being carried out by a group of academic and industry partners (see box), could lead to changes in the way crew fatigue is monitored. One of those involved in the research is Mike Barnett, emeritus professor at the School of Maritime Science and Engineering at Southampton Solent University. Prof Barnett said that as a result of the study’s expected conclusions, “shore-based teams may be monitoring the health of the crew on board just like they do now with engines.” The project’s results are expected to be finalised in the middle of this year, but not published until the third quarter. Prof Barnett and his colleague Claire Pekcan, an associate professor, described some of its immediate findings
at a seminar during the Connecticut Maritime Association (CMA) annual conference in March. Prof Pekcan explained that the project, called Martha (see below), followed the Project Horizon study that was carried out by Warsash Maritime Academy for 30 months from June 2009. That used simulators to replicate short-term crew fatigue but it could not model the impact, for example, of bad weather or of disturbed sleep from being woken up to do extra duties. “So we wanted to see what actually happened in real life,” she said. Over eight weeks, Martha monitored seafarers from two companies with different working patterns. MF Shipping runs small products tankers in northwest Europe with an intensive port call schedule, while the other company – an unnamed Chinese containership operator with worldwide routes – requires intensive periods of port calls
interspersed with oceanic passages, Prof Barnett explained. Crew members were issued with sleep actigraphs, which are worn like wrist watches to determine sleep patterns and circadian rhythms. They were also given a questionnaire that asked the participants how they felt at the end of their voyage: much more fatigued than at the start, slightly more fatigued, or about the same. From the feedback, the researchers identified third officers and captains as the ones who felt most fatigued at the end of their voyage. Data about sleep patterns from the actigraphs raised concerns about another group: second officers. Humans need around seven or eight hours of sleep each day to avoid poor concentration and inability to be vigilant, Prof Peckan
Crew members were issued with sleep actigraphs, which determine sleep patterns and circadian rhythms
PROJECT PARTNERS
FROM ARTUR TO MARTHA
The project’s partners include academics and industry experts from: • Dalian Maritime University (China) • InterManager (UK-based, with global membership) • Southampton Solent University (UK) • Stockholm University (Sweden) • Stress Research Institute (Sweden) • University of Southampton (UK) • University of Southern Denmark (Denmark) • Warsash Maritime Academy (UK)
The project’s name, Martha, is not – as one might be tempted to believe – an acronym. Rather, it is based on a Swedish project that looked at sleep and waking patterns in non-marine industries. This project went on to develop a predictor programme known by its Swedish initials: Artur. This marine-based research benefited from that Swedish data. So the team coined a marinised version of ‘Artur’ and called their project ‘Martha.’
www.tankershipping.com
Tanker Shipping & Trade | April/May 2016
26 | SAFETY crew
said. Yet second officers were getting, on average, just five hours, “which is not enough, obviously,” she pointed out. Improving this situation will need fatigue risk-management systems, Prof Barnett told the seminar. These were first developed for aviation and are now being used in the rail industry. They could form part of a ship’s safety management system, he said. They would not set prescriptive targets but would take a goal-based approach and would be flexible. “It is about ownership by shipping companies of their own management of risk,” Prof Barnett said. This is completely different from IMO’s current approach to regulating fatigue risk, which “is not based on any science about how tired people get at all,” he said. “It is a negotiated contract between shipowners and unions, and that is what we have ended up with as international regulation.” As a result, there is no incentive for shipping companies to improve. “It is quite inflexible: you either keep to the law or you don’t,” Prof Barnett said. But this is changing. Both Prof Barnett and Prof Peckan are part of a group revising the fatigue guidelines (this was formed after Australia submitted a paper to IMO in February 2015) with a view to reducing the current fatigue guidelines to six modules. Module One will focus on seafarers and Module Two will be about fatigue risk-management
The Martha project team reviewing their findings (credit: Southampton Solent University)
systems, Prof Barnett said. The other four modules have not yet been defined. A correspondence group has been formed to continue the work, which he hopes will be completed,
with the new guidelines agreed by February 2017. Prof Barnett also hopes the guidelines will be written in nonacademic language. “We’ll do our best,” he said.
MIGRANTS POSE SAFETY RISKS FOR TANKER CREW Refugees in distress on the high seas pose safety problems for seafarers who rescue them, says Greek risk-management organisation Aspida. As of mid-April, Aspida has been operating the Emergency Response Centre International (ERCI), which provides a search and rescue service on the Greek island Lesbos for four months, closely collaborating with the Hellenic Coast Guard. This “allows us to provide helpful insight on what to do when rendering assistance in distress,” says Aspida’s ERCI programme director Mirella Alexou. Aspida is using this experience to offer a one-day Refugee Rescue Course that helps prepare seafarers for encounters with migrants in boats at sea. As well as addressing the legal aspects of the situation, it also trains crew in managing the security of the ship with rescued people on board and managing the safety of them and the crew. Aspida operations manager Ioannis Gyparis is one of the course instructors and has considered the specific risks of large-scale rescue operations at sea by tankers. Among the
Tanker Shipping & Trade | April/May 2016
onboard safety concerns are the risks posed by a lack of proper medical support and infectious diseases among those rescued. A combination of these and other factors could even put the rescuing vessel into a state of distress. Due to inflammable cargoes on tankers, their crew face danger if the rescued passengers “do not follow or do not understand or do not want to follow instructions, and use items such as lighters or cell phones on board, he said. Aspida also offers advice on dealing with fatigue. Chief operating officer Konstantinos Perrotis has published a paper on the causes and consequences of seafarer fatigue, and he supervises anti-fatigue training for crew before they are deployed. “We can organise workshops to educate seafarers with coping strategies that will enable them to lead a healthier lifestyle and decrease stress levels during deployments,” he said. Aspida works with shipping companies “to create healthier work environments and better work conditions that will result in a decrease of fatigue levels.” TST
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28 | SAFETY crew
ENCLOSED SPACES ARE STILL A PROBLEM Many tankers “still lack dedicated enclosed-space equipment,” said Michael Lloyd, marine advisor to Mines Rescue Marine (MRM), which offers training and support in dealing with incidents involving enclosed spaces. MRM is often dismayed at the standard of some of the equipment supplied to ships, “obviously ordered and supplied by persons unfamiliar with what is required or looking for the cheapest available,” he said. This is surprising because “tanker vessels without doubt have a more advanced safety culture than the general cargo sector, and this shows in their considerably better
accident record.” Capt Lloyd criticised tanker companies for showing “a tendency to assume that their procedures and onboard practice obviate the need for professional training.” From its experience of auditing numerous ships, MRM advises that professional training “considerably enhances a team’s abilities, including in the best use of the equipment.” Pointing to “the continuing idea that firefighting equipment can be adapted for enclosedspace rescue purposes,” Capt Lloyd said suitable equipment has been available for some years. For example, “the antiquated design” of tank manholes and lightening holes requires a
smaller breathing apparatus than that required for firefighting. Capt Lloyd encouraged tanker owners to invest in specialised stretchers designed for tight spaces and helmets that allow lighting and communications to be built in, freeing hands for essential work. He urged owners to provide their ships with oxygen resuscitators. In an oxygen-deficient atmosphere, “it will be the delay in recovery to fresh air that can kill,” he said. “A resuscitator will remove this problem by allowing the rescue team time to recover the casualty while oxygen is being supplied throughout the rescue procedure.”
MICHAEL LLOYD (Mines Rescue Marine): Tankers lack proper enclosedspace rescue equipment
TANKER OPERATOR BACKS CREW WELFARE SCHEME Belgian tanker operator Euronav is supporting a crew welfare programme, Wellness at Sea, launched last year by the Sailors’ Society charity. Euronav chief executive Paddy Rodgers said in a statement that the company is concerned about the health and wellbeing of its seafarers, adding: “it is with a sense of our broader responsibility to the whole industry that we support this initiative, particularly as it emphasises mental and emotional wellbeing, which are often ignored.” He also emphasised the safety benefits this can bring, saying that when those aspects of wellbeing are absent, “their place is soon taken by
A Wellness At Sea training session (credit: Sailors’ Society)
Tanker Shipping & Trade | April/May 2016
accidents and injury.” It is a point that the Sailors’ Society makes: “Fatigue, poor mental health, stress and many other issues all affect seafarers going about their daily work. They can be the difference between safe transit and a major incident.” The Sailors’ Society said that Wellness at Sea uses tools such as checklists that tell seafarers what signs of poor mental health to look out for in themselves and in others. The programme also includes tips and advice on how to stay healthy, information about the Maritime Labour Convention and how to put it into practice. The Sailors’ Society said the programme is “essentially turning complicated theory into easy-to-understand advice that is easy for seafarers to relate to.” Sailors’ Society director of programme Sandra Welch said that the programme had been well received by the industry. Hundreds of seafarers have already completed the course. Ms Welch added that Euronav’s support “ensures that many more seafarers will benefit from the coaching programme for years to come.” Companies that have already undertaken the training include Wallem, Univan and Sea Team – all with extensive tanker fleets – and the container specialist Seaspan. Another supporter is Tim Huxley, chief executive of Wah Kwong Maritime Transport Holdings, which counts LPG tankers and VLCCs among its fleet. In a video recorded for the charity, he said that the initiative aims to empower senior officers to deal with crew wellbeing problems. “What we are looking to do is to empower them to deal with these problems as they arise at sea,” he said. TST • For more information about the programme, go to http://bit.ly/TST-Wellness
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INERT | 31
The evolution of (Mobile) Inert gas systems in the tanker trade E
xplosions on oil-carrying ships are as old as the tanker trade itself. Inert gas was used with success on vessels as early as 1933 (Sun Oil US). An extra benefit in those early years was that the depletion of oxygen in cargo tanks led to less corrosion of the steel. Strangely, the Second World War saw no significant increase in the use of inert gas; although the US Navy inerted it’s air craft carriers with mitrogen (the Japanese did not) most of the tanker fleet was left un-inerted. In 1956 the Suez Crisis triggered the demand for much larger tankers to carry crude oil from the Middle East to refineries worldwide. But the increasing size of vessels had a downside that would be made horrifically clear. The 1958 Stanvac Japan (26,492 dwt) is well remembered. The vessel was
en-route from Bombay to Bandar Mashur in ballast, and in order to load crude again the vessel would probably have been washing out the tanks when it exploded 160 miles south west of Karachi. In this inferno nearly the whole deck opened up like a sardine can: the mid-ship wheelhouse was blown into the sea, with at least 19 casualties. Aside from Sun Oil and BP, there was little activity on inerting through the 1960s. Some oil majors experimented with inert gas in the late 1950s and early 1960s: although results were well documented, major implementation of inert gas systems (IGS) was not seen until the 1970s. As Jack Devanney of the Center for Tankship Excellence famously once said: “Successful introduction of new technology requires strong direction from management, a hard push at
the superintendent level, and commitment by the crews. If any of these are lacking, the whole thing falls apart as soon as the first problem is encountered”. From 1961 to 1969, numerous lives and ships were lost to explosions and fires where IGS probably would have helped. The 1960s brought bigger and bigger ships. Until then the largest tanker had been 100,000 dwt - but this ceiling was soon breached and vessels with more than double that deadweight were launched from shipyards. Prior to this, the common name for vessels over 50,000 dwt was ‘Supertanker’ so new type names had to be made. The magic word was abbreviation: the world saw the birth of the first VLCCs. Soon though three of those vessels suffered enormous cargo tank explosions while tank cleaning after the cargo was delivered. All of these incidents happened within a period of three weeks in December 1969. In 1974 the United States Coast Guard began requiring inerting on post-1974 crude carriers over 100,000 dwt trading to the US. Owners who recognised the importance of worldwide trading flexibility started to order their VLCCs with inert gas systems. Despite this legislation, cargo tank explosions
A succession of explosions ushered in the era of the mobile plant says R.M. Cogels*
(on non-inert vessels) continued into the early 1980s before the underwriters at Lloyds stepped in and imposed a surcharge of 0.1 per cent per year on VLCCs not equipped with IGS. The worst incident was probably the Betelgeuse/Whiddy Island (Bantry Bay, Ireland) disaster in 1979. The worldwide television coverage caused a massive move towards a new safety culture in the business. A few years later, war broke out in the Persian Gulf: there were at least 346 attacks on tankers in the Gulf in six years. In 286 of the 346 attacks, though, the vessels were repaired and brought back on the market. IMO set new rules requiring IGS on all new oil tankers above 20,000 dwt (chemical tankers were exempted) delivered after May 1982. In 1980, two ex-mariners founded a tanker service company in Rotterdam. They started building hydraulic powerpacks, pumps and other liquid cargo-handling equipment to meet the needs of stricken vessels. During the Gulf War they worked for salvors and P&I clubs to discharge explosionriddled tankers with portable pumps. They recognized the need for a mobile inert gas generator (IGG), the Gulf War being incident-rich. They
The MariFlex Mobile IGG-2000 is an example of mobile cargo-transfer equipment
32 | INERT
acquired a new Port-inert 1500 from Smitgas and put it to use in 1987. Soon after a second unit was acquired and put to use on board the ill-fated Nagasaki Spirit in 1992. The Nagasaki Spirit was actually a victory for inerting. Ocean Blessing was boarded by Malacca Straits pirates, and under their command the ship fled the scene at flank speed to the east. Out of control at 21 knots, the vessel hit the 95,987 dwt loaded tanker port side. Various cargo tanks on Nagasaki Spirit were set ablaze and the fire spread to the defenceless Ocean Blessing. The inferno killed 25 crew on Ocean Blessing, along with some pirates. On the inerted Nagasaki Spirit, though, the fire was confined to the port side aft: crew members abandoned ship via starboard lifeboat, but were murdered by pirates for their valuables. In the following salvage, the vessel’s cargo was
successfully transferred with MSP-200 portable submersible pumps from inerted tanks. Since the tanker was disabled, the Portinert 1500 IGG maintained the cargo tanks at under 5 per cent O2. Another victory for mobile cargo-transfer equipment occurred in 1994, when FPSO Lasmo Riau (in Indonesia) was equipped with massive 8” hydraulic driven submersible pumps and inert gas from The Netherlands after engineroom failure. In the second half of the decade, most incidents requiring mobile inert gas generators were of the operational type, with service providers stocking these worldwide on a standby basis. Lancer (23,470 dwt) exploded in 1998 on the Parana River in Argentina. Lancer was a chemical tanker carrying a cargo of MEK, MIBK and luboil additives upriver in un-inerted tanks. The vessel had cargo tanks empty of IPA
and toluene. Lancer suffered three explosions that fireballed one deck tank with ketone into the sky – it landed several kilometres downriver. Several cargo tanks exploded and two lives were lost. The twentyfirst century has seen almost all tanker explosions involving ships less than 20,000 dwt or chemical tankers. In 2004 MariFlex was formed as a result of the merger of two service providers. The company is now at the forefront of liquid cargo-handling equipment, with 24/7 worldwide services such as offloading/pumping, STS transfers, vapour recovery, tanker/barge inerting, debunkering, and salvage support. MariFlex manufactures fire-fighting equipment, pumps and powerpacks. MariFlex Mobile IGG-2000 & N2-500 (nitrogen) generators are selfcontained, extremely compact, lightweight and built according to internationally recognised
standards and guidelines. The 2009 Formosaproduct Brick salvage in the Malacca Straits proved the importance of modern safety and the availability of professional off-loading equipment. The salvors transferred the cargo of 70,000 tons of Naphta in just five days at anchorage, making use of specialist personnel and equipment from The Netherlands. Under continuous inert conditions, the emergency STS transfer of the cargo made use of 4 Ex (ATEX) sets of hydraulic portable submersible pumpsets and two IGG-2000 inert gas generators. The big challenge for all service providers in this trade will be to have the latest equipment. Unfortunately, accidents will happen – but fortunately our industry has seen the light. TST *R.M. Cogels is the founder, president and owner of the MariFlex Group of Companies
The aftermath of a cargo tank explosion. These devastating occurances unambiguously make the case for IG plant
Tanker Shipping & Trade | April/May 2016
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INERT | 35
Will chemical owners remain passive on IGG selection? New chemical tankers are required to fit a nitrogen inert gas generator, but will owners and operators go beyond minimum standards to maintain their competitive position, asks Stein Lovskar*
WTS’ IGN-S-U-5000 system is a viable option for chemical tanker owner/operators
A
mendments to the International Code for the Construction and Equipment of Ships carrying Dangerous Chemicals in Bulk (IBC Code) adopted by IMO require all chemical tankers of 8,000 dwt and above, built after January 2016, to fit a nitrogen-based inert gas system. Existing chemical tankers and gas carriers are not required to install nitrogen systems, but many owners are investigating their options for voluntary compliance. Specialist trades like chemical and gas carriers attract high-quality owners and operators that are also very demanding customers. These owners have recognised that in a highly competitive market, the ability to demonstrate to charterers that they are going beyond minimum regulatory requirements could have a positive commercial impact. From conversations with clients it has become clear that employing a nitrogen inert gas system can deliver a competitive advantage because it promotes safety in cargo handling and improves efficiency of shipboard operations. A series of explosions and fires on board chemical tankers dating back more than a decade prompted the amendment of the IBC Code. The ships concerned were not required to undertake inerting of cargo tanks and the majority of incidents took place in connection with tank washing or gas-freeing operations.
www.tankershipping.com
The resulting amendments apply to oil and chemical tankers constructed on or after January 1, 2016. The amendments do not apply to tankers constructed before this date and the Solas Convention still includes a specific waiver for all gas carriers. The deadweight limit for fixed inert gas requirements has been lowered from 20,000 dwt to 8,000 dwt. Under the revision to the IBC Code, tankers that operate an exhaust gas-based inert gas system must carry out inerting at one of these points: during loading, on the voyage, during unloading, or during tank cleaning with purging prior to gas freeing with air. For chemical tankers, it is accepted that inert gas need only be applied before commencing unloading operations. An exemption clause was inserted as a matter of convenience to reduce cargo-handling time, as pre-loading procedures for chemical tankers always require in-tank cargo surveys. An important condition for the above alternative is that nitrogen is the only accepted inert gas medium. Since the use of exhaust-based inert gas is a known source of contamination and in order to reduce cargo-handling time at terminals, it is suggested that inerting of cargo tanks should take place before unloading begins. Although nitrogen does not need to be applied until before the start of unloading, it must be applied during discharging, during
Tanker Shipping & Trade | April/May 2016
36 | INERT
tank cleaning and for purging prior to gas freeing with air. If an owner decides that inert gas will be used before commencing unloading, a fixed nitrogen generator system must be provided on board. Though regulations permit the use of nitrogen bottles or a shore-side supply of nitrogen, this will result in significant operational restrictions. For example, it is a condition for the operation of the ship that it only performs cargo handling at terminals where nitrogen is available as shore supply. Ships must perform purging before gas freeing with air using nitrogen supply from terminals. But considering possible port and terminal restrictions on tank cleaning and gas freeing alongside, this is an unrealistic option. Using nitrogen bottles would require a very large supply of nitrogen on board but even so, the use of nitrogen bottles is not a feasible alternative for inerting during tank cleaning and for purging before gas freeing with air. The practical operating option for chemical tanker owners is to specify a nitrogen generator inert gas system, with a capacity of 125 per cent of the cargo unloading rate. To provide owners and operators with a means of compliance with the IBC Code or as an optional means of managing inert gas requirements on existing ships, Wilhelmsen Technical Solutions has re-introduced the Maritime Protection nitrogen inert gas system with significant functionality improvements designed to provide efficient performance and increase operational life.
A unique system design with one of the smallest physical footprints in the market, the Maritime Protection system is ergonomically designed to allow service access from two sides – meaning that it can be located in a corner, for flexible, spacesaving installation. In addition to meeting the requirements of IBC Code amendments, the Maritime Protection nitrogen system is designed and built in accordance with IMO Solas regulations and the MODU Code. The system is delivered with all necessary class acceptance. The system is fitted with reliable and longer-lasting membranes that have improved resistance to high temperatures, enabling the ship to operate the inert gas system at ambient temperatures up to 55°C when specified. The system is fitted with a fully automated control and monitoring system that protects the membranes from potential damage and costly repairs. Wilhelmsen Technical Solutions fully owns the system design and has moved the assembly in-house, providing for better quality control. To ensure optimal system performance at all times and to reduce the risk of failure, Wilhelmsen Technical Solutions has also introduced a full range of support and service solutions, comprising various packages designed to fit customer needs. *Stein Lovskar is commercial development manager at Wilhelmsen Technical Solutions
TACKLE CREW INERTIA TOO, SAYS JOHN MURRAY Around 2004, a spate of fires and explosions on product and chemical tankers led to IMO considering and subsequently introducing revised inert gas (IG) regulations for new chemical tankers from 2016. “Although we support these new regulations, together with other industry associations including IPTA and Intertanko, the International Chamber of Shipping (ICS), has repeatedly made the point that the fires and explosions reported were not primarily caused by a lack of inert gas but rather by a failure to follow or comply with established guidance and industry procedures,” ICS marine director John Murray said at Riviera’s Tanker Shipping & Trade Conference. This point highlights the fact that during consideration of the new SOLAS regulation there was serious concern that requiring an increased use of inert gas, and specifically nitrogen on product
and chemical tankers, risked increasing the incidence of injury and death in enclosed spaces. IMO recognised this risk and produced new and amended guidelines on entry to enclosed spaces and for tank entry including when nitrogen is used. Furthermore, in September 2015, the Paris and Tokyo MOUs instigated a concentrated inspection campaign (CIC) on enclosed space entry. To support shipowners’ preparation for this CIC, ICS has distributed material to assist the development, adoption and compliance with effective enclosed space entry procedures. Regulatory changes formed much of the framework that informed the recent revision of the ICS Tanker Safety Guide (Chemicals). The fourth Edition was published late in 2014 and while reflecting regulatory changes it provides clear updated guidance to assist safe cargo operations and particularly
Tanker Shipping & Trade | April/May 2016
those relating to tank entry on ships when an increased use of nitrogen is expected. At MSC 96, Malaysia proposed a further amendment to SOLAS, requiring that the tanks of chemical carriers remain inerted at all times that cargo and cargo vapours are present. The recently amended IMO requirement is for inert gas to be applied prior to discharge of low flash cargo. It could be anticipated that to further amend the regulation as suggested by Malaysia would have a significant impact on the industry. Despite these measures, the picture is still not complete, said Mr Murray. Ship’s crews must have access to and demonstrate full compliance with clear and effective, company developed ship specific operating procedures. These should be based on, and certainly not be replaced by current regulation, guidelines and industry best practice. TST
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PROPULSION | 39
Heated marine engineering debate demystifies the
‘green haze’
Delegates at this year's European Marine Engineering Conference in Amsterdam heard that they were being held to ransom by ‘green zealots’ enveloped in a ‘green haze’ who were imposing meaningless regulation on the industry with no sense of cost
A
t the inaugural Doug Woodyard Memorial Debate, Intercargo secretary general David Tongue, spoke in favour of the motion that “This conference believes it does not pay to install green technologies.” He said that the industry was “an easy target for politicians looking to further their career aspirations.” In support of his case, he gave numerous examples and asserted that even the green lobby conceded that even if every ship was removed from the Arctic, it would have no impact on that region’s black carbon problem. The real source, he asserted, was coal-fired power stations in Russia and China, “but it is not politically correct to say that.” He also targeted the Ballast Water Management Convention “introduced on Friday the 13th, 12 years ago – something we should have seen as a sign even then.” He argued that this “convention from hell” is seriously flawed. Intended to deal
with the translocation of species from one part of the world to another, it failed to take into account that there are three other vectors of species movement: hull bio-fouling, aquaculture, and natural translocation. The industry is plagued by “aspirational politicians” pedalling personal agendas with no regard for the shipping industry, he added. “The mayor of New York banned the overboard discharge of grey water so he could turn to his constituents and assert that he had ‘dealt with the problem.’ He later admitted that he put that measure in place because shipping had no impact on the financial state of New York.” Also speaking in favour of the motion was the erudite Captain Herbert Soanes, chief commercial officer of Misuga Holland. He looked at the commercial angle, implied by the word ‘pay’ in the motion. He stated: “Charterers do not and have never paid for
An impassioned debate saw differences over what 'pay' meant but consensus around the role politicians play
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Tanker Shipping & Trade | April/May 2016
40 | PROPULSION
incremental technological advancements. A two-tier market has almost never existed. Mainstream financing is not available for green technologies. Though there are many reasons for this, one stumbling block is that it is difficult to quantify the savings such technologies bring. In
recent years there has not been a major technological breakthrough that has radically improved efficiency.” Capt Soanes added: “During last year’s Danish Maritime Days event, KfW Ipex bank’s head of shipping, Carsten Weber, said that KfW had financed only one green
technology deal: the retrofitting of 40 propellers. That happened only “because the propellers were going to be made in Germany. They would get the support of German export finance and 90 per cent of the loan would be guaranteed by the German government, so there was no risk. In order to
finance green technologies you need external support. It cannot be self-standing, unfortunately, but that is the truth.” While at DVB Bank from 2004 to 2014, Capt Soanes participated in the financing of roughly 3,000 ships. He explained that financing and investment decisions are based on the bank being sure that it will get its money back, which means that the assets will earn sufficient cash flow to return the money. Financing of ships by banks “only happen when an entity other than the bank – such as German Export Finance – takes the risk,” he explained. “If it is purely on the merits of the deal, it will not happen. A bank might get involved if financing 20 ships for an owner. Here the bank will typically look to cross-finance or cross-collateralise the green technology investment,” He added. Rounding out his argument, Capt Soanes contrasted the outlook today with the industry mood of the mid-2000s, when the buzz word was ‘peak-oil’ and “you could not open a shipping publication without some mention of eco-vessels.” “Funded by private equity, many shipowners were lured by the snake oil appeal of eco-vessels,” he argued. ‘Snake oil’ is the term which used to be used for fraudulent medical products, and has since broadened to anything with questionable benefits. “My point is that just like peak oil, ecovessels’ charm has faded over time,” he stated. Making the case that green technologies do pay, Ardmore Shipping chief operating officer Mark Cameron said that while present low oil prices did not favour investments in green technologies “you cannot walk past the environmental debate.” He asserted that financing was opening up for new investments and
PROPULSION | 41
that such investments were also deeply pragmatic. “Ask yourself: why do 20 per cent of charterers review the RightShip ship efficiency index, if they are not selecting vessels based on environmental performance? Did you know that two billion tonnes of cargo is now shipped by charterers using this index? In a bad market, who has the more attractive ship?” he asked. Picking up on Capt Soanes’ reference to KfW’s financing of a retrofit project, he pointed out that the installation costs for retrofits remain at a direct correlation to fuel price. “Return on investment is therefore a somewhat spurious measure, as the variable fuel price is completely uncontrollable. In today’s fuel price scenario, payback time is significantly extended, though the environmental benefits associated with fuel savings are immediate and concrete.” In conclusion, he said what would be really innovative would be to find ways to incentivise technology developers so that their return on investment is not unfairly skewed towards clawing back their research and development costs in the shortest possible time. “This would make the early adoption of technology much more palatable to owners faced with significant capital costs,” he explained. Also speaking against the motion, DFDS director for environment and sustainability Poul Woodall argued that those saying that green technologies did not pay were transfixed by history and needed to understand present and future realities as well as the moral imperative to go green. “We need to define what ‘pay’ really means,” he asserted, arguing that the dividend from going green went beyond the purely
financial. “Shipping is a great benefit to society and we create wealth,” he said. “But we can only continue to do that if we align with society, and that is why we have to invest in these technologies.” Delegates were asked to vote on the motion before the debate, and then at its
conclusion. In the first round 88 per cent agreed it did pay to install green technologies. In the second round this number fell to 69 per cent. So while the motion did not carry, those arguing that green technologies do not pay clearly made powerful arguments that persuaded
some participants. The Doug Woodyard debate was established in memory of late Marine Propulsion editor Doug Woodyard. Doug was universally respected for his deep knowledge of marine engineering and his informed and opinionated journalism. TST
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42 | PROPULSION
An Aframax with a scrubber could recoup US$20 million G lobal shipping accounts for 2 per cent of CO2 emissions but 6 per cent of SOx emissions. That’ is because our industry is burning the heavy stuff with the high sulphur content to a far great extent than land-based transportation systems. These transportation systems already have regulatory regimes that require them to burn low sulphur fuel. So maritime is a little bit late to the game – but the game is coming. Of course, some countries are moving earlier than others. This year Danish coastal waters were transformed into a 0.1 per cent sulphur emission control area, and a 50 per cent reduction in sulphur emissions in the air has been recorded. Others are likely to follow suit ahead of IMO’s decision to introduce a global 0.1 per cent sulphur cap in either 2020 or 2025. China has announced that it wants to cut sulphur emissions by 65 per cent by 2020 in certain port areas. As of the end of March, ships that berth at the Yangtze Delta River are required to be at berth with no more than 0.5 per cent sulphur fuel. In the Pearl High River and Bohai Bay area, these regulations can be expected in the next 12–18 months. In Hong Kong, as of this summer, there is a 0.5 per cent sulphur requirements for ships at berth. In 2020, regardless of IMO, EU waters will have an emission control area of 0.5 per cent sulphur fuel. There is a lot of political pressure to introduce a global sulphur emission cap, and a decision on whether it will be introduced in 2020 or 2025 is expected in 2017. The Marine Environmental Protection Committee now convening has been mandated to look into the availability of 0.1 per cent sulphur fuel, rather than its affordability. In other words, if prices go up, it is not IMO’s concern. IMO’s concern will be whether there is enough fuel for vessels to bunker low sulphur oil worldwide. Scrubbers and LNG adoption can help balance these markets. With a scrubber you can burn the heavy 3.5 per cent sulphur fuel oil, and with LNG you do not need to worry about liquid fuels. There is also the possibility that there will be a fuel availability waiver in certain parts of the world that lack the refinery capacity.
EARLY ADOPTERS OF SCRUBBER TECHNOLOGY PRESERVE THEIR TRADING OPTIONS – AND MARGINS*
At the time of writing, 300 scrubbers have been bought worldwide. It is apparent that the people buying scrubbers are owner/ operators – in other words, those that own the vessel and make their own fuel purchases. Consider that an Aframax consumes about 9,500 tonnes of heavy fuel oil per year. Let us assume a very conservative price differential of US$225/per tonne between the MDO and HFO, and that a scrubber installation cost is 50 per cent of all the equipment. Let us also assume the system lifetime is 10 years (even though it is the lifetime of the ship). This ship has a 14MW engine and three 10-15kW auxiliary engines. For a vessel that spends 75 per cent of its time in an ECA, the owner that installs in 2016 could save up to US$20 million in fuel costs over 10 years of operation (if the switch to the global regulation takes place in 2020). The time to act on this is now. The whole process can take up to 15 months. First, scrubber options need to be evaluated. Then competitive bids must be assessed, along with repair yard availability for the retrofit. Purchase orders need to be drawn up and equipment designed. Having ordered a scrubber, it can take 6-8 months to get the scrubber to the yard. It will take about two weeks to install. Of course, the piping can be installed with a riding crew when the vessel is underway. Those that wait until 2020 will be vulnerable to the fuel price differential that will open up between low and high sulphur fuel. Payback could be two years, even with the low fuel price. Given the ever-tightening legislation and anticipated competition for low sulphur fuel within the maritime industry, and between the maritime industry and other transportation sectors, refiners might find they have to (almost) give the heavy fuel away. Ships with scrubbers will benefit. TST *This article is an edited version of a paper – Charterers and owners: Collaboration on emissions makes dollars and sense – presented by Melanie Davidson, of scrubber manufacturer DuPont, at March’s CMA event
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Tanker Shipping & Trade | April/May 2016
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PROPULSION | 43
BIG DATA OPTIMISES FLEET EFFICIENCY Collected data can now give operators an accurate insight into whether their equipment is operating at its optimum level
The advent of data analytics services such as Wärtsilä’s Genius promises to create ever-greater efficiencies for tanker owners and operators
C
ondition-based maintenance (CBM) undertaken through the use of data analytics is becoming a widespread – if not yet ubiquitous – technology. Indeed, if the activity of many leading manufacturers in the shipping sphere is anything to go by, the use of data for more efficient operation may have reached an important tipping point. The principle of CBM is that through the use of real-time data analysis it becomes possible to perform maintenance when it is needed, rather than at regular intervals when it may not be necessary and might even be detrimental to the effective running of a vessel and its equipment. CBM is only made possible by the immediate feedback of data from a piece of onboard equipment to its manufacturer, which is able to spot any possible problem before it becomes critical. Major OEMs in the propulsion sector are
www.tankershipping.com
all offering maintenance and optimisation services based on data analytics, suggesting that this technology’s time has come. This is certainly the view held by Wärtsilä general manager for asset performance optimisation Stefan Nygård. “The Internet of Things is happening,” he says. “There are times for every technology, and now is the time for this one.” Launched in November last year, Wärtsilä Genius services is a new service portfolio designed to help the company’s customers seize the opportunities offered by digitalisation. The three Wärtsilä Genius product families – Optimise, Predict and Solve – enable the optimisation of customers’ assets in real-time, improve predictability and help to solve problems by deploying digital solutions. Using real-time and historical equipment
data, Wärtsilä Genius services are designed to optimise everything from a single installation’s energy efficiency right up to the management of an entire fleet. The latter is achieved by integrating advanced dynamic voyage planning, ship efficiency advisory services and energy analysis, as well as extensive condition monitoring of the main equipment, into one consolidated solution. Solutions and services within Optimise are tailored to increase the competitiveness and efficiency of a customer’s operations. Optimise solutions will enable, for example, the following of fuel consumption in real-time, adjusting the ship’s position to optimal with the help of trim advice. Predict will improve the customer’s asset and business availability and predictability through lifecycle maintenance. For the customer, this means a clearer picture of the coming maintenance need, which in turn means that maintenance can be performed based on actual condition and not according to a predefined schedule. More efficient usage of assets throughout their lifetime helps to increase the owner’s revenue. Solve, meanwhile, will ensure the safety of the customer’s operations and allow them to get instant support whenever and wherever they need it. As part of Solve services, the customer can share their computer screen with Wärtsilä experts on shore. While the Wärtsilä Genius name may be new, the technology that underpins it is not. Mr Nygård says: “Genius is essentially a new, all-encompassing brand for pre-existing services. We have been doing conditionbased maintenance since 2002. However, we are now at a point where the user interface and usability have reached a stage that makes it much more feasible.” At the heart of all this, of course, is the effective use of data. The retrieval of data from equipment is not new – shipowners and operators have been collecting it for years. But what is new is the availability of analysis tools. These can make use of the data that is collected to give operators an accurate insight into whether their equipment is operating at its optimum level. TST
Tanker Shipping & Trade | April/May 2016
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CARGO CONTROL | 45
Further digitisation and wireless sensors are the future Kongsberg Maritime and Servowatch are developing new cargo control and monitoring systems that are integrated with tanker automation by Martyn Wingrove
D
evelopments in cargo control and monitoring are being driven by requirements to minimise wiring, further integrate onboard systems, and make data more accessible. Sensors are becoming more advanced and cheaper to supply, while there is more onboard data processing through the control and automation systems. Among the companies developing technology to meet these technical changes, Kongsberg Maritime supplies gauges, control systems, automation and bridge systems. “Developments are driven by current technology trends in digitisation and wireless communication,” says
power management damage & safety control
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Kongsberg vice president for merchant marine systems Andreas Jagtøyen. “But innovation is driven mostly by price pressure in the market, and increased functionality and efficiency for the operators of tankers,” he explains. There are moves to link cargo data to onshore offices via the ship’s automation network and satellite communications link. There is also a drive to link sensors to the onboard network wirelessly, and to make sensors generate their own power. There are also further developments in integrated control systems that enable crew to access cargo tank information from any multifunctional workstation (whether on the bridge, in the engineroom or cargo control room). Kongsberg supplies complete cargo level gauging and cargo control systems for all types of liquefied cargo, and ballast and service tanks on board any type of tanker. “We also offer loading and stability systems, such as the K-Load loading computer,” Mr Jagtøyen says. “This utilises a 3D model to visualise a full geometric definition of the vessel as the basis for the calculation of loading conditions, floating position and stability, and longitudinal strength,” he explains. All Kongsberg operator stations (OS), including those on the bridge and in the engine control room, can display all the mimics from the cargo system. “The cargo level gauging and control system (K-Gauge) is directly integrated into the alarm and automation system via an industrial Ethernet link,” says Mr Jagtøyen. The tank sensors are connected to the cargo system OS located in the cargo control room via an Ethernet link from a cargo control cabinet
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Tanker Shipping & Trade | April/May 2016
46 | CARGO CONTROL
containing all input/output modules, processing units and power supplies. Mr Jagtøyen says “Sensors are connected to the input/output modules via discrete analogue (4-20mA) signals and/or by Hart communication, a digital industrial automation protocol. All sensors located on deck or in the cargo area are connected via specially adapted barriers.” For future cargo control systems, Kongsberg is developing a densimeter, which measures the density of a liquid (mostly for liquefied natural gas), and radar tank gauges for use on pressurised tanks. Servowatch Systems has integrated cargo monitoring and control into its ServoFusion and ServoCore platform management systems. These operate with Servowatch’s Winmon software for alarm monitoring, control and overall vessel management. The subsidiary of India’s Larson & Toubro has developed the latest version of this software, Winmon 9, in parallel with working on a tanker project for the UK Ministry of Defence. ServoFusion is a platform for bespoke projects that require advanced data management, distribution and presentation on graphical user interfaces. It collects, distributes and displays live data from machinery and cargo tank sensors, indicating where equipment goes into error, or out of threshold, so
operators can react to faults. ServoFusion’s complex algorithms for automated operations, embedded intelligence, and logic are integrated into the system, says Servowatch director of marine sales Martyn Dickinson. Data is collected by input/output (I/O) units into the header unit, and then fed to the Winmon 9 program, which processes the data. “The ServoFusion architecture is more flexible for serial interfacing,” says Mr Dickinson. “We use networking that can share data between all system nodes. The structure includes distributed intelligence, so units can operate independently of each other, but data is shared around the entire system,” he explains. This enables operators to monitor and control cargo tank systems from any multifunctional workstation in the bridge, engineroom or cargo control rooms. It is a dual network with levels of redundancy. For other tanker projects, Servowatch would offer the ServoCore alarm, monitoring and control system, which comes in standard formats. Mr Dickinson says ServoCore was pre-engineered to reduce costs and simplify installation. “It is our off-the-shelf product for alarm monitoring. It supports Ethernet network distribution with redundancy, and has data collection and processing units with display options and alarm extensions,” he adds.
For both ServoFusion and ServoCore, tank level sensors send data to the I/O devices and then to programmable logic controllers and embedded computers. The data and calculations are then distributed to displays that engineers can use to monitor tank levels. Mimic touchscreens allow engineers to remotely operate levers and manage tank levels. Alarms will indicate if there are any issues with cargo capacities or loading conditions. Meanwhile, API Marine has signed a contract with Taizhou Sanfu Ship Engineering Co for the supply of cargo tank monitoring and control systems for six tankers it has under construction. The systems will be installed on 34,000 dwt chemical and product tankers that the shipyard is building for Singapore-based Nova Group, which transports various liquid cargoes including oil products and refined palm oil. API will supply remote level gauging, cargo tank monitoring and loading computers for these tankers. Kockumation has acquired the full intellectual property of the loading computer program Loadstar from IBM in Denmark. Kockumation says it would use this acquisition and the Loadstar program to develop the next generation of onboard loading computers. The acquisition will increase the number of tanker operators that use Kockumation services. TST
Kongsberg engineers maintain cargo tank sensors on a tanker deck (credit: Kongsberg)
Tanker Shipping & Trade | April/May 2016
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48 | CARGO CONTROL
SCANJET INVESTS IN PSM TO EXPAND CARGO CONTROL SOLUTIONS PSM Instrumentation and Scanjet Holding have joined forces to deliver a full suite of monitoring, control and alarm systems for cargo tanks
NIKLAS FALKMER: “The US is considering implementing a requirement for the reduction of VOCs by 50 per cent”
Tanker Shipping & Trade | April/May 2016
S
weden-headquartered Scanjet Holding has made a strategic investment in UK-based PSM Instrumentation so as to offer complete cargo tank monitoring and control systems for crude carriers, product and chemical tankers. Scanjet managing director Niklas Falkmer says that the combined group will provide various control and monitoring systems to many different types of tankers. The systems will include tank level, temperature and pressure monitoring, as well as control of cargo systems, inert gas blanket venting, and tank washing and ventilating systems. All these systems are linked to other onboard systems via industry-standard protocols for general communications, with specific alarm signals for critical measurement points. “A market driver for PSM Scanjet is the preference from vessel and fleet owners for integrated systems to cover all their tankrelated issues, and to simplify service and support down the line,” Mr Falkmer says. The suite of different sensors that generate streams of analogue and digital data needs to be integrated into a complete monitoring and control system. “Tank sensors may be hydrostatic, radar or electro-pneumatic, depending on the application needs,” he continues. “Temperatures, inert gas pressures and manifold pressures are also monitored. Connection is by discrete analogue (4-20mA) signals or multi-drop serial communication, again depending on the requirements of the specific system,” he adds. One of PSM Scanjet’s latest developments was the introduction of VOCTrac, which monitors volatile organic compounds (VOCs) that emanate from cargo tanks during voyages. One of the objectives in Marpol is that these types of emission are reduced, says Mr Falkmer. “This area is subject to greater scrutiny, with an increasing number of owners looking to minimise VOC emissions and support the environment. The US is considering
implementing a requirement for the reduction of VOCs by 50 per cent, so there is a need for vessel and fleet operators to actively monitor and record usage.” A link between VOC sensors and the Scanvent range of tank vent valves would provide a two-stage mechanism for reducing VOC emissions and would improve the regulation of tank overpressures.
Vietnamese tanker order
The combined group is working through a series of contracts and orders for tanker and floating production storage and offloading (FPSO) vessel projects. For example, Scanjet is the main supplier of total cargo management systems to Hyundai Vinashin shipbuilding projects. This includes six product and chemical tankers (between 39,000 and 50,000 dwt) that d’Amico Tankers has ordered from the shipyard. In Indonesia, Scanjet has supplied intelligent tank-management solutions to FPSOs that Bumi Armada will be operating in projects in Europe and Africa. Scanjet is also supplying tank monitoring systems to two new product tankers for Bumi Armada and for seven vessels being constructed for energy and petrochemicals company Pertamina. Scanjet has also delivered in the Chinese market. It is supplying an electro-pneumatic tank level gauging and flooding detection system for a new tanker being built by Xiamen Shipbuilding Industry Co. Scanjet has been chosen by Jo Tankers to supply a tank management system – including tank cleaning equipment, portables, P/V valves and level gauging – for a new tanker being built by New Times Shipbuilding Co. It is also supplying tank control and monitoring, level gauging and P/V valves for four vessels being built by Hudong-Zhonghua Shipbuilding. Mr Falkmer says Scanjet had built up ongoing cargo control management and servicing expertise. It provides shipping management services to Navig8 covering 40 chemical tankers, ranging in size from 25,000 dwt to 31,900 dwt. TST
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50 | GREECE
EU LEGISLATION RISKS H
aving weathered some of the toughest trading conditions in the post-war era, Greek owners are enjoying good earnings that look like they could last up to two years. Ordering is buoyant, as is sales and purchase activity in the secondhand market. The most striking newbuildong order statistic is that of the 33 owners that have placed newbuilding contracts, about a third will take delivery of 10 or more vessels: Tsakos (18), Thenamaris (15), Cardiff Marine (15), Kyklades Marine (15), Capital Ship Management (14), Maran Tankers Management (14), Minerva Marine (12), Dynacom (12), Central Mare Inc (11), and Marine Management Services (10). The statistics only include Greek owners with headoffice operations in Greece. Numbers climb even higher if you include overseasdomiciled companies. Shipping’s funding gap has been well documented. Traditional lenders have retreated. The strict capital controls in place for domestic and overseas
GREEK OWNERS HAVE OVERCOME TOUGH TRADING CONDITIONS, FUNDING GAPS AND A DECLINING DOMESTIC ECONOMY. THEY ARE NOW FACING THE PROSPECT OF HIGHER TAXES by Barry Luthwaite
banks under the EU-imposed bailout conditions have exacerbated the situation, though leading Greek owners have navigated these challenges adroitly. Some owners have been able to secure very favourable loans from Chinese lenders. Of the 218 newbuilding contracts signed by Greek owners, 59 are with Chinese yards, which are offering much improved refund guarantees. While the Greek national flag is being hoisted on more tankers, there is palpable concern that EU plans for the country to increase taxation will precipitate a mass exodus of owners. Earlier this year Tanker Shipping & Trade
reported that the Union of Greek Shipowners (UGS) had issued a strong rebuttal of the European Commission’s recently published Decision (C(2015)9019 final / 18-122015) alleging that some provisions of the Greek shipping taxation regime are in breach of EU state aid provisions and, in particular, the conditions set out in the current Community Guidelines on State Aid to Maritime Transport. In a strongly worded statement, UGS said the European Commission’s assessment of the Greek shipping taxation system and its statement that it will be used as a precedent for the assessment
of other EU shipping regimes will “seriously disrupt the shipping sector in the EU after twenty years of successful growth without formal complaints and negligible intra-EU reflagging or re-establishment of shipping companies.” The UGS statement continued: “Greek shipping is a textbook example of free and fair competition and one of the last remaining truly entrepreneurial sectors comprising primarily small and medium sized unquoted private companies, mostly family businesses. It is important that the characteristics of this business model are understood and supported.” The UGS cited reports made by the Boston Consulting Group and the Foundation for Economic and Industrial Research, which state that Greek shipping contributes over 7 per cent of GDP, provides employment to 200,000 people, and covers over 30 per cent of the trade deficit. The UGS asserted that “It is a grave misconception that
TOP 10 TANKER OWNER COUNTRIES
14 9,200,000 dwt US $ 45,515 Million
Greece
47 , 0 1 8 ,7 0 0 dwt US $20,627 Million
United States
Tanker Shipping & Trade | April/May 2016
49
, 0 17, 5 9 8 dwt
US
$2 0, 344 Million
Japan
53
, 6 5 7,7 0 0 dwt
US
$18,492 Million
China
41
,239,500 dwt
US
$18,009 Million
Singapore
www.tankershipping.com
GREECE | 51
A GREEK EXODUS taxation of Greek shipping companies and shipowners is very low or non-existent. In fact, it has increased in recent years due to groundbreaking agreements with the Greek government to unprecedented levels and overall is probably amongst the highest shipping taxation regimes worldwide.� So far several Greek owners have registered Cyprus-based companies, but they are under the guise of managers. For now the Greek tanker fleet remains the world’s largest and most valuable. Statistics collated by industry analysts VesselsValue on 1 February reveal that the Greek-owned tanker fleet is more than three times as large and twice the value of the next largest fleet. BRL Consulting statistics show that in the last fiscal year the newbuilding order backlog rose from 177 vessels totalling 21,428,708 dwt to 218 units aggregating 28,930,270 dwt. In this one-year period, 102 new vessels were added to the orderbook (equating to 13,273,902 dwt), of which 20 were confirmed in 2016.
29
, 674 , 4 0 0 dwt
US
$14,403 Million
Norway
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The pace is likely to slow in the coming months as an influential factor was the rush of orders to meet the deadline for IMO tier II engines ahead of new tier III models, which are now compulsory under new emission control rules in Europe and the USA. Newbuilding deliveries in fiscal 2015 totalled 42 units, raising the Greekdomiciled mercantile marine to 1,547 tankers currently trading. One emerging trend is that more Greek owners are employing third-party commercial and technical services. Others, especially if they are new to wet business, are establishing their own in-house management personnel. One of the newest debutants is Angelakos (Hellas), which selected Namura, Japan, for two Aframaxes for delivery in 2018. The duo will come under the management of newly established Axion Energy Corporation. TST Sources for all tables on this page: BRL Shipping Consultants Data as at 21 March 2016
24
, 3 2 7, 6 0 0 dwt
US
$9,072 Million
Korea
TANKERS ON ORDER SHIPOWNER
NO
DWT
Arcadia Shipmgmt.
6
960,000
Capital Ship Mgmt.
14
1,370,272
Cardiff Marine Inc
15
2,020,000
Central Mare Inc
11
559,288
2
226,000
Chandris (Hellas) Chemical Transport Co Consolidated Marine Delta Tankers Ltd Dynacom
250,000
8
411,998
2
320,000
12
1,890,000
Eastern Med. Maritime
3
754,000
Eletson Corporation
4
460,000
European Navigation Inc
2
102,000
Ionic Shipping Mgmt. Inc
3
335,000
Kyklades Maritime
15
2,180,000
Maran Tankers Mgmt.
14
3,504,000
Marine Mgmt. Services
10
1,325,000
Meandros Lines
1
160,000
Metrostar Mgmt. Corp
4
1,280,000
Minerva Marine Inc
12
1,873,432
Oceanbulk Maritime
2
600,000
Pantheon Tankers
4
960,000
Pleiades Shpg. Agents
3
220,500
Polembros Shpg. Ltd
4
640,000
Prime Marine Mgmt.
4
296,400
Samos Steamship
4
294,500
Sun Enterprises
3
392,000
Super Eco Tankers
2
102,000
Target Marine S.A.
1
115,000
15
2,221,800
TMS Tankers Ltd
1
158,000
Tomasos Brothers Inc
2
74,000
18
2,262,300
7 218
612,780 28,930,270
Thenamaris
Tsakos Shpg. & Tr. Unisea Shipping Ltd Grand Total
24
10
,0 1 8 , 4 0 0 dwt
13
, 4 3 7, 1 0 0 dwt
US
US
Bermuda
Denmark
$ 7, 4 1 1 Million
$6,512 Million
15
,436,300 dwt
US
$6,230 Million
Russia
Tanker Shipping & Trade | April/May 2016
52 | GREECE
Harnessing AIS
potential to benefit tanker trades AIS data has an array of potential uses that increase as data quality and coverage improve. Insight into all aspects of the industry can be gained through data analysis, leading to operational benefits, writes Argyris Stasinakis*
O
ver the past 16 years, AIS has grown from a basic IMO safety system to a multifaceted data gathering tool. In 2007 MarineTraffic set up AIS receiving stations around the Aegean. Since then, the company has built a network of over 2000 receiving stations in more than 165 countries. MarineTraffic has also established a partnership with Orbcomm to enable tracking of vessels mid-ocean via satellite AIS. Alongside this, data-processing hardware and software has been developed to filter, manage, store and present the data collected. Demand for AIS data is growing strongly and development of systems must keep pace in order to supply users with added-value intelligence. AIS is now global: terrestrial networks are already extensive, with satellite networks opening up shipping activity on the oceans to view. Coverage can still improve, though: some coastal areas still lack receiving stations and more extensive satellite orbits needed to maximise coverage from space. AIS data is of consistently good quality,
Tanker Shipping & Trade | April/May 2016
and mistakes in data manually input by a ship’s crew can be filtered by automated processing and filtering systems. Vessel owners, operators, charterers and brokers are on a regular basis using AIS to help make strategic decisions. Brokers leverage AIS data to better inform their understanding of supply and demand in different markets. Using AIS to analyse shipping supply (which vessels are in ballast, lay-up or laden), brokers can negotiate better deals on the spot market. Similarly, brokers can combine their knowledge on the demand side with AIS to identify supply and demand imbalances. Having realised it is possible to get a good idea of what is happening in realtime through AIS, brokers are looking at tools that enable them to interrogate AIS data even more closely. To help identify longer-term trends and build models, depending on the geographical region, analysts can interrogate five years of historical AIS data. MarineTraffic’s historical database now contains over 20 billion historical vessel positions. It is possible to monitor the movement of commodities by integrating AIS data with cargo information and services that track other forms of transport. For example, AIS can be used to track a consignment of palm oil produced in Malaysia as it is carried by truck to Port Klang before being stored/conveyed to a product tanker, which can then be tracked as it sails to Rotterdam. Within specific commodity sectors, companies are using AIS data (both current and historical) to cross-reference cargo information with vessel position information to construct flow models. AIS data is being used to solve puzzles and questions that until recently were a matter of guesswork. Soon there will be projects that will combine fixture data and commodity price forecasts to enable better understanding of freight pricing. In 2000, few would have thought that AIS would go on to play a key role in price forecasting. AIS data can be used to clarify and validate (or not) information in cases where
current sources disagree. When there is conflicting information on newbuildings, for example, AIS real-time geo-fencing algorithms can be used to monitor ships as they are built: their AIS goes live with their launch. Ships can be monitored entering/ standing in repair yards, enabling companies (such as OEMs or marine coating providers) to understand the methods of customers and potential customers. Vessels entering demolition yards or being run up a beach can be efficiently tracked, too. The ease of access to information provided by AIS and the shipping industry’s growing application of it constitutes a quiet revolution. Once companies understand the leverage to be gained using AIS data, they are reluctant to trumpet their discoveries. The system is simple and unique, offering realtime awareness. AIS does not yet provide a picture of ‘everything, everywhere’ but providers are working towards this goal. The required improvements in terrestrial coverage, security (digital signatures on data) and expanded satellite coverage are achievable in the near future. Soon, accessible, real-time intelligence will drive commercial competition and create a neartransparent marketplace. Opportunities for benchmarking exercises combining proprietary operational data and AIS also abound, especially as the Internet of Things takes off in the shipping world. Sensors on vessels connected to the Internet will enable collation of operational ‘big data.’ This will be correlated with AIS data to create models and measure efficiency. For example, fuel consumption models can be compared with known weather patterns on particular routes and comparisons made with competitor fleets. The insurance industry will be able to undertake far more detailed risk profiling of routes, building knowledge of danger zones and making sense of seemingly random accidents. TST *Argyris Stasinakis is a partner at Athensbased MarineTraffic
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ADVERTs 4/13/16 10:36 AM Page 4 C
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54 | GREECE
TEN has secured US$1.5 T
he oldest publically traded shipping company on the New York stock exchange is projecting healthy future earnings and is about to become the largest provider of tonnage to Norwegian state oil company Statoil. Speaking at March’s Capital Link conference in New York, Tsakos Energy Navigation (TEN) president and chief executive officer Nikolas Tsakos outlined the company’s diversified portfolio and future ambitions. “Due to oil demand, 47 of our vessels are focused on the
crude market and 13 on clean trades,” he explained. The remainder comprise shuttle tankers and LNG carriers. “Our strategy is simple,” Dr Tsakos said. “We have a long-term business with major end users.” The formula has been successful and has generated results that the company believes have “surpassed any of our peer group in duration and continuity.” TEN is building its longterm business even further, Dr Tsakos said. In fact, 60 per cent of TEN’s future vessel sailing days are on long-term charters with profit shares. This translates into US$1.5
billion of secured future revenues over the next two and a half years. “We have always maintained a solid balance sheet and low debt – and have often been criticised for being too conservative,” Dr Tsakos added. “But if you are in the business for 23 years I think you need to hold cash in reserve for opportunities.” At the time of the Capital Link conference, TEN’s share price stood at US$6.50, of which about US$3.50 represented the company’s cash reserves. Dr Tsakos explained that TEN has “a lot of liquidity. At the same
time, we are very proud of our uninterrupted dividend. Other companies will give you 80–100 per cent of their earnings during a good year, and then they will cut the dividend when things are not so good.” TEN’s preference is for a steady model that has paid an average of 75 cents to the dollar since the company’s 2002 listing in New York. Reflecting on the company’s last 23 years, Dr Tsakos says that in the three down years, the company maintained dividend payments. “Whoever invested with us in 2002 at US$7.50 got his money back by the beginning of 2008 –
Kyrtatos crowned at European Marine Engineering Conference
N
ikolas Kyrtatos, Professor of Marine Engineering at the National Technical University of Athens, was awarded a lifetime achievement award at April’s European Marine Engineering Conference in Amsterdam. Prof Kyrtatos is synonymous with the EU’s High efficiency Engine Research in Combustion with Ultra Low Emissions for Ships (HERCULES’) project, the world’s largest project of this type. Spending on the project, which has now entered its twelfth year, has surpassed the €100 million mark. A key achievement was persuading MAN Diesel & Turbo and Wärtsilä to get together back in 2001 to start high-level
NIKOLAS KYRTATOS: a life-long commitment to marine engineering excellence
Tanker Shipping & Trade | April/May 2016
discussions with a view of establishing this joint vision and a strategic R&D plan to develop the future generation of optimally efficient and clean marine diesel powerplants. Prof Kyrtatos is a pastpresident of the International Council on Combustion Engines. During his term of office he restructured its working groups, broadened its base in Asia and overhauled its membership structure and publications database. He joined the National Technical University of Athens in 1984, and since 1994 has been Professor of Marine Engineering in the School of Naval Architecture and Marine Engineering.
Since 2001 he has been director of the university’s Laboratory of Marine Engineering, The research spectrum of the laboratory covers marine propulsion and auxiliary engines, shipboard mechanical and electrical systems, and advanced control systems for marine diesel engines. In 2010, the laboratory was designated as a Centre of Excellence in Ship EnergyEmissions-Economy by Lloyd’s Register Educational Trust and the large-scale stateof-the-art marine engine experimental facility was rated as “among best in the world” in the university’s 2012 external evaluation report. TST
www.tankershipping.com
GREECE | 55
billion in future revenues and is still earning dividends. Since 2012, we have paid an annual 5.25 per cent yield. TEN’s management controls 35 per cent of the business and has never sold its shares. Rather, it has grown its shareholding continuously,” he stated. Commenting on the wider market, Dr Tsakos expressed disappointment that tanker stocks were being “penalised” or undervalued by the market. “The lower the price of oil, the more demand increases. Rates are maintaining a good momentum and good strength. It is ‘a disorder’ in the market that people
consider tanker companies energy companies,” he said. Dr Tsakos has spoken out against profligate ordering. Earlier this year he said that if owners are careful and stop sending newbuilding orders,” they would “enjoy this positive period for much longer.” TEN has a fairly sizeable newbuilding order: this year will see it take delivery of nine Aframax newbuildings from DaewooMangalia in Romania. All nine will enter long-term charters with Norwegian state oil company Statoil, making TEN its largest provider of tonnage.
NIKOLAS TSAKOS (TEN): “Our strategy is simple; we have a longterm business with major end users” photo credit: Chris Preolvolos
WE HAVE A PLAN B, BUT HOPE WE DON’T NEED IT, SAYS HARRY VAFIAS
A
ll the big companies have a backup plan,” says StealthGas president and chief executive officer Harry Vafias. “We already have a small office set up elsewhere, but we don’t want to leave,” he asserts. As reported elsewhere in this feature, the European Union’s focus on the Greek shipping community’s tax contributions has raised fears of an exodus. “It is funny because you see all these articles about the Europeans chasing us on the taxes, but look into the detail and you will see that Greek owners are paying three times the amount of tax as their German counterparts! Shipping is and always has been an easy target,” Mr Vafias says. For Stealth Maritime, the ‘liquid arm’ of the Stealth Group, business is steady, Mr Vafias says. “Back in 2007–2008 we brought in close to 15 brand new tankers, evenly split between Aframaxes and product tankers. All entered into long-term charters. These vessels have or are about to complete these charters and have
www.tankershipping.com
been or are about to be fixed on new, albeit shorter, charters ranging between one and three years,” He explains. There are no intentions to buy or sell vessels operating in the liquid arena. Mr Vafias says resources are needed “for our expanding LPG fleet, which is now approaching 60 vessels.” Talk of the gas fleet leads to discussion of Intertanko’s new co-operation with the Society of International Gas Tanker and Terminal Operators, and the founding of a new Gas Tankers Committee led by AET president Captain Rajalingam Subramanian. “Generally, the more the merrier works, especially in organisations,” says Mr Vafias. “The more members you have, the more ships you have, the more powerful you are. But in order to attract these quality companies, you need to offer them a very high level of service. “So as a member of the Executive Committee I will be one pushing for the highest level of service. We need a run of 12–18 months, and then we can assess how successful we have been,” he says. TST
Tanker Shipping & Trade | April/May 2016
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CYPRUS | 57
An emergent Cyprus could attract Greek tanker owners Confidence is returning to Cyprus after its three-year debt bailout from the EU was repaid in April by Barry Luthwaite
87%
6%
4% Cyprus
Companies
Maritime Sector
Global Fleet
EU interests
Island's GDP
www.tankershipping.com
S
tringent measures and capital controls have been lifted, and the economy is moving forward once more. A number of enquiries have been received for management operations, but (Greece excepted) it is still proving difficult for Cyprus to consolidate and prosper with new business. The strength of the nation’s maritime operations is underlined by the close relationship with Germany, which will remain the cornerstone of recovery. A major talking point is the hoped-for exodus of several Greek companies to Cyprus, driven by EU plans for Greece to impose higher taxation. The Cypriot authorities are tightlipped about the registration of new companies, but around 50 Greek owners have made arrangements for a presence on the island. For the time being, many of these arrangements are still just appropriate documentation, and not all the signatories are involved in tankers. Greek owners and their representatives will fight the threat to abolish Greece’s generous business tax concessions and raise taxation. In Cyprus, matters are simpler: the tonnage tax is low, and shipowners, charterers and shipmanagers are exempt from income, dividend and capital gains tax. The likely tonnage tax increase in Greece will spur moves of some operations to Cyprus. For all the talk, though, the market is a long way from seeing a mass exodus of Greek companies to Cyprus, and may largely centre on dry operated tonnage. It is understandable that companies are closely guarding their plans to move, because the outcome of the tax battle with Brussels is far from clear. Legal challenges may drag it out for months or years. Cyprus should be
Tanker Shipping & Trade | April/May 2016
58 | CYPRUS
congratulated for overcoming its debt crisis, which began in 2013. It can now move ahead with confidence as the tenth largest shipping register in the world (owners are mainly German-related). Greek tanker owners known to have registered a presence in Cyprus include Navios Tankers Management, Mantinia Shipping, Laskaridis Shipping, Neda Maritime Agency, New Shipping, Samos Steamship, Almi Marine, Target Marine, Chandris Shipmanagement, Enesel, Super-Eco Tankers (Tomasos), Allseas International Shipmanagement, Sun Enterprises and Enesel.
vessel types make up around 40 per cent of registration, though dry tonnage dominates. Germany has been a major contributor for the last 30 years, especially with management operations. Within Cyprus, Limassol is the key centre of operations and is the third biggest thirdparty ship management centre in the EU, being home to 130 shipping-related companies. Cyprus manages around 4 per cent of the global fleet, with 87 per cent of companies controlled by EU interests. The maritime sector as a whole contributes 6 per cent to the island’s GDP. Shipping revenues will continue to
AROUND 50 GREEK OWNERS HAVE MADE ARRANGEMENTS FOR A PRESENCE ON THE ISLAND If nothing else, the registration moves allow these companies to use bank accounts on the island to beat capital controls in Greece. Banks and private equity investors are urging Greeks to arrange contingency plans before the financial situation in Greece for the maritime industry deteriorates further. Cyprus is expected to step up the pressure with generous employment inducements for personnel relocating from Greece. Now that Iranian sanctions have been lifted, there have been negotiations related to the registry and management of some Iranian tankers out of Cyprus. The National Iranian Tanker Company has previously utilised the Cypriot registry. Cyprus, with EU approval, is the only open registry in the Eurozone allowing non-Cypriot owners to register ships. A second home in Cyprus is not new to Greeks: all
increase, but predictions of a mass exodus of companies from Greece are based on pure speculation. One drawback in Cyprus is the country’s very poor relationship with Turkey. This has persuaded Donnelly Tanker Management to open a new office in Voula, Greece. The company manages 18 tankers out of Cyprus, but will now transfer four LR1 Panamax product carriers to the Voula-based operation. The quartet is owned by Hafnia Tankers. The move is designed to open up the option of products trading to Turkish ports. This will counter the ban on Cypriotrelated vessels calling at Turkish destinations. Personnel will be seconded to Voula from Cyprus initially, and more tonnage may be transferred depending on progress. This is, however, likely to be a one-off
Tanker Shipping & Trade | April/May 2016
move meeting Hafnia’s request for another trading option. Donnelly Tanker Management currently manages 18 product carriers, of which 13 are controlled by Hafnia Tankers. The largest management and pooling operation in Cyprus is the Norient Product Pool (NPP), which is 50/50 owned by Interorient Navigation Company (INC) and Denmark’s Norden. INC received a major boost recently with the award of a US$11,374,000 loan from the European Bank for Reconstruction and Development (EBRD) for expansion of business. Granted under the auspices of a first transport loan to Cyprus, the EBRD is expected to follow up with more support to take the maritime sector forward. The EBRD commenced investing in Cyprus in 2015 as the country quickly recovered its debt position from 2013. It expects to continue this through to 2020. The initial loan will be used to expand Interorient Shipmanagement’s operations. In recent months, NPP has added Diamond S vessels to its management pool. Diamond S originally allocated 24 product carriers from its fleet for third-party management on an equal split between three parties. There will be a performance evaluation exercise involving the trio of management companies to decide which will be best competitor for Diamond S in the long term. Looking at NPP’s fleet list, it appears that an extra vessel was secured because nine vessels are under its operation. All 24 ships involved are Handymax near sisters. The latest additions have lifted NPP’s fleet disposition to 53 medium range and 36 Handysize units. Five newbuilding 52,000m 3 medium range units will deliver between
Navios Tankers, led by Angeliki Frangou (pictured), has registered an office in Cyprus
July 2016 and July 2018, lifting the fleet to 94 vessels. To date, the company’s concentration has been on products tonnage. It now boasts the biggest fleet complement in its decade of trading. Indeed, since its foundation in 2005 with 22 units, vessel disposition has increased every year – with one exception, when there was a single vessel reduction. Transport volume at the end of the each year has risen from 5,283,956 tonnes in 2005 to 34,330,009 tonnes in 2015. Full management duties were entrusted to Interorient Shipmanagement by Tufton Oceanic, London for two Suezmax tankers, Bacaliaros and Tonos. TST
www.tankershipping.com
60 | CYPRUS
Outsourcing is the best defence
against cyber attack To address today’s emerging maritime cyber security threat, experts from the worlds of maritime services, cyber security and software have combined forces
O
ur industry’s reliance on firewalls, network intrusion detection systems and the vigilance of a probably overstretched IT department to police cyber security threats is flawed, says Lance Savaria, the managing director of Limassol-headquartered Epsco-Ra Security Systems. The solution, says Capt Savaria, is for a trusted third party to monitor data streams in a continuous loop – in the same way video cameras are used in banks. “This means we can see any anomalies in data flows (so-called ‘indicators of compromise’) in real-time and in context,” he explains. Epsco-Ra is not an IT
vendor – it is a “pure security services company.” The service being offered is a scalable cyber security defence system that relieves companies of the need to hire expensive specialist IT personnel fluent in the language of cyber security and shipping. Capt Savaria, who has held a number of senior sales and marketing roles in the maritime software world, is one third of newly established Epsco-Ra. Andreas Ioannou of EPSCO Group and Gideon Lenkey of Ra Security Solutions complete the triumvirate. “Our processes are both managerial, in that we perform analytics on all traffic coming into and out of the network, and analytical, in that we look for indicators of compromise, abuse or covert channels – just the sort of things you are going to find when dealing with high-value data,” says Mr Lenkey, a recognised cyber-security expert who has worked on landmark cases with the FBI. “We test for vulnerabilities and weaknesses in your IT systems through penetration testing, exposing them to the kind of incursions a hacker would look to make,” he adds. Or, to put it another way, Epsco-Ra offers a mix of offence and defence.” “Awareness of the cyber-security threat faced by the maritime industry is growing,” says Capt Savaria. “My general sense is that the industry guidelines – whether those of BIMCO, DNV-GL, ABS or Lloyd’s Register – are very good. But because this is an emergent threat and an emergent market, you are going to find, just like any other industry that has standards and guidelines, that you can be 100 per cent compliant, yet not 100 per cent secure. It is also possible to be non-compliant but extremely secure and hardened,” he explains. EPSCo-Ra launched in March. Through Mr Ioannou’s EPSCO Group it has three fully staffed offices in Limassol, Hamburg and Singapore and associate offices in Athens and Mumbai. This global network allows for 24/7 services and support.
Briefing: the penetration test The penetration test is a series of co-ordinated events designed to collect data from across several points of a company’s network. During the assessment process, the ‘attacker’ will simulate the role of a motivated and capable hacker and will include external attacks as well as internal ones, such as the disgruntled employee authorised to use the company network, but who has minimal access privileges. After the test a comprehensive report is produced that summarises the ‘cyber health’ of a company’s IT systems. False positives will be addressed. Often, additional probes will be carried out. TST Gideon Lenkey (left) and Lance Savaria address cyber threats
Tanker Shipping & Trade | April/May 2016
www.tankershipping.com
62 | PRODUCT TANKERS class
THE AGE OF LNG-READY PRODUCT TANKERS IS HERE
Crowley is taking delivery of a series of Jones Act 50,000 dwt product carriers from Philly Shipyard by Martyn Wingrove
Sargeant Marine’s 37,000 dwt BV-classed Asphalt Splendor has a total asphalt cargo capacity of 35,666m3
Tanker Shipping & Trade | April/May 2016
www.tankershipping.com
class PRODUCT TANKERS | 63
A
BS worked with Crowley Maritime Corp and Philly Shipyard on the building of a series of Jones Act product tankers that would be ready for conversion to liquefied natural gas (LNG) propulsion. The first of these tankers, Ohio, entered service in the fourth quarter of 2015. The rest are scheduled for delivery throughout this year. These 50,000 dwt product tankers are based on a proven Hyundai Mipo Dockyards design, which incorporates numerous fuel efficiency features and flexible cargo capability, and satisfies the latest regulatory requirements. They are also the first to achieve compliance with the ABS Guide for LNG Fuel Ready Vessels. The tankers also comply with the NOx Tier III requirements for operating in the North American emission control areas, which entered into force in January. Ohio was the first to gain ABS’s LNG-Ready approval, closely followed by the second, Texas, when it was delivered in February. ABS program manager for global gas solutions Aditya Aggarwal says Crowley and the shipyard had to overcome a number of challenges to meet the Approval in Principle (AIP) for the design and full tanker classification. “The challenge for Crowley was to develop an LNG-ready design for dual fuel that could be converted with minimal effort and a shorter time-out-of-service for necessary retrofit,” he says. “As a result, the general arrangement of the LNG tanks and other equipment was developed for best system functionality – and to avoid, as far as possible, creating interference that would cost time and money to rework.” For maximum flexibility, these tankers could use up to three on-deck LNG type C storage tanks, depending on what range of LNG propulsion is determined as necessary. Other challenges to the tanker design and construction include the high capital costs of the LNG tanks, dual-fuel engines and fuel-gas supply systems, which is why Crowley decided not to build the tankers as dual-fuel vessels on delivery. “But Crowley decided to prepare for the potential conversion to dual-fuel propulsion by performing the functional-level engineering, planning to a significant extent the full modification, and deciding which limited elements were most costeffective to install during construction,” says Mr Aggarwal. “In order to reduce the time for a future modification and to avoid
BV CLASSES LARGEST ASPHALT CARRIER Bureau Veritas has collaborated with Chinese design specialists to class the world’s largest specially built asphalt carrier. BV classed Sargeant Marine’s 37,000 dwt Asphalt Splendor, which was built at Avic Dingheng shipyard in China. The vessel is one of a series of two tankers designed by Chinese design institute SDARI. One of the challenges was designing a tanker of this size to carry hightemperature cargoes. Asphalt is carried as a liquid at temperatures up to 170°C in 16 independent tanks, with a total capacity of 35,666m3. “The high cargo temperatures in asphalt carriers place special demands on structure, construction quality and equipment,” says BV executive vice-president and head of the marine and offshore division Philippe Donche-Gay. “The Asphalt Splendor will be a state-of-the-art vessel, with excellent environmental and operational performance. We welcome this project, which builds on our strong relationship with Sargeant Marine.” The tanker has three cargo pumps, each with a pump rate of 500 m3/hr. It has one Wärtsilä 5RT-flex engine rated at 6,400kW at 99 rpm.
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future damage to the cargo tank lining, the decision was made to install the underdeck structure necessary to support the LNG fuel tanks on deck, among other smaller modifications,” he explains. “Co-operation and collaboration among ABS, Crowley, the shipyard and the shipyard’s design partners was vitally important. Many meetings and discussions were held in order to refine the design and implement the initial changes.” ABS provided advice on how the design would meet the requirements in the ABS Guide. This included a basic level of concept design approval and two higher optional levels for general design approval and detailed design approval. The class society provided advice on the specified equipment to be installed on board the tankers. “Crowley achieved the AIP along with a descriptive note assigned to the ABS class certificate,” says Mr Aggarwal. “The AIP consists of a safety assessment of the proposed conceptual layout of the complete gas-fuel system to verify compliance with current regulatory requirements as related to a possible future conversion,” he adds. The tanker series features other measures designed to optimise performance and efficiency, all meeting ABS class standards. These include the use of a Mewis Duct pre-swirl stator to optimise wake and increase propeller efficiency, and an ABS-approved ballast water management plant. The propulsion and engine were also optimised during the design. Crowley’s product tankers have Tier II, super-longstroke S versions of the MAN ME-B slow speed engine, and larger diameter propellers. ABS is expanding its presence and operations in China this year. It has signed a strategic co-operation agreement with the Marine Design and Research Institute of China (Maric) to collaborate in the areas of operational efficiency and environmental performance. ABS senior vice president and chief technology officer Howard Fireman expects the agreement will extend the use of engineering design and data in Chinese projects: “Leveraging technologies such as computational fluid dynamics, techno-economic evaluation, and performance data analysis, we will be able to help industry make improvements in energy efficiency and environmental compliance.”
RINA LINKS BALLAST WATER SYSTEMS AND EMISSIONS Rina is conducting studies to identify the emission consequences of installing ballast water management systems on product tankers. Ratification of IMO’s Ballast Water Management Convention is imminent, so owners need to understand the extra power requirements, says Rina Services general marine manager Paolo Moretti. He says installing these systems would increase CO2 emissions: “Ballast water management systems require an increase in electric power generation on board, because of the additional ballast pumps and the power required by the system. We have developed a study related to the design of a 41,000 dwt product tanker to evaluate three different ballast water management technologies and identify the most convenient for this type of ship.” Installing a management system has a particular impact on product tankers because of the need to keep the ballast water coming from the tanks near the cargo, away from ballast water coming from safe areas of the ship. TST
Tanker Shipping & Trade | April/May 2016
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design PRODUCT TANKERS | 65
CSRs DRIVE UP PRODUCT TANKER DESIGN COSTS
R
ecent changes in design rules and environmental regulations have increased the cost of designing product tankers. The introduction of new common structural rules (CSRs) by the International Association of Classification Societies (IACS) has led to higher costs for designers and to upgrades in class society calculation and verification software. Naval architect and ICE group executive chairman Steinar Draegebo says costs are also increasing due to rule changes such as the imminent ratification of the ballast water management (BWM) convention and regulations in emission control areas (ECAs). “The introduction of CSRs for tankers above 150m class rule length will significantly increase design costs,” he says. Adopting CSR to update noncompliant designs means extra design time and computer processing when using software such as Napa Steel and Napa Designer. For class, it means updating calculation tools, such as DNV GL’s Nauticus Hull and Sesam GeniE, or ABS/Lloyd’s Register’s joint initiative CSR Prescriptive Analysis and the new CSR Finite Element analysis software. Additions to designs that have increased owner expenditure on newbuildings include those necessary to comply with the requirements under Solas and Marpol, such as including nitrogen or inert gas generators, and BWM. “Marpol Annex 6 ECA rules are forcing owners to consider LNG or LPG fuels, thus changing tanker design,” Mr Draegebo explains. “All vessels have to comply with Tier II of Annex 6 with regard to NOx requirements. This is normally achieved without any additional equipment to the main and auxiliary engines. But vessels have to comply with Tier III when trading in defined ECA areas – those vessels will have to install either selective catalytic reduction or exhaust gas recirculation systems in order to comply,” he explains. Mr Draegebo considers dual-fuel
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BALLAST WATER MANAGEMENT AND TIER III MARPOL REQUIREMENTS ARE PUSHING UP DESIGN COSTS by Martyn Wingrove
JACOB THYGESEN: There has been increasing interest in highly efficient dualfuel product tanker designs
options as not the only answer to meeting Tier III compliance, despite interest in LNG fuel: “The use of dualfuel engines will not avoid installing such equipment, irrespectively of using highor low-pressure injection technology, as they all have the possibility to burn heavy fuel in ‘single-fuel’ mode. As such, they will be considered as not complaint without proper NOx cleaning equipment,” he says. Mr Draegebo says that despite the rule changes, the main elements in designing product tankers are defining the trade pattern and optimal speed requirements for the vessel. Other elements include defining the load list and required tank volumes, as well as the class notations, tank segregations, the number of pumps, and the loading and discharge capacities. ICE has developed several fuelefficient product tanker designs. It has used advanced computational fluid dynamic analyses and model-testing in ICE’s own towing tank to obtain the lowest possible hull resistance. For example, ICE has designed a 49,000 dwt product and chemical IMO II tanker with a service speed of 14.4 knots. The hull design includes propeller boss cap fins that result in a propulsion performance improvement of around 5 per cent. The design has other energysaving features that result in highly economical operations. The 182.5m tanker has 12 cargo tanks, each equipped with a hydraulically driven cargo pump, plus two slop tanks and one retention tank. The vessel was designed in accordance with CSRs, with a design draught of 11m, breadth of 32m, and accommodation for 31 people. ICE has also designed 39,000 dwt chemical/product tankers using similar design attributes. Wärtsilä has developed a series of product tanker designs for conventional propulsion and dual-fuel variants. Its main Handymax and medium range
Tanker Shipping & Trade | April/May 2016
66 | PRODUCT TANKERS design
Tanker Shipping & Trade | April/May 2016
11.00 m
12.60 m
DRAUGHT, DESIGN
DRAUGHT, SCANTLING
DEPTH MLD.
BREADTH MLD.
18.00 m
32.20 m
175.00 m LENGTH B.P.
together with the propeller to produce fuel savings of up to 5 per cent. Wärtsilä FPPs are based on OPTI design methodology for optimum performance and minimum levels of noise and vibration. Wärtsilä says FPPs reduce operating costs due to the efficient hydrodynamic-optimised propeller blades, and improved propulsion performance stemming from weakened hub vortex. To comply with BWM requirements, product tanker owner Atlantis Tankers and its management arm Armona Denizcilik ordered systems from Optimarin for 10 vessels. Eight of these will be installed on existing vessels and two on newbuildings. These tankers transport a variety of cargoes, including organic chemicals, clean and dirty petroleum products, and vegetable and lube oils. The first Optimarin solutions are to be installed on 5,850 dwt newbuildings Atlantis Augusta and Atlantis Alicante this year. Atlantis Augusta is under construction at Selay Shipyard, and is due to be delivered in the third quarter of this year. The other Optimarin BWMs are scheduled to be supplied to Atlantis in 2019. They are due to be installed on the existing tankers, which range from 3,446 to 6,416 dwt, during their special survey drydockings in 2019/2020. Optimarin uses engineering partners Goltens and Zeppelin for BWM system installation. TST
182.50 m
The WSD42 111K design for an Aframax product tanker has a 35.2 t/ day consumption when travelling at a maximum speed of 14.5 knots
ICE 49,000 DWT DESIGN PRINCIPAL DIMENSIONS
LENGTH O.A.
tanker designs are for 34,000 dwt, 45,000 dwt and 50,000 dwt ships. Wärtsilä also has the WSD 42 111K design for an Aframax product tanker and the WSD47 113K design for an LR2 product tanker. Wärtsilä merchant ship design sales manager Jacob Thygesen says there has been increasing interest in highly efficient dual-fuel product tanker designs. He says owners can achieve a competitive advantage by selecting a higher fuel-efficiency design that would have a lower operating expenditure than competitor ships. Product tankers still need the ability to load different types and grades of cargo, and to enter ports and terminals that have depth constraints. They also need to be efficient in loading and unloading cargoes of different viscosity. Mr Thygesen adds that the latest designs should me et all Solas, Marpol and IBC Code regulations, and be ready for the BWM convention. The WSD41 50K design is for a 50,000 dwt MR tanker with a top speed of 14.5 knots. The 183m vessel would have 12 cargo tanks with a combined capacity of 54,900 m3, two slop tanks, and 11m draught. The LNG version has one 7,800kW dual-fuel two-stroke W5X62DF engine that would consume 22.3 t/d of LNG, or 27.7 t/d of marine gasoil. The LNG fuel tanks on the deck would carry 2,000m 3. It could include three 1,065 generator sets (6L20DF), and a 1,000 m 3/hr ballast water management unit. In comparison, the WSD42 111K design for an Aframax product tanker has 35.2 t/d consumption at the maximum speed of 14.5 knots. The 252.8m tanker has 12 segregated cargo tanks with total capacity of 125,600m3, three centrifugal cargo pumps each with a pump rate of 3,000 m3/hr, and three fixed machines for cleaning of cargo tanks. The LNG variant has a 10,400 kW, W6X62DF main engine that would consume 31.3 t/d of LNG and 39.2 t/d of gasoil. Wärtsilä supplies propulsion systems for newbuilding projects from different designers. For example, it won an order from TMS Tankers to supply fixed-pitch propellers (FPPs) for Aframax tankers under construction at the Hantong Ship Heavy Industry shipyard in China. The Wärtsilä CME Zhenjiang Propeller is fitted with the EnergoProFin solution, a propeller cap with fins that rotates
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operations PRODUCT TANKERS | 69
NORBULK DEPLOYS CLOUD ADMIN SYSTEM AND ECDIS The tanker shipmanager transferred documentation into a Google-hosted online service to minimise the need for paper forms, and installed ecdis for paperless navigation by Martyn Wingrove
N
orbulk Shipping has begun using cloud technology and paperless reporting across the fleet of product and chemical tankers it manages. It has introduced an online integrated management system (IMS) in its offices and on the ships to minimise the paperwork burden on officers and superintendents. IMS manages the documentation from ships, as well as technical and maintenance reports, in one online portal that can be accessed from mobile devices. The shipmanager moved its IT systems to an online storage facility hosted by Google, via the cloud migrator Cloud Technology Solutions. It also introduced dual ecdis on the tankers to minimise the time officers spend updating navigational charts. Norbulk Shipping UK’s general manager and director Walter Woodage said the IMS system is completely electronic and stores all files in one central location. “IMS is a paperless system that can be accessed from desktops or remote devices. It is a huge benefit for our travelling superintendents because they do not have a backlog of items
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when they get back in the office. They have their finger on the pulse at all times, and can analyse particular forms on the database.” Mr Woodage continued: “IMS is more user-friendly and spreads information across more people. Managers can extract forms, attach them and send them in e-mails. We can also send safety-management system updates electronically to the fleet.” Other benefits are the automated processing of forms and information from the ships, the sending out of company alerts, and information available to superintendents. Norbulk introduced IMS in its offices in Scotland, Latvia, Canada, the Philippines and Russia. The majority of the more than 80 ships managed by Norbulk are now run by electronic means, using the cloud-based technology for daily communications. Norbulk maintains its own security firewalls and secure e-mail, to prevent cyber breaches or unwanted information sharing, said quality assurance and safety manager Mark Myles. “Our next development is evolving this further to use advanced electronic signatures, so that masters and superintendents can
sign off documents securely and send forms to the office server over satellite communications,” he explained. Vessels in the fleet have Inmarsat FleetBroadband (FB) services for voice, e-mail, text and data services, via FB500 terminals supplied by Satcom Global. The operational data has priority and is separate from the crew welfare services. Mr Woodage said some vessels in the fleet have unlimited FB data packages, while others have data restrictions. On all of the vessels, crew access to the Internet is controlled by Dualog. “It is important that business communications are uninterrupted and prioritised,” he said. “Most crew use the Internet to message friends and family. Some also have their own Internet accounts that they
Norbulk’s superintendents can access fleet documentation through the cloud-based integrated management system (IMS)
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70 | PRODUCT TANKERS operations
can access in ports over wireless connections.” He said the shipowners control the investment in satellite communications and make any decision about upgrading to VSAT or Inmarsat’s Fleet Xpress. Norbulk has deployed ecdis on all of the tankers it technically manages, and has invested in training facilities and online courses. It has training simulators in its Latvian office, and uses Safebridge’s online ecdis courses to teach specific operations. Ecdis implementation and training was challenging because of the different vessels and models within the diverse shipping fleet, said Mr Myles. “We have not been able to standardise across the managed fleet, as there are several owners. So ships have different equipment on board,” he explained. These are mostly ecdis models supplied by Transas, Furuno Electric and Navico. “We tried to standardise the generic training with Transas, but the type-specific training needs to be on different models. The solution was to use
Safebridge’s online courses for officer familiarisation learning,” he said. Mr Myles said the transition to ecdis had not been smooth. “There were some navigation issues at first, but this has decreased over time. Nothing has been flagged up by the internal audits,” he added. Norbulk wrote and updated procedures and checklists to be followed by the bridge teams for more effective ecdis operations. Superintendents can also provide technical support from the shore. “For example, we included what the alarm settings should be, and we set out the parameters that should be included. We have checklists of what should be checked during a shift change. The crews have been very receptive to the implementation of ecdis,” he commented. Norbulk and its tanker owner clients have seen the cost benefits of using ecdis. “Using ecdis is less time-consuming, especially for keeping charts up to date,” Mr Myles said. “It is easy to get a licence and upload ENCs. There is less printing because we do not need to send out paper charts and notices to mariners.
“There were some navigation issues at first, but this has decreased over time. Nothing has been flagged up by the internal audits”
It is all done electronically. All this should help crew get more rest hours, and give navigators time to look out of the window instead of spending time in the chart room.” He said ecdis and ENCs were more precise than paper charts, especially when it comes to updated corrections. There is also less need for whole folios of paper charts. “The paper chart system was labour-intensive and difficult to manage, and buying a whole folio set was expensive,” he added. Norbulk is considering investments in conditionbased maintenance (CBM) on its tankers. Marine engineer Jamal Ghotbzadeh said that CBM should reduce machinery failures and tanker downtime. It can also reduce maintenance
costs: “CBM should prevent unnecessary refits and overhauls. A planned maintenance system may call for maintenance on a piece of equipment, but the CBM would recommend leaving it alone.” He continued: “The aim is to find the right time to conduct maintenance by gaining prior warning from the equipment before failure occurs. CBM can improve reliability. For example, bearing wear can be reduced. With CBM we can predict what problems are coming, improve performance and minimise downtime.” Mr Ghotbzadeh added that vessel monitoring can include vibration, oil, thermal and ultrasound analysis, as well as engine performance tests.
TANKER OWNERS INSTALL SEA IT TECHNOLOGY Sweden-based Sea IT has gained a host of contracts to upgrade IT and communications systems on product and chemical tankers. Since the beginning of this year, Sea IT has secured orders from Donsötank, Ektank, Veritas Tankers – and a big one from Maersk Tankers. Each of these orders involves deployment of Sea IT’s BlueCore connectivity platform that enables tanker owners to connect their vessels to onshore IT networks. For Donsötank, Ektank and Veritas Tankers, the arrangement also includes the BlueConnect satellite communications service, including maintenance of the onboard IT and communications systems. The largest order was for BlueCore on the Maersk Tankers fleet of more than 100 vessels, which is set to begin this year. It should be completed in 2017. Maersk Tankers IT governance and project portfolio manager Thomas Landwehr said the company would be able to integrate the IT from all its separate departments to improve operations. “With our version of BlueCore on board, we can regard our fleet as remote office locations with real-time, online access to our internal applications. It is a cost-efficient, modular platform that supports our business objectives,” he said. TST
Tanker Shipping & Trade | April/May 2016
Maersk Tankers will use BlueCore IT on its fleet of ships
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terminal operations PRODUCT TANKERS | 73
Fujairah:
a constantly growing hydrocarbon hub As the third-largest oil storage and petroleum products trading centre and second-largest bunkering port in the world after Singapore, Fujairah is growing at an impressive rate and aims to become the leading global oil hub, says Malek Azizeh*
F
ujairah offers the trading community a one-stop-shop of products and services, where you can bunker, trade and maintain your vessels. It is commercially designed with the following in mind: the transfer of products (ITT) among the various independent terminals, complete flexibility for traders to buy and sell under the Freezone umbrella, the ability to purchase bunker fuel for the purpose of refuelling,
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crew changing, medical services, ship maintenance and ship supplies. In 2015, as a result of growing volumes through the port, the Port of Fujairah set a new record of 50 million tonnes of refined products throughput. This has helped position the region as the third-largest oil products hub globally. Its location close to the Strait of Hormuz, the world’s most important oil transit chokepoint, reinforces its importance. Additionally, the continued focus on diversification in Fujairah is resulting in investments in the downstream sector, including product specialty chemicals, bitumen and biofuels refineries, and chemical storage. In 2012 ADNOC commissioned its 8-million-barrel terminal in Fujairah to use as a receiving point for Murban crude, coming from the heart of UAE through the 400km Habshan pipeline. It is designed to transport up to 1.5 million barrels of this sweet crude, which translates to about 60 per cent of the UAE crude oil production being exported through Fujairah, when fully utilised. Fujairah Oil Terminal FZC (FOT) is the first independent third-party crude oil terminal to offer commercial storage to crude oil traders. FOT is owned by China’s Sinopec (50 per cent), Australia’s Prostar Capital (40 per cent) and the Government of Fujairah
(10 per cent). FOT is considering expansion options and is evaluating the future market outlook to build the most suitable tanks for the future. As crude storage and throughout volumes are gaining momentum, due to ADNOC’s large crude storage facility (8 million barrels) and the Port’s considerable investment in VLCC berths, many terminals in Fujairah are considering building crude tanks instead of the traditional refined products tanks, which make up the majority of Fujairah’s current capacity. A new refinery will be coming into operation. A Vopak project will be commissioned imminently. IPIC has announced the building of a 200 kbd refinery. Following the lifting of Iranian sanctions, oil traders will be looking to supply and receive products from Iran. As a result, there will be even more demand for storage in Fujairah. Gasoline will be blended to specs ready for export. Fuel-oil importation will add to the existing pool, which is in high demand considering the large bunkering market in Fujairah, which is estimated to be about 1 million metric tonnes per month. TST *Fujairah Oil Terminal commercial director Malek Azizeh spoke on day one of the Tank World Expo 2016 Conference
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74 | PRODUCT TANKERS business
LATIN AMERICAN DEMAND IS BOOSTING US EXPORTS FOR NOW THE US HAS BENEFITTED AS REFINING IN LATIN AMERICA HAS STRUGGLED TO PRODUCE SUFFICIENT PRODUCT TO MEET ITS OWN NEEDS*
T
he Energy Information Administration (EIA) says exports of the main clean products (gasoline, diesel, jet and naphtha) increased by over 170,00 b/d to 2.15 million b/d. While exports of most clean products increased, gasoline and diesel led the way, accounting for 140,000 b/d of the total increase. Much of the increase was absorbed by traditional markets, namely Latin America and Europe. The European market has become increasingly competitive as Russia, the Middle East, India and even China flood Europe with products, but the US still dominates in Latin America. In Venezuela, many refineries have at times seen utilisation rates of just 50 percent because PDVSA lacks the cash to carry out maintenance and upgrades. Investment in new capacity has been slow, with just 130,000 b/d due between 2018 and 2020, although given the economic situation in the country, delays seem almost inevitable. Much hope had been placed on Brazil as the economic powerhouse of the region, yet the downstream sector has been plagued by major delays. While Brazil has started production at its Abreu e Lima refinery, only one of the 115,000 b/d refining units is operational, with the other not slated for start-up until at least 2018. Brazil’s next major project, Comperj, is unlikely to be delivered until at least 2021. Elsewhere in the region, capacity additions are small scale. Mexico, one of the largest importers of US products, has a 40,000 b/d project planned for 2019. Peru has a 33,000 b/d project planned for the same year. Other developments in the region focus on small projects delivering after 2020. Colombia has a 50,000 b/d project and Costa Rica a 65,000 b/d one. While capacity additions are fairly small, weak economic growth and higher local production of biofuels could see the stalling of demand growth for refined products in Brazil. But in the short term, Brazil may need to bolster its product stocks ahead of this summer’s Olympic Games, something that was evident during the 2014 FIFA World Cup. Elsewhere in the region, while capacity additions are limited, the IEA predicts that such additions are likely to keep pace with demand growth, which may limit the potential for US product exports to the region. It is likely, though, that imports will exceed expectations if any existing projects face additional setbacks, outages increase or biofuel production falls below expectations. Latin America will remain an important outlet for refined products, particularly from the US. But the US may have to work harder to defend its presence in the region as producers in the Middle East and India seek to expand their market share of emerging markets. Nevertheless, despite the lifting of the crude export ban and the narrowing of the Brent/WTI differential, the US is expected to remain a formidable
Tanker Shipping & Trade | April/May 2016
refining centre owing to relatively sophisticated facilities and access to cheap gas, not to mention its close proximity to Latin America and the newly expanded Panama Canal. As such it will remain a challenge for refiners from further afield to compete in the region. TST *Source: Gibson’s Weekly Tanker Report dated 1 April 2016
US CPP PRODUCT EXPORTS Finished gasoline
Gasoline blending components
Distilates
Jet-Kero
Naphtha
Total CPP
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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76 | LAST WORD
MARKET PROSPECTS FOR THE YEAR OF THE MONKEY Respected investor Wilbur Ross shared his thoughts on the outlook for tanker trades at March’s Capital Link event in New York Photo credit: Chris Preovolos
W
ith 2016 being the year of the monkey, it is certainly appropriate to cast China as the 600lb gorilla in terms of its stature and influence in the world economy and shipping. But this ape is not very happy. Growth in China has declined a lot. We think it is now – at best – 4 per cent, though the government is claiming higher rates. Interestingly, the anticorruption commission is investigating the head of the country’s statistics agency. My guess is he will be purged, and the official data revised downward closer to our estimates. But China has been, and will continue to be, supportive of liquid cargoes. Oil imports were up 8.8 per cent year-over-year in 2015, mostly for transportation use. This sector continues to grow rapidly. The reason is that the Chinese bought 24 million new vehicles last year, a 9.4 per cent increase on the previously outstanding fleet of 253 million. Air travel miles grew by more than 10 per cent. Both figures are forecast to grow at the same rate this year. In addition, China added to its strategic petroleum reserves last year. It plans further increases through 2020 until reserves equal 90 days of consumption. Even more interestingly, China has become a net exporter of petroleum products. Refineries there processed 10.8 million barrels per day on average last year, up 28 per cent year-over-year. November’s net exports were 6.8 million barrels and December’s net exports were 9.3 million. This is good news for both crude and product tankers because all the crude comes in on tankers and the exports go back out on product tankers. A similar phenomenon is occurring in India, where more refining capacity will come on stream in the next few years. Meanwhile, in
Tanker Shipping & Trade | April/May 2016
terms of both crude and refined products, US demand for imports has been strong. Our imports of gasoline, for example, rose by 20 per cent in 2015 because miles driven increased sharply as gasoline prices declined, and people bought larger, less fuel efficient vehicles. No one really knows the full extent of conventional storage, but floating has ranged between 150 million and 180 million barrels during 2015 (the capacity equivalent of 75-90 VLCCs). Until Iran’s oil expansion is absorbed and until inventories drop to more normal levels, we believe that oil prices will remain low, probably through this year and into 2017. That will mean continued good supply, but there will be periodic periods of excess supply due to the bunching of deliveries. Though tanker rates may slip a bit in the next year or two, overall the environment should be excellent. Whether it goes on for longer depends largely on whether tanker owners have learned that all of us would be better off by avoiding going on buying binges just because rates have been strong for a year or so. The only real danger shipowners face is their tendency to over-order. In fact, the math of newbuilding does not really work very well in today’s market. The world is in its seventh year of recovery from a recession and is struggling to avoid slipping back. Eighteen months from now, when vessel orders placed today would be launched, there are high odds of the fragile developing and developed economies being in a weak spot. Last time around the new eco demands provided a reason, or at least an excuse, for newbuilding because bunker costs were so high. But this is no longer true. Anyone who has a burning desire to put more money into shipping would do far better to invest in the stocks rather than to order new vessels. TST
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