Survival of the fittest
27th November 2012 14:15 GMT

These are nervous times for shipping and bunker suppliers.  A prolonged period of weak freight rates combined with rising fuel prices have taken their toll on many shipping companies, causing several to collapse while others are on the brink.  We hear that banks are increasingly shunning the shipping sector, and bunker providers are afraid to extend credit to financially weak companies. 

This fear of bad debt could become a viscous circle that may push some struggling companies over the edge if banks lose patience and bunker suppliers demand payment up front for fuel.  The companies most in need of support are least likely to get it, while those that appear solid could also have the advantages of better credit terms and loan conditions.  

Pressure on profitability due to high bunker prices, and upcoming regulations, has seen interest in fuel efficiency surge .  We have heard instances of ships that are not very fuel efficient being sold for scrap.  Examples of differentiation in charter rates have also been reported, and there is a huge focus on fuel efficiency in all newbuild plans.  There is also a lot of interest in retrofitting or using fuel-saving technology, though some say uptake is not that great. 

There can be several reasons, including lack of faith in the claims made by those offering fuel-saving solutions, or simply a lack of interest from some owners.  The current economic climate is perhaps the biggest obstacle, as banks are reluctant to extend loans to shipping even if the return on investment for fuel saving measures seems obvious. 

We might be looking at a scenario where those who can afford investing in the best available technology to save on fuel and thereby protect or boost their competitive edge will do so, while those who cannot afford it risk falling further and further behind, owning ships that are less competitive and less attractive for charterers.

We have a similar situation with regards to emission reduction options for complying with a 0.10% sulphur limit in Emission Control Areas (ECAs) from 2015.  Scrubbing technology is being proffered as a more cost-effective alternative than paying for more expensive distillate fuels for ships spending a lot of time inside ECAs; another alternative is operating on liquefied natural gas (LNG). 

Both options have drawbacks, including substantial investments upfront, which is not the case for ships simply switching to distillates when the time comes.   Additionally, there is an element of risk in making such investments due to uncertainty about the suitability and reliability of scrubber systems and availability and future price trends for LNG.

Many expect this climate to cause a shakeout, with weaker players going under or being absorbed by those with means.  It could prove a great time to invest for those that can afford to, picking up distressed assets at rock bottom prices.  This could prove to be a time for Darwinism, where weakened species find their ability to compete being further undermined, while the strongest lay the basis for becoming even fitter.

*This text first appeared as a Commentary in the May/June 2012 issue of the Bunker Bulletin, the bi-monthly Bunkerworld magazine.

Unni Einemo,
27th November 2012 14:15 GMT

Comments on this Blog
Heinz Otto
11th December 2012
Hi Unni,
thanks for your analyse, to find the fittest in the shipping world. It seems, that the fittest will be a new generation, coming from the renewable energy thinking. the old ones are prisoners of the hope, that scrubbers or LNG will be the solution, but this might be only a small step with burning a lot of money, instead of changing the system. And this means, to use the wind again, check , ,
WHY? check . The shipping-world is the 6. biggest polluter of GHG !!!
regards, Heinz Otto,
Unni Krishnan
29th March 2014
There is some concern about the potential marine impacts of contaminated sea water discharged from scrubber systems, but the sea already has a naturally high concentration of sulphates ........
I think use of low sulphur fuel can be substituted by the installation and use of sea water scrubbers.
Ultimately use of LNG will reduce SO2 and Co2 emissions....
Mukul Ghildiyal - Rederi AB TransAtlantic
1st April 2014
Unless the price of HFO goes up significantly, commercial pressure will always find the most economic solution. The economic solution at present is HFO plus scrubber and not distillate fuels unless you are a small vessel engaged spending a significant part of your time in the SECA area.
The other solution for a greener planet is by bringing effciency in all transport modes. This means that the transport capacity has to be utilised to its maximum i.e no empty ships,trucks,trains,airplanes. High tax on ships that use too much fuel while do very little work in moving cargoes. All trade lanes should have an index ( gm fuel per ton/nm) and anyone exceding that is penalised. The highest penalty being for a ship coming to a port in ballast. Ships that operate below the trade lane index should be rewarded by lower port tariffs.
Unless the focus is put on the whole supply chain in an uniform way we will create a lot of uncertainity in all modes of transport. I often travel on a train which is half empty-is it efficient economically or good for the environment? A truck moving with full load into a country should not pay any tariff but, if entering empty should be subject to maximum penalty.
The market based mechanism of IMO needs to be developed to set limits on the release of harmful gases into the atmosphere. The more you pollute the more you pay. This measure alone will reduce the use of fuels that pollute more than others and prevent wrong investments in technology that does not work. Oily water separators and oil content meters are good examples of regulatory measures that did not work for a good 20 years or so. If the rules suggest a technology then it should work without the shipowner or crew having to spend most of their time tweaking the equipment and being worried for PSC when it fails due to no fault of theirs.

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