Shipowners still looking to install scrubbers on their vessels face delays past the 2020 deadline for complying with low-sulphur emissions rules, market experts say.

In a Stifel-hosted conference call, DNV GL environmental head Stine Mundal says there has been a significant uptick in the number of owners placing orders to retrofit ships with scrubbers ahead of the International Maritime Organisation deadline for 0.5% sulphur emissions from ships.

“If you would like to go for scrubbers, you really should have decided yesterday because the main makers are getting quite full orderbooks,” Mundal said.

The cumulative number of ships with confirmed scrubber orders through 2020 is currently 873, Mundal says, up from 346 confirmed ships at the end of 2017.

“It’s really increasing month-to-month,” Mundal said.

Scrubbers found their first home on cruise ships and ferries due to their frequently operating within emissions control areas.

But Mundal says the business case for scrubbers is making sense for a wider variety of commercial shipping. Bulkers, tankers and boxships now make up 60% of confirmed scrubber orders.

“We see a drastic shift in which kind of ship segments that are going for scrubbers because we are approaching 2020 and also because the market is more open to this technology and less afraid of it and are more uncertain of the fuel scenarios going into 2020,” Mundal said.

The three largest manufacturers of scrubbers – Wartsila, Alfa Laval and Yara Marine – have 70% share of the market. Mundal says these manufacturers are likely not able to accommodate new installations prior to January 2020.
But the 30-odd smaller manufacturers in the market may only have waits of seven to nine months for a new installation, Mundal says.

Ronnie Petersson, executive director of scrubber installer US-based Baltic Marine, agrees with the assessment that commercial shipping “has finally come around and is placing orders of scrubber systems.”

“That said, there is no way that all affected shipowners wanting to have a scrubber installed by 2020, will indeed have one,” he added. “We know that leading system providers like Wartsila, Yara, Alfa Laval, to name the top three, have reserved capacity to some preferred clients but it’s far from sufficient to meet demand.”

Baltec Marine is looking double its scrubber installation volume next year and “our order book is quickly getting filled with multi-vessel contracts for 2019 and beyond,” Petersson said.

“The industry has seen this coming for quite some time but it has taken longer than expected for the big shipowners and management companies to conclude their analyses and secure the necessary funds that comes with it,” Petersson said.

DNV and Baltec are not the only ones seeing tighter scrubber markets. Frontline Management highlighted that order slots for scrubbers may be a pressing issue in its June acquisition of a 20% stake in manufacturer Feen Marine Scrubbers.

In announcing the deal, Frontline chief executive Robert Hvide Macleod says the capacity to install scrubbers “will present a challenge to many owners as the deadline for sulphur emissions compliance approaches.”

Classification society Lloyd’s Register also recently said shipowners may be hard pressed to secure a scrubber installation ahead of January 2020.

Petros Pappas completes 40 years in shipping in December, having survived five major market downturns. The Greek owner is perhaps lucky the worst of them was the last, when he had enough experience to know exactly how to deal with the decline in business.

It was a delicate balancing act for Star Bulk Carriers, the New York-listed company where Pappas is chief executive and his family is a key shareholder.

Among moves aimed at soldiering through the downturn, the Athens-based company cut operating expenses — but not so deeply as to impair the trading capacity of its vessels. It restructured loans without hurting relations with its dozen or so banks.

Star Bulk renegotiated, delayed deliveries or cancelled newbuilding contracts, but managed to keep relations with yards on an even keel. And it put in new equity while keeping private equity giant Oaktree Capital Management — its major shareholder — onside.

It also sold 12 newbuildings to improve liquidity.

“That wasn’t an easy thing to do. We sold them at the bottom of the market,” Pappas tells TradeWinds in an interview at his Athens office. “But we needed to have more cash in the company and less obligations for the future.”

His efforts paid off and the dry spell seems to be over, putting the company back on an aggressive footing.

Star Bulk returned to profitability in the last quarter of 2017. This allows it to repay all its restructured debt in the second half of this year and then envisage paying dividends, once the time is ripe.

Emboldened by a positive market outlook and its improved financial situation, Star Bulk announced in April that it had acquired 16 vessels from Italy’s Augustea Holding. The all-share-and-debt deal re-established the company’s status as Wall Street’s biggest dry bulk company. In return, Augustea and York Capital will obtain a 14.1% share in Star Bulk, once the deal is completed.

Pappas and Augustea principal Raffaele Zagari have been close friends and business partners for years. “We discussed joining forces on several occasions,” says Pappas, pointing to the fact that the two men already had a joint venture outside Star Bulk. “This finally culminated now.”

Fleet expansion
Pappas says he is open for further expansion opportunities, provided they make sense — and just four days after this 10 May interview Star Bulk announced the acquisition of a further 15 ships from Songa Bulk for $145m in cash and 13.7 million Star Bulk shares worth $182m at the time. Star Bulk also said it intends to apply for a secondary listing of its common shares for trading in Oslo, where Songa Bulk is listed.

“What’s important is to increase the size of the company, to get more institutions interested in us and also increase our free float,” Pappas tells TradeWinds.

Oaktree has a 50.8% stake in the company that will fall after Augustea and York assume their 14.1% holding. The California-based private equity fund, which manages about $100bn in assets, has proved a reliable shareholder, sticking with Star Bulk throughout the downturn.

“Relationships are usually tested when the going gets tough and we had the best test there is. Oaktree has been a great partner up to now,” Pappas says.

“I remember when we started in 2014, the banks were very worried about a fund having more than 50% ownership of our company. But Oaktree proved during those years that funds can stand behind their investment.”

Pappas is not privy to Oaktree’s strategy for Star Bulk but is confident it is a long-term one. “I think this is 10-year money for them, plus a couple of years of potential options,” he says. “They’re very astute market players and I think they will exit through the stock market when the right time comes.”

That moment is still some way off, according to Pappas, who believes the dry bulk recovery still has legs. “I’m bullish for the next three or four years,” he says.

As with most market participants, he estimates demand will exceed tonnage supply for the next couple of years. More interestingly, he expects environmental regulations starting in 2020 to breathe new life into the market.

Bunker costs will rise as expensive low-sulphur fuel becomes mandatory. This, in turn, should lead to slow steaming and decreased tonnage supply. “Every knot of speed decrease cuts supply by between 5% and 7%,” he says.
Vessels will not just sail more slowly come 2020. There will be fewer of them as owners dry dock ships to clean tanks and install scrubbers or new ballast water treatment systems. “All that will create off-hires and inefficiencies,” Pappas says.

Scrapping should also increase, but Pappas says that it will not be “as much as some people expect, but more than what we see today”.

Over-ordering fears
These favourable trends do not mean shipping is about to shake off some of its bad habits. As market prospects brighten, dry bulk owners are bound to over-order again. “This will eventually happen, but the orderbook will not hit the market before at some point in the period between 2020 and 2022,” Pappas says. “We can enjoy the good ride until then — but there is a major risk that we will shoot ourselves in the foot once again.”

A new down cycle would probably be sparked by overbuilding in combination with any signs of slowing Chinese iron-ore imports. “That’s what I’m afraid about, but not immediately. More like in four to five years from now,” Pappas says.

Calls for protectionist measures issued by policymakers such as US President Donald Trump are also a threat. “Because Trump is a businessman, I hope he’s bluffing. But I wouldn’t bet on it.”

Star Bulk, in any case, is not about to spoil the market by over-ordering. It took delivery in May of its last two newcastlemax newbuildings, which are being fitted with scrubbers. “We’re not going to order any more newbuildings,” Pappas adds.

He is also active in tankers and containerships but has been reducing those activities to concentrate on Star Bulk. “My first priority is how Star Bulk does,” he says.

In cooperation with Oaktree, Pappas has already wound down his presence in the containership segment. His Oceanbulk Containers used to manage eight large modern boxships and had five under construction. Over the past couple of years, he profitably sold the entire active fleet. Newbuildings were cancelled or converted into newcastlemax bulkers and sold on to Star Bulk.

Pappas and Oaktree were attracted to the segment in 2013 by the prospects of new, fuel-saving eco-type containership designs. “We had great expectations, but unfortunately this market is an oligopoly,” Pappas says. “After we ordered, there was a deluge of ordering, which basically created an oversupplied market.”

The investment, however, was overall profitable: “I can’t complain. We got a double-digit internal rate of return at a time when most containership companies were losing a lot of money.”

Pappas is not planning any major initiatives on the tanker side, where his Product Shipping & Trading (PST) manages 18 product tankers. Oaktree owns about half of them as a joint-venture partner.

“This market should improve, sooner or later,” he says, mainly because the world will need more distillate oil products from 2020.

Secondhand prices have not fallen enough to spur him into buying, however. And ordering newbuildings is not PST policy. “I don’t think this market needs newbuildings for a while, whether we talk about dry bulkers, tankers or containers.”

Pappas expresses satisfaction at the IMO’s decision to reduce shipping’s carbon emissions by at least half by 2050. “I think cutting by 50% will be feasible. I’m not sure we can go much higher than that by 2050,” he says.

Much of that target could be achieved instantly, if vessels start slow steaming, he notes, reflecting an increasingly popular view among Greek shipowners. A speed reduction of 15% might end up cutting emissions by about 28%, he calculates. “That would go down very well with environmentalists. It’s one of the rare occasions where green lobbies and shipowners will go hand in hand.”

If it proves too costly or difficult to monitor the entire global fleet, monitoring could be randomly applied to vessels, Pappas suggests.

However, he has no illusions about his colleagues voluntarily sticking to such a deal.

“It would have to be mandatory, there’s no other way. As soon as you reduce speed, tonnage supply falls and charter rates go up — and the minute rates go up, it pays for owners to increase speed again.”
He wants non-compliance sanctioned with stiff penalties.

“I’m not sure whether an average or an absolute maximum speed limit should be set. But whatever it is, if somebody exceeds it without very good reason, penalties should be severe,” he adds.

Singapore (Platts)–18 May 2018 213 am EDT/613 GMT

International shipping is coming under increased scrutiny due to its role in global environmental emissions. S&P Global Platts had an exclusive opportunity to interview Kitack Lim, Secretary-General of the International Maritime Organization, recently to address some of these concerns.

Why has it taken so long for shipping to implement emissions regulation compared with other industries?

First, it’s important to clarify that shipping is regulated by governments, through the International Maritime Organization. Shipping has been subject to increasingly tighter, more comprehensive emissions regulations for over 20 years since a new annex covering air pollution was added to MARPOL, the main convention on pollution from ships, in 1997.

This annex has been widened and strengthened. Today, it regulates a whole series of harmful emissions from ships. Amendments adopted in 2008 actually made shipping the first industry to be globally subject to binding international regulations to control greenhouse gas emissions, and these too, have been strengthened in subsequent years.
If serious problems with implementing the sulfur limit rule become apparent in early 2019, would you advocate putting it on hold temporarily?

At this point, the regulation which brings into force the 0.5% limit in sulfur in fuel oil from January 1, 2020 (outside designated emission control areas where the limit is already 0.1%) cannot be changed from a legal perspective, so there is no possibility of delay.

An inter-sessional group under the auspices of the Sub-Committee on Pollution Prevention and Response is meeting in July to develop some very detailed guidance on implementing the 0.5% limit.

This will include guidelines on preparatory and transitional issues, relating to how ships can prepare for implementation, including relevant time schedules; impact on fuel and machinery systems resulting from new fuel blends or fuel types; verification issues and control mechanism and actions, including port state control and in-use fuel oil samples; a standard reporting format for fuel oil non-availability; and safety implications relating to the option of blending fuels.

The Working Group will report directly to the Marine Environment Protection Committee in October, on the development of ship implementation planning for 2020.

Will the carriage ban on HSFO for ships without scrubbers be enough for effective compliance to the rule; does the IMO propose/plan other measures to ensure this?

This will be one measure that will be important in terms of ensuring consistent implementation of the 2020 sulfur limit.

MEPC 73 in October is expected to consider, with a view to adoption, the draft amendments to MARPOL Annex VI to prohibit the carriage of non-compliant fuel oil for combustion purposes for propulsion or operation on board a ship.

In terms of whether this will be “enough”, we have seen over the years that the maritime industry and maritime administrations have been able to cope with the entry into force of new regulations.

Member states have also shared experiences of implementing emission control areas.

Of the 172 member states, only about half have ratified Annex VI. Will this pose hurdles in compliance?

To date, MARPOL Annex VI has been ratified by 91 parties who between them represent 96.89% of world merchant shipping tonnage. So the majority of tonnage is covered by flag states that are party to the regulations. The parties also represent a large proportion of trading states.

If a ship from a “non-party” state trades to a party, it will need to be compliant. Given the broad acceptance of the regulations in tonnage terms, we should see correspondingly broad levels of compliance.

It is also worth noting here that IMO regulations are applied to all ships. Furthermore, the principle of non-discrimination and the principle of no more favorable treatment is enshrined in MARPOL and other IMO conventions.

So the number of parties to MARPOL Annex VI should not pose a hurdle to compliance.

ISO is going to provide guidance on 0.5% sulfur compliant marine fuels specifications. Does the IMO have any view on this?

IMO’s MEPC requested ISO to consider the framework of ISO 8217 to ensure consistency between the relevant ISO standards on marine fuel oils and the implementation of the sulfur rule.

At the last MEPC session, ISO provided information regarding the development of ISO Publicly Available Specification — PAS 23263. The Committee has invited ISO to keep it updated on the progress.

Are regulations coming up to address NOx, particulate matter emissions?

When it comes to nitrogen oxides, on January 1, 2019 we will see the entry into force of Amendments to MARPOL Annex VI to designate the North Sea and the Baltic Sea as ECAs for NOx under regulation 13 of MARPOL Annex VI. Both ECAs will take effect on January 1, 2021, thereby considerably lowering emissions of NOx from international shipping in those areas.

Black carbon is also being considered by the PPR Sub-Committee. IMO has been looking at how to measure and report on black carbon emissions, as part of its work to consider the impact on the Arctic due to such emissions from international shipping.

— Surabhi Sahu, surabhi.sahu@spglobal.com
— Jack Jordan, jack.jordan@spglobal.com
— Edited by Irene Tang, irene.tang@spglobal.com

Capesize bulker earnings soared to the highest level in almost five months on buoyant fixing activity, with healthy iron ore demand in China pulling in cargoes from Western Australia and Brazil.

The segment outperformed its smaller counterparts last week, with the strength in the market reflected in the Baltic Capesize Index, which jumped to 2,630 points on May 11 from the previous week level of 2,337 points.

The weighted time charter average also improved significantly, up by 13% on week to close at $20,684 per day.

Braemar ACM said in its weekly report that the rise in bunker prices from China and Singapore promotes a greater reluctance from owners to ballast longer distances. What is more, the spread between C5 route and C3 route is narrowing, with ship owners potentially getting a premium for shorter duration compared with the longer duration.

“If this trend maintains, we can anticipate a further push on freight rates in the near term,” it added.

On the benchmark route between Western Australia and China, C5, rates were up 10.1% at $8.4 per tonne.

For the C3 route from Tubarao in Brazil to Qingdao in China, the rate climbed to $19 per tonne from $18.42 last Friday.

Meanwhile, Chinese steel production has been stronger than expected this year, with production in March reaching 74m tonnes, Maritime Strategies International estimated.

In 2017, monthly Chinese steel production surpassed this level on only two occasions, in July and August, indicating that 2018 is set to be another year of Chinese production growth, the shipping consultants said in its dry bulk freight forecaster.

What is more interesting is that domestic iron ore production in China continues to decline. In the first quarter of this year, iron ore production was down 36% year on year.

China’s domestic iron ore is generally very low grade and requires significant beneficiation and therefore is heavily polluting. The focus towards higher efficiency in addition to reducing pollution are the main reasons for Chinese mills and traders to have a strong preference for imports.

MSI expects iron ore imports in China to pick up in the near term as weather disruptions in Brazil come to an end.

With the ever-increasing demand for cargoes, together with a tight availability of ships and limited deliveries at least until next year, a Hong Kong-based broker said this week’s breaching of the $20,000 per day barrier was only the start of record earnings for capesize operators.

“While the market would show its traditional summer volatility, with fluctuations on a weekly basis, overall the only way was up — at least for the next few months,” he said.

In 2016, Bloomberg reported on a secret plan by Amazon to move into the shipping field. The plan was code-named ‘Dragon Boat’ and envisioned the global commerce firm owning the supply chain from the factory to the consumer.

Dragon Boat was first mooted in 2013. However, Amazon chief financial officer Brian Olsavsky toned down the narrative at the time, claiming that Amazon “was simply looking to supplement its delivery partners – not replace them – during peak periods like the Christmas shopping season”.

Since the Dragon Boat story broke, there have been no reports of vessels ordered by or delivered to anyone other than its existing carriers. The lack of activity implies that either the secret Amazon plan never existed or it was shelved and delayed. But what if the disruption threat to shipping comes not from a major new competitor like Amazon, but instead, from more general technological effects?

In a recent interview with Fairplay, Blockchain Labs for Open Collaboration (BLOC) chief executive officer Deanna MacDonald warned of the risk to traditional shipping presented by new technologies, the lack of understanding within the industries these technologies are serving, and the absence of concern within shipping to the looming existential threat.

According to MacDonald, the danger exists because the industry is fragmented, with an abundance of different IT and reporting systems. At the same time, she noted that “this is why it is such a great opportunity for shipping to come together”.

There has also been a failure to apply digitalisation to the real world, not only within shipping, but within the global economy, which indirectly affects it. As Danish Ship Finance research head Christopher Rex said in a recent client note, “In today’s market, the hardware of the industry is increasingly becoming a commodity. Modern vessels offer little opportunity for differentiation. However, the data they generate may prove extremely valuable. The value of the data may not reach its full potential until it is turned into proper intelligence by combining it with other sources.”

Rex predicted that next-generation vessels are “likely to be super-connected assets”. In addition to driving uses, such as predictive vessel maintenance, real-time data could lead to more profound changes involving trading decisions. “The industry essentially needs to digitalise and develop an additional layer of revenue that is powered by the data generated by trading the vessels,” said Rex, who believes that in the coming years, this data could be more valuable than the assets themselves.

According to BLOC, collaboration will be the key to developing the systems that will benefit the industry in the future. Shipowners can be in competition in the same digital infrastructure in the way that owners already compete for cargo, but “the only way to succeed is for your competition to be in the same digital space”, MacDonald argued.

The first thing that needs to change is the mentality of those involved in shipping – to a more collaborative approach. “Each company is competing for the crumbs within the cargo-carrying industry, while conglomerates eat the whole pie,” MacDonald said.

Rex put it another way. “Trade data fuel the algorithms that provide insights into markets, customers, and business processes. The shipping industry should increasingly treat data as competitive advantages. But data without a context carry very little worth. Data need to be shared, used, and combined to unlock value,” he said, pointing out that shared data could offer an “early indicator for the underlying global economy, which can be used in multiple contexts, not just related to the shipping industry”.

Collaboration on this scale is not entirely unheard of in shipping; today’s alliances represent one example. Nevertheless, the idea of sharing commercially sensitive data with competitors has been, and still is, anathema to most owners. It is a leap of faith that BLOC is asking the shipping industry to make.

“A major benefit of being sponsored by the Lloyd’s Register Foundation [BLOC is receiving funding for the launch of its Maritime Blockchain Labs from Lloyd’s] is that they see the value in collaboration and education,” MacDonald said. “Some 95% of shipping companies are small- to medium-sized players and they don’t have the economies of scale of the bigger players in the space. While [the smaller players] see the value of having the bigger players at the table and are keen to negotiate a path forward, the larger players generally don’t need the smaller actors in the same way,” she said.

“The potential of a technology such as blockchain, [which] allows direct peer-to-peer transactions, affords small actors the same opportunities as their counterparts, while disintermediating their largest costs – the brokering of trust and communications in the maritime space.”

MacDonald acknowledged that blockchain can offer an opportunity to transform the maritime space only if it provides a global and accessible digital infrastructure to which all players can connect. So far, that is not happening. What is now emerging is a landscape of competing blockchains. The solutions that are being built are unlikely to be compatible with one another unless interconnectivity is addressed.

Maersk and IBM are working together on the Hyperledger blockchain for end-to-end documentation. DNV GL is building its solution for flagging and classification on the VeChain blockchain. BlockShipping has created a fundraising token on the Ethereum blockchain.

Some of these blockchains are open, some are private, none of them have standards, and no one has come together to talk about how their solutions will be interacting with one another, MacDonald said, explaining that “information comes in from many different sources so the challenge remains to take these different inputs and send out the same output – a classic problem”.

Contrary to the current popular narrative, blockchain solutions do not inherently solve these challenges. Devices linked to the Internet of Things each provide their own communication outputs, enterprise reporting systems vary across the industry, blockchains are coded in different languages, and each platform will emerge to fulfil specific needs. “Interoperability is necessary and we can begin to account for this through open collaboration between blockchain practitioners and industry actors in order to source industry needs and processes, discuss best practices, as well as lessons learned, and to share use cases and systems design,” she said.

BLOC is agnostic to the technology used, so long as it provides a solution that addresses the needs of the industry and is interoperable with existing legacy systems. The company intends to document the new business models and value chains created, as well as their successes and failures, to serve as the basis for industry education and collaboration.

BLOC’s aim is to connect the dots, create events that will allow blockchain users to collaborate, and lead by example through building pilot projects aimed at applying the technology in industrial settings that “build a bridge between the digital and physical worlds, one that is secure and tamper-proof”, MacDonald said.  

Thai owner seeing the positives as first quarter turns profitable.
May 4th, 2018 07:58 GMT
by Gary Dixon
Published in DRY CARGO

Thai owner Precious Shipping says bulkers are now firmly off life-support after a first-quarter improvement in earnings.
Net profit to 31 March was $3.43m, from a loss of $1.74m a year ago.
Daily ship earnings came in at $10,965, 28% higher than in 2017.
Revenue was up at THB 1.09bn ($34.42m) from THB 1.06bn, while costs dropped to THB 795m from THB 905m.


Precious Shipping reports first quarterly profit since 2014. Daily operating expenditure was $4,482, marginally lower than its target of $4,500.

Managing director Khalid Hashim said: “When we look back at 2017, it was a year that started with the industry being on life-support and by the end of the year the patient was fighting fit and profitable in most cases.”
He cited Clarksons figures for ton-mile demand growth during 2017 as averaging 5.1%, versus a net increase in tonnage supply of 2.93%.
“This confirms our opinion that the dry bulk supply-demand equation is very close to balance,” Hashim added.
“The prognosis for ton-mile demand growth in 2018 seems to have improved since the start of the year with Clarksons having revised their estimates upward from 3.5% to 3.8%.
“At the same time, we remain reasonably confident that net growth in tonnage supply will not exceed 2% this year.”
He said the company expects a similar favourable demand-supply gap outcome for 2019.

With the International Maritime Organization’s global sulfur cap deadline looming, low sulfur fuel oil appears to be the most ‘palatable’ solution, according to Thailand’s Precious Shipping Company Limited (PSL).

“Scrubbers, an out dated technology are being thrust on ship owners as a costly solution when the option to burn low sulfur fuel oil is on the table,” the dry bulk shipping company said in its quarterly report.

Of the 95,000 plus vessels that need to comply with the new legislation, less than 0.30% of ships were scrubber fitted/ready at the end of March, the company said, adding that “even if the scrubber fitted/ready ships figure trebles by the time we reach January 1, 2020, it will be just 1% of the existing world fleet of about 95,000+ ships.”

With such a low number of potential clients, oil majors are not likely to continue to produce high sulfur fuel oil when the prospects for sales of the same are going to be so limited, PSL said.

The oil majors would have to invest in dedicated pipelines, storage tanks and bunker delivery vehicles like tankers that would be solely dedicated/doing the dirty high sulfur fuel oil trade should they chose to produce and sell HSFO, it said.

“This looks like a classic case of too much investment for too little, and very uncertain, returns,” the company said.

SLOW STEAMING, SCRAPPING AHEAD

Ship scrapping has been very disappointing with just 1.71 million deadweight tons of ships being scrapped during Q1 2018 across all sectors in the dry bulk market as compared to 4.99 million dwt in Q1 last year, the company said.

“The existing age profile of the world fleet together with regulatory pressures (ballast water management and clean oil) should result in the world dry bulk fleet growing at a slower pace which will help redress the imbalance between supply and demand,” it said.

While LSFO is likely to be the predominant fuel of choice, it is expected to cost much more than the current cost of HSFO, the company said.

The simplest way to curtail costs would be to reduce consumption via reducing speed, it said.

“Reducing speed from 12 knots to 10 knots would effectively remove 17% of dry bulk shipping supply overnight,” it said.

Ships older than 15 years of age, comprising about 142 million dwt or 17% of the existing fleet would come under maximum pressure and would become ideal candidates for scrapping, as their older engines are not able to burn LSFO.

“In 2020, you are going to have a supply shock either through slow steaming of the entire fleet or a combination of scrapping of some of the older ships and the balance of the existing fleet slow steaming,” it said.

PSL posted a net profit of $3.43 million for Q1 2018. The dry bulk shipper had 36 ships on the water as of December 31, with an aggregate capacity of 1,585,805 dwt.

–Surabhi Sahu, surabhi.sahu@spglobal.com

–Edited by Alisdair Bowles, newsdesk@spglobal.com

http://www.platts.com/latest-news/shipping/singapore/precious-shipping-says-low-sulfur-fuel-oil-most-26955145

Thai bulker operator sees low fleet growth and healthy demand expansion this year and next.
Having flipped into the black in the first quarter, the company is unfazed by threats of looming trade wars, according to managing director Khalid Hashim
04 May 2018

NEWS
Max Tingyao Lin
@MaxL_lloydslist tingyao.lin@informa.com

Trade tariffs may actually benefit tonne-mile demand by extending shipping distance, says company

PRECIOUS SHIPPING MANAGING DIRECTOR KHALID HASHIM HAS STRONG FAITH IN MARKET RECOVERY.

PRECIOUS Shipping has forecast healthy supply-demand fundamentals in dry bulk shipping for 2018-2019, unfazed by threats from a looming trade war between China and the US.

Having flipped into the black in the first quarter, the Thai bulker operator said weak fleet growth and decent demand expansion would continue to support market fundamentals.
“We remain reasonably confident that net growth in tonnage supply will not exceed 2% this year. This should result in another favourable gap of about 200 basis points between growth in tonne-mile demand and growth in tonnage supply,” managing director Khalid Hashim said in a quarterly update.

“We expect a similar favourable demand-supply gap outcome for 2019.”

Mr Hashim said “this happy state of affairs” helped his company post a net profit of $3.4m in the first quarter, compared with a net loss of $1.7m in the same period of last year.

The Precious fleet recorded daily earnings of $10,965 per ship, up from the year-ago level of $8,588, with rising earnings of its handysize, surpamax and ultramax vessels.
Total revenues reached Baht1.1bn ($34.5m) in the three months, up 3.3% on year.

While the world’s two largest economies are establishing trade barriers against each other and threatening more, Mr Hashim said tariffs might actually benefit shipowners.
“In general, trade tariffs simply shift the origination of cargoes and make the shipping journey all the more inefficient, resulting in greater tonne-miles sailed,” Mr Hashim said
“This is always beneficial for dry bulk shipping so long as the trade tariffs do not actually curb or extinguish demand.”

Scrapping could pick up from the “very disappointing level” of 1.7m dwt in the first quarter, as owners will send more ships aged 15 or above to junkyards before the International Maritime Organization regulations on bunker fuel and ballast water treatments take effect in 2019-2020, Mr Hashim added.

In March last year, the bulk carrier DL Marigold became the world’s first biofouling “casualty.” The vessel was ordered from both New Zealand and Fijian waters for being an invasive species threat, after divers discovered dense fouling of barnacles and tube worms on the ship’s hull. It was the first time an international ship had been ordered to leave a New Zealand port because of biofouling.

Now New Zealand’s Ministry for Primary Industries (MPI) has released guidance on how international vessels can comply with the nation’s strict new biofouling rules. Next month, New Zealand will become the first country in the world to introduce a nationwide standard for biofouling. From May 15, all commercial and recreational vessel operators will have to show they have managed biofouling on their vessels before they enter New Zealand waters.
A new guidance document to accompany the standard has just been released on the Ministry’s website along with a guidance document for developing customized Craft Risk Management Plans on the MPI website. The management options are:

a) Cleaning the hull within 30 days prior to arrival and providing MPI with documentation of that clean; or
b) Conducting continual hull maintenance using best practice principles, such as IMO biofouling guidelines, and providing MPI with documentation of that management; or
c) Conducting hull treatment using an MPI-approved provider within 24 hours of arriving and providing MPI with documentation of the scheduled treatment.

The majority of biofouling is usually found in the niche areas such as sea chests and pipework protected. The Ministry says that to avoid on-arrival delays, operators should carry documentation and records showing that the vessel is regularly inspected and clean areas that require it. Management may include operation of marine growth prevention systems, chemical dosing and inspection of strainers.
The guidance notes that there are limited options for dry docking and cleaning for commercial vessels within New Zealand, so if the vessel does not comply with the biofouling standard on arrival, it may be directed to leave to be cleaned elsewhere.
“We understand that not all vessels will be able to meet the compliance measures outlined in the standard. Craft Risk Management Plans allow these vessels to develop a more tailored compliance plan to manage the biofouling,” says Paul Hallett, Biosecurity and Environment Group Manager at the Ministry. “We expect vessels with unique operating profiles, such as cruise ships and fishing vessels, will most likely use this option.”
The Ministry will assess the biofouling risk of the vessel prior to its arrival based on documents supplied by the operator. “We’ll be looking for evidence of continual maintenance, cleaning, or treatment to verify the vessel complies with the new rules,” says Hallett. “Vessels that are unable to comply with the new regulations may have their schedules interrupted or restricted, or even face the possibility of being directed to leave New Zealand territory. “These measures will all be at the expense of the vessel owner or operator.”

Shipowners appear to be taking the path of least resistance by planning to use low-sulphur distillates for their existing fleets in order to meet new IMO sulphur limits from 2020. But they remain concerned about the availability of fuel and are seeking further clarity from IMO over compliance.

While a majority of shipowners say they plan to use distillates to ensure their existing vessels remain compliant following the introduction of low-sulphur fuel regulations in 2020, many are concerned that external factors, such as a lack of fuel availability, will make compliance difficult.

A survey of 38 owners conducted last month by Drewry found that, in terms of ensuring compliance, 66% indicated that using low-sulphur fuel was the intended solution for their existing fleet.

That compared with the potential take up of other solutions, such as heavy fuel oil with exhaust SOx scrubbers (13%) or liquefied natural gas (8%), with owners wary of the cost implications for retrofitting new technologies to existing vessels.

For newbuildings, however, owners expressed more optimism over mitigation technologies and alternative fuels. Low-sulphur fuel remains the preferred option.

However, around a quarter of owners said they would consider LNG for newbuildings, and one fifth said scrubbers were an option.

“Decisions over whether to install scrubbers, switch to LNG-propelled ships, or simply bear the extra cost of using more expensive, compliant fuel will be preoccupying all shipowners in light of the International Maritime Organization’s proposed new bunker rules that will place a 0.5% sulphur cap on fuel in 2020,” said Drewry.

The availability of low-sulphur fuel and the limited capacity to fit scrubbers before the IMO deadline is a concern for owners, however, and respondents to the survey are worried they may not be able to comply in time.

“The IMO is expected to produce a set of guidelines to owners later this year that will clarify the tolerance levels for non-compliance, which will hopefully allay some owners’ fear of being punished in cases when they justifiably fail to meet the new standards,” Drewry said.

Scrubbers as a stop-gap
Owners that plan to, or already have, installed scrubbers said they were concerned scrubbers may only be a stop-gap solution. A high proportion of respondents believed further environmental legislation was likely to be introduced that could outlaw their use.

“The European Union, for example, ultimately wants shipping to become zero-carbon and is pressing for a minimum 70% cut in carbon emissions by 2050,” Drewry said.

“If owners who have invested in compliance with current regulations have their investments rendered obsolete by regulatory changes, it will dis-incentivise future compliance. Rational owners will adopt a wait and see attitude to avoid taking another write-down in the future,” one respondent to the survey said.

This has, however, increased the likelihood that future newbuildings are more likely to be powered by LNG.

“One likely consequence of the new bunker standards is that more owners will opt for LNG as a fuel, following recent high-profile orders from the likes of CMA CGM,” Drewry said.

Nevertheless, owners were still concerned that the infrastructure required for widespread LNG adoption was not yet in place, and that it would best suit vessels on fixed routes, such as container vessels on liner trades.

Moreover, it would not counter owners’ fears that costs would rise steeply. Over half of respondents believe their fuel costs will rise by more than 50%.

But the uncertainty over the new regulations has had one beneficial effect, Drewry said.

“Owners considered the new regulations had to some degree inhibited new orders,” Drewry said. “Some of the comments indicated that market conditions were still the primary driver of ordering behaviour and that if there has been any pull-back it will have been from speculative orders. As such, we consider that the IMO regulation has had some beneficial impact by tempering reckless orders.”

“Meeting the new bunker standards is a very real concern to many owners and the sooner the IMO can provide clarity on its enforcement the better,” Drewry said. “Owners must brace themselves for additional opex and capex costs associated to the legislation.”