A DELUGE of vessels has meant that the dry bulk shipowners have had to endure years of hardship amid poor freight rates, but a sense of optimism seems to have returned to the segment with the demand for tonnage experiencing a revival.
This newfound hope has been triggered by numerous factors, such as trade in the segment surpassing the global economic growth rate and net fleet growth falling to the lowest levels in the past 13 years. With the Baltic Dry Index close to a three-year high, the owners are betting on further upward momentum.
Call that a trend — if the industry is lucky, 2018 will show better earnings and restore the supply and demand balance in the segment. A Lloyd’s List survey shows the consensus among analysts is for freight rates in 2018 to be well above operating costs.
For the owners who invested in cheaper ships in the last few years, the market is sufficiently ripe for harvesting the benefits of low acquisition costs.

China’s Year of the Dog
But wait — despite the industry’s talk of digitalisation, so much so that BHP (one of the world’s largest charterers) is studying gas-powered autonomous ships, it might serve one better to be a little cautious, or even superstitious, when it comes to China — most importantly because China still remains the deciding factor for the dry bulk market.
Next year, the Year of the Dog according to the Chinese horoscope, can appear to be murky for Chinese demand outlook when taking into account Beijing’s policies to transform China into a low-carbon economy with cleaner fuels, not to mention the curb on steel production from November this year until March 2018.
On paper, those measures are negative for coal and iron ore imports. But they can also point to more demand from China for high-quality imports of those two types of cargoes to feed its gigantic steel industry.
The closure of domestic iron ore and coal mines amid a pollution crackdown in China will require import substitution of high-grade iron ore from Brazil and Australia as well as better quality coal from Australia, the US, South Africa, Colombia and other exporters far from China, Precious Shipping chief executive Khalid Hashim said.
Another key factor adding to the tonne-miles would be the increase in the supply of Brazilian iron ore as Vale’s S11D project is expected to be fully operational in 2018. Additionally, there is also the potential of a restart of the Brazilian Samarco iron ore mine, which was shut by a deadly dam burst in 2015.
The Brazilian miner is seeking permission from Chinese port authorities to allow it to double the amount of iron ore it blends to 46m tonnes in China next year, which clearly shows the growing demand for the longhaul trade. Overall, the tonne-mile demand related to iron ore would be around 8.6bn next year up, from 8.3bn in 2017, Clarksons predicted.
For the long run, President Xi Jinping’s Belt and Road Initiative, which aims to build out infrastructure — new ports, roads, railways, power plants and pipelines — along the old Maritime Silk Road across Asia and Europe, would require huge quantities of cement, steel and wood that Mr Hashim points out would be carried in dry bulk ships.

Sexier looks
With the market seemingly poised for further gains as demand is expected to grow by 2%-3% in 2018, the supply side looks even more attractive.
Some analysts even project the fleet to grow by less than 1% in 2018 to around 819m dwt as a wave of scrapping would remove some aged ships.
Banchero Costa Group head of research Ralph Leszczynski expects demolition activity to recover over the next two years on “regulatory pressures and probably a recovery in bunker prices driven by higher crude oil prices, which will put pressure on older, less-fuel efficient ships”. Moreover, newbuilding deliveries should be much fewer in 2018 — about 50% down in dwt terms, Mr Leszczynski estimated.
However, slow steaming still remains a concern. The lower fleet growth can be easily spoiled if sailing speeds increase, said BIMCO lead analyst Peter Sand.
Additionally, shipping finance — at this stage, and in the near future — plays a critical role in the industry, Karatzas Marine Advisors chief executive Basil Karatzas warned. “Lack of financing keeps the market in control, but any new sources of financing can drive the market out of control and result in a spike in tonnage.”
There remains a lot of idle shipbuilding capacity that begs for new orders, so low offers by shipbuilders plus a hotter freight market with some export credits could lead to a new wave of newbuildings and another phase of an oversupplied market, Mr Karatzas added.

Small but powerful
Capesize and newcastlemax vessels are in riskier markets than others as they can be seen as “one trick ponies” that rely heavily on China trades, while the smaller segments will be the catalyst for improved charter rates next year, according to Mr Karatzas. Modern handysize to ultramax vessels offer most flexibility and economics for trading, while panamax tonnage could benefit from grain shipments in existing and new pattern of trades, such as some Atlantic-Southeast Asia movements, he added.
The Lloyd’s List earnings survey provides evidence that the highest growth in freight rates in 2018 would be enjoyed by the panamax segment, whose earnings are expected to rise by 14.9%, followed by supras and handies with an improvement in rates of 11.2% and 10.3% respectively.
Capesizes would show the lowest growth, of 8.4% year on year.
The grain and minor bulk trades, which significantly improved in 2017, will play into the fortunes of the panamax and supramax bulker owners in 2018.
This improvement has been supported by robust demand for grains and soyabeans, as strong population growth and improving living standards across Asia and the Middle East boost food and animal feed requirements that are largely sourced from the Americas, Australia, Ukraine and Russia.
Moreover, grain exports from the US saw spectacular growth of 10% in 2017 on account of strong wheat demand in the Middle East, Africa and Asia, due to US’ pricing competitiveness. This is expected to produce further demand in 2018, impacting the overall tonne-miles positively.

Moreover, the emergence of scrap steel exports from China — with the closure of induction furnace capacity — will open up new trades for handies and supras.

BRITANNIA’S $30m de facto dividend pay-outs this year represents a sensible substitute for waiver of deferred calls, and has boosted the mutual’s previously deteriorating loss ratio in the process, according to top brass at the International Group-affiliated P&I club.

Indeed, the move has proved so successful that it may well be repeated in future, and could even be an example for others to emulate, said chief financial officer Jo Rodgers.

In a wide-ranging interview, Mr Rodgers and senior colleagues also defended Britannia’s 75% combined ratio, a level unusually low for a mutual that is not writing for profit, and also shed more light on the reasons that merger talks with the UK Club earlier this year came to nought.

Britannia has made two so-called ‘capital distributions’ this year, with $10m dished out to owners with P&I cover as of midnight on Tuesday last week, on top of an earlier $20m distribution in May.

Mutuals, by their nature, have members rather than shareholders, but the payments are analogous to dividends in a joint stock company.

This is believed to be the first time that an IG club has taken such a step; the more usual way of giving money back to members when cash reserves are growing is to waive all or part of deferred calls, which Britannia has done in the past.

But growing concern about the accountancy treatment of such waivers has spurred the club to try new tactics. In particular, waivers are apt to increase the so-called loss ratio, a key yardstick for all insurance entities.

The loss ratio represents the ratio between premiums paid in and claims paid out, plus administration expenses. If you take a chunk of premiums out of the equation and losses remain the same, the ratio becomes greater.

After a meeting with Bank of England watchdog the Prudential Regulation Authority, at which the club’s loss ratio was queried, commercial logic seemed to stack up behind capital distribution.

“Both the PRA and the ratings agencies get a bit twitchy if your loss ratio goes up too much. So what we decided to distribute surplus capital by paying a dividend, which comes off the bottom line,” said Mr Rodgers. “That does not have any impact on our loss ratio. So we get the same commercial benefit without having any impact on our underwriting position.”

Chief underwriting officer Mike Hall said: “I would not be surprised if other clubs found themselves in a position to return capital went down the same route. It seems to be quite popular with members. We also have our records with members, and if you reduce your deferred call, that also adversely affects their loss records. The way we do it has no impact at all on their loss record, it is just completely separate.”

A widely used shipping satellite communications (Satcomms) system has been shown to be vulnerable to cyber-attack, an ethical hacking company has revealed.

Vulnerabilities affecting Stratos Global’s AmosConnect 8 (AC8) onboard platform were revealed by IOActive, a company that does IT penetration testing for firms across many business sectors and has investigated shipping cybersecurity in the past two to three years.

The AC8 system has been withdrawn by Stratos parent group Inmarsat, which says it had already told customers the product and service would be terminated by July 2017 before IOActive informed it of its findings after laboratory testing it in the autumn of 2016.

IOActive downloaded the AC8 software from an Inmarsat website and discovered it could open a “backdoor account that provides full system privileges that could allow remote unauthenticated attackers to execute arbitrary code on the AmosConnect server”.

AC8 succumbed to a blind SQL attack as it used Structured Query Language within the software, allowing the system to be questioned repeatedly to discover whether each letter of a password is correct.

“Essentially anyone interested in sensitive company information or looking to attack a vessel’s IT infrastructure could take advantage of these flaws,” IOActive principal security consultant Mario Ballano said.

“This leaves crew member and company data extremely vulnerable, and could present risks to the safety of the entire vessel.”

Inmarsat says it does not believe the system is as vulnerable as IOActive claims and that it issued a security patch, which greatly reduced the risk before taking the system out of use. No customers can now use AC8, while the AC7 system that Inmarsat has reverted to does not use SQL databases.

“From a customer perspective, it was considered very difficult to exploit this vulnerability because it required direct access to the shipboard PC, which runs the AC8 email client — meaning either direct physical access to the PC or remote access via the internet,” an Inmarsat spokesman told TradeWinds.

Remote access is unlikely because onboard systems are blocked by Inmarsat’s shoreside firewalls, he adds.

Cybersecurity experts advise that vessel networks are isolated from each other to avoid illegal access to one opening a gateway to others, as is increasingly the case.

But IOActive says navigation systems can be interconnected with satcomms on some ships, particularly older ones where legacy equipment has not been updated to account for connectivity with the internet that did not exist when it was built. In this case, control of a vessel could potentially be achieved via this kind of gateway.

Sebastian Wilkinson, IOActive’s business development manager for Europe and the Middle East and a former broker with Shipping 360, says the firm has legitimately hacked into some of the world’s largest fleets as part of cyber-penetration tests agreed with shipping companies.

“We’ve hacked fleets to the point where you can take control of a vessel completely,” he told TradeWinds. “We think like hackers. We don’t do a tick box.

“Threat modelling is a big part of what we do. For a lot of organisations, it is actually a defining moment as to what is truly important to them. It’s a thought-provoking exercise.”

Recent events have included an incident in June involving more than 20 vessels in the Black Sea that navigation experts have speculated was due to cyber-attack. Then, in August, a collision involving a US warship and a chemical tanker also led to questions of whether it was the result of cyber tampering.

LOOMING regulatory requirements are proving a mixed blessing for Finland-based engine manufacturer Wartsila.

The company has reported a surge in demand for scrubbers ahead of the 2020 sulphur cap, but it is also anticipating turbulence courtesy of a consolidation of ballast water treatment system manufacturers.

Wartsila Marine Solutions has received more than 50 orders for scrubbers during the first nine months of 2017, with the majority of those placed in the third quarter. The demand has been mostly for newbuilds, with a lot of activity coming out of Asia, but WMS president Roger Holm also expects retrofits to pick up.

The unprecedented scrubber intake has come as something of a surprise given the widely anticipated reluctance on the part of shipowners to commit to an investment. A recent ExxonMobil survey on vessel operators found only 11% would introduce scrubbers before the cap comes into effect.

The regulations will force vessels to emit fuels with a maximum 0.5% sulphur content, down from the current 3.5% limit, effectively requiring other low sulphur fuel or scrubber installations.

Meanwhile, as the shipping and oil industry mull their options for the sulphur cap, the former must also contend with the Ballast Water Management Convention. Sanctioned by the IMO in the summer, this partial two-year delay means the regulation currently applies only to newbuilds. The existing fleet must comply from September 8, 2019. Wartsila is undergoing tests for approval from the US Coast Guard, which has different requirements from the IMO, on two separate systems: a UV system and an electrochlorination system.

Mr Holm, who expressed relief that ballast systems are only a small part of Wartsila’s business, anticipated consolidation in the system manufacturer side, unequivocally stating that the IMO’s delay will have a direct effect on that market. Oceansaver, a BWM system provider that had secured USCG approval, went bankrupt in September.

The IMO’s decision has already had an effect on Wartsila’s business strategy. Mr Holm said that while the electrochlorination tests will go ahead as planned this year and approval is expected in 2018, plans for the UV tests have changed and some of those will be delayed rather than done in parallel. The company expects approval of its UV system sometime next year as well.

Digital saviour
Wartsila announced on Wednesday that its marine solutions unit suffered a 16% decline in net sales in the 2017 third quarter compared with the same period last year, but also recorded a 35% spike on the value of its order intake.
Mr Holm said the order intake was good in a market that is developing right direction, but is still on fairly low contracting levels when seen in a larger historical context.

Wartsila’s dependency on the global orderbook means it will have to look beyond the manufacturing business to boost earnings. To this end, the company’s focus is being increasingly shifted toward the potential benefits of digital systems and collaborative procedures.

Wartsila chief digital officer Marco Ryan explained the company recently set up its first Digital Acceleration Centre in Helsinki aimed at delivering tailored products to customers through an interactive feedback environment.

The DAC serves a threefold purpose, according to Mr Ryan; to develop business ideas and ways to use and present available data by adopting a startup mentality, to create an agile and co-creative dynamic with the customers and finally to provide a space in which boundaries can be pushed and ideas can be proposed.

“We can triangulate between the customer need, the smart marine strategy and our core competence around the product and engineering mix. And those three things together require an environment sometimes where you want to test and do things and not be afraid to fail. And that is pushing a boundary,” he said.

Once the right solution has been found, the challenge is to rapidly scale that to the specific circumstance. This scaling is what will drive the pace of change, according to Mr Ryan.

Wartsila will launch another DAC in December and two more in 2018.

Wartsila conducted a remote-controlled navigation test in August on Gulfmark’s 4,088 dwt Highland Chieftain offshore supply vessel. Mr Holm said the test was successful but noted it is just one step in demonstrating the company’s capabilities in its quest for operational efficiency.

The belief in increased automation drove Wartsila’s purchase of Guidance Marine earlier in October. The company specialises in sensor technologies, something that will help customers optimise efficiency when it comes to fuel consumption and vessels movements, Mr Holm said.

Scorpio Bulkers has had a change of heart on its latest equity issue. New York-listed Scorpio announced plans to print 10 million new shares yesterday. In a statement on Wednesday the shipowner said it would not proceed with the move due to the “unsatisfactory price” offered to the company.

Emanuele Lauro, chief executive of Scorpio Bulkers, told TradeWinds: “We would have been happy to raise equity opportunistically to pursue ship acquisitions. However, this had to come at the right price. We are guardians of shareholder value for the long term.”

Financial market sources say that there was no shortage of investor demand for the paper and Scorpio Bulkers had its book covered.

Unappealing discount
Scorpio faced a 6.5% pricing discount to the previous closing price of $8.35 per share, meaning it had a book at about $7.80 per share, according to sources familiar with the effort.

While the discount is smaller than what many companies have paid in follow-on issues in recent months, it was viewed by Scorpio management as too steep for an owner that is not desperate for capital and looking to move opportunistically on assets.

A pricing of $7.80 would have been toward the low end of recent NAV estimates from analysts, which have ranged from $7.50 to $9.90. Executives have plenty of skin in the game with Scorpio Services Holding the largest shareholder in the company.

GRM Investments is the leading outside stakeholder, with Evermore Global, Raging Capital. Blackrock and Anchorage Capital among the leading institutional investors.

Confident in recovery
Scorpio Bulkers has enjoyed an active few weeks, having followed up a six-ship fleet deal with John Fredriksen’s Golden Ocean with the introduction of a dividend. Further cash has been expected to drive additional growth at the 52-ship company.

Scorpio executives had this week voiced their confidence in the dry cargo market recovery and expressed an interest in further acquisitions. “In general, we remain optimistic for the dry cargo market recovery and look forward to further strengthening our position in the market in what is an improving rate environment,” Lauro said on the company’s quarterly conference call.

The English High Court handed down judgment last week on a novel issue regarding the obligation on the owner under a voyage charter to proceed to the loadport by a certain time.

During an intermediate voyage – i.e. after the charter had been fixed but before the beginning of the charter service – the vessel contacted with a submerged object in the Suez Canal. She had to be drydocked for repairs which would take months to complete, and the owners informed the charterers that the laycan would not be met. The charterers cancelled the fixture.

It was common ground that the charterers were within their rights to cancel the charter party under the cancelling clause (clause 11 of Shellvoy 5). The dispute was whether there was a separate breach of charter which would entitle the charterers to claim damages flowing from that breach. This aspect was crucial as the charterers’ losses resulting from fixing a substitute vessel were substantial.

The English courts have previously said that where the charter contains (i) a term obliging the owner to proceed to the loadport with all convenient speed and (ii) an ETA at the loadport or a “readiness to load” date, then there is an “absolute” obligation to start the approach voyage by a date when it is reasonably sure that the vessel will arrive on time. The obligation is “absolute” in the sense that it is no defence for the owners to say that they took all reasonable steps to comply with it but could not do so. In this case there was no suggestion that the incident in the Suez Canal was due to any fault of the owners.

This charter contained the obligation on the owners to proceed to the loadport with all convenient speed (clause 3 of Shellvoy – point (i) above). However, there was no ETA at the loadport nor expected “readiness to load” date (point (ii) above). The only arguably relevant dates in the recap were the laycan window and a list of ETAs at interim ports on the previous voyage including for the vessel’s final discharge before she would sail to the loadport.

Until now there was no English court decision dealing specifically with this scenario.

The Court decided that there was still an absolute obligation on the owners to start the approach voyage by a “reasonable” time, which had to be determined by the other terms of the charter. They dismissed the owners’ argument that this obligation was reduced to one of “due diligence”.

As there was no loadport ETA or “readiness to load” date, the Court said that the “reasonable” time by which the approach voyage to the loadport had to be commenced was derived by reference to the ETA set out in this charter for the final discharge port in the previous voyage (sailed under a prior fixture). As the owners did not comply with the obligation to commence the approach voyage by this time, they were in breach of contract and the charterers were entitled to damages.

Interestingly, the Court went on to say that if there had been no such ETA in the charter for the previous voyage, the obligation would have been to commence the approach voyage by a date when it was reasonably certain that the vessel would arrive at the loading port by the cancelling date (the end of the laycan window). The laycan would normally reflect when the parties expected the vessel to arrive at the loadport, and in that sense was similar to a loadport ETA.

The decision was ultimately about the allocation of risk for delays which happen before the charter service has started – i.e. before the approach voyage to the loadport has begun. On the basis of the terms of the charter in question, the Court found that this risk fell on the owners.

US-listed shipowners have finally emerged from their summer doldrums and resumed follow-on equity and debt sales to Wall Street investors. Transactions have rebounded in October and 2017 is still on track to be a near-record year.

After a very high level of capital raising in the first half – USD4.78 billion, according to data compiled by Fairplay – proceeds slowed to a trickle in the third quarter of 2017 (3Q17), to just USD200 million. But during the first three weeks of 4Q17, capital markets activity has recovered, with US-listed companies or their subsidiaries raising USD790 million in gross proceeds. Debt and equity offerings have been conducted in rapid succession by Global Ship Lease, Navios, Golden Ocean, Teekay LNG, DryShips, and Seaspan.

According to Fairplay data, US-listed shipowners have raised total gross proceeds of USD5.83 billion via 50 equity and debt offerings between 1 January and 24 October. This year’s proceeds are already 87% above full-year 2016 proceeds and 2017 is on track to be the third highest-grossing year ever (see chart, below). The record was set in 2014, when US-listed companies raised USD8.17 billion via 63 offerings. In 2013, these owners raised USD7.41 billion through 62 offerings.

This year’s most important trend has been the preponderance of debt offerings as opposed to equity deals. Of the total money raised through 24 October, USD3.21 billion or 55% was derived from debt sales, and USD2.62 billion or 45% was from equity. If this mix persists through year-end, 2017 will set the record for the highest proportion of debt-to-equity sales by US-listed shipping companies.

Most of the debt capital raised has been deployed for refinancing purposes, while equity is generally being used to acquire second-hand vessels in the sale and purchase (S&P) market, not for newbuild orders.

Broken down by sector, 35.3% of proceeds year to date (YTD) have gone to owners in LNG shipping, 22% to mixed fleets, 19.4% to tankers, 9.5% to container ships, 8.7% to dry bulk, 3.4% to offshore services and shuttle tankers, and 1.7% to LPG.

Broken down by ownership group, the largest recipient of offering proceeds YTD has been the Golar LNG companies (USD772.5 million), followed by DryShips (USD719.1 million), the Navios companies (USD608.8 million), the GasLog LNG companies (USD520.65 million), Dynagas LNG (USD480 million), and Global Ship Lease (USD356 million). Offerings by these six ownership groups account for 38% of total proceeds YTD.

Although follow-on activity has been very high, what remains glaringly absent in 2017 is an initial public offering (IPO) by a shipping company. The shipping IPO drought has now lasted longer than in any other stretch since the turn of the century. The last shipping IPO was for NYSE-listed tanker owner Gener8 Maritime in June 2015, almost two and a half years ago.

IPO prospects were a topic of discussion at the Capital Link New York Maritime Forum on 2 October. Citi managing director Christa Volpicelli told attendees, “The reality is that the bar is higher today [for IPOs] in shipping. Shipping is not an easy place in the capital markets, because there are cycles, there are companies that are smaller than the average company, and the investor base keeps changing. The people at the big long-only funds are different than they were five years ago, and you have different hedge funds that come in and out of the sector in different periods of time. There isn’t a consistent investor base, so you really have to be working with a bank that’s in the market constantly and has a sense of who the current investors are.”

According to Volpicelli, “The reason we haven’t seen any IPOs since 2015 is that there is a general view that the IPO discounts are still wider in shipping than in other sectors. But that can change quickly with the underlying segments [when they perform better].” The IPO discount is the discount an investor gets when buying shares in an IPO versus the valuation implied by the issuer’s already public peers, to compensate the investor for the risk of participating in a new issue.

The currently weak stock valuations of listed owners make shipping IPOs particularly challenging. According to Maxim Group managing director Larry Glassberg, “If you look at the existing public companies, the valuations are all over the map and there are a fair amount of companies trading below NAV [net asset value, referring to assets minus liabilities]. Unless companies are trading above NAV across the board in a sector, the IPO market [for that sector] is going to be closed, unless you have an issuer willing to go public at a discount to NAV for strategic reasons.”

Company size is another key factor, with most investment bankers at the Capital Link event believing that only larger shipowners can do an IPO. “I would love to take a company public that has five or six or 10 ships, but unfortunately, I don’t see that happening any time soon,” said DNB head of corporate finance Jae Kwon. “I think these companies are more suited for a private placement. The reality is that for us to start seeing more IPOs, more shipping companies are going to need to have real scale. And the way I think that happens is through consolidation.”

Numerous private equity (PE) groups invested heavily in shipping in 2011-14 with the intention of profitably exiting via an IPO. The inability to obtain an acceptable valuation through an IPO has pushed them towards a different strategy, informally known as ‘IPO via M&A’. Under this model, the PE investor sells its ships to an existing public shipping company in return for shares. The transaction increases the scale of that public company and allows the PE investor to exit its original investment by selling those shares at a better price than could have been obtained in an IPO of its original vessel assets. This strategy makes existing public companies bigger and reduces the pool of potential future IPO candidates.

Despite such headwinds, bankers speaking at the Capital Link event were confident that shipping IPOs will make a comeback at some point during the next 18-24 months. The catalyst is expected to be a rebound in freight rates that brings stock pricing of already public companies above NAV. According to Wells Fargo Securities managing director Eric Schless, “If we get to the point where shipping companies are trading at 1.4 times NAV, we’ll all be very busy doing IPOs.”

The UK and Denmark are investigating electronic chart display and information systems (ECDIS) after another grounding was partly blamed on how it is being used by seafarers.

The UK Marine Accident Investigation Branch (MAIB) said it has recently probed several grounding incidents in which the way the vessels’ ECDIS was configured and utilised was contributory.

“There is increasing evidence to suggest that first-generation ECDIS systems were designed primarily to comply with the performance standards required by the IMO, as these systems became a mandatory requirement on ships, with insufficient attention being given to the needs of the end user,” it added.

“As a consequence, ECDIS systems are often not intuitive to use and lack the functionality needed to accommodate accurate passage planning in confined waters.”

This has led to crew using it in ways contrary to the instructions and guidance provided by the manufacturers and/or expected by regulators, the report added.

MAIB has teamed up with the Danish Maritime Investigation Board to work on more fully understanding why operators are not using ECDIS as envisaged.

“The overarching objective is to provide comprehensive data that can be used to improve the functionality of future ECDIS systems by encouraging the greater use of operator experience and human-centred design principles,” it added.

Muros grounding

The review was prompted by the grounding of the 4,950-dwt Naviera Murueta bulker Muros (built 2008) in the early hours of 3 December 2016 on Haisborough Sand in eastern England.

The ship was refloated after six days with tug assistance, but damage to its rudder required a tow to Rotterdam for repairs.

The report found the passage plan had been revised by the second officer less than three hours before the grounding and it had not been seen or approved by the master.

A visual check of the track in ECDIS using a small-scale chart did not identify it to be unsafe, and warnings of the dangers over Haisborough Sand that were automatically generated by the system’s ‘check route’ function were ignored.

The second officer monitored the vessel’s position using ECDIS but did not
take any action when the vessel crossed the 10m safety contour into shallow water, MAIB said.

“The effectiveness of the second officer’s performance was impacted upon by the time of day and a very low level of arousal and she might have fallen asleep periodically,” MAIB added.

The disablement of the ECDIS alarms removed the system’s barriers that could have alerted the second officer to the danger in time for successful avoiding action to be taken, the report found.

Cutting carbon emissions by regulating ship speeds should be considered by the industry as a short-term strategy to achieve ambitious Paris climate agreement goals, two environmental groups contend.

A study commissioned by environmental groups Seas at Risk and Transport & Environment (T&E) concluded that by bringing idle and laid-up ships back into the fleet, the additional capacity could be absorbed by reducing ship speeds by up to 3%, 8%, and 22% for dry bulkers, container ships, and crude and product tankers respectively.

Because less fuel would be burnt at the slower speeds, an immediate 4% cut in carbon emissions would be achieved, according to the study.

The two groups, which are founders of the Clean Shipping Coalition (CSC), plan to submit the study to the International Maritime Organization (IMO) when an IMO working group meets on 23–27 October in London to further develop its 2018 greenhouse gas (GHG) reduction strategy.

A submission to be considered by the working group, filed jointly on 7 September by the International Chamber of Shipping, BIMCO, Intercargo, and Intertanko, does not address the potential for regulating ship speeds, but contends that “aspirational objectives” towards a GHG reduction strategy “should have a non-binding character”.

John Maggs, senior policy adviser at Seas at Risk, countered that suggestions by the shipping industry that no new short-term GHG reduction measures were needed were “misguided and reckless”, and asserted that “only reduced speed can give the fast, deep short-term emissions reductions that are needed for shipping to meet its Paris Agreement obligations”.

The practice of reducing vessel speeds, known as slow-steaming, is typically used to lower operating costs when shipping is struggling, fuel prices rise, or both. It has also helped the industry cut its carbon output.

IMO studies have shown that total GHG emissions from international shipping decreased 10% between 2007 and 2012 – due in part to more efficient vessels, but also has a result of slow steaming. However, the recent recovery of the dry bulk and container freight markets from record lows last year has resulted in many of those carriers abandoning slow steaming in favour of higher speeds.

“The industry itself showed clearly that slow steaming works,” said Bill Hemmings, T&E’s director of aviation and shipping. “It proved effective in weathering the economic crisis, so the IMO should now agree mandatory speed measures to achieve substantial emissions reductions,” he said.

The study, conducted by environmental consultant CE Delft, pointed out that flag states and ports states both had the ability to monitor compliance with a speed regulation. “In some cases, they may have to build up the organisational capacity to do so,” the study asserted. “For example, it is not known how many flag states regularly monitor the position of their ships via either [Long Range Identification Tracking] or AIS, and it is not likely that any flag state currently monitors speed.”

The study also noted that it had yet to be determined whether it was more effective to regulate average or maximum speeds. “Probably regulating maximum speeds is easier to implement, because it doesn’t require regulation on how averages would be calculated,” it stated.

The World Shipping Council (WSC), which lobbies on behalf of container ship operators in Washington DC, has testified as to the environmental benefits of slow steaming and has weighed in on strategies to reduce GHG.

However, WSC president and CEO John Butler declined to comment on the general strategy of regulating vessel speeds as means of reducing carbon emissions without a specific proposal on the table.

“The idea has been floated before, but I’ve not yet seen a proposal that has received serious consideration,” Butler told Fairplay. “We’re looking forward to seeing the details of this and what a lot of others will be bringing to the IMO.”

Half of all ballast water systems manufacturers could be bankrupt within the next five years thanks to the IMO’s delayed implementation of environmental rules. That’s according to the chief executive of Coldharbour Marine, one of the many BWM systems suppliers currently navigating a difficult market that has already seen one major casualty this month.

OceanSaver, the Norwegian manufacturer of US type approved BWM systems, filed for bankruptcy and closed last month after losing an arbitration fight against a supplier over claims of defective parts. It is no coincidence that OceanSaver’s demise came only three months after the IMO capitulated on the enforcement of ballast water rules.

While the BWM regulation came into force last month, the IMO delayed implementation of the treaty on existing vessels until September 2019, to the relief of shipowners but to the frustration of system manufacturers who were hoping to cash in on the spike in demand from owners who need them to meet the regulation’s requirements.

According to Andrew Marshall, chief executive of BWM system manufacturer Coldharbour Marine, OceanSaver will be the first of many casualties in the wake of that decision.

OceanSaver’s fatal flaw was its lack of product differentiation, despite its good quality, Mr Marshall argues. The company was caught in the middle, between more expensive companies with a strong reputation, like Wärtsilä, and much cheaper products that appeal to shipowners’ willingness to spend as little as possible on the investment.

Mr Marshall anticipates that out of the roughly 90 suppliers that exist right now in the market, at least 50% will go under in the next five years. The risk to shipowners in this scenario is not simply one of dealing with a lack of after-sales support. Mr Marshall suggests that more bankruptcies will result in expensive retrofits to previously retrofitted vessels, as a result of a USCG ruling that dictates that if a manufacturer goes bankrupt and the part supplier is not there to claim responsibility for the system, it needs to be replaced.

The IMO delay, however, is not the only obstacle for Coldharbour Marine and its contemporaries. Aside from currently offering a “ridiculous discount” on prices, some manufacturers also have tie-ups with shipyards, putting shipowners in an awkward position.

During an interview with Lloyd’s List, Mr Marshall spoke of a New York-based owner who was interested in installing Coldharbour’s system but was effectively “blackmailed” by a Korean shipyard’s demands; the yard charged extra to install the system, as they had a supply agreement with a different manufacturer. They even charged more when the owner instead asked the tank be left empty so that it could be fitted at a later stage.

Mr Marshall was adamant that no system could provide a 100% kill rate of organisms and questioned how some manufacturers can boast that their system can. Regrowth happens, and its pace depends on the season and voyage, he said, adding that both the IMO and USCG regulations were flawed in that sense.

“The legislation is poorly drafted. The implementation is poorly drafted. The testing. And we are all paying the price for bad behaviour early on,” he said.

USCG challenges overstated

Coldharbour Marine will undergo the USCG test on suezmax tankers in the spring, having already received approval from the UK Maritime and Coast Guard Agency. Approval from the USCG is seen as the golden ticket to success for manufacturers, effectively making their system operational all over the globe.

While common wisdom is that the USCG testing is significantly more challenging than the IMO’s tests, Mr Marshall stressed there was no real difference in the requirements, only in the enforcement, as the US is a lot stricter in the enforcement. Thus far just five systems have secured USCG approval.

By that token, any manufacturer that finds it challenging to cope with the USCG test should never have received IMO approval, according to Mr Marshall.
Mr Marshall bemoaned the replicability of the test, which will cost the company another $3m.