Accidents happen; they always will. Ship operators respond in two ways. They either address the obvious cause or, when the damage becomes reputational, they seek to understand the deeper causes and address those. After a collision involving a gas carrier in October 2015, Japan’s K Line LNG took the latter option. It proved to be a far-from-comfortable experience, yet with professional help the outcome has been positive.

The report that followed the investigation into the collision between the LNG carrier Al Oraiq and the general cargo vessel Flinterstar off the port of Zeebrugge concluded that the incident occurred because the bridge team on the gas carrier wrongly assessed the traffic situation and the vessel’s speed and distance from a buoy.

But behind that bald statement was a series of observations that revealed a worrying disregard for best practice procedures. The coastal pilots “did not attempt to work with the ship’s bridge team”, the report noted; they restricted the master’s and officer of the watch’s access to critical navigational information, and took operational decisions without consulting them. The sea pilot on board the general cargo vessel was “engaged in a casual conversation” rather than monitoring the traffic situation.

The bridge team on the gas carrier “had very little situational awareness” and failed to request the coastal pilots translate VHF radio communications in Dutch. The bridge team on the general cargo ship was “insufficiently focused on watchkeeping duties”.

Even the nautical regulations came in for critical overview. In Notices to Mariners issued by Flanders Hydrography, LNG carriers were awarded “an exceptional status… right of way under almost any circumstance”. This had led bridge teams on such vessels “into using this assumed exceptional status at their own discretion, not seldom leading to close quarter situations in restricted fairways”.

The VTS operator at Traffic Centre Zeebrugge decided against proactively offering advice or instruction to the bridge teams on either vessel because “in the past [such communication] has often been ill received by pilots off the Belgian coast, and has led to several high-ascending discussions, to the extent that VTS operators at Traffic Centre Zeebrugge have refrained from offering advice… to vessels in their monitored block.”

Like almost all maritime accidents and incidents, this collision came about because of a failure of communication at several levels. Al Oraiq was managed by K Line LNG Shipping (UK). It was not the first time K Line ships had been involved in avoidable incidents. Even though the vessel’s bridge team was not wholly responsible for this collision, K Line was sufficiently shaken to confront its demons head-on. Why were these accidents happening? What could be done to tighten up procedures? Was training at fault, or complacency, or were the regulations confusing?

The company turned to Norway for a solution, and brought in Propel, which specialises in identifying and addressing the cultural shortcomings that lead to accidents.

The diagnosis phase lasted for seven months. Propel’s team conducted interviews in shoreside offices and on board ship. They sought out the unfiltered comment of the people who worked at every level of the business. What they uncovered was a culture that pushed safety concerns behind the need to appear to be safe. There was no incentive to point out safety shortcomings; there was a wider ‘distance’ between ship and shore than in competitor companies; the leaders of the business were not perceived to be role models; and decision-making was poor when under pressure.

In brief, trust, which acts as a glue in well-run businesses, was in short supply.

Propel analysed K Line’s safety data. They looked at how seafarers observed colleagues, and believed this company’s shortcomings were not unique. Propel partner Didrik Svendsen suggested to Lloyd’s List that “today half the world fleet is in a state of cover-up”.

“No one talks about what’s going wrong. If people shared information,” he said, “they could stop accidents happening.” Instead, the industry operates through procedures and regulations that can’t do much more than identify who made mistakes. “When lawyers are involved you have to find someone to blame.”

Propel introduced K Line to eight different behaviours that reduce the risk of accidents and four levels of safety culture. After the diagnosis came a two-day workshop during which the corporate mission was revised and purpose clarified. Five values were identified, together with a fresh set of goals for 2020, and a roadmap to achieve them. Leaders both on board and ashore were engaged.

“The most important value is ‘proactive’,” Mr Svendsen observed. “Ship management is very reactive.”

The result has been extremely encouraging. K Line is now two years into the implementation of its KARE project, which has full commitment from senior managers, shore-side operations staff, seafarers at all levels, and customers.
As a result, K Line LNG (UK) managing director Yuzuru Goto, left, says he now sleeps well at night.

China’s demand for imports of iron ore and coal and a surge in US grain exports could be about to turbo charge the dry bulk market as it heads into the fourth quarter, says a top Greek shipbroker.

“The dry bulk market still seems to hold plenty of wind in its sails, something that could well translate into further improvements in the freight market over the coming weeks,” says George Lazaridis, head of market research at Allied Shipbroking.

He says the drive in seaborne trade of dry bulk commodities has helped boost the Baltic Dry Index (BDI) by over 70% from its low point in mid-July.

“This has, with good cause, raised the level of overall optimism and helped boost expectations as to the market performance during the final three months of the year as well as for 2018.”

Lazaridis says in the midst of this there are several factors which could well prove to be fundamental driving forces for the market during the next couple of weeks if not months.

“The grain market has been thrown into the limelight, as the US Gulf and ECSA are starting to see a significant drive in cargoes,” he says.

“Both regions are expected to see an accelerated maturity in corn and soy crops thanks to unseasonably hot weather.

“This, in combination with the lagging flow brought about by the reduced rail services along the US Gulf Coast caused in early September by Hurricane Harvey, should provide a considerable flow during the next month, possibly far surpassing those noted during the same period in 2016.”

At the same time, Lazaridis says attention is still focused on Chinese winter cuts which could help pull demand for imports of iron ore and coal forward, while at the same time drive extra volumes of both commodities as the cuts start to effect local mines.

“The four-month winter heating period that will be subject to this curb in output typically begins in mid-November,” he says.

“This means that we could well see a stronger utilization of steel mills and higher production volumes in the period prior to this, possibly boosting the market up until the end of October.”

Lazaridis says things may continue relatively firmly beyond this point, given that we are going to see a curb on a large number of iron ore and coal mines, something which he believes will lead to a higher reliance on imports rather than locally sourced supplies.

“Given that we also have a drive by most steel mills to amplify their utilization levels, there has also been a shift in focus to higher content iron ore feedstock and higher quality coking coal, both of which need to be sourced from far away locations, driving up tonne-mile demand by a considerable amount.”

Lazaridis says this has been reflected in recent months by the increased activity noted in shipments out of both Australia and Brazil, while the local price margin between iron ore of 65% and 62% content has increased from 21% higher in early June to just under 34% now.

Looking at the newbuilding delivery schedule for the last quarter of 2017, he says there is a sense that rates will be able to maintain their positive levels.

“The slippage and cancellation rate for the total dry bulk fleet is currently holding at just over 32% and likely to increase slightly during the final weeks of December, while at the same time the fleet growth of the fleet during the nine month period up to end of September has shown an increase of just over 2%, indicating an end of year figure which is likely to still be well lower than the estimated growth in demand.”

Leading representatives of the dry bulk shipowning community have called for applying vetting, that has become the norm for shipowners, to other influential stakeholders in the industry.

“We support regulations when they are practical but there is a lack of other stakeholders facilitating the smooth implementation of regulations,” said John Platsidakis, chairman of international dry bulk owners’ body Intercargo. “Owners are vetted by banks, charterers, RightShip, all kinds of bodies, but what about charterers?”
Mr Platsidakis said that a long-term goal of Intercargo was to encourage the formation of a dry cargo charterers’ assessment scheme that would be “in their own interest” as it would enable quality charterers to promote their performance in such aspects as payment, safety, quality control and crew welfare. “We feel it is a must,” he said.

Speaking at meetings of Intercargo’s executive and technical committees in Athens, owners said that the urgency for the dry bulk sector lay partly in the fact that, unlike the oil tanker industry, owners could be prey to hundreds of smaller charterers in addition to the major players.

A similar need related to dry bulk terminals, committee members said. “It is different to the oil industry, which is highly regulated,” said Dimitris Fafalios, chairman of Intercargo’s technical committee. “Unfortunately we are still in the Stone Age.”

Bulkers were often obliged to occupy berths unsuited to the size of vessel and were sent to terminals that had not been dredged, resulting in having to await the next tide.

Intercargo also expressed disappointment at the response from terminals on providing reception facilities and especially in providing proper treatment for residues and hold washings from cargoes that are classed as harmful to the marine environment. “Regrettably ports have not come along and we plan to ask the IMO to implement those rules,” Mr Platsidakis said. Intercargo has recently proposed a “model port reception facilities” concept to help identify the way forward.

In trying to promote greater self-assessment in other quarters of the maritime industry, Intercargo will not have been much encouraged by the response so far in its outreach to port state control authorities.

Motivated by numerous everyday stories from members of corruption in certain ports, the association wrote to all regional Memorandum of Understanding secretariats well over a year ago to persuade them to establish internal affairs desks so that abuses could be safely reported and properly investigated. According to Mr Platsidakis, not one has agreed to take such action. “I don’t see why not. We need a mechanism to register problems without fear of retaliation,” he said.

Coldharbour Marine is in the business of “mitigating pain” for shipowners. That is because the Nottingham, UK-based company is in the business of making ballast water treatment systems. Coldharbour CEO Andrew Marshall has every sympathy with his customers. They pay for something on their ship that will never make them money, and can only ever make them spend money one way or another. “The best thing we can do is mitigate the pain. That’s what our system is all about: mitigating the pain”, Marshall said during a press event attended by Fairplay.

In his view, the ballast water management issue has been badly handled. The legislation and implementation of it was poorly drafted, as was the testing, he said. “We’re all playing catch-up and paying the price for bad behaviour early on. If it had been thought through properly then it could have been so much different. But we are where we are.”

Coldharbour’s system uses inert gas to treat ballast water, and is eking out its own niche in a crowded sector. There are about 90 ballast water treatment companies operating at the moment. As of August, 73 have been certified under the IMO’s Ballast Water Management Convention, and 30-40 have registered for United States Coast Guard (USCG) type approval. But Marshall predicts that only 25 of those companies will actually achieve it before they run out of money.

As many as half of the existing ballast water treatment system manufacturers “will have bitten the dust” within five years, Marshall thinks. But whether or not this will be good news for Coldharbour depends on who survives, he added.
A recent notable casualty was Norwegian company Oceansaver, which collapsed in September after running out of money.

Marshall was in no doubt as to why the company did not survive. “It was probably a bloody good system, but it’s a filtration plus a chlorination unit. I can buy a comparative [Chinese BWTS manufacturer] Sunrui system for a third of the unit price. Where’s the product differentiation? How does Oceansaver compete? It doesn’t have [Finnish BWTS manufacturer] Wartsila’s service, and it hasn’t got Sunrui’s price. It might be a brilliant kit but it’s squeezed in the middle.”

Turning to Coldharbour’s fortunes, Marshall insists the company’s investors are committed. He admitted that there will not be a full return on investment for at least five years. Coldharbour has a long-term business plan and its investors are fully up to speed with it, Marshall said. “This is not a quick splash-and-dash. We’re selling systems now. Our business model is not to sell 500 systems a year. Our model was always predicated on 50 systems a year.” Although the company is not yet producing this number, it is doing well enough. “We’re on target. It’s not easy because nobody’s got any money.”

Successful ballast water treatment system manufacturers must either compete on price, or on engineering, or have a clearly differentiated product, Marshall insists. He thinks the industry can support half a dozen manufacturers using ultraviolet technology, half a dozen in electro-chlorination, and a few “freaks and weirdos”. Coldharbour Marine sits in the latter category, Marshall admits. “We don’t do it the same as everyone else.”

Impact of the two-year delay
In July, ballast water manufacturers had to come to terms with a decision to delay the implementation of the Ballast Water Treatment convention on existing tonnage until September 2019. Marshall was initially quick to dismiss the impact this is having and will have, at least for Coldharbour. “There were a few thousand vessels that would have had to have been retrofitted. If you were relying on that bit of the market to make your money, you probably shouldn’t have been in the market in the first place,” he said. “The tragedy is that some good systems will go and some bad systems will remain.”

Where Marshall thinks there might be an impact on the manufacturers from the two-year delay is on those who had been expecting to rely on retrofitting getting them into the newbuildings market.

Many of the larger vessels are, of course, built in Asia, and yards there often had agreements with domestic BWTS manufacturers, Marshall said, and those markets were increasingly hard to break into. Elaborating on the dilemma, Marshall recalled how Coldharbour recently lost out on such an order. A New York-based shipowner wanted to buy the company’s BWTS for an order at a South Korean shipyard, but was “actively blackmailed” into taking the yard’s preferred local manufacturer. When the owner said it wanted the Coldharbour system, the yard insisted on an additional charge. The yard said it had a local supply deal and the customer eventually replied, “OK, don’t fit anything. I’ll wait for my first special survey then I’ll fit my Coldharbour system.” The yard replied, “Certainly sir, that’ll be USD3 million extra,” Marshall recalled.

Marshall, who became CEO in 2010 after the company was spun off from offshore equipment maker Transvac, became aware early on that Coldharbour needed to be a niche player to survive in the market.

“We can’t compete with mass market ‘cheap as chips’ products turned out by the Chinese and Korean manufacturers. The idea is that we provide a better product, more tailored and optimised to perform under the specific operating requirements of the niche market. That market is large tankers, anything bigger than an Aframax, large bulkers, and large LNG/LPG type carriers,” Marshall explains.

Owners have got to do their homework, Marshall insists. “They have to recognise that the ‘it’s cheap, I’ll have it’ approach is not the path to BWT happiness.” He explained that the secret is to look at what the company’s operating parameters are. “Where are you operating? What are you loading? What kind of vessel are you operating? How long are your ballast legs? What space have I got on board for an effective installation?”
Marshall accuses some shipowners of wilful ignorance. “They want the system to be cheaper than it really is, and they are willing to believe that man from XYZ company in South Korea who says if you say a few magic words over [the ballast water treatment system], it will all work. They don’t want to believe evidence to the contrary,” the Coldharbour CEO said, citing the recent ABS report that claimed that only 14% of BWTSs actually did the job they were intended for.

“They just want to get a cheap solution, then hopefully blame somebody else when it doesn’t work and then sell the ship!” he said.

“Shipowners need to be aware of the ballast water treatment requirements, otherwise there’s going to be an awful lot of expensive mistakes made, and an awful lot of tears before bedtime for owners if we aren’t careful. At the end of the day, Marshall sums it up as follows: “You buy a ballast water treatment system because you have to treat the water to the discharge standard. You don’t buy it because it looks nice or the cabinet is painted a pretty colour. You buy it because it’s a legal requirement.”

Andreas Hadjiyannis, founder of Cyprus Sea Lines and head of the Cyprus Union of Shipowners, got it famously right last year when he predicted that dry bulk and containership freight rates would dramatically recover over the next few months. This time, he came up with an even bolder assertion.

“I am very, very optimistic,” he said addressing an audience at the 15th Maritime Cyprus conference in Limassol this week. “I think we have come from the worst shipping crisis in our lifetime. The previous was in 1929. The next will be in the 22nd century. So I don’t think that any of us here lived in the previous one or will live in the next one,” he said. “Of course there will be the usual cycles, but the big, big crisis is over,” he added.

To back up his view, Hadjiyannis noted that 2016 marked record scrapping and 2018 will mark record low newbuilding deliveries.

Clearing tanker clouds
George Procopiou, another major owner to make a rare panel appearance, said there wasn’t even reason for gloom and doom in the tanker market, which has been left behind in the shipping recovery of recent months.

“The tanker era is not over and will be around for many years,” he told the audience. Procopiou said he expected energy prices to remain low for a long time, boosting the world economy and oil cargo stems with it.

“We can see oil at $10 per barrel,” he said.

The US economy will particularly benefit from low energy prices. “Mr Trump came to make America great again. The American train started years ago and he put himself in front of it with a flag,” said the principal of Greek shipowner Dynacom Tankers.

Procopiou added the caveat that the sanctions era was coming back, with sanctions against Russia and later possibly Iran threatening to take a bite off global growth. That, however, didn’t weaken his overall assessment that “fundamentals are there for a sustainable increase in dry cargo and tankers”.

Chinese yards change gear
The Greek shipowner also carried good news from the supply side, suggesting that aggressive newbuilding construction in China was no longer on the cards.
“I came last Tuesday from China. The shipyards are not anymore building at a loss. They are prohibited from accepting loss orders,” said Procopiou, who has old links to the country.

Most private yards have shut down and those that survived are strong enough to survive. Chinese banks and leasing companies are not financing projects causing losses to shipyards any longer. “The excesses of the past are no longer there,” he said. The story was the same in Korea. “These are good news for shipowners,” Procopiou said.

Charting dry rate rise
Panos Laskarides of Lavinia Corp, another traditional owner on the panel, agreed the situation looked good but that dry bulk shipping markets still have a long way to go. “I think we’re looking forward to maybe two or three years of a steady rise in rates,” he said.

“Everybody is happy because we’re not at the catastrophic profit levels we were last year – but we’re still miles from making good money,” he said. “We’re hopeful that things will look up, and if supply and demand do not match and do not help, we can always prey to the Almighty.”

WHILE India’s coal inventories have dropped to a three-year low, imports are probably set to rise, which is very supportive for bulker demand.

Torvald Klaveness expects a strong fourth quarter, given all-time high imports for the month of September, at 18m tonnes. Although the figure includes delayed cargoes from August, the trend is up, said Peter Lindstrom, head of research at the Norway-based group.

“If inventories continue to be at extremely low levels, then we expect imports to rise,” which is positive for capesize, panamax and supramax, he said.

India has been importing coal from the US, Mozambique and Indonesia.

Coal inventories at power plants in India stood at 7.6m tonnes as of October 4, Arrow Research said in a note, adding that the level was only enough to last six days at the current consumption rate. Stocks are down by 33% on month and 63% on year, it said, citing the Central Electricity Authority.

“With lagging domestic production and robust demand, India is likely to increase its coal imports in the coming weeks to make sure power plants have adequate coal supplies,” it added.

Clarksons said that strong growth in power demand “could continue to support expansion in coal imports in the long term”, particularly if domestic output missed targets.
The country’s plans to connect some 300m people to the grid and continued firm economic growth could support rising import needs even as domestic production rises, Clarksons said.

Demand has been outpacing domestic supplies of coal, not just for power generation, but also for steel production.

In the first eight months of this year, India’s steel output increased to 66.5m tonnes, up by 5.1% versus the same period in 2016, according to figures from the World Steel Association.

And it is not just India that is expected to boost coal imports.

Low stockpiles in China as it curtails its own production over pollution concerns will likely mean higher imports, according to Mr Lindstrom, who added that Japan, South Korea and Taiwan had all increased their inflows of late.

BIMCO, the world’s largest international shipping association, has launched a practical guide for shipmasters managing new ballast water management systems. It coincides with the entry into force of the International Maritime Organization’s (IMO) Ballast Water Management (BWM) Convention.

BIMCO’s new Shipmaster’s Ballast Water Manual provides clear, accessible information for seafarers dealing with practicalities of daily ballast water management. The manual covers all aspects of the Convention including regulatory implementation, inspections by port state control and charterers and the latest guidance issued by the IMO.

The BWM Convention came into force on 8 September 2017. To prevent the transfer of potentially invasive species, ballast water must now be treated before it is unloaded into a new location, so that any micro-organisms or small marine species are destroyed. There are currently numerous ballast water management systems that have been approved by the IMO but IMO member states and most seafarers are still unfamiliar with their operations.

Lars Robert Pedersen, Deputy Secretary General at BIMCO said:

“Implementation of the BWM Convention has been just around the corner for a long time, but there is still a great deal of confusion over the actual realities of the operational requirements, each ships’ ballast water management plan and the associated record keeping to demonstrate compliance.

“This new guide has been written with seafarers in mind, in a practical and easily accessible way, to be used onboard at sea, helping the crew to manage the new obligations safely and effectively”.

BIMCO’s Shipmaster’s Ballast Water Manual links to the already established safety management system (SMS) covering the company and the ship, which includes proper plans for shipboard operations. The SMS requires crew and officers to be familiar with applicable onboard instructions and procedures, including ballast water management.

The manual reflects latest guidance from the IMO and can be ordered online here or by emailing info@witherbys.com.

The Shipmaster’s Ballast Water Manual is priced €150, or €85 for BIMCO members.

The findings are set out in OpCost 2017 (https://www.opcostonline.com), our unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2016, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 3 points, or 1.7%, while the bulker index also fell by 3 points, or 1.9%. The container ship index, meanwhile, was down by 1 point, or 0.6%. The corresponding figures in last year’s OpCost study showed falls of 6 points in both the bulker and container ship index, and of 4 points in the tanker index.

There was a 0.4% overall average fall in 2016 crew costs, compared to the 2015 figure, which itself was 1.2% down on 2015. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.8% on average, compared to the 1.3% fall recorded in 2015. All categories of tankers reported a reduction in crew costs for 2016 with the exception of Aframax Tankers and Suezmax Tankers, which recorded increases of 0.8% and 0.2% respectively, compared to reductions for 2015 of 1.9% and 2.6%. The most significant reductions in tanker crew costs for 2016 were the 2.8% and 2.7% recorded by Tankers 5,000 to 10,000 dwt and by Handysize Product Tankers respectively.

For bulkers, meanwhile, the overall average fall in crew costs in 2016 was 0.6%, compared to 1.1% recorded 12 months ago. All categories of bulkers reported a reduction in crew costs, the biggest fall being the 1.2% reduction in spending by the owners of Capesize Bulkers.

Expenditure on crew costs in the container ship sector, meanwhile, was up by 1.1% compared to the fall of 3.3% recorded for 2015. The biggest increase in this category was the 2.1% recorded for ships of between 2,000 and 6,000 teu, which in 2015 led the reductions in the container ship crew costs category with a fall in expenditure of 3.6%.

Expenditure on stores was down by 2.9% overall, compared to the fall of 4.3% in 2015. The biggest fall in such costs was the 5.1% recorded by owners of container ships of between 100 and 1,000 teu. In the same tonnage category, the fall in stores costs for owners of container ships of between 1,000 and 2,000 teu was 4.9%, the same figure as that recorded in the tanker sector for Aframax Tankers. Other significant reductions included Handysize Bulkers (4.8%) and Panamax Bulkers (4.4%).

For bulk carriers overall, stores costs fell by an average of 4.2%, compared to a fall of 7.7% in 2015, while in the tanker and container ship sectors the overall reductions in stores costs were 2.2% and 5.2% respectively, compared to the corresponding figures of 4.3% and 5.5% for 2015. The only rise in stores expenditure by any category of vessel was the 0.3% increase recorded by Coastal Tankers.

There was an overall fall in repairs and maintenance costs of 0.8% in 2016, compared to the 4.3% reduction recorded for 2015. The biggest fall in such costs was that recorded by Panamax Bulkers (3.2%), closely followed by Capesize Bulkers (3.1%). All vessels in the bulker category recorded reduced repairs and maintenance expenditure, but there were increases in the tanker sector, most notably the 2.4% additional outlay by Panamax Tankers compared to 2015. There were examples of small increases in repairs and maintenance expenditure in the container ship sector, while for RoRo’s the increase amounted to 2.2%.

The overall drop in costs of 3.0% recorded for insurance compares to the 3.2% fall recorded for 2015. No vessel types in any of the tonnage and size categories included in OpCost paid more for their insurance in 2016 than in 2015.The biggest reduction in such costs was the 5.2% recorded by container ships of between 2,000 and 6,000 teu. Not far behind were Handysize Bulkers and Panamax Bulkers (4.7% and 4.6% respectively), while in the tanker category it was Aframax Tankers which led the way in terms of reduced insurance expenditure (4.6%). Ro-Ro owners, meanwhile, paid 4.0% less for their insurance in 2016 than in 2015, in which year they spent an additional 2.4% in premiums compared to the previous year.

Richard Greiner, Shipping & Transport Partner, says: “This is the fifth successive year-on-year reduction in overall ship operating costs, although the reduction this time is less than half the figure recorded 12 months ago for 2015.

“The biggest cost reductions were those in the Insurance category. Insurance is a major item of expenditure for all owners and operators, without which most would not be able to operate on an international basis. The fact that such costs continue to fall may be due in part to a reduction in the incidence of major casualties. Most of the larger reductions in insurance costs tracked by OpCost, however, were recorded by bulk carriers, which are no strangers to the pages of the casualty reports. So cheaper insurance must also say much about the fierce competition for business which exists throughout marine underwriting markets worldwide.
“The next biggest cost reduction was in the Stores category, where the slower than anticipated improvement in world oil prices doubtless had a continuing beneficial knock-on effect on lube oil costs in 2016.

“The reduction in Repairs and Maintenance costs in 2016 was 3.5% down on the figure for the previous year. This confirms that maintenance can only be postponed for so long by owners and operators who accept the need to invest in their ability to compete for business in a highly competitive market which is more tightly regulated than ever before. Strategic short-term lay-up is a waypoint rather than a destination.

“Over the years, the OpCost study has recorded annual average crew cost increases of more than 20%, but there was a reduction in such costs this time of less than half of one percent compared to the figure for 2015. The continuing challenging shipping markets are doubtless a significant factor.

“Although 2016 was another difficult period for shipping, the year closed on a note of rising confidence, according to the Moore Stephens Shipping Confidence Survey. Owners and charterers were more confident, than for some time previously, of making new investments, and there were improved expectations of higher freight rates in all three main tonnage categories. The expectation, too, was that oil prices and the Baltic Dry Index could only go up.

“That increased confidence, which has carried over into 2017, should logically lead to greater activity, which will mean higher operating costs. When freight rates allow owners to absorb such increased costs, the numbers start to look healthy. At present, however, owners and operators are not earning what they should be, or would like to be, from most of the markets in which they operate. Positive net sentiment is good, but it is not enough. Something has to change.

“It is also true that in shipping – as elsewhere – what goes down must come up. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Capesize Bulker was US$ 7,512. In 2016, it was US$ 6,691. For a VLCC, the comparable figures are US$ 10,812 and US$ 9,950 respectively.

“Future OpCost studies are likely to reflect the start of spending – or planning for – the introduction of the likes of the Ballast Water Management Convention, the new global limit on SOx emissions from 2020 and initiatives to contain cyber-crime, which are assuming increasing importance in the industry. The results will also reflect, albeit subtly, the effect of geopolitical developments, which can seldom have been in a greater state of flux than they are today.

“Shipping can certainly find encouragement in a fifth successive annual fall in operating costs. But nothing is forever, and nothing is more certain than that the shipping industry will continue to be characterised by uncertainty, which can be both its strength and its weakness.”

Oceansaver, the privately-owned Norwegian ballast water treatment equipment maker, has filed for bankruptcy after reporting substantial losses in the past few years.

“The company had a number of problems, but the foremost of them was the fact that the cost production of the equipment in Norway was too high compared to Asia and China in particular,” said Karen Margrethe Rime, administrator of the estate of Oceansaver.

“The company also had a cash flow problem as they only received 10% to 30% (of the contract price) during production and the rest on completion of each project,” she told Fairplay.

In addition, Oceansaver suffered considerable expenses from guarantees it had issued to its clients as some of the units it had delivered to its clients required rectification during the guarantee period.

“It also seems that they were not very good at purchasing – they only made one component by themselves and purchased the other parts from third parties,” Rime continued.

A number of potential buyers are interested in acquiring the service part of the company Rime said, adding that she has meetings with them scheduled for the near future. “However, it will be very difficult to find a buyer for the production part of the business,” she said.

Oceansaver made a pre tax loss of NOK104.8 (USD13.3 million) million in 2016, a sharp weakening from a profit of NOK95.1 million in the previous year, while revenues fell to NOK195.1 million from NOK201.4 million, according to figures Oceansaver has filed with Bronnoysundsregistrrene, the Norwegian registrar of companies. 

However, the operating result  has remained  negative in the past three years and losses amounted to NOK93.4 million last year, NOK78.4 million in 2015, and NOK104.0 million in 2014, figures from the same source show.

As a result of poor operating performance, Rime said that the owners of Oceansaver had to inject fresh capital into the company from time to time in order to maintain its liquidity position at a viable level.

In December 2016, Oceansaver obtained final US Coast Guard type approval for what the company described as the first electrochlorination ballast water treatment system in the world.

Norway has an extensive maritime cluster and the equipment makers play a significant role in this. Oslo, its capital, was recently ranked as the world’s foremost maritime nation as far as technology is concerned. Oceansaver is based at Drammen, which is in the greater Oslo area.

Most of the shipbuilding and equipment manufacturing is located on the west coast of the country, where e.g. Rolls Royce, the UK based technology group, has the headquarters of its commercial marine business. The company is investing heavily to develop automated ships.

Against this background, it seems that the reasons that drove Oceansaver to failure were more company specific than an indication of general weakness in the Norwegian maritime equipment sector. 

Although the crisis in the offshore sector has hit the country’s yards, which again has impacted the equipment industry, but there have not been large numbers of business failures in the sector. This is partly due to the fact that the industry is well established in the world’s most important shipbuilding countries in the Far East.

Andreas Sohmen-Pao is positive about the future for shipping underpinned by strong demand from China. Sohmen-Pao, chairman of BW Group, however, sees the demand picture as just one of five levers for shipowners to watch.

“There is a lot to be optimistic about in terms of the future of shipping, but we should also be mindful of the risks,” he told the London International Shipping Week conference. “Too often we have gone from euphoria to despair in this industry,” he told a packed room at the Grosvenor House on Park Lane. “There will be small road bumps along the way like Brexit and political noise around the world, but I think the genie is out of the bottle when it comes to progress.”

He pointed out that Chinese GDP had grown from $300bn in 1918 to $11 trillion today, with that expansion taking place 10 times faster than that seen during the European industrial revolution. Even at the lowest growth rate seen in 2015, “China’s economy created a Greece every 16 weeks”, he explained. “That kind of growth gave unbelievable shipping demand and underpinned some of my optimism for the future,” Sohmen-Pao said. However, he added: “Before we get too euphoric, let me inject a small dose of despair.”

He explained demand growth is not very inspiring and too much depends on China. “There is a good chance China will implement more structural reforms after the MPC meeting in October,” Sohmen-Pao said. “It will slow down and although I mentioned there are other countries that can take up the mantle, currently there is no other country that can replace it in terms of shipping demand.”

In addition, supply remains “very elevated” and shipyards have plenty of capacity to bring back on line should prices rise, the shipowner continued. “To put it in simple terms, we have seen maybe a halving of shipyard capacity since the peak but we grew by four times to get there in the first place,” Sohmen-Pao said. “If you do the maths the yard capacity needed for the world fleet to grow in line with demand is probably about half of current capacity, assuming yard utilization of 70%. So putting supply and demand together I think the world will remain oversupplied with ships for some time to come.”

Sohmen-Pao noted that the world became heavily oversupplied with ships in 1975 and it took 25 years to work it off with a shortage finally reached in around 2000. “And [we] had a good decade or so, which coincided with China’s massive increase in demand,” he recalled. “Are we now 10 years into the next 20 to 25 year down-cycle? I’ll let Martin answer that later,” he said, in reference to fellow speaker, Clarksons Research vice-president, Martin Stopford.

After demand growth and capacity, Sohman-Pao’s third lever is technology, which he believes will provide both maritime opportunities and “high-level threats”. “If it’s not too blasphemous to say it, what technology giveth, technology may take away?” he told the audience. “Technology leads to efficiency gains which can increase the supply of ships. Technology is also about developments that can threaten the demand for ships: renewable impacting energy shipping and localized production and manufacturing impacting containers,” he reasoned.

“The fourth lever I think we need to watch is capital,” the shipowner explained. “It’s likely capital will remain relatively abundant and cheap. I know it may not seem that way to some players, but seen on a macro basis there is plenty of capital out there. The fact a few banks have pulled back may not make much difference if you have plenty of alternative funding sources.” He pointed to Oaktree and ICBC, both of which have high profile investments in shipping, having $100bn and $3.5 trillion under management respectively. “They can afford to invest a few billion in shipping and its billions which can actually move the needle,” Sohmen-Pao said. “Even though we are a capital intensive industry, we are not so big that if you pump a few billion in it won’t make a difference.”

Sohmen-Pao concluded: “A final observation, as we all know, geopolitics is a wild card. Shipping is a call option on logistical disruption. I don’t think this is something we should wish for, both because this kind of disruption can have ugly consequences and also because our industry should build a more constructive strategy than just waiting for disturbance.”