B A L L A S T WAT E R M A N A G E M E N T D E A D L I N E I S K N OW N B U T I S I T A C H I E VA B L E? F OT I O S K AT S O U L A S

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1 B A L L A S T WAT E R M A N A G E M E N T D E A D L I N E I S K N OW N B U T I S I T A C H I E VA B L E? F OT I O S K AT S O U L A S

2 THE BACKGROUND BWM Convention comes into force 8 September 2017 The regulatory environment is set to change this year. The regulation calls for the installation of a new BWMS during the vessel s next special survey after the effective date, in an effort to reduce the transfer of invasive species into new habitats. Uncertainty over which equipment to install and when. Financial cost of installing one of these BWMS is rather significant, especially as asset prices are close to historical lows and earnings are under severe pressure across most commercial shipping sectors. The total amount of funds needed for owners to install a ballast water treatment system is estimated between USD 75 and 100 Bn. Dilemma for owners of older ships, as scrapping the vessel just before their next special survey might look more attractive than carrying the cost of BWMS installation, ranging from USD 500 k to USD 3 Mn, depending on the size of the vessel. The US Coast Guard will be issuing type approvals of ballast water treatment systems over 2017, easing the installation headache for owners of USbound vessels. However, the threat linked to the scenario of Trump deciding to restructure or disband the Environmental Protection Agency may have repercussions. Having its own agenda, the US will soon approve more treatment systems, under a standard similar to that adopted by the IMO. Vessels entering US waters will increasingly be expected to have systems installed, but permitting some exemptions and the use of other systems with a temporary certificate as an alternative MS. 2

3 DIFFERENCES BETWEEN IMO AND US TYPE APPROVAL PROCESS IMO 1. Approval certificate issued by any flag state (or class society on behalf of a flag state). 2. Manufacturer present during testing. 3. Test by any competent laboratory. 4. Manufacturer/laboratory report results to flag/ CS. 5. Testing in accordance with IMO guidances. 6. Organisms left in discharge water are rendered unviable to reproduce. 7. Shipboard tests over a minimum six month period with sampling specified. Required to achieve three consecutive successful trial runs. Water source specifications to be recorded but not restricted. USCG 1. Approval certificate issued by USCG. 2. Independent Laboratory staff operate during testing. Manufacturers not permitted. 3. Only independent laboratories approved by USCG can perform tests. 4. Independent laboratory reports results to USCG. 5. Testing is in accordance with Environmental Technology Verification protocol only. 6. Organisms left in discharge water must be dead/inactive. 7. Shipboard tests run for a minimum of six months and ships crew to operate. Five consecutive tests to be taken and recorded for submission. Test vessels discharging treated ballast water into the waters of the US must be enrolled in the USCG s Shipboard Technology Evaluation Program. 3

4 DIFFERENCES BETWEEN IMO AND US TYPE APPROVAL PROCESS IMO 8. Land-based testing with documentation during five valid replicated test cycles, and each test cycle should take at least five days. Testing should be in different water conditions. Test failure permitted. 9. Control and treatment tanks used for testing should have minimum capacity of 200 Cbm. 10. Scaling for larger systems: In-line systems that would be used on large scale ballast systems can be scaled down for testing. 11. Test water conditions: Temperature, turbidity and salinity should be noted but not specified. Different salinity tests expected with range over 10 Practical Salinity Units but not specified. Variance between test laboratories of organisms being used. 12. Use of chemicals: Separate approval for any active substance (under G9). USCG 8. A minimum of three biological efficacy tests at each of two of the salinities selected by the vendor (all three is also permitted). Testing should be positive. 9. Biological tests are one hour minimum, operating and maintenance tests for minimum of 50 hours. 10. Scaling for larger systems: No reference for scaling. 11. Test water conditions: Minimum water characteristics of challenge water (including turbidity and temperature) specified. A set amount of given organisms to be used. Three salinities referenced: Fresh (Salinity <1 PSU), Brackish (Salinity PSU) and Marine (Salinity PSU) (Type approval can be given for all or less of these ranges, but operating parameters are noted). 12. Use of chemicals: Toxicity testing and registration of biocides. 4

5 DIFFERENCES BETWEEN IMO AND US TYPE APPROVAL PROCESS 5

6 DIFFICULTIES IN IMPLEMENTING BWT MEANING EXTENSIONS? Shipowners would find it easier to meet ballast water rules if there was more alignment between the USCG and IMO, as it is not clear whether that will ever happen. The coastguard has gotten a lot more strict and is asking a lot more questions. They are looking at it on a ship-specific basis. Shipowners want to comply with both regimes. Right now there aren t many options for doing that. (Jeanne Grasso, Blank Rome attorney) More ships apply for extensions from the USCG for meeting rules on discharging treated ballast, as USCG has signalled stricter enforcement on the issue and shipowners face challenges installing USCGapproved BWTS. USCG initiated its first civil case against a shipowner over discharging untreated ballast water in the US. Germany s Vega Reederei faces a fine of up to USD 38 k after inspectors found its 31.7 k Dwt VEGA MARS (built 2011) discharging untreated ballast water while moored in Tacoma, Washington state. Due to the lack of BWTS products meeting US standards, the USCG provided extensions to some owners for meeting those rules, as there are fears that approved ballast water treatment systems may still not be suitable for the IMO. Even if the USCG approved systems from three manufacturers Optimarin, Alfa Laval and OceanSaver in December, shipowners still report challenges in implementing ballast treatment programmes. The USCG has granted extensions for 11,558 vessels as of December, up from 10,482 in October. 6

7 DIFFICULTIES IN IMPLEMENTING BWT MEANING EXTENSIONS? (II) Among large owners: Maersk Line has extensions for 145 ships, compared with 124 ships in October. Pacific International Lines has extensions for seven additional ships by December, to 114 in total. According to Intertanko, the OceanSaver system faces limits on where it can be installed on a ship. Issues on hold time and power use are important operating limitations and should be considered carefully before installing BWTS gear. Other issues: limits on where BWTS can be installed on a ship the capacity of the system might allow extensions in compliance with USCG ballast discharge rules But the availability of three USCG-approved systems creates a higher hurdle for shipowners to get extensions for complying with US ballast water rules. The USCG considers extensions for each ship individually, rather than issuing blanket extensions covering multiple ships. This equals more detail on a BWTS product s suitability for each individual ship in a fleet. 7

8 THE BACKGROUND (II) Three systems type-approved by USCG available How should a shipowner make an investment decision? Should they wait until there s a good number of available systems? BIMCO expressed concern about the prospect of our members having to install treatment systems now which later may not be approved for use in US waters. Several USCG type-approval applications, with USCG s proclaimed goal to process applications within 30 days. But this is really time consuming. The more the approved options to choose from, the better for shipowners. Scrapping is becoming more attractive. Shipowners had to wait for the Proposed revisions of the 70 th session of IMO s Marine Environment Protection Committee. Vessels subject to the Convention to adjust their BWMS installation dates until revised Guidelines approved technology is available. Most BWMS manufacturers look for USCG type-approval, as currently undergoing or recently completing testing under the US type-approval regime do not need to undertake additional testing to apply for type-approval under the revised Guidelines (G8) procedures. The list of available systems meeting both USCG and IMO requirements will be the same. 8

9 BWMS: QUESTIONS FOR SHIPOWNERS With three systems gaining type approval by the USCG, owners can now start make a decision on which systems fit their ships if they want to trade to the USA. But there is still a number of concerns remaining. Decision on what equipment suits: their particular kind of trading, the vessels the type of BW treated in the time available. Next questions: Can the shipowners buy that equipment from the manufacturer? Is a dry dock available to have the equipment fitted in? Are the technicians available? There are no answers to, as yet. International Chamber of Shipping (ICS): We have a transition progress over five years, which is still being investigated, but at least we have that knowledge that a shipowner has five years from the entry into force of the convention, depending on when his air pollution certification was renewed and his last dry docking was, in which to sort out drydocking availability, equipment availability, etc. So that s something. Now I don t think we ve solved everything, yet and I think there will be another debate at MEPC 71 which will look at the transition in a bit more detail. And the responsibility is on ICS among other industry organisations to put forward a proposal for something that the industry can live with. 9

10 BWMS LOCATION: ABOVE OR BELOW DECK? Another tricky question for tanker shipowners Rather simple answer for most ship types in the pump room But what if available pump room space is restricted? though other factors should be considered as well The choice of a containerised system simplifies the arrangement plans. Much easier preparing a document showing one container on main deck than several drawings with filters, pumps, UV units, etc. in different locations. But internal installations on chemical tankers with control panels and power units not explosion (EX) proof and fitted outside the ballast pump room. For containerised systems, all components have to be EXproof, meaning more expensive units. The foundation design of the filter unit, a rather big challenge in many cases Tankers with submersible pumps in their cargo tanks, BWMS on deck, as there is no pump room at all. Containerised systems on deck - Planning stage requirements: Less time for onboard inspections and 3D scanning, as fewer locations to be fully scanned. However, longer pipe runs might be needed than if the BWMS was located on the tank top. Some extra cabling and penetrations required, but simpler design of foundations for a deckmounted system (compared to various foundations in a pump room or engineroom). 10

11 SHIPPING MARKET S REACTIONS Robert Macleod, Frontline The shipowner Peter Hinchliffe, ICS The industry grouping "We expect vessel scrapping to begin to pick up as we progress through 2017, particularly in light of the implementation of the BWT convention later this year. Some vessels may also be dry docked ahead of the implementation date of the convention in order to defer the cost of compliance. This may have the effect of temporarily removing supply from the market." Nobody can be happy about this convention. It has still got a large number of flaws. It has got a number of misunderstandings. But at least now we have a date for implementation. We have some kind of transition arrangement, however unsatisfactory that may be, at least there is a transition arrangement. Jaakko Eskola, Wärtsilä The manufacturer We get more customers asking for quotations, when should they do it, can we help them. Wärtsilä currently offers two types of BWMS; one using ultraviolet and another using electro-chlorination. The company has already applied for approval of these systems from the USCG. Mr Eskola expects approval to be made some time this year, being so confident of securing US type approval that offers the two systems with a refund guarantee should approval not materialise. We have tested both systems heavily on land and now they are in sea testing. We are confident we will get the approval. 11

12 THE INDUSTRY S CREATIVITY Opportunities for new services to be offered and clever solutions suggested to quickly discharge ballast water. Ballast Water Treatment consultants developed online applications to assist on the choice of a suitable ballast water management system from among several options available. Databases containing all the systems on the market in their various configurations and suitable options, with several available fields, such as the flow rate, the power requirement, the working principles and the type-approvals. In-Port Ballast Water Management Concept (by Dutch UniBallast). Mobile ballast water reception and treatment points to be installed on barges operating in port and beyond to collect ballast water from vessels for treatment. When full, barges would pump the water into a closed port basin or tanks on ships outfitted with a treatment system, allowing vessels to quickly discharge their ballast water and continue their journey. The shipowner s responsibility ending with the discharge. 12

13 OTHER FACTORS DELAYING DECISIONS OF SHIPOWNERS Postponing BWM Installation The installation of BWM systems has to be completed on the date of the first renewal survey of the International Oil Pollution Prevention (IOPP) Certificate, once the convention becomes effective. In general, owners will have about five years to have systems installed. This period may get expanded, with the date potentially pushed back by two years if the proposed alternative amendment gets approved at the Marine Environment Protection Committee's 71 st session, in early July The type approval process for equipment has been tightened and owners may seek systems that have been approved under the new tougher specifications. Even if the amendment does not get approved, owners could buy themselves an additional four to five years by renewing a ship s IOPP certificate earlier than scheduled, before September Financing BWM Without doubt, major investment will be required over the next few years to meet the increasingly tougher environmental regulations. The timing is not the best, as earnings are close to historical lows and bank finance is hard to come by. With the implementation of the ballast water management system convention, the shipowner equity (shareholder funds) are currently expected to provide the most important source of funding for the installation of the system, followed by bank finance. But there is severe concern that financing BWM is almost impossible for several shipowners, who have suffered significantly low levels of liquidity. 13

14 BWMS & TANKERS VLCC Suezmax LR2 Aframax LR1 Panamax MR Handysize Global Tanker Fleet entering dry dock ,200 1,500 # Ships Remaining Fleet Due Oct-17 - Dec-18 A tanker approaching its 4 th or 5 th special survey may not have enough trading life left to cover the cost of installing the treatment system. Most vessels with surveys due after September 2017 are aged less than 15 years, but installations would mean even short-term supply reductions. If scrapping of older ships increases dramatically, there might be a boost in new orders to fill the potential tonnage gap, but that cannot be taken for granted. One person s sustainability is another one s disaster, said Onassis Foundation president Anthony Papadimitriou and there are many owners thinking the exact same way. 14

15 before ' Mn Dwt Mn Dwt BWM Convention - Deadline is known but is it achievable? BWMS & TANKER DEMOLITION After limited demolition in 2016, we expect scrapping to pick up this and next year, as almost a fifth of the crude oil tanker fleet will be aged 15 years or more. We ll have to wait to see if 2017 and 2018 will be the years of scrapping. Clearing out tonnage from the global fleet, would without doubt make an impact on the freight market from Most likely candidates to be sold for demolition are vessels aged more than 15 years. Decreased earnings, increasing bunker prices and higher demolition values, together with recent legislation on ballast water treatment, for implementation from September this year, could boost scrapping of tankers. Several tanker owners will have to take a decision on whether to scrap noncompliant ships or hold on to them. Most of them will take the decision literally the last moment. TA N K E R C A PA C I T Y S C R A P P E D Tanker Fleet aged 15 Years or more by Year of Delivery 15

16 BWMS & CONTAINERSHIPS USCG Type-Approved Fleet 7% 5% 88% All ship types included Optimarin Alfa Laval OceanSaver Alfa Laval and Optimarin BWMS, two of the three type-approved by USCG, require a 72-hour hold time to meet the USCG s criteria for killing marine organisms, in contrast to the IMO criteria. Moreover, ultra-violet systems may need to run at higher power levels to meet USCG rules than IMO rules. A three-day hold time for any containership travelling between US ports may not be feasible for a shipowner, allowing it to get an extension on implementing a ballast treatment system. A containership might have to take on and discharge ballast water in every single port it calls, which means that there might not be 72 hours between each. 16

17 before ' k Teu k Teu BWM Convention - Deadline is known but is it achievable? BWMS & CONTAINERSHIP DEMOLITION Weak freight rates linked to overcapacity and limited demand growth, at least when compared to levels earlier expected, have been the main drivers behind the dynamic increase in container ship demolitions last year, with the trend accelerating in current year as a result of the IMO regulation on ballast water. Of course, most of the vessels scrapped are older ships of smaller size, while bigger and bigger ones have been getting delivered. As a result, the total capacity has been increasing faster than the number of vessels in the fleet, adding further pressure to rates. Scrapping is expected to remain at high levels in the next two years, but as the fleet is relatively young across many size bands, demolitions of larger container ships will be moderate. Some owners are expected to bring forward third or fourth special surveys, if they fall around the scheduled deadline, to delay retrofitting BWTS to the next special survey. But if the survey is due after mid-2018, owners will have to either retro-fit BWTS or scrap their tonnage. The additional cost of retrofitting BWTS together with the special survey will push many owners to scrap younger vessels before the next survey. Excluding ships on long-term charter at attractive rates, the additional cost of retro-fitting BWTS will not be bearable, as there is no recovery in rates expected any time soon. C O N TA I N E R S H I P C A PA C I T Y S C R A P P E D Container Fleet aged 15 Years or more by Year of Delivery

18 PERCENTAGE OF BWMS EQUIPPED FLEET & ORDERBOOK Including all BWMS, even if they are not type-approved by IMO or USCG. 25% 20% 15% 10% 5% 0% Bulk Cont LNG LPG Tank 18

19 # Ships BWM Convention - Deadline is known but is it achievable? BWMS APPROVED BY USCG Bulk Cont LNG LPG Tank Alternate MS Type 19

20 # Ships BWM Convention - Deadline is known but is it achievable? BWMS APPROVED BY IMO Bulk Cont LNG LPG Tank G9 G8 20

21 AFFINITY GLOBAL OFFICES SI H L B SE H P M SY SA LO N D O N S EO U L S I N G A P O R E H O U S TO N Dry Cargo Sale & Purchase Sale & Purchase Newbuilding Dry Cargo Sale & Purchase Tankers Tankers Newbuilding LNG Tankers S A N T I A G O LNG Finance Research Valuations B E I J I N G Tankers Dry Cargo S Y D N E Y, M E L B O U R N E & P E R T H Dry Cargo Dry Cargo Tankers 21

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