GREENER SHIPPING IS MORE PROFITABLE SHIPPING

Transcription

1 GREENER SHIPPING IS MORE PROFITABLE SHIPPING Presentation at MAREFORUM 3 RD BLUE SHIPPING SUMMIT 2013 Why protecting the environment makes good business sense? June 11th, 2013 George A. Gratsos Ph.D. President of Hellenic Chamber of Shipping 1

2 Shipping has always been the most environmentally friendly form of transport emitting only 2.7% of the world s Green House Gases. Ships emit 3.13 tons of CO 2 for every ton of fuel oil bunker. Ship consumption changes approximately with the cube of the speed. So will their emissions. Shipping contributes only 12% to marine pollution 2

3 Question: Where does the 58% more fuel estimated by studies come from? To be credible, the studies must identify rogue oil wells and refineries. Leakage from more expensive (taxed) products to tax free shipping make no financial sense. If anything leakage from bunkers allocated to be sold to shipping to on land consumers are very probable. Therefore even the IEAestimates may be overstated. 3

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5 Shipping conforms to: The laws of nature, which are well thought through and consistent Manmade regulations which, not being as inspired, some times create more problems than they solve despite the fact that knowledge and experience is ever expanding This presentation is mostly about the latter. 5

6 Shipping reacts to cost inputs and profitability criteria To improve shipping s already good environmental performance we must think clearly, free of ideological constraints and avoid meaningless, unnecessary complications. 6

7 ENERGY EFFICIENCY OF DIFFERENT SIZE BULK CARRIERS CARRYING A FULL CARGO FROM DAMPIER (AUSTRALIA) TO QUINDAO (CHINA) ON A ROUND TRIP BASIS Kg of Fuel per Ton of Cargo FLEET AVG SIZE IN 1981: 35,500DWT 39% more Energy Efficient in 20 years FLEET AVG SIZE IN 2012: 70,600DWT '000 DWT HANDY SUPRA PMX KMAX CAPE VLOC VLOC+ REV

8 BACK TO THE FUTURE The EEDI is the Energy Efficiency Design Index. Its purpose is to promote the design of energy efficient ships. That means improved hulls (the platform) and of course Machinery and Propellers. The simplified formula is as follows: PSFCC EEDI a dw dw v f c The formula the reference line As formulated it has a bias to reduce power rather than improve the design. All it will succeed in doing will be to build ships travelling at World War II speeds. This will increase transit time from Brazil to China from about 34.5 days at 13.5 kn to about 49 days at 9.5 kn!! Crews will suffer, interest and inventory costs will rise, more ships will be built and market fluctuations will be more violent, for lack of the elasticity derived from being able to steam through a greater speed range. It would have been better to compare ship designs at certain speeds (precedent: the automotive industry has a well defined cycle applicable to all automobiles). 8

9 The databases that produced the regressions which formulate the reference line are plagued with inconsistencies: Table from IMO MEPC 62/5/6 of May 5, 2011 submitted by Greece The above 3 pairs of 2 sister ships built by the same yard within a few months of each other have 8%-10% differences in EEDI. 9

10 Bureaucrats concept of how shipping operates is flawed Second IMO GHG Study 2009, paragraph 5.25, page 47 says: and it is particularly important that they do not have incentives to contribute to inefficient behavior. As an example of the latter, ship upgrades and major maintenance activities depend on the high-level strategies of the operating companies. In cases where ships are operated by a different company than the commercial operator, the technical operator may tend to minimize time in dry dock (to minimize off-hire cost) and other maintenance costs (e.g., painting costs) while at the same time handing the fuel bill to the commercial operator. Experts should be more careful. This statement is incorrect. There is no probability that the technical operator (the owner) will minimize maintenance because he is handing the bill to the commercial operator. The owner describes the speed and consumption of the ship and is paid charter hire accordingly. If he underperforms he is legally and financially liable. This statement in the Study is misleading. It is a good thing the study has a Disclaimer on the front page. 10

11 Rating existing ship in operation A lot of meaningless indexes have been formulated by concerned parties which have little to do with reality. With today s bunker prices and existing regulations, shipowners try to operate as efficiently as possible consuming the least possible fuel. It is in their interest to do so. Shipowners and Charterers in their negotiations incorporate the ship s consumption at different speeds (and drafts) at which the ship may trade at. It is clear from the EEDI formulation that same ship will have a different EEDI at different speeds (and drafts). The market rates ships by running computerized simulations of profitability for the envisaged voyage for each candidate ship at the described and legally binding speed and consumption figures given by owners. Shipowners will try to describe their ships with the least consumption possible in order to secure a higher time charter rate. 11

12 Survivability and maneuvering requirements With the EEDI as formulated, minimum powering requirements should be established for each ship. Criteria: The IMO minimum speed requirement for maneuvering in heavy weather, works out from about 7 kn for Handysize ships to about 10 kn for Capesize ships. The IMO Stability Code Severe Wind criterion requires testing in winds of 26 m/sec plus gusts (10+ Beaufort and 8 m waves). Ships often meet such weather conditions and must survive. Any powering requirements to meet lesser weather conditions would result in the ship grounding in an upright position in bad weather! IACS recommends only 19m/sec (8 Beaufort and 6 m waves)!! 12

13 SHIP ENERGY EFFICIENCY More energy efficient ships are a reality and will be game changers. The basic technologies have been known, tried and tested for decades, if not centuries. The basic trade-off is cargo intake revenue vs. bunker consumption cost for every ship segment, in order to increase profitability. The ratio BDI/BP is key. Energy efficient bulk carriers and tankers are about 20%-30% more fuel efficient than ships presently operating. For a tdw ship this represents a difference in average transport costs of about $3,000/day at bunkers costing $700/ton over a trading year. This income differential will depress the earning capacity and prices of existing similar tonnage going forward. 13

14 THE TECHNOLOGIES HAVE BEEN KNOWN FOR A LONG TIME Hull form is very important - A racing skiff does ~10 kn with 1 M-P - A rowboat does ~2-3knwith1M-P Slow speed engines and propellers Propeller efficiency usually increases with increasing diameter A reduction of the RPM tends to be beneficial Muntjewerft in 1983 mentions a possible increase of propulsive efficiency of 10 to15 pct (PNA- 1988) In 1981 Burmeister & Wain produced their MKIII tdwpanamax bulk carrier with improved hull, engine and a slow turning propeller doing 82 MCR, thus creating a very energy efficient ship. Its consumption was about 25% less than other ships built at the time. The ship had excellent cubic capacity but was a little short on dwt. 14

15 MARKET BASED MECHANISMS Ships trade at the speed at which profits are maximized. Ship emissions vary with the cube (or more) of ship speed. Ship speed varies with the ratio of the Freight Market level to the Bunker price. The average loaded trading speed of the bulk carrier fleet in 2012/13 appears to be about 14.6% lower than that of The number of loaded voyages completed appears to be 23.5% less. These factors indicate that the reduction in emission is over 50%. Because of these fluctuations, trying to create data bases and benchmarks for average yearly ship emissions is an exercise in futility. The Levy is the only Market Based Mechanism (MBM) which is directly and identifiably applicable to the cost of fuel for any trip, thus triggering an automatic profitable speed balancing mechanism. Systems that rely on average yearly emissions such as the ETS and others fail to capture this. The Levy, because of its simplicity, is 2 to 5 times more cost efficient than the ETS (USA CBO), providing greater environmental benefits at a lower cost. It will therefore disrupt globalization, world growth, trade and prosperity less. 15

16 MAXIMIZING KAMSARMAX TC AT VARIOUS FIO RATES AND SPEEDS ROUND TRIP HAYPOINT - QINHUANGDAO (COAL) BUNKER PRICE $500/TON BUNKER PRICE $600/TON BUNKER PRICE $700/TON TC PRESENT MARKET EST FLEET AVG SPEED EST FLEET HIGH AVG SPEED 13.71KN BDI BUNKER PRICE $800/TON BUNKER PRICE $1000/TON BUNKER PRICE $1300/TON FIO 10$/TON FIO 15$/TON 5000 TC $/Day FIO 20$/TON FIO 25$/TON SPEED (kn) 16

17 DB AVG FLEET SPEED vs BDI/BP TC PRESENT MARKET AVG SPEED FOR AVG EARNINGS HIGHEST OBSERVED R 2 = V (Speed) BDI/BP Ships will proceed at the speed at which they maximize earnings. They will automatically slow down in poor markets or high bunker prices and speed up in good markets or low bunker prices. At a base price of $ 600/ton of fuel between a BDI of between 800 and 2500 and for a difference of $ 100/ ton of fuel the average bulk carrier ~ tdw will alter speed by between 1.95% to 4.50% and emissions between 5.72% and 12.90% 17

18 SPEED CHANGE FOR $100/ton ($32/ton CO 2 ) PRICE INCREASE FROM $600/ton TO $700/ton FUEL (KAMSARMAX) BDI $600/ton $700/ton V PCT CHANGE V PCT CHANGE CO 2 EMISSIONS % 5.72% % 6.91% % 9.46% % 11.44% % 12.90% 18

19 GLOBALIZATION, THE COST OF FUEL AND THE PRICE OF CARBON The price of HFO presently fluctuates around $600/ton. Going forward it is more likely to increase than decrease. To this one must also estimate a price for carbon emissions which is presently being discussed in the form of a Market Based Mechanism (MBM). This will influence trade and globalization. According to IMO MBI study International Shipping & Market Based Instruments 2009 coauthored by the University of Cambridge, UK, Cambridge Econometrics (CE), UK, MARINTEK, Norway, Manchester Metropolitan University, UK, Deutsches Zentrum für Luft und Raumfahrt e.v. (DLR), Germany, the price of carbon adjusted to represent tons of fuel is estimated to be $177/ton in 2020 and $3,229 in A $100/ton increase in price of fuel would increase the round trip cost of freight in a Cape size bulk carrier from Brazil to China by $2.27 or about 10% of present rates. It will increase the cost of freight from Australia to China at normal speed by $0.71 also about 10%. If the price of fuel increases with the price of carbon by $1,000/ton this will double present freight rates and greatly reduce ship trading speeds. It will also reverse globalization. Without improvements in ship hull design the much a higher total fuel cost will change sourcing, slow or possibly even reverse globalization thus increasing costs to the society. This will slow world growth, trade and prosperity. 19

20 ADVANTAGES OF A BUNKER LEVY A bunker Levy alone could act as both: - A ship design improvement mechanism, and - An automatic speed regulating mechanism It would do this while reducing emissions, increasing ship profitability, eliminating unnecessary complexities and uncertainty. It is also 2 to 5 times more cost efficient thus increasing environmental benefits at a lower overall cost to society. 20

21 CONCLUDING REMARKS An EEDI pegged to a certain speed for different ship types (dry bulk, tanker, container) is the best guide to designers to produce a real eco ship. If an MBM is considered necessary the Carbon Levy is the most appropriate and most cost efficient method to reduce CO 2 emissions from shipping because: -It is clearly identifiable (ETS is not) -It automatically reduces ship speeds, therefore emissions, while maximizing profits -It allows for freight market response flexibility All other MBIs suggested are inefficient, complicated and therefore inappropriate for shipping. Too much time and money has already been spent to do the obvious. 21

22 Both emissions and the world transport system are very complex. Their interaction is obviously even more complicated. Governments should carefully study the repercussions of their regulations before they inflict irreversible damage to society through inappropriate legislation. Our society has developed substantial analytical capabilities to help guide us. Regulations should be supported by facts not feelings 22

23 ATTEMPTS TO DATE ARE NOT IMPRESSIVE THE ENVIRONMENT CAN T WAIT 23

24 Thank you G.A.Gratsos 24