Monday, 16 December 2019


Diana Shipping: Scrubbers not 'attractive investment'
By Michael Juliano, TradeWinds

Diana Shipping does not consider buying exhaust gas scrubbers to meet IMO 2020 compliance a safe bet for the money.

"Why not buy a windmill or a real estate plot of land somewhere?" chief strategy officer Ioannis Zafirakis said during today's third-quarter earnings call with analysts.
He said shipowners who consider buying the devices costing at least $2m each need to look closely at the exact costs and expected returns.

"We have done that ourselves now and do not see it as an attractive opportunity investment-wise," he said in response to a question from Jefferies analyst Randy Giveans.
"At the moment, we think buying back our stock has much better return possibilities than investing in scrubbers."
The Simeon Palios-led company last week announced plans to buy back almost 4% of its stock.

Zafirakis said some are confusing scrubber installations as compulsory as IMO-required ballast water treatment systems.
"It's an investment to possibly enhance your returns accepting a specific risk by investing a certain amount," he said.

"Scrubbers are an investment where we have to make various assumptions to see something that is going to produce a nice reward ratio for our use of cash."
He said those assumptions include the expected fuel price spread between high sulphur fuel oil and marine gas oil, fuel availability, technical issues and at what charter rates.
"All of these are assumptions that someone should take to see a specific return if everything goes the way you expect," he said.

"At the moment, we do not see ... this possible return as an investment."

MEPC 73: the mid-week status quo
By Paul Stuart-Smith, IHS Maritime

Steady progress was being made on a range of issues at the 73rd meeting of the International Maritime Organization’s (IMO’s) Marine Environment Protection Committee (MEPC 73) as it reached its half way point on Wednesday afternoon.

Discussion points at the week-long meeting of IMO Member States, representative bodies from the shipping industry and non-governmental organisations include the next steps to be taken in the IMO strategy on reduction of greenhouse gas (GHG) emissions from ships, issues pertaining to the 2020 sulphur cap, possible improvements to the ballast water management convention, strengthening of the Energy Efficiency Design Index (EEDI), measures to combat marine plastic litter and a ban on carriage of heavy fuel oil in the Arctic. 

Agreement on steps to strengthen the EEDI for container ships and general cargo vessels was reached on Wednesday afternoon. The start date of Phase 3 of the EEDI for these categories of ship will be brought forward by three years from 1 January 2025 to 1 January 2022. It was also agreed that the reduction rate in the EEDI in Phase 3 for container ships will be increased from 30% to 40%. However, a similar proposal to bring forward the Phase 3 start date for large bulkers and tankers did not gain support.

Two attempts in the past two days to complicate the introduction of the 2020 Sulphur Cap have not succeeded. On Tuesday, a proposal to delay the start date of the ban on carriage of non-compliant fuel oil by a ship unless the ship is fitted with an exhaust gas cleaning system (“scrubber”) was defeated. The intended start date of the ban therefore remains 1 March 2020 and the relevant amendment to MARPOL is expected to be adopted by the end of the week.

Late on Wednesday, there was also a conclusion to the previous day’s discussion on a proposal to insert an “experience building phase” (EBP) into the implementation of the Sulphur Cap. There had been media speculation early on Wednesday that this proposal was gaining traction and would be approved. However, since even the sponsors of the proposal had accepted that there is no intention to delay the start of the Sulphur Cap, set for 1 January 2020, it was not clear to many delegates what the precise purpose of the EBP would be. In the event, it was agreed, by way of a compromise, that further ways of ensuring the smooth working of the Sulphur Cap, for example by enhancing measures to ensure fuel oil quality and reporting of non-availability of compliant (low sulphur) fuel oils, could be discussed at the next MEPC meeting in May 2019 (MEPC 74).

Following the breakthrough agreement at MEPC 72 last April on the IMO’s GHG emissions strategy, there may have been some expectation that momentum towards decarbonization of shipping would pick up further at this week’s meeting. The goal of the strategy is to reduce GHG emissions by at least 50% by 2050 and pursue efforts to phase them out entirely as soon as possible thereafter. In reality, the main task for IMO members this week in this area has been to agree a follow up plan of activities to be carried out between now and 2023 to set the strategy in motion. The follow up plan itself was drawn up at last week’s intercessional working group.

Concrete proposals for short-, medium-, and long-term measures to reduce GHG emissions from ships are now due to be considered at MEPC 74. To provide a scientific basis to help determine what these measures should be, on Monday it was agreed to commission a fourth IMO GHG study, the scope for which is being determined at a separate working group this week. The study will calculate the levels of GHG emissions from ships for the period 2012-2018 and provide projections of future emissions out to 2050. Much discussion has centred on how to ensure that these projections will be rigorously and objectively determined. In conjunction with the GHG study, there will also be an assessment of the impact of the GHG strategy on IMO Member States, particularly less developed countries, and those at the end of long shipping routes.

Another working group has been tasked with developing an action plan for dealing with the problem of marine plastic litter from ships, much of it from fishing vessels. Containers lost from ships are also a major source of plastic pollution as well as being a major hazard at sea for smaller vessels. Measures being considered for inclusion in the action plan are improvement of port reception facilities, imposing obligations on fishing vessels to report abandoned, lost and discarded fishing gear (ALDFG), marking of fishing gear and a system for marking and tracking containers and mandatory reporting of containers lost overboard. Proposals to include waste water which may include micro-plastics, known as “grey water” in the action plan may prove more controversial.

Debate over scrubbers continues to split shipping
By Simin Ngai, IHS Maritime

Scrubber technology has drawn its fair share of criticism, but it is firmly entrenched in the dichotomous debate about complying with the International Maritime Organization’s (IMO’s) 2020 global sulphur cap on marine fuels.

With about 15 months to go, the shipping industry is broadly split into two camps – either to burn low-sulphur fuel or install a scrubber system.

More major shipowners have come out in favour of scrubber technology in the past three months, said Andrew Hoare, managing director at Navig8 Asia, at the Marine Money Asia conference held in Singapore this week.

Navig8 is one of the earlier advocates of scrubber technology, having opted for scrubber-fitted newbuildings. To this, Hoare gave his vote of confidence. “Not only do [scrubbers] work, they’ve also exceeded performance requirements expected of scrubbers.”

“We back scrubbers because we recognise that the IMO 2020 regulations are a very disruptive event to our industry. We can see clearly today from the pricing differentials that there will be a huge opportunity, but there will also be a huge amount of disruption down the supply chain.”

Because of yard capacity constraints, however, it would be impossible for the entire global fleet to be fitted with scrubbers by 2020, even if they chose to, said Sadan Kaptanoglu, president designate of BIMCO and managing director of HI Kaptanoglu Shipping.

Scrubber technology also requires expertise and training on the part of the crew. According to Mario Moretti, senior director of marine and energy at RINA, the type of scrubber system to be employed and how to dispose of resulting sludge are key issues that shipowners must address.

One of the drawbacks of opting for scrubbers is the high capital cost upfront. This has also been compounded not just by a liquidity crunch, but also by the uncertainty of the business landscape ahead.

From a banker’s perspective, this presents both risk and opportunity, said Nicolas Parrot, head of transportation at BNP Paribas. As a financial institute, BNP Paribas’ role is not to influence decisions, but rather to support their clients’ decision.

For shipowners that opt for scrubbers, the bank can help with the financing aspect, Parrot said. Those who decide not to go with scrubbers may be exposed to the price of fuel. They have the option of hedging, and this can provide visibility on the costs for at least the first few years.

“Overall, we see this as a good opportunity for a dialogue with the client,” said Parrot.

“The 2020 sulphur cap is probably one of the industry’s most defining moments since we moved from coal to oil over a hundred years ago,” said Michael Phoon, executive director of the Singapore Shipping Association (SSA).

Intertanko's regional manager of Asia-Pacific and environment director Tim Wilkins offers a systematic approach to addressing the regulation, by considering all the known and unknown factors that need to be addressed.

One of the known factors is that IMO will accept that shipowners may face situations where they do not have fuel oil availability, and this should give shipowners some respite.

On the other hand, some unknown factors include how port state control will tackle sampling of marine fuels on board and what the tolerance levels will be. Furthermore, there are questions about how port state control will manage a situation, for example, where the scrubber breaks down.

Other things that need to be worked out include safety concerns and what to do with non-compliant fuel, as debunkering can be a costly and challenging exercise.

In a separate session at the same conference, BW Group chairman Andreas Sohmen-Pao said regulation was a good thing. “It represents progress and response to a changing environment, although there can be good and bad legislation.”
IMO’s 2020 sulphur cap should be looked upon positively, he said. “It was signalled very early, so nobody can complain they didn’t see it coming.”
Although BW LPG recently announced its choice to burn LPG as a marine fuel, Sohmen-Pao is of the opinion that there is no one-size-fits-all solution. “For scrubbers specifically, it’s horses for courses. It depends on what size of ship you have, what the payback is, what your assumptions are for how long the price differential is going to blow out, whether you’ve got the capital to invest, and a whole host of things.”

Shipping cycle remains on recovery curve
By Andy Pierce, TradeWinds

Clarksons Platou Securities has suggested newbuilding prices should spike given strong demand with the industry heading for conditions it has not experienced in a decade.

Its analysts are also playing down the impact of an escalating trade war initiated by the US, while incoming sulphur laws are adding an exciting narrative.

“We remain confident that the shipping cycle has turned inflationary and will remain so in the foreseeable future,” said analysts Herman Hildan, Frode Morkedal and Erik Hovi in the latest Shipping Biannual report.

“We estimate that newbuild prices must increase +30% to meet future tonnage demand for the world merchant fleet, based on its historical relationship to global growth.”

The trio argued the general inflationary pressure on asset values will couple with higher elasticity and rate volatility in all sectors for the first time in the 10 years since the financial crisis ended the last industry upcycle.

This will lead to the market slack being fully absorbed by 2020, they argue.

In 2020, Clarksons Platou Securities is forecasting VLCC rates of $55,000 per day, suezmaxes at $38,000 per day, LR2s at $30,000 per day and VLGCs back to $28,000 per day.

At the same time, capesize bulkers are forecast to earn $28,500 per day, panamaxes at $17,500 per day and 4,500-teu containerships $18,500 per day in 2020.

Shipping stocks have struggled this year having been hammered down by trade war fears and still weak earnings for many segments.

Hildan, Morkedal and Hovi say a trade war when fleet growth was generally high in 2017 could have been devastating for shipping.

But with fleet growth at a five-year low, this is no longer the case, with the International Monetary Fund projecting GDP growth of 3.9% in 2019.

This could come down by 0.5% if current trade policy threats are realized and business confidence falls.

“Still, even with 3.4% instead of 3.9%, we see the shipping recovery continuing as net fleet growth is below these levels in many segments,” the analysts said.

“We also note that even if infrastructure spending were to slow, already committed projects would still need transportation of raw materials and therefore the shipping demand cycle would be expected to peak later than the overall economic cycle.

“In sum, we do not share the worry about economic growth which we believe is ultimately behind the weak share price performance for the sector this year.”

Skuld warns members to get customs right in African bulk discharges
By Jon Guy, IHS Maritime

P&I Club Skuld has raised the issue for shipowners and charterers of the rise in customs fines in certain African states.

Skuld has distributed new guidance to its members that addresses its concerns around custom fines for discrepancy between quantities manifested and the final stevedores’ figure.

The club has taken a stand on the issue with other clubs and the international group has yet to follow its lead in highlighting the problems.

Skuld said it remains a potential issue for bulk vessels trading in West African nations, especially in countries such as Benin, Togo, and the Ivory Coast, which have a high demand for imported bagged commodities such as sugar and rice.

The fines can be hefty and the obligation to pay them is laid at the feet of the ship’s agents who in turn will demand a letter of understanding from owners and clubs to pay any fines should they be imposed.

In its advice to members, Skuld said, “Bulk vessels discharging bagged cargo in Lomé, Cotonou, and Abidjan will often receive a message from their agent on arrival stating that when a vessel is calling at one of these ports, the agent needs to provide a copy of the cargo manifest within 24 hours of the vessel’s arrival and that, in the case of a discrepancy between the quantity manifested and the final stevedore tally’s figure, a custom fine will be imposed.

“As the vessel’s agent is responsible for the payment of the fine on behalf of the vessel, it is common, before completion of discharge, to receive a request for the issuance of a letter of undertaking (LoU) to cover the amount of the potential fine. The LoU request will be based on the estimation of the potential fine, plus a usual uplift.”

The club added that, while the situation has improved in Togo and Benin since 2014, owners and operators need to take certain steps to ensure they are prepared for every eventuality.

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