To keep Felixstowe Dockers and other Dockers around the world informed as to what is going on around us all.
Sunday, 11 August 2019
The 340-Mile Line of Ships Waiting to Clean Up
By Alex Longley (Bloomberg) Head to the shipyards of Shanghai, Singapore or Hamburg and you’ll soon find them full to the brim with vessels rushing to clean up their act.
Over the course of this year, about 2,200 ships will install so-called scrubbers that allow them to keep burning more-polluting fuel that will otherwise be banned. Put all of those vessels in a line, and they’d stretch about 340 miles, according to figures from ship-classification company DNV GL. Much of the work is being crammed into the fourth quarter, threatening to drain capacity from the global fleet.
The work is building up before new rules from the International Maritime Organization that will curb the amount of sulfur oxides vessels can emit from January 2020. With ships able to keep using today’s cheaper fuel by installing scrubbers, a chunk of the global fleet will do precisely that. As such, many carriers will be out of service for weeks at a time from now through year-end for refits — good news for shipowners as those who charter vessels find fewer available.
“This will knock out quite a lot of ships off the market and by reducing their supply, it will also boost shipping rates, especially in the fourth quarter,” said Burak Cetinok, head of research at Arrow Shipbroking Group in London. “We expect a lot of disruptions to vessel supply.”
As is often the way, shipping rates have been surging or slumping this year depending on the cargoes being transported.
Carriers of dry-bulk cargoes like iron ore, coal and grains have had a banner year with earnings roaring as the market catches up after a couple of huge supply disruptions late in 2018 and early 2019. Chinese economic stimulus helped too. The Baltic Dry Index is at its highest for the time of year since 2010.
In oil-tanker markets, OPEC and its allies are trying to keep about 650 million barrels a year of crude off the market in an attempt to boost prices. A large chunk of that missing supply would normally move by sea, so rates have stayed depressed.
The reduced fleets as ships fit scrubbers should help across the industry, although some of the carriers will have the equipment installed while they’re being built.
But for the companies fitting the scrubbers, the installations boom — while good for business — also presents a logistics headache. Of the cumulative 3,000 vessels expected to have the equipment installed by the end of the year, two companies account for almost a third of those volumes: Wartsila Oyj and Alfa Laval AB.
Alfa Laval sold out its yard-space for pre-January 2020 installation a year ago, meaning it’s a race against time to make sure the equipment is fitted punctually.
“The sharp implementation date has obviously posed a commercial and technical challenge for us,” CEO Tom Erixon said. “It’s not necessarily to our advantage that the contracting cycle has been so quick.”
While it’s too early to see an impact on the freight market now, because most of the work is yet to be done, rates are nonetheless likely to rise when the installations ramp up and vessels go off-hire, according to Jonathan Chappell, an analyst focusing on marine transportation equities at Evercore ISI.
Any delays would also ripple into fuel markets. If it takes longer than expected for vessels to return to service, it would diminish demand for high sulfur fuel oil at a time when most shipowners in the world’s 90,000 vessel fleet are expected to abandon the product. For the time being though, companies are confident that they can fulfill their orders on time.
“The ramp-up is quite huge,” says Roger Holm, head of marine solutions at Wartsila, the largest supplier of scrubbers. “Operationally we are really pushing the boundaries. From a delivery point of view, it’s quite heavy focusing on the second half of the year.”