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Maersk prefers retrofits to newbuildings when cutting unit costs
( LL ) The vicious circle in container shipping industry mainly results from carriers’ efforts in cutting unit costs amid a weak rate environment.
Shipping lines feel they have to order larger, fuel-efficient vessels to reduce expenses, which in turn creates another round of overcapacity that pressures rates. Then the same story repeats.
Jacob Sterling, Maersk Line’s head of sustainability, told Lloyd’s List in early April that his company is thinking of a different strategy. The Danish line has deployed new vessels over the past two years, namely the famous Triple-E class ships, yet it has also sought to optimise networks, vessel speed and carry out more retrofits.
While carriers in general have been thinking of improving network compositions and adopting slow steaming in recent years, few prioritise retrofitting like Maersk does.
“Often times, getting new ships is about reducing slot costs,” Mr Sterling said. “We show we can get that by retrofitting rather than adding capacity to our fleet.”
Maersk has not placed any newbuilding order since 2012, the same year it launched a company-wide retrofit programme. It doesn’t seem like a pure coincidence. Since then, the carrier has retrofitted 138 owned vessels and 58 chartered-in ships.
“We have always been retrofitting vessels, but in the past we only had retrofitting when our ships were going to the drydocks for five-year regular maintenance,” Mr Sterling said.
“From 2012 we have been doing it in a more systematic way. We also take out ships for retrofitting when they are not under maintenance, if the business cases are strong.”
The programme, which generally targets post-panamax sector, involves many small works that can be done at ports.
“There is a wide scale of works, including changes of pumps and modification of engine rooms…those can be done when ships are berthing,” according to Mr Sterling.
Of the 138 upgraded vessels, only 18 were retrofitted at drydocks while others had their works done at ports.
Of the more complex retrofits, the most famous is the so-called “nose job”—referring to changing ships’ bulbous bows to smaller ones. Maersk did the work for eight ships last year, including some 4,500 teu ships and some 9,900 teu ones, and is planning to do this for another four this year.
For its Stepnica class 8,400 teu vessels, the carrier not only changed their bulbous bows but also modified their engines, cut off their navigation bridges and raised it—which enables them to hold 10% more containers.
“We are looking at costs of $5m-$10m per ship for those kinds of big retrofits, which can cut unit fuel consumption by up to 15%. The payback time is just one to two years,” Mr Sterling said.
Maersk has a team of engineers assessing the gain in fuel efficiency from retrofitting each vessel. In many cases, it even makes economic sense for the carrier to upgrade chartered-in ships on mid- or long-term contracts.
“We have individual assessments on our vessels made by our engineers. They can assess the business cases,” Mr Sterling said.
“We more look at payback time. If we can make sure that we can save more fuel costs than retrofitting, we will do it.”
Those efforts have paid dividends. Taking also other fuel-saving measures, like network optimistion, into account, Maersk estimated all the green initiatives helped it reduce bunker expenses by $764m last year, or approximately half of its full-year profit of $1.5bn.
“We expect to have the same level of activity on retrofitting and upgrading of vessels in 2014,” Mr Sterling said.
What could pose risks to Maersk’s fuel-saving drive is the European emission control area, which requires ships to use 0.1%-sulphur fuel from next January, though.
“What we see today is that enforcement is very limited. Fines are very small compared to what you can potentially gain if you do not switch to cleaner fuel,” Mr Sterling said.
“This could put companies that follow rules, like us, at a disadvantage.”
Maersk is calling on national maritime authorities to tighten up enforcements and Brussels to establish guidelines on how to implement rules—perhaps in a more American way.
“There are big fines in the US ECA, and captains may go to jail if they are found to be deliberately cheating,” Mr Sterling said.
“In Europe, I’ll give one example: the whole AP Moller Maersk Group (which owns Maersk Line and other shipping business) didn’t encounter one single fuel inspection in 2012.”
HAPAG-Lloyd’s executive board chairman Michael Behrendt is to take up his new role as chairman of the line’s supervisory board earlier than orginally planned.
Jürgen Weber is to hand over the chair to Mr Behrendt in the autumn.
Mr Behrendt, who steps down from the executive board at the end of June, was to have had a year’s gap before joining the supervisory board.
But Mr Weber , 72, said in a statement he had decided to retire early, now that the merger with the container arm of CSAV was going ahead and that there was also a clear succession plan in place.
The two lines confirmed last week that due diligence had been completed and binding agreements signed, although regulatory clearance is still required.
Mr Weber joined the supervisory board in June 2012 and was elected chairman. In this function, his role has not only been to decide on the successor to Mr Behrendt, but also to ensure that Hapag-Lloyd continues to grow at a difficult time for the liner shipping industry.
“I believe these three tasks have now been fulfilled. Rolf Habben-Jansen has been a member of the executive board since the beginning of April and will replace Michael Behrendt as chief executive officer at the end of June,” said Mr Weber.
“Despite the weak market environment, Hapag-Lloyd has been able to achieve results that outperform the level of its industry peers.
“The integration of the CSAV container segment will make Hapag-Lloyd the fourth-largest company in the industry.
“The closing of this transaction in the autumn is therefore the ideal time to hand over the chair of the supervisory board to Michael Behrendt. He can then continue to oversee the important phase of integrating the CSAV container segment into the Hapag-Lloyd Group with his expertise.”
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· THE US National Retail Federation has written to union leaders and a west coast ports’ association to urge them to conclude contract negotiations as early as possible.
The NRF, which claims to be the world’s largest retail trade association, said it would like the International Longshore and Warehouse Union and the Pacific Maritime Association to expedite contract negotiations and reach an agreement to boost shipper confidence ahead of the peak season.
The NRF said expedited negotiations would strengthen supply chains and provide shippers and retailers the certainty they need to utilise the west coast ports.
In the past, talks have broken down between the two parties, resulting in costly industrial action by dockers.
The last major supply chain disruption to affect the entire west coast took place in the autumn of 2002, when management locked out dockworkers for 10 days.
“These negotiations are important to all of the import and export and related industries who rely on these ports to move the nation’s commerce,” said NRF president and chief executive Matthew Shay.
“NRF’s members, as well as other stakeholders, have already begun contingency planning to ensure their cargo does not get caught in potential disruptions.
“Any kind of disruption at the ports would add costly delays to our members’ supply chains and other industries relying on US west coast ports, and it likely further threatens the fragile economic recovery.”
The contract for the 23,000 registered longshore workers employed at the 29 ports along the US west coast is due to expire on June 30, with negotiations between the two parties due to begin in mid-May.
“We would further ask that you issue a statement committing to the commencement of meaningful negotiations now, and to commit to continue negotiating and working without interruption or reduced productivity even if negotiations extend beyond the June 30 contract expiration,” Mr Shay said.
“Both parties must recognise their role in the global economy and the need to ensure predictability and reliability for the many diverse stakeholders who rely on the ports.”
The Transpacific Stabilization Agreement wrote to the PMA in May to also ask for talks to be brought forward.
However, this scenario looks unlikely as moves to hold talks early in the past have failed to speed up the process.
In 2008 talks began in mid-March but were still not concluded by the time the contract expired.
“From March to the beginning of June, we got nothing done,” PMA chief executive James Mckenna told the recent Trans-Pacific Maritime conference. “There was no pressure to move.”
Mr Mckenna also said he did not expect strike action this time round, although he did not expect negotiations to be concluded by the June 30 deadline.
Proposed ethane export announced in US
( LL ) HOUSTON-based Enterprise Products Partners, a midstream energy producer, announced Tuesday it will build a fully refrigerated ethane export facility on the United States Gulf Coast – an operation that will be able to load 240,000 barrels per day.
The export facility, which will be integrated with the company’s existing Mont Belvieu complex in Texas, is projected to come online in the third quarter of 2016.
The impact on the shipping world could be significant, considering a Handysize gas carrier can carry up to 150,000 barrels of cargo and a very large gas carrier has a capacity for about 500,000 barrels. At 240,000 barrels of ethane per day, that output could translate to the hiring of one-and-a-half Handysize vessels or a VLGC ship every other day.
The build out of new export ethane facilities in the United States is a result of the current and projected pace of production and consumption. The United States ethane market is around 1m barrels per day and a current capacity to produce 1.3m b/pd, according to Edward Morse, global head of commodities research at Citigroup.
Ethane production should continue to ramp up further through 2018, when “we get a big jump in ethylene cracking capacity,” Morse said in a speech at the Connecticut Maritime Association conference last month.
Enterprise Products Partners’ chief executive, Michael A. Creel, agrees.
“We estimate U.S. ethane production capacity currently exceeds U.S. demand by 300 MBPD and could exceed demand by up to 700 MBPD by 2020, after considering the estimated incremental demand from new ethylene facilities that have been announced,” Creel said in the company’s announcement Tuesday.
The abundance of ethane, a byproduct of oil and natural gas exploration used as a petrochemical feedstock, has allowed US producers to export the product at pricing competitive pricing levels. The US ethane spot price for the nine months ending September 30 settled at around $161 per metric tonne, down from $526 at the end of 2008, according to LPG shipper Navigator Holdings.
Navigator in December added to its ethane fleet, with the ordering of a 35,000 cubic-meter gas carrier, which is expected to be delivered in April 2016. Even before that acquisition, Navigator dominated the ethane space, boasting five vessels able to carry 110,000 cbm, almost half of the 278,000 of current capacity on the water, according to a company’s November prospectus.
The Enterprise will have a direct impact on Navigator and other operators.
“Assuming a 20 day round trip voyage to Europe on 150,000 barrel vessels, we estimate the Enterprise project with need 32 such ships to handle the throughput,” wrote Ben Nolan, of Stifel on Tuesday. There are currently only 8 vessels that size on order (5 are Navigator’s) with little to no additional available shipyard capacity until 2017 (although there are a number of other smaller ships on order as well).”
India: Iron ore mining likely to restart in January in Goa
( Money Control ) Mining in top IRON ORE-exporting state of Goa is likely to restart in January next year once all companies have obtained environment and forest clearances from the federal government, a state government source said on Tuesday.
The Supreme Court lifted a 19-month old ban on mining in Goa on Monday, although it capped annual output in the state at 20 million tonnes (MT). More supply from Goa, which exports nearly all its output, is likely to add to an expected surplus in the world market and put downward pressure on prices. The ban was imposed in 2012 as part of a drive to curb illegal mining. It was lifted on the recommendation of a panel appointed by the Supreme Court to look into the mining industry.
"Mining won't start so soon... it should start somewhere in January 2015 because of processing and other formalities," the source, who handles mining in the state, told Reuters. "Mines will have to comply with forest and environmental clearances." The restart of mining activity will also be delayed by the four-month Indian monsoon season that begins in June, he said.
A ban on production and exports in Goa, coupled with similar curbs enforced earlier in neighbouring Karnataka, have sliced India's iron ore exports by 85%, or 100 MT, over the past two years. India was once the third-largest exporter of iron ore, but has now slipped to No. 10.
The resumption of supply from Goa will add to an expected glut of iron ore as big companies such as Rio Tinto and BHP Billiton boost production, while demand from top consumer China slows.
Sesa Sterlite Ltd, India's largest private iron ore miner which extracts all of its ore from the state, said no mining operations could be carried out until it obtained renewal of its mining lease permission from the Goa state government. The company is working to secure permission to start operations at the earliest, Sesa, a unit of London-listed Vedanta Resources Plc, said in a statement. Its shares ended nearly 4% lower on Tuesday in a flat Mumbai market, having risen as much as 7.4% on Monday after the Supreme Court verdict.
( LL ) FIRST quarter container volumes at Europe’s leading box port, Rotterdam, were flat in the first quarter of the year, although there was a slight increase in throughput by weight. The Dutch port said it handled 2.9m teu during the first three months of the year while container throughput in tonnes increased by more than 1% year on year to reach 30m tonnes.
Port of Rotterdam Authority said the growth came from deepsea shipments from Asia and North America and a recovery in transhipment volumes heading to the Baltic Sea.
Last year, Rotterdam lost Baltic Sea transhipment cargo to German rival Hamburg.
Shortsea containers to and from the UK and Baltic Sea countries also increased, Rotterdam said.
Port of Rotterdam Authority chief executive Allard Castelein said he would concentrate efforts on meeting the structural changes facing the container sector.
“Shipowners are building ever-larger container ships and starting to co-operate intensively to fill them optimally,” he said.
“At the same time, extra terminal capacity has been built in many northwest European ports while economic growth has lagged behind. Together with customers and stakeholders, we are working to rise to these challenges.”
Last year Rotterdam remained Europe’s busiest container port despite volumes declining by 1.7% year-on-year to 11.7m teu.
Hamburg, its closest rival, saw volumes increase by 4.6% last year to reach 9.3m teu. The German port has yet to release throughput figures for 2014.
Overall first quarter volumes at Rotterdam recorded a slight 0.2% decline to 109m tonnes, with crude oil slipping 2% compared with the same period last year. Mineral oil products were down 14% and other liquid bulk cargo also slipped by 14%.
However, there was a 5% growth in iron ore and scrap, a 15% increase in coal, agribulk was up 69%, dry bulk leapt 13%, ro-ro volumes increased 9% and other mixed cargo also increased by the same amount.
Mr Castelein said: ““The falling tendency of the second half of 2013 continued initially, but thanks to a strong month in March, the throughput in the first three months nonetheless stayed almost the same. For the whole of 2014, I am counting on slight growth.”
India-owned Singapore-listed Mercator Lines losses shrink
MERCATOR Lines, the Singapore-listed subsidiary of Indian tanker and dry bulk operator Mercator, reported net losses down 70% from $76.8m in 2012 to $22.8m in 2013.
But Mercator’s reduced loss came at the cost of reduced business. Revenues for the 2013 financial year, which closed on March 31, 2014, were down 30% from $109m to $75.3m. Time charter equivalent earnings for its fleet of largely panamax and kamsarmax vessels fell from $13,800 per day in 2012 to $11,500 per day in 2013.
Mercator blamed the reduced revenues on weaker demand in the Atlantic and a slowdown in imports to China in the first quarter of 2014.
However, the main reduction in Mercator’s losses came from reduced charter costs and vessel operating costs.
Mercator has shrunk its fleet by both disposing of older vessels and redelivering chartered-in vessels.
Vessel related costs for the period decreased by 34% to $51.9m compared to $79.1m the previous year.
( LL ) US IMPORTS of seaborne Nigerian crude and products are down to a more than 30-year low, according to Energy Information Administration data.
The alarming trend is heaping pressure on suezmax crude tankers, traditionally the preferred tanker for this crude trade voyage.
The big question for suezmaxes is whether they will be able to ply other routes to offset the loss of the Nigeria-US trade.
It is major loss.
The US imported almost 1.5m barrels per day of Nigerian crude and products in the late 1970s, according to the data from the EIA.
After a fall in the mid-1980s, imports fluctuated between roughly 500,000 bpd and 1.3m bpd, until around the last couple of years.
Oil found in US shale rock and other hard to reach locations changed everything during the last two years.
The US now has little need for Nigerian light sweet crude, a similar grade to its own abundant oil.
As a result, US imports of Nigerian crude and products have plummeted to around 100,000 bpd and appear to be edging towards the zero mark if the trend continues, the EIA data shows.
If all volumes since the 1970s were carried on suezmaxes, it is the equivalent of going from around 10 suezmaxes per week in the late 1970s to barely one a week now.
Suezmaxes are capable of carrying around 1m barrels on a voyage.
With the loss of the key Nigeria to US trade, where do suezmax crude tankers go from here?
The vessels are still a key element of the Black Sea to Mediterranean crude trade.
Suezmaxes in the Black Sea see regular spikes in earnings due to delays in the Turkish Straits, limiting vessel availability and pushing up freight rates for owners.
Last December, for example, these tankers saw earnings on that trade from Novorossiysk on the Black Sea coast, down to the Italian port of Augusta on the Mediterranean Sea coast, climb to more than $40,000 per day.
Indeed, some owners see Black Sea crude shipments as an opportunity to expand their fleets.
Kazmortransflot, the state-controlled crude carrier of Kazakhstan, plans to invest in secondhand suezmaxes to ship more Kazakh crude from the Black Sea to Mediterranean ports, telling Lloyd’s List recently that it was “monitoring the market to find the right time”.
There is also Mexico, where new energy reforms are opening up the country to investment by foreign oil companies.
The aim is to boost crude exports from today’s declining level, which Lloyd’s List Intelligence data shows is around 1.25m bpd from 1.42m bpd a year ago.
Although aframaxes are mostly used for Mexican exports, suezmaxes also find employment hauling crude out of the country.
And although the US takes most Mexican crude now, there are plans to diversify destinations, the Mexican government saying it is interested in sending more crude to Europe and Asia, building on the exports the country already sends to Spain and South Korea.
These longhaul routes would be likely to use larger tankers than aframaxes, such as suezmaxes.
The 1m barrel tankers can also take heart from US consultancy McQuilling noting in its tanker outlook that suezmax movements in 2013 from the Middle East Gulf to customers west of the Suez Canal rose slightly year on year.
Furthermore, suezmax movements between West Africa and Singapore also found support throughout the year, McQuilling noted.
In addition, there was a rise in trade on suezmaxes between northern Europe and North America, driven by Canadian requirements and increased fuel oil trade, the US consultancy said.
Another positive for suezmaxes to cling onto is the fact that the orderbook is low.
There are only around 40 on order, out of a live fleet of around 500, according to Clarksons’ data. The segment saw no net fleet growth in the first quarter.
That is just as well. As with other crude tankers, suezmaxes have been plagued by overcapacity over the last few years.
“The surplus in tonnage has been triggered by previous years’ orderbooks, low deletions and a massive decline in demand from West Africa to the US,” said McQuilling in its tanker outlook.
In uncertain times for crude tankers — notwithstanding encouraging improvements seen in freight rate earnings at the end of last year and start of this year for certain segments such as very large crude carriers — suezmax crude tankers face a far more uncertain future than others.
MAERSK Tankers has secured a charter for one year with blue-chip charterer BP for its product tanker Maersk Elliot, ensuring the tanker will rake in $13,750 for every day of the contract. The deal, as listed on broker fixture lists, comes to roughly $5m in total for the Danish shipping company, and shines a spotlight on rising prices for one-year product tanker charters.
Shipbroker Clarksons quotes one-year charters for modern, 37,000 dwt product tankers at $14,500 per day, up from $12,750 per day a year ago and $12,500 per day two years ago.
One-year deals are growing in popularity among owners because they lock in secure earnings, and allow them to shop around for new charters once the year is over, when product tanker earnings are forecast to pick up further.
Highlighting their popularity, as many as eight one-year charters have been fixed for product tankers sized 35,000 dwt-51,000 dwt since March 1, according to Clarksons’ data.
When the tankers come off their one-year charters in March or April next year, the expectation is that they will be able to secure even more robust earnings, both on the spot market and time charter market.
Improved earnings will arise from a better market balance between supply and demand, as new refineries in the Middle East and Asia ship more products to the demand centres in Europe, Australia and Africa.
“The product tanker sector has been generating quite a lot of buzz and optimism over the last year or so,” said the analysts at Italian brokerage firm Banchero Costa in a recent report. “Market fundamentals are certainly improving, and this is slowly starting to be reflected in charter rates and ship values.”
The report noted that time charter rates for medium range product tankers have been “slowly but steadily crawling up over the last four years, without much of the volatility seen in previous years”, with one-year charters close to $15,000 per day.
Maersk’s charter for its 2005-built, 37,300 dwt Maersk Elliot may have been done at slightly below the market rate for one-year deals, but, crucially, it will be free in a year to secure an even more lucrative charter contract.
Maersk and BP have not yet responded to questions on the deal.
Vessel under threat of arrest for failing to pay crew
( LL ) A SHIP detained at Fowey for multiple safety and accommodation failings last night faced arrest after the vessel’s owners failed to pay the crew their wages.
The Panama-flagged, 3,331 dwt general cargo ship Munzur was detained by the UK’s Maritime and Coastguard Agency for multiple failings. The International Transport Workers’ Federation is assisting the crew, who the ITF describes as “desperate to leave the unhygienic and filthy vessel and return home”.
There are 12 crewmembers, from five different nationalities. They report that all except one of them were being paid below the International Labour Organisation minimum, with one earning just $400 per month. At least five have not been paid since joining the vessel in January and February.
The crew is owed over $35,000. Nine crew no longer want to sail on the vessel and have asked the ITF to legally challenge the company on their behalf and secure the owed wages and repatriation costs.
ITF inspector Darren Procter said: “The contracts of employment on board are in breach of many Maritime Labour Convention regulations, and there are allegations that payment was made to secure employment.
“Living conditions are appalling, with the vessel having no hot water at the time of arrest, no washing machines, filthy bed linen, low levels of fresh food, unsafe electrics and a sanitary system which relies on a 45 gallon drum full of sea water.”
The company was given a deadline of 1700 hrs on Tuesday to pay and organise repatriation, after which the ITF would seek its arrest.
According to Lloyd’s List Intelligence data, the vessel’s owner is Hanmar International Transportation & Shipping of Turkey.
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