True benefits of fuel-efficient engines are only apparent at top end of speed spectrum

WITH a minimal difference in cost savings between a modern ship and an eco-ship when slow steaming — a market staple for the foreseeable future — many industry leaders are still unconvinced of the benefits of ordering newbuildings with fuel-efficient technology.

Charles R Weber projects manager Basil Mavroleon said that eco-ships only excelled at cutting fuel consumption at the top end of the speed spectrum and that a five-year-old ship could slow steam very effectively.

“When you’re going at seven or eight knots in ballast in this market – does it matter? That’s why I’m not yet sold,” he said.

His views were backed up by DVB Bank head of research and strategic planning Riaz Khan, who said so-called eco-ships were still untested, a comment that has been echoed around the industry over the last year.

Mr Mavroleon, who is also the managing director of WeberSeas, said: “These engines are not tested yet. On a lake with no air, this is looking great. Whether they can maintain service speed in rough seas remains to be seen.”

However, he said the price tag attached to retrofitting existing vessels could be justified on larger ships.

“It’s $800,000 to $1m, which is significant for companies that are losing money already. I think spending that on a capesize or [very large crude carrier] might make sense, but less so on a smaller ship,” he said.

Research by Charles R Weber has compared the benefits of retrofitting with ordering newbuilding eco-ships, with an overlap in savings between the two options.

The Stamford-based shipbroker’s work estimates that if a pre-swirl duct was retrofitted to maximise propeller thrust, as well as a rudder bulb to reduce energy loss from hub vortex and drag and a kappel propeller curved to reduce tip vortex flow energy loss, fuel savings could work out at 7.5%-11.5% compared with an existing ship.

In addition, it estimates potential fuel savings on a newbuilding of 10.5%-16%, due to the addition of improved bow and stern line hydrodynamics from optimised hull form and longer bore stroke and lower engine speed from a G-type engine.

The research then showed that in comparison to a non-eco modern capesize bulk carrier that consumes 60 tonnes of bunkers per day – at $630 per tonne – while sailing at 14 knots, a retrofitted vessel could save 4.5 tonnes-6.9 tonnes per day, which equates to $2,835-$4,347 daily.

For eco newbuildings with optimised hull and fuel-efficient engines, the fuel saving could be 6.3 tonnes-9.3 tonnes per day, resulting in a reduction in bunker costs of $3,969-$5,859 daily.

However, when calculating daily breakeven rates, which assumes acquisition cost, debt servicing and operating expenses, a five-year-old capesize with modifications came to $14,900 per day compared with a newbuilding eco capesize that settled out at $18,600 per day. Mr Mavroleon said that eco-ships made a lot of sense in the spot market right now, but if fixed out on time charter the shipowner would not be able to recoup the full premium of the eco-engine.

“If the saving in fuel is $5,000 a day, you might only get $1,500 of it. The real value comes on the spot market as long as bunkers remain this expensive,” he said.

Mr Mavroleon added, however, that shipowners that did opt to purchase secondhand vessels for retrofitting would have to have a couple of million “in the kitty” to compensate for the fact that the market earnings are still extremely weak and they were likely to make a loss on the purchase until a recovery came about.

This was one of the reasons why some owners were opting for newbuildings instead, said ICAP freight and basic resources research managing director Georgi Slavov.

“It postpones it a year or two going forward, when returns will potentially be better,” he said.

Regardless of whether shipowners opted to retrofit or order eco newbuildings, the biggest question remains where companies will find the funds.

Earlier in the day, International Chamber of Shipping chairman Masamichi Morooka expressed concern about cost of the technology required to meet new regulations.

“If a shipping company is already sinking in debt, how is it going to pay for the retrofitting of expensive new ballast water treatment systems that will be required in the next few years — at an estimated cost of between $1m-$5m per ship; and at a total cost to the industry that will probably run into hundreds of billions?” he asked.

“Or investment in an exhaust gas cleaning system, as an alternative to the use of expensive low-sulphur fuels?

“Distillate fuels currently cost around 50% more than residual fuel, and the difference between the two fuels is expected to increase as the use of distillate becomes mandatory. Without significant extra production of distillate fuels, how should ship operators manage these extra fuel costs?”