Japanese shipbuilders, leapfrogged by South Korean and Chinese yards in an industry they once dominated, are counting on fuel-saving technology to help them overcome a stronger yen and high wages, according to Exim News Service.
"There’s a sense of crisis in the medium to long term with the currency," said Mr Hiroshi Minami, President of Oshima Shipbuilding Co., based in Saikai, Nagasaki prefecture. "We need to focus on more fuel-efficient ships to compete."
Japan’s backlog for ship orders is less than half the size of both China’s and South Korea’s as prices about 20 per cent higher than in China dent sales in a market worth $ 95 billion a year.
Oshima Shipbuilding, Imabari Shipbuilding Co., Japan’s largest shipyard, and other local vessel makers are now backing global fuel-use standards, similar to cars’ mileage ratings, to highlight cost savings for operators as oil prices rise.
"Fuel consumption is what matters," said Mr Klaus Nyborg, Chief Executive Officer of Pacific Basin Shipping Ltd, whose dry bulk fleet, excluding charters, is almost 90 per cent made in Japan. "It’s the difference between breaking even or making a loss."
A Japanese Handysize dry bulk ship typically uses about 24 tonnes of fuel a day, compared with 28 tonnes for Chinese-made ones, said Mr Nyborg. That translates into about $ 2,700 a day of cost savings on fuel.
A Japan-made Handysize costs about $ 30 million, compared with $ 25 million to $ 26 million for a Chinese one, according to Rome-based shipowner d’Amico Societa di Navigazione SpA. The price of Japanese-made ships, which is usually quoted in dollars, has climbed as the yen strengthened in three of the past four years.
Japan lost its lead as the world's largest shipbuilding country by orders to South Korea in 2005 and dropped to No. 3 behind China the following year, figures from Japan’s shipbuilding association show.
China took the top spot in 2009 as the government pumped money into shipbuilders to help ensure supplies of raw materials from overseas and to prop up yards during the global financial crisis.
Chinese yards also benefited from lower wages.
To help highlight fuel efficiency, Japanese shipyards are backing the global standards set to be discussed next month by the International Maritime Organisation. The United Nations agency’s index will define a minimum efficiency level for various types of ships, that will be raised every five years to encourage improvement.
South Korean government is to introduce laws enforcing eco-friendly ship construction in the country after International Maritime Organization's recent decision to adopt Energy Efficiency Design Index.
The Ministry of Land, Transport and Maritime Affairs plans to come up with related regulations by the end of 2012.
From 2013 onwards, newbuildings will have to be constructed and operated in accordance with legal standards regarding carbon emission (g/ton·mile).
The MLTM is to form a task force, comprising officials from the government and private sectors, in November.
Meanwhile, the new eco ship regulation would have a great effect on shipbuilding, shipping, steel and equipment industries.
An official from Hyundai Heavy Industries said, "IMO and the government's decision would result in a big change in the market. Large companies will benefit from it but smaller firms would face more difficulties."
Ministry of Industry and Information Technology of the People's Republic of China (MIIT) has ratified a number of industry standards, which includes 109 Shipbuilding industry standards and would be enforced by October 1 this year.
The imminent shipbuilding standards cover a wide range of newbuilds respects, such as ship designing, welding, coating, launching and ship parts, etc.
Apart from standards for specific product, those criteria also involve the construction process and technologies, etc. Those clauses would possess great guidance significance on Chinese shipbuilding industry.
Implementation of these standards is expected to help Chinese shipbuilding enterprises to better meet international requirements, raise overall newbuilding quality and enhance competitiveness in international market.
It is reported that these standards would be uniformly published by the China Shipbuilding Technology and Economy Research Organization.
In July 1990 the US Congress passed OPA (90). Its intention was to phase out single hull tankers over 20 years; require ships to have oil spill response plans; and make shipowners responsible for oil spills. This controversial legislation was picked up by the IMO and, 20 years later, single hull tankers have gone and oil spills are massively reduced. So, regulations do work.
Now there is a new challenge. Last week, the IMO agreed a package (in MARPOL Annex VI) to ensure that new ships are more energy efficient and cut greenhouse gas emissions. For each ship ordered after 1st January 2013, an Energy Efficiency Design Index (EEDI) will be calculated based on efficiency data generated during sea trials. Over time the acceptable level of the index will be cut, ensuring that each generation of new ships is more energy efficient. In addition, to drive operational efficiency improvements, a Ship Energy Efficiency Management Plan (SEEMP) is required to demonstrate operational improvements.
Breaking with Convention
Luckily, a recent revolution in ship cost economics will be pushing in the same direction. In 2008 the annual capital cost of a new Panamax bulker was around $6m, and the annual bunker cost $3.3m. Today, the capital cost has dropped to $2m but bunker costs are $5.5m (see graph).
This revolution will impact on ship design and the obvious target is speed. The economics work, but for investors it is a nightmare decision. Many remember the underpowered tankers ordered when bunkers were expensive in the early 1980s, but which soon became white elephants when oil prices fell. So, ordering a slow, efficient ship can be a big risk. But if everyone has to do it to meet a regulatory target, the risk is greatly reduced.
Market Forces at Work
But could this cost revolution be just a blip? In 1980, the cost of operating a Panamax bulk carrier was about $10m, of which $2m was bunkers and $5.6m was capital (see cost definition in graph). At the time oil was expensive ($40/bbl), but capital costs were outrageous (14% interest). Since then the long-term trend in capital costs has been downwards, but, over the last decade, the long-term trend in fuel costs has been upwards. As a result, in the last three years for the first time, fuel costs are well above capital costs, inverting the importance of fuel and capital costs. Capital now costs only $2m a year, but fuel $5.5m a year. That is certainly starting to look like a revolution.
The all Energy Agenda
So, there you have it. Today regulatory requirements and economic necessity seem to be working in tandem. Shipyards, facing a tough market, are sharpening their energy efficiency models, and shipowners are debating the same issue (when they can get their minds off the appalling bunker bills). Have a nice day.
The Marine Environment Protection Committee (MEPC) of the IMO has adopted mandatory measures to reduce greenhouse gases from international shipping starting from 1 January 2013. All ships of 400 gt and above will need to comply with the Energy Efficiency Design Index (EEDI), which is a performance-based mechanism that leaves the choice of technologies to use in a specific ship design to the industry. As long as the required energy-efficiency level is attained, ship designers and builders would be free to use the most cost-efficient solutions for the ship to comply with the regulations. The new EEDI regulation, however, may be waived for new ships of 400 gross tonnages and above. The new measures were adopted last Friday at the conclusion of the 62nd meeting of MEPC from 11-15 July in London. The EEDI requirement forms part of the amendments to MARPOL Annex VI regulations for prevention of air pollution from ships. A new Ship Energy Efficiency Management Plan (SEEMP), which establishes a mechanism for operators to improve the energy efficiency of ships, is also added.
The Export-Import Bank of China, a major policy bank, and Sinosure, the nation’s official export credit agency, will intensify their overseas ship finance activity.
A Sinosure official says the credit agency has eased the conditions under which it will deal with foreign banks in ship finance deals. The agency provides insurance backing for loans to shipowners in partnership with a bank or banks.
It now will accept a tie-up with any foreign institution with $10bn or more in assets and a proven good track record with export credit agencies.
Meanwhile, Li Ruogu, president of China Exim Bank, said last week that the bank will expand into a large multinational institution over the next five years.
The first shipbuilding industry investment fund in Tianjin has currently funded over 60 vessels and is seen as great support for present sluggish newbuilding orders, as Zhang Guangqin, president of China Association of National Shipbuilding industry (CANSI), put forward at the 3rd CSF Forum.
“Some experts predict declining momentum of international shipbuilding market in next three years and the industry summit peak in 2007-2008 would not come back until 2020.” Zhang said and was supportive to this view, “Domestic new orders for 2011 face bleak future and may see a 20-30% fall in volume against last year. ”
Zhang also revealed that the current orders at hand for most shipyards could only last for one to two years and many yards would have to run about for new contracts.
“For those credible, capable and outstanding shipyards, we are willing to give financing support if any excellent project” Zhang said, “We will employ finance tools to push support shipbuilding industry and to enhance shipping financing human resources”
The Japanese government is working with industry players to establish some basic guidelines in a move to strengthen the country's shipbuilding industry.
The ministry of land, infrastructure, transport and tourism (MLIT) intends to heighten the global competitive edge of Japan's shipyards through industry restructuring and business revamp.
The broad outline of the guidelines include corporate alliance and business consolidation, entering new market and new sector, and strengthening the maritime cluster. Shipyards that develop their business according to those directors would receive tax incentives or other regulatory benefits.
Meanwhile, the Japan Ship Exporters' Association announced Tuesday that Japanese shipbuilders signed 18 newbuilding orders totalling 550,000 gross tonnes in May, down 41% year-on-year in gross tonnes terms.
At a shipping efficiency seminar in Singapore, shipowners said they were actively seeking ways to mitigate rising bunker fuel costs and guard against the likelihood of stricter environmental legislation of the industry.
“Three-quarters of the cost of running a tanker is going towards bunker fuel, so of course we take it seriously,” said a senior executive at a large southeast Asian tanker owner, who did not wish to be named.
He said his company had a Samsung Heavy Industries-designed very large crude carrier on charter that was already saving 20% in bunker costs over similar-sized vessels in its fleet.
He also said the company had ordered a suezmax-size tanker from Daewoo Shipbuilding & Marine Engineering that would save at least 10% in fuel efficiency costs for only a 1% cost premium over traditional designs.
“It’s not true to say the Korean shipyards are ignoring the desire for more efficient vessels,” he said. “It’s slow, but it is happening.”
A Singapore-based chemical tanker owner said excess shipbuilding capacity would help the process.
“The last few years, we had to fight for shipyard space — but from here on, the yards will be hungry and they will be more open to more efficient ship designs.”
Recently, COSCO Shipyard launched a creative design contest for the green ship of the future. The purpose of this creative design contest was to encourage the technological innovation of COSCO Shipyard and develop innovative ideas for future ship designs.
The contest attracted attention from both professional technical staff and production and management personnel from the COSCO Shipyard Group. In accordance with the competition requirements, all design work was required to consider ship types of the future, and ensure that fully integrated and environment-friendly, economic and safe concepts were tabled. On May 10, the Evaluation Committee judged the 23 shortlisted designs. Finally, the jury awarded the first prize to two designs, the “5000TEU hybrid high-speed containership” by the COSCO Zhoushan Shipyard Department of Design and “Future Water City” by COSCO Nantong Shipyard technology department.