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Fuel-efficient ships gaining market share as owners realize the potential they offer

Saturday, 06 October 2012 | 00:00
Ship owners were concerned, until recently, whether investing in a fuel-efficient "eco" ship, as the added premium they had to pay, wasn't yet clear as to if it would pay out. These doubts seem to have been dispelled now, after this week's announcement that the world's largest charterers, like Cargill, would only employ efficient ships from now on. At the same time, as the latest weekly report from shipbroker Intermodal points out, from a historical point of view, prices for either a newbuilding, or for a modern second-hand vessel of up to five years old, are at multi-year lows.
According to Intermodal's Panos Tsilingiris, "for example, Panamax/Kamsarmax Bulker newbuilding prices are close to their lowest levels reached over the last 20-year history in inflation-adjusted terms. This is very important since it is well-known that shipping is a strongly cyclical and capital intensive business and that the return of the investment is heavily dependent on its entrance point.
On the other hand, the discouraging fact for both investment possibilities is that current freight levels, even for very modern ‘high-spec’ tonnage, are too low. In other words, even today’s depressed newbuilding and second hand prices require break-even charter rates which are much higher than the currently prevailing market levels. For example, for the case of Kamsarmax bulker newbuildings, the break-even rate is in the high-$ 15,000s/day. Even though this is well below the historical average, it is still far above the current time-charter rates which are struggling in single-digit figures" Tsilingiris said.
He added that "however, the central factor which will determine the optimal decision appears to be fuel consumption. In the last two years, we experience continuous improvements in ship design towards energy efficiency rather than deadweight maximization as was the case up until the very recently. This improvement often stems from a combination of better hydrodynamics/hull form, economic low-speed main engines, bigger and more efficient propellers, slow steaming design points, and energy-saving appliances, among others.
As a simple exercise, let’s take the example of modern Kamsarmax bulkers. The most prominent designs that can be built today by Chinese yards promise main engine consumption in the high 20s t/d (at 14knots at scantling draft bss MDO). By contrast, and with everything else being equal, non-eco-type Kamsarmax resales in the market -either Chinese or South Korean- or 5 year old Japanese-built Kamsas quote consumption figures in the mid-high 30s tons/day.
We would generally expect prominent ‘eco-type’ designs to entertain fuel savings in the region on 10-20%. In monetary terms, if we accept a difference of 5tns/day between ‘eco’ and non-‘eco’ vessels, the eco-type newbuildings result in savings of arnd $ 3,200/day taking into account that the cost of IFO 380 is around $ 640/ton. Assuming 270 days of operation, the resulting annual savings are xs $ 860,000. Thus, in ten years, the total savings (undiscounted) are almost close to the value of a 15-year old Panamax Bulker today! However, in today’s shipping practice where slow steaming is the norm, the accrued savings will likely be lower" he said.
He concluded his argument by mentioning that "if we accept savings of 5t/d and eco-type Kamsarmax newbuilding prices in China at shy $ 27m, it is naively implied that non-eco Kamsarmax resales could be easily priced at arnd xs $ 20m and non-eco 5 year-old Japanese Kamsarmax tonnage in the mid-high teens. In reality, the market has valued 6 yo Kamsarmaxes below $ 18m and quality Chinese resales at low-mid 20s. To an extent, although the market discounts non-‘eco’ vessels, so far it does not discount them as heavily as per the promises of the eco-designs. All in all, eco-type designs are the way forward albeit they are as-yet unproven".
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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