Sink or swim

For the German classification society Germanischer Lloyd (GL), "survival of the fittest" is the best demonstration of how a shipping company could stay competitive by best adapting to contemporary conditions.

Based in Hamburg, GL sets standards in technology, safety and quality for the maritime and industrial sectors. As a technical supervisory organization with a global network of 208 offices in 77 countries, GL has been ranked among the top classification societies for years and three years ago was the first in the industry to urge shipping lines to slow their sailing speed to save fuel consumption.

Now, with fuel costs continually climbing - the price for heavy fuel oil has tripled to cost more than $660 a ton in three years - GL thinks it's time for ship owners and shipyards to develop vessels with higher energy efficiency in order to survive changing times.

"Shipping is entering a new era," says Hermann J Klein, CEO of GL. "The days of cheap fuel are gone. Ships with higher energy efficiency will enjoy greater competitiveness in the future."

For GL, the economics of energy efficient ships holds water. The fuel costs for a series of eight ships over a lifespan of 25 years, according to GL's calculation, would amount to $8.8 billion, which is seven to eight times the total construction costs. Based on such estimates, if shipyards could only spend 1 percent of the building costs of a vessel on energy efficiency related designs, they would be able to save $10-11 million on fuel bills.

Another concern for ship owners is the move to impose strict emission limits on shipping.

Shipping remains a generally environmentally friendly mode of transportation, but in some parts of the world restrictions are already in place in order to reduce carbon and sulfur footprints of ship lines. With the introduction of "Sulfur Emission Control Areas" (SECA) in European coastal waters, for example, shipping lines are asked to burn fuel with less sulfur content, though it costs more.

Under the EU Marine Fuel Directive, in the SECA areas of the North Sea, English Channel and Baltic Sea, all ships are limited to using a maximum of 1.5 percent content of sulfur for fuel. By 2010, the limit is to be cut down to 1 percent.

According to Klein, the International Maritime Organization (IMO) is also planning to introduce a CO2 tax for ship related emissions in the near future.

"An emissions trading scheme has been agreed upon for air transportation. It is only a question of time when a similar scheme will be introduced for shipping," he says.

"As more international as well as national regulators step up efforts to cut emissions, it will increase transportation costs Energy efficient vessels will be a unique selling point for shipyards given the overall cost calculation of each owner."

Among the energy alternatives that could be used for ship lines such as methane or hydrogen, one realistic option is to resort to LNG which has no sulfur content and lower carbon content than the same amount of heavy fuel oil, according to GL's study based on a typical feeder vessel in the Baltic Sea.

Although the installation of an LNG fuel tank would mean a 3 percent loss of cargo space. But given the energy efficiency of LNG, it's still economical for short-distance shipping, GL's studies indicate.

Volkmar Wasmansdorff, CEO of the GL's Asia Pacific region, notes that the strong demand for newly built tonnage in recent years has been matched by a worldwide trend to build up shipyard capacities in Asia as inner-Asian trade grows.

China, in particular, takes up the biggest share of GL's new ship order book, increasing to nearly 700 ships in 2007 from 300 in 2005. Home to more than 1,400 ports and 3,000 shipyards, China's shipbuilding industry is among the world's top three.

"While the increase of worldwide demand for new ships is not easy to answer, I'm sure ship owners will increasingly choose shipyards that are able to offer energy optimized design," says Klein.

(China Daily 08/04/2008 page4)