ballast water management deadline is known … · to that adopted by the imo. ... due to the lack...

B A L L A S T WAT E R M A N A G E M E N T

D E A D L I N E I S K N OW N – B U T I S I T A C H I E VA B L E ?

F OT I O S K AT S O U L A S

THE BACKGROUND

The US Coast Guard will beissuing type approvals of ballastwater treatment systems over2017, easing the installationheadache for owners of US-bound vessels.

However, the threat linked to thescenario of Trump deciding torestructure or disband theEnvironmental Protection Agencymay have repercussions.

Having its own agenda, the US willsoon approve more treatmentsystems, under a standard similarto that adopted by the IMO.Vessels entering US waters willincreasingly be expected to havesystems installed, but permittingsome exemptions and the use ofother systems with a temporarycertificate as an alternative MS.

➢ The regulatory environment is set to change this year.The regulation calls for the installation of a newBWMS during the vessel’s next special survey afterthe effective date, in an effort to reduce the transferof invasive species into new habitats.

• Uncertainty over which equipment to install and when.

• Financial cost of installing one of these BWMS israther significant, especially as asset prices are closeto historical lows and earnings are under severepressure across most commercial shipping sectors.

The total amount of funds needed for owners to install a ballast water treatment system is estimated between USD 75 and 100 Bn.

• Dilemma for owners of older ships, as scrapping the vessel just before their next special survey might look more attractive than carrying the cost of BWMS installation, ranging from USD 500 k to USD 3 Mn, depending on the size of the vessel.

March 2017

BWM Convention - Deadline is known – but is it achievable?

2

BWM Convention comes into force 8 September 2017

DIFFERENCES BETWEEN IMO AND US TYPE APPROVAL PROCESS

1. Approval certificate issued by any flag state (orclass society on behalf of a flag state).

2. Manufacturer present during testing.

3. Test by any competent laboratory.

4. Manufacturer/laboratory report results to flag/CS.

5. Testing in accordance with IMO guidances.

6. Organisms left in discharge water are renderedunviable to reproduce.

7. Shipboard tests over a minimum six monthperiod with sampling specified. Required toachieve three consecutive successful trial runs.Water source specifications to be recorded butnot restricted.

March 2017


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1. Approval certificate issued by USCG.

2. Independent Laboratory staff operate duringtesting. Manufacturers not permitted.

3. Only independent laboratories approved byUSCG can perform tests.

4. Independent laboratory reports results to USCG.

5. Testing is in accordance with EnvironmentalTechnology Verification protocol only.

6. Organisms left in discharge water must bedead/inactive.

7. Shipboard tests run for a minimum of six monthsand ships’ crew to operate. Five consecutivetests to be taken and recorded for submission.Test vessels discharging treated ballast waterinto the waters of the US must be enrolled in theUSCG’s Shipboard Technology EvaluationProgram.

USCGIMO


8. Land-based testing with documentation duringfive valid replicated test cycles, and each testcycle should take at least five days. Testingshould be in different water conditions. Testfailure permitted.

9. Control and treatment tanks used for testingshould have minimum capacity of 200 Cbm.

10. Scaling for larger systems: In-line systems thatwould be used on large scale ballast systems canbe scaled down for testing.

11. Test water conditions: Temperature, turbidityand salinity should be noted but not specified.Different salinity tests expected with range over10 Practical Salinity Units but not specified.Variance between test laboratories of organismsbeing used.

12. Use of chemicals: Separate approval for anyactive substance (under G9).

March 2017


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8. A minimum of three biological efficacy tests ateach of two of the salinities selected by thevendor (all three is also permitted). Testingshould be positive.

9. Biological tests are one hour minimum,operating and maintenance tests for minimumof 50 hours.

10. Scaling for larger systems: No reference forscaling.

11. Test water conditions: Minimum watercharacteristics of challenge water (includingturbidity and temperature) specified. A setamount of given organisms to be used. Threesalinities referenced: Fresh (Salinity <1 PSU),Brackish (Salinity 10-20 PSU) and Marine(Salinity 28-36 PSU) (Type approval can be givenfor all or less of these ranges, but operatingparameters are noted).

12. Use of chemicals: Toxicity testing andregistration of biocides.

USCGIMO


March 2017


5

DIFFICULTIES IN IMPLEMENTING BWT MEANING EXTENSIONS?

Shipowners would find it easier to meet ballast water rules if there was more alignment between theUSCG and IMO, as it is not clear whether that will ever happen.

➢ “The coastguard has gotten a lot more strict and is asking a lot more questions. They are looking atit on a ship-specific basis. Shipowners want to comply with both regimes. Right now there aren’tmany options for doing that.” (Jeanne Grasso, Blank Rome attorney)

More ships apply for extensions from the USCG for meeting rules on discharging treated ballast, asUSCG has signalled stricter enforcement on the issue and shipowners face challenges installing USCG-approved BWTS.

USCG initiated its first civil case against a shipowner over discharging untreated ballast water in the US.Germany’s Vega Reederei faces a fine of up to USD 38 k after inspectors found its 31.7 k Dwt “VEGAMARS” (built 2011) discharging untreated ballast water while moored in Tacoma, Washington state.

Due to the lack of BWTS products meeting US standards, the USCG provided extensions to some ownersfor meeting those rules, as there are fears that approved ballast water treatment systems may still notbe suitable for the IMO.

Even if the USCG approved systems from three manufacturers — Optimarin, Alfa Laval and OceanSaver— in December, shipowners still report challenges in implementing ballast treatment programmes.

The USCG has granted extensions for 11,558 vessels as of December, up from 10,482 in October.

March 2017


6

DIFFICULTIES IN IMPLEMENTING BWT MEANING EXTENSIONS? (I I )

Among large owners:

• Maersk Line has extensions for 145 ships, compared with 124 ships in October.

• Pacific International Lines has extensions for seven additional ships by December, to 114 in total.

According to Intertanko, the OceanSaver system faces limits on where it can be installed on aship. Issues on hold time and power use “are important operating limitations and should beconsidered carefully” before installing BWTS gear.

Other issues:

• limits on where BWTS can be installed on a ship

• the capacity of the system might allow extensions in compliance with USCG ballast dischargerules

But the availability of three USCG-approved systems creates a higher hurdle for shipowners to getextensions for complying with US ballast water rules.

The USCG considers extensions for each ship individually, rather than issuing blanket extensionscovering multiple ships. This equals more detail on a BWTS product’s suitability for eachindividual ship in a fleet.

March 2017


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THE BACKGROUND (I I)

Shipowners had to wait for theProposed revisions of the 70th

session of IMO’s MarineEnvironment ProtectionCommittee.

Vessels subject to the Conventionto adjust their BWMS installationdates until revised Guidelinesapproved technology is available.

Most BWMS manufacturers lookfor USCG type-approval, ascurrently undergoing or recentlycompleting testing under the UStype-approval regime do not needto undertake additional testing toapply for type-approval under therevised Guidelines (G8)procedures.

The list of available systemsmeeting both USCG and IMOrequirements will be the same.

• Three systems type-approved by USCG available

➢ How should a shipowner make an investment decision?

➢ Should they wait until there’s a good number of available systems?

• BIMCO expressed concern “about the prospect of our members having to install treatment systems now which later may not be approved for use in US waters”.

• Several USCG type-approval applications, with USCG’s proclaimed goal to process applications within 30 days. But this is really time consuming.

• The more the approved options to choose from, the better for shipowners.

• Scrapping is becoming more attractive.

March 2017


8

BWMS: QUESTIONS FOR SHIPOWNERS

International Chamber of Shipping (ICS):

“We have a transition progressover five years, which is still beinginvestigated, but at least we havethat knowledge that a shipownerhas five years from the entry intoforce of the convention,depending on when his airpollution certification wasrenewed and his last dry dockingwas, in which to sort out dry-docking availability, equipmentavailability, etc. So that’ssomething. Now I don’t thinkwe’ve solved everything, yet and Ithink there will be another debateat MEPC 71 which will look at thetransition in a bit more detail. Andthe responsibility is on ICS amongother industry organisations toput forward a proposal forsomething that the industry canlive with.”

But there is still a number of concerns remaining.

• Decision on what equipment suits:

• their particular kind of trading,

• the vessels

• the type of BW treated in the time available.

Next questions:

• Can the shipowners buy that equipment from the manufacturer?

• Is a dry dock available to have the equipment fitted in?

• Are the technicians available?

There are no answers to, as yet.

March 2017


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With three systems gaining type approval by the USCG, owners can now start make a decision on which systems fit their ships if they want to trade to the USA.

BWMS LOCATION: ABOVE OR BELOW DECK?

Containerised systems ondeck - Planning stage

requirements:

• Less time for onboardinspections and 3Dscanning, as fewer locationsto be fully scanned.However, longer pipe runsmight be needed than if theBWMS was located on thetank top.

• Some extra cabling andpenetrations required, butsimpler design offoundations for a deck-mounted system (comparedto various foundations in apump room or engineroom).

Another tricky question for tanker shipowners

• Rather simple answer for most ship types

➢ in the pump room

• But what if available pump room space is restricted?

➢ though other factors should be considered as well

• The choice of a containerised system simplifies thearrangement plans. Much easier preparing a documentshowing one container on main deck than severaldrawings with filters, pumps, UV units, etc. in differentlocations.

• But internal installations on chemical tankers withcontrol panels and power units not explosion (EX) proofand fitted outside the ballast pump room.

• For containerised systems, all components have to be EX-proof, meaning more expensive units.

• The foundation design of the filter unit, a rather bigchallenge in many cases

• Tankers with submersible pumps in their cargo tanks,BWMS on deck, as there is no pump room at all.

March 2017


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“Nobody can be happy about thisconvention. It has still got a largenumber of flaws. It has got a numberof misunderstandings. But at leastnow we have a date forimplementation. We have some kindof transition arrangement, howeverunsatisfactory that may be, at leastthere is a transition arrangement.”

SHIPPING MARKET’S REACTIONS

"We expect vessel scrapping to beginto pick up as we progress through2017, particularly in light of theimplementation of the BWTconvention later this year. Somevessels may also be dry docked aheadof the implementation date of theconvention in order to defer the costof compliance. This may have theeffect of temporarily removing supplyfrom the market."

March 2017


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“We get more customers asking forquotations, when should they do it,can we help them”.

Wärtsilä currently offers two types ofBWMS; one using ultraviolet andanother using electro-chlorination.

The company has already applied forapproval of these systems from theUSCG.

Mr Eskola expects approval to bemade “some time this year”, being soconfident of securing US typeapproval that offers the two systemswith a refund guarantee shouldapproval not materialise.

“We have tested both systems heavilyon land and now they are in seatesting. We are confident we will getthe approval”.

Robert Macleod,Frontline

The shipowner

Peter Hinchliffe,ICS

The industry grouping

Jaakko Eskola,Wärtsilä

The manufacturer

THE INDUSTRY’S CREATIVITYOpportunities for new services to be offered and clever solutions suggested to quickly discharge ballast water.

• Ballast Water Treatment consultants developed onlineapplications to assist on the choice of a suitable ballastwater management system from among several optionsavailable. Databases containing all the systems on themarket in their various configurations and suitableoptions, with several available fields, such as the flowrate, the power requirement, the working principles andthe type-approvals.

• In-Port Ballast Water Management Concept (by DutchUniBallast). Mobile ballast water reception andtreatment points to be installed on barges operating inport and beyond to collect ballast water from vessels fortreatment. When full, barges would pump the water intoa closed port basin or tanks on ships outfitted with atreatment system, allowing vessels to quickly dischargetheir ballast water and continue their journey. Theshipowner’s responsibility ending with the discharge.

March 2017


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OTHER FACTORS DELAYING DECISIONS OF SHIPOWNERS

Postponing BWM Installation

The installation of BWM systems has to becompleted on the date of the first renewalsurvey of the International Oil PollutionPrevention (IOPP) Certificate, once theconvention becomes effective. In general,owners will have about five years to havesystems installed.

• This period may get expanded, with the datepotentially pushed back by two years if theproposed alternative amendment gets approvedat the Marine Environment ProtectionCommittee's 71st session, in early July 2017. Thetype approval process for equipment has beentightened and owners may seek systems thathave been approved under the new tougherspecifications.

• Even if the amendment does not get approved,owners could buy themselves an additional fourto five years by renewing a ship’s IOPP certificateearlier than scheduled, before September 2017.

March 2017


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Financing BWM

• Without doubt, major investment will berequired over the next few years to meetthe increasingly tougher environmentalregulations. The timing is not the best, asearnings are close to historical lows andbank finance is hard to come by.

• With the implementation of the ballastwater management system convention, theshipowner equity (shareholder funds) arecurrently expected to provide the mostimportant source of funding for theinstallation of the system, followed by bankfinance.

• But there is severe concern that financingBWM is almost impossible for severalshipowners, who have suffered significantlylow levels of liquidity.

BWMS & TANKERS

A tanker approaching its 4th or 5th

special survey may not haveenough trading life left to coverthe cost of installing thetreatment system.

Most vessels with surveys dueafter September 2017 are agedless than 15 years, butinstallations would mean evenshort-term supply reductions.

If scrapping of older shipsincreases dramatically, theremight be a boost in new orders tofill the potential tonnage gap, butthat cannot be taken for granted.

“One person’s sustainability isanother one’s disaster,” saidOnassis Foundation presidentAnthony Papadimitriou and thereare many owners thinking theexact same way.

March 2017


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0 300 600 900 1,200 1,500

Handysize

MR

Panamax

LR1

Aframax

LR2

Suezmax

VLCC

# Ships

Global Tanker Fleet entering dry dock

Remaining Fleet Due Oct-17 - Dec-18

BWMS & TANKER DEMOLITION

After limited demolition in 2016, we expectscrapping to pick up this and next year, as almost afifth of the crude oil tanker fleet will be aged 15 yearsor more. We’ll have to wait to see if 2017 and 2018will be “the years of scrapping”.

Clearing out tonnage from the global fleet, wouldwithout doubt make an impact on the freight marketfrom 2018.

Most likely candidates to be sold for demolition arevessels aged more than 15 years.

Decreased earnings, increasing bunker prices andhigher demolition values, together with recentlegislation on ballast water treatment, forimplementation from September this year, couldboost scrapping of tankers. Several tanker owners willhave to take a decision on whether to scrap non-compliant ships or hold on to them. Most of themwill take the decision literally the last moment.

March 2017


15

0

2

4

6

8

10

12

14

16

18

20

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Mn

Dw

t

TA N K E R C A PA C I T Y S C R A P P E D

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ore

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1990

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2001

2002

Mn

Dw

t

Tanker Fleet aged 15 Years or more by Year of Delivery

BWMS & CONTAINERSHIPS

Alfa Laval and Optimarin BWMS,two of the three type-approvedby USCG, require a 72-hour holdtime to meet the USCG’s criteriafor killing marine organisms, incontrast to the IMO criteria.Moreover, ultra-violet systemsmay need to run at higher powerlevels to meet USCG rules thanIMO rules.

A three-day hold time for anycontainership travelling betweenUS ports may not be feasible for ashipowner, allowing it to get anextension on implementing aballast treatment system.

A containership might have totake on and discharge ballastwater in every single port it calls,which means that there might notbe 72 hours between each.

March 2017


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88%

7%5%

USCG Type-Approved Fleet

Optimarin

Alfa Laval

OceanSaver

All ship types included

BWMS & CONTAINERSHIP DEMOLITION

Weak freight rates linked to overcapacity and limiteddemand growth, at least when compared to levels earlierexpected, have been the main drivers behind the dynamicincrease in container ship demolitions last year, with thetrend accelerating in current year as a result of the IMOregulation on ballast water. Of course, most of the vesselsscrapped are older ships of smaller size, while bigger andbigger ones have been getting delivered. As a result, thetotal capacity has been increasing faster than the numberof vessels in the fleet, adding further pressure to rates.

Scrapping is expected to remain at high levels in the nexttwo years, but as the fleet is relatively young across manysize bands, demolitions of larger container ships will bemoderate.

Some owners are expected to bring forward third or fourthspecial surveys, if they fall around the scheduled deadline,to delay retrofitting BWTS to the next special survey. But ifthe survey is due after mid-2018, owners will have to eitherretro-fit BWTS or scrap their tonnage. The additional costof retrofitting BWTS together with the special survey willpush many owners to scrap younger vessels before the nextsurvey.

Excluding ships on long-term charter at attractive rates, theadditional cost of retro-fitting BWTS will not be bearable,as there is no recovery in rates expected any time soon.

March 2017


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C O N TA I N E R S H I P C A PA C I T Y S C R A P P E D

0

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2000 2002 2004 2006 2008 2010 2012 2014 2016

k Te

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1991

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1993

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1995

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2001

2002

k Te

u

Container Fleet aged 15 Years or more by Year of Delivery

PERCENTAGE OF BWMS EQUIPPED FLEET & ORDERBOOK

March 2017


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Including all BWMS, even if they are not type-approved by IMO or USCG.

0%

5%

10%

15%

20%

25%

Bulk Cont LNG LPG Tank

BWMS APPROVED BY USCG

March 2017


19

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ips

Alternate MS Type

BWMS APPROVED BY IMO

March 2017


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AFFINITY GLOBAL OFFICES

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Sale & Purchase

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S Y D N E Y, M E L B O U R N E & P E R T H

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Finance Valuations

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DISCLAIMER

The information contained within this report is given in good faith based on the current market situation at the time of preparing this report and as such is specific to that point only. While all reasonable care has been taken in the preparation and collation of information in this report Affinity (Shipping) LLP (and all associated and affiliated companies) does not accept any liability whatsoever for any errors of fact or opinion based on such facts.

Some industry information relating to the shipping industry can be difficult to find or establish. Some data may not be available and may need to be estimated or assessed and where such data may be limited or unavailable subjective assessment may have to be used.

No market analysis can guarantee accuracy. The usual fundamentals may not always govern the markets, for example psychology, market cycles and external events (such as acts of god or developments in future technologies) could cause markets to depart from their natural/usual course. Such external events have not been considered

as part of this analysis. Historical market behaviour does not predict future market behaviour and shipping is an inherently high risk business. You should therefore consider a variety of information and potential outcomes when making decisions based on the information contained in this report.

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ballast water management deadline is known … · to that adopted by the imo. ... due to the lack...

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