bulk carrier update no. 2 2009

DNV Bulk Carrier UpdateInformation from DNV to the bulk carrier industry No. 2 June 2009

ENVIRONMENT

Also inside:� Climate change regulations� Effects of slow steaming� US Clean Water Act� Market outlook

Climate change regulations

CLIMATE CHANGE REGULATIONS . . . . . . . . . . . . . . . . . . . 4

US CLEAN WATER ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

EFFECTS OF SLOW STEAMING . . . . . . . . . . . . . . . . . . . . . 10

NAUTICUS AIR AND NAUTICUS ENVIRONMENT . . . . . 12

AEGEAN BULK Improving energy use . . . . . . . . . . . . . . . . 14

THENAMARIS Optimising the transport chain . . . . . . . . . . 17

PORT STATE CONTROL PSC tool kit . . . . . . . . . . . . . . . . . 20

OPERATIONAL ASPECTS Cargo handling –

Cargo hold cleaning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

MARKET OUTLOOK Strange market upturn

& Chinese iron ore enigma . . . . . . . . . . . . . . . . . . . . . . . . . . 24

US Clean Water Act Effects of slow steaming

Photos: front cover © Thenamaris Ships Management, p3 © Klaveness,

p5 © Magne A. Røe, p11 © Magne A. Røe, p12 © Jan Henrik Koren,

p14 © Aegean Bulk, p17–19 © Thenamaris Ships Management,

p23 © Magne A. Røe.

Front cover: Seaboss is managed by Thenamaris Ships Management Inc.

Yard: Nantong COSCO KHI Ship Engineering Co., Ltd., 2004.

Class notation: �1A1 Bulk Carrier ESP ES(S) HC-E GRAIN-U DG-B E0 IB(+)HOLDS(2,4)MAY BE EMPTY TMON Nauticus(Newbuilding)

CONTENTS

2 | DNV BULK CARRIER UPDATE NO. 2 2009

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DNV Bulk Carrier Update

is a newsletter published by Det Norske Veritas, DNV Maritime.

It is distributed to DNV customers and stations worldwide.

© Det Norske Veritas AS

Please direct any enquiries to your nearest DNV station or

Bulk Carrier Update e-mail: [email protected]

Editorial committee:

Michael Aasland, Business Director, Bulk Carriers

Ulf Freudendahl

Editor: Magne A. Røe

Production: Cecilie Johansen

Design and layout: Coor Graphic Services 0905-077

Print: 07 Oslo AS

On-line edition of DNV Bulk Carrier Update:

http://www.dnv.com/bulkupdate

DNV (Det Norske Veritas AS)

NO-1322 Høvik, Norway

Tel: +47 67 57 99 00

Fax: +47 67 57 99 11

An updated list of all regional offices can be seen on DNV’s website:

www.dnv.com

WE WELCOME YOUR THOUGHTS!

84 10

DNV Bulk Carrier Update

Michael Aasland

Business Director,

Bulk Carriers

[email protected]

EDITORIAL

DNV BULK CARRIER UPDATE NO. 2 2009 | 3

First of all, I would like tointroduce myself as thenew Business Director forBulk Carriers in DNV. I become humble when

I think of the previousBusiness Directors forBulk Carriers in whosefootsteps I am following:Hans Viig, Ulf Freuden-dahl and Morten Løvstad.However, having workedin the DNV Laboratoryand the Materials Sec-tion, on the designapproval of bulk carriers,at a newbuilding yardand as a customer service

manager in Piraeus andSingapore before head-ing the Class Entry Sec-tion at DNV’s head officefor the past four yearsshould give me a soundbasis to stand on. In addi-tion, with the network ofbulk carrier experts wehave in DNV, I am con-vinced that we will beable to support you inthe times ahead. Nevertheless, the times

are challenging for us all.The global recession hashit shipping hard, espe-cially the bulk carrier seg-

ment. Although rateshave shown some recov-ery in the past fewmonths, few analysts arewilling to predict that weare through the worstpart of the cycle. Butshipping has always beencyclical and has alwaysrecovered, and you cancount on DNV to supportyou through the cycles. There is one more fac-

tor which is here to stay:the increased focus onthe environment. Wehave therefore chosenthis as the theme for this

edition of DNV Bulk Carri-er Update. We bring youan article covering thelatest on climate changeregulations, an article onthe effects of slow steam-ing, and the latest on theUS Clean Water Act. Wealso present two Greekship owners, Aegean Bulkand Thena maris, whichhave reduced their CO2emissions throughimproved energy man-agement procedures.I hope you find the

articles interesting anduseful!

THE ENVIRONMENT IN FOCUS

Climate change regulations –background and update

International shipping emitted an estimated 870 million tonnes of CO2 in 20071, which amounts to some 2.7% of the global CO2 emissions of 32 billion tonnes in 2007. To put this figure into perspective, if shipping was a country, it would rank amongst the

world’s top ten CO2 emitters, ahead of countries such as the UK and Canada.

TEXT: EIRIK NYHUS – DIRECTOR, ENVIRONMENT, DET NORSKE VERITAS, NORWAY

CO2 EMISSIONS FROM SHIPPING WILLINCREASE Shipping is at present by farthe most environmentally friendly trans-port alternative in terms of emissions ofgreenhouse gases, particularly CO2. Inter-national shipping transports large volumesof energy, food, raw materials, semi-fin-ished and finished goods and, barring afundamental restructuring of the world’seconomic systems, we can assume thatcontinued global economic growth willresult in steadily increasing demand forshipping transportation services.The crucial dilemma is that while the

rest of the world is attempting to reduceits CO2 emissions under the framework ofnational and international agreementsand regulations, shipping’s emissions areunregulated and appear set to increase –keeping pace with the expected long-termincrease in world trade. If this situationpersists, shipping emissions may approach20% of the global CO2 emissions by 2050. This is an untenable situation, both

environmentally and politically, and regu-latory measures are already being consid-ered to ensure that this does not becomereality. One of the industry’s key concernsis how these regulatory proposals mayinfluence ship design.

BUNKER FUEL CONSUMPTION AND CO2EMISSIONS Estimates of actual worldwideshipping bunker fuel consumption, andtherefore CO2 emissions, prepared by dif-ferent academics and bodies have variedwidely. The IMO therefore commissionedan updated greenhouse gas study, this

time including all the recognised authori-ties on shipping fuel consumption. Thefirst phase of the study was presented tothe IMO Marine Environment ProtectionCommittee (MEPC) 58 in October 2008,and a subsequent revision has adjustedthe estimate slightly to 870 Mtonnes2. Breaking this down into ship cate-

gories, bulk carriers are in third place,behind tankers and container carriers. It should be fairly obvious that any meas-ures, regulatory or other, intended toreduce shipping emissions will have toinclude bulk carriers in order to have thedesired effect. See Figure 1.

INTERNATIONAL REGULATORYRESPONSE The international regulators’concerns about shipping’s CO2 emissionscan in a sense be traced back to 1997, theyear of the UNFCCC Kyoto Protocol, theinternational climate treaty intended toachieve “stabilisation of greenhouse gasconcentrations in the atmosphere at alevel that would prevent dangerousanthropogenic interference with the cli-mate system”3. Shipping and aviation werenot included at that time, and responsibil-ity for further proposals and action inthese sectors was delegated to two UNbodies, the IMO and the InternationalCivil Aviation Organization (ICAO)respectively.Due to both increasing global concern

over CO2 emissions in general and greaterpressure to address shipping emissions inparticular, the IMO has highlighted theCO2 issue at recent meetings of the

MEPC. Adding urgency to these delibera-tions has been the upcoming UNFCCCCOP15 conference in Copenhagen inDecember 2009, where the UNFCCCexpects the IMO to deliver a comprehen-sive solution describing how shipping willregulate its CO2 emissions.The IMO MEPC is not the only regula-

tory body that has expressed concern overshipping’s CO2 emissions – initiatives forregional regulations originating in theEuropean Union (EU) have been instru-mental in catalysing urgent action at theIMO. Both the European Commission(EC) and the European Parliament (EP)have been vocal in their demand thatshipping takes action to regulate and ulti-mately reduce its CO2 emissions. The EUhas been clear in stating that, unless theIMO manages to develop and implementsatisfactory international regulatory mech-anisms, the EU will implement regionalregulations. The EC has also stated adeadline; the IMO has until the end of2011 to act. Underpinning this message,the EC intends to issue a directive in 2010prescribing regional measures that willcome into force in 2013 if the IMOresponse is unsatisfactory4. Without goingfurther into the additional possibilities ofnation states implementing regulationsranging from domestic carbon taxes tominimum efficiency standards, it is there-

CLIMATE CHANGE REGULATIONS


Emission to air is reduced from this LNG-fuelled ferry

– CO2 by some 20% and virtually no NOx and SOx

compared to similar diesel-fuelled ships.

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fore safe to state that the IMO is underconsiderable pressure to deliver a compre-hensive international set of regulations.The following four main proposals arepresently being debated:

� Market-based instruments for shipping,such as carbon trading, bunker levy oremission compensation funds

� A voluntary (possibly mandatory at alater stage) Ship Efficiency ManagementPlan (SEMP)/ “Best Practices” guideline

� A revised, voluntary Energy EfficiencyOperational Indicator (EEOI, previouslyknown as the CO2 Operational Index5)

� A new mandatory Energy EfficiencyDesign Index (EEDI, known at an earlystage as the CO2 Design Index)

While all these proposals have at theircore the idea of improving energy effi-ciency, either directly or indirectly, theproposal with the largest potential impacton ship designers and builders is theEEDI.

EEDI – THE ENERGY EFFICIENCYDESIGN INDEX The basic concept behindthe EEDI is similar to the mileage stan-dard for automobiles, in the sense that itattempts to describe how energy efficienta design is. It does not, however, say any-thing about how efficiently a given designis operated. Other key differences are thatthe EEDI does not encompass the idea ofa standard duty cycle, while it does takeinto account the amount of cargo thedesign is capable of transporting.The basic idea is described by the fol-

lowing equation;

‘Environmental cost’ is the CO2 emissions,while ‘Benefit for society’ is simply theamount of useful transportation work theship can do.Based on this principle, Japan and

Denmark in particular have been instru-mental in putting forward concrete pro-posals as to how ship design elements canbe put into this basic framework. Follow-ing up on this, a range of issues, concernsand suggestions have been raised andaddressed by modifying the original for-mula. The present formula has not yetbeen accepted by the IMO but is the con-sensus output from the 2nd IntersessionalGHG Working Group (London March2009). It will be discussed and possibly fur-ther modified at MEPC 59 (London July2009). The present version is as follows,with the purpose of each of the equation’s

main elements indicated in Figure 2.

The formula is intended to be appliedprimarily as a design criterion. For agiven ship design, the specific or‘attained’ EEDI is calculated and com-pared to the required EEDI as mandatedby the IMO regulations. One of severalkey questions in this context is thereforethe issue of how the required index isdefined. While a formal agreement on the

dataset(s) to be used to form the base-line(s) is still outstanding, work has beendone by Det Norske Veritas, GermanischerLloyd and others showing an approachthat is generally supported. Baselines arederived by taking a ten-year sample ofdata from the Lloyd’s Register Fairplaydatabase, filtering it for obvious data entry

CLIMATE CHANGE REGULATIONS


Figure 2 EEDI formula – pre-MEPC 59

Attained design CO2 index =Environmental cost

Benefit to society

Figure 1 Fuel consumption, separated into consumption by main categories of vessel.(Source; Second IMO

GHG Study 2009, Update of the 2000 IMO GHG Study, Final report covering Phase 1 and Phase 2, 2009)

errors and applying the EEDI formulawith all correction factors set to 1.0. Thistypically results in plots similar to thatshown in Figure 3.So far, the MEPC has focused on devel-

oping the formula and the concept fordeveloping baselines and has not exten-sively debated precisely what the require-ment level should be. At present, there isa proposal that the required index shouldbe set at an as yet undefined percentagebelow the baseline, and that it should alsobe tightened on a regular basis. The pre-cise values and dates have not yet beendiscussed in depth, but will obviously be ofgreat concern to ship designers andbuilders.Regarding the industry response to

the EEDI, it is worth noting that con-cerns have been raised by various stake-

holders through-out the process.A key concern is,of course, thatthe EEDI shouldnot lead to lesssafe ships by, forexample, eitherreducing thedesign scantlingsor resulting inunder-poweredships. Thedetails will notbe discussedhere, suffice it tosay that theEEDI is not yetfinalised andthat significantissues remain tobe addressed.However, as dis-cussed above,the industryneeds to recog-nise that there isa politicalprocess thatmakes it impera-tive for the IMO

to be able to present regulatory resultsthis year and that there for that reason isstrong political pressure for the EEDI tobecome part of the regulatory frameworkin one form or another.

CLIMATE CHANGE, CO2 EMISSIONS ANDSHIP DESIGN It should be quite clearfrom the above that there are strong regu-latory pressures coming to bear on shipdesign. These pressures, which spring outof climate change concerns, translate intostrong drivers for technical improvementsin design energy efficiency. When consid-ering growth scenarios for shipping, it istherefore likely that ships will have to onaverage more than double their energyefficiency by 2050 simply to maintain thepresent industry sector emission level. Toachieve real emission reductions, even

more radical efficiency improvements willbe necessary.However, when considering all the

operational, technical and structuralmeasures in a combined fashion, DNVbelieves it in a best-case scenario is possi-ble to reduce CO2 emissions per ton mileby 50% for ships being delivered in 2030,and by 70% for ships being delivered in20706. The precise figures will, of course,vary according to ship types and trades,and will require significant technicaldevelopments. A rough breakdown intothe various categories is indicated inFigure 4. It is quite clear that going beyond this

and achieving actual reductions in thetotal shipping CO2 emissions will requirefundamental breakthroughs, includingradically new fuels and technology. It istherefore crucial that ship designers,equipment manufacturers, shipyards andall other innovative forces in the shippingindustry not only continue to contributeinnovative design solutions but also sup-port the basic research that will be neededfor true CO2 emission reductions to beachieved.

REFERENCES

1 MARINTEK et al, Updated ‘IMO Study on

Greenhouse Gas Emissions from Ships’, IMO

2009.

2 These revised figures, together with emission

figures for other GHG compounds, have been

accepted by the project steering committee and

will be formally presented at MEPC 59 in July

2009.

3 Article 2, The United Nations Framework

Convention on Climate Change.

4 Those sceptical to the EU’s ability to act should

note that, according to an EU directive

incorporating aviation into the regional EU

emission trading scheme (EU ETS) which entered

into force in February 2009, all aircraft landing

at an EU airport will have to buy CO2 allowances,

with trading starting in 2012. It is well known

that the EU is considering a similar approach for

ships entering EU territorial waters.

5 MEPC/Circ.471.

6 Presentation to MEPC 58, 7 Oct. 2008,

Tor E. Svensen, COO, DNV Maritime.


Figure 3 Sample bulk carrier baseline

Figure 4 Efficiency of measures (per ton mile)


United States national pollutantdischarge elimination system

Rumours and hear-say have wandered through the maritime world over the last year regarding new environmental regulations for ships calling on the UnitedStates. Clean Water Act, NPDES, EPA, VGP has been some of the keywords.

Many have wondered about which kind of requirements will be set, what impactthey will have on their fleet and when these regulations will come into force.

TEXT: ANDREAS BECH PETTERSEN

By now the regulatory framework hasbeen prepared and been in force for acouple of months. Parties trading on theUnited States have prepared or are in theprocess of preparing systems for comply-ing with the new requirements. Below is adescription and guidance for those whoare still in the process.

BACKGROUND The so-called NationalPollutant Discharge Elimination System(NPDES) is a system under the US CleanWater Act to minimize pollution into USterritorial waters (3nm). The Clean WaterAct (CWA) was introduced in the US inthe early seventies, but within the first yearof enactment, the US Environmental Pro-tection Agency (EPA) regulated that dis-charges arising from normal operation ofa ship should be excluded from the CWAand the NPDES system.In 2003 this exclusion became subject

to a lawsuit from environmental groups,with the result that EPA was instructed tolift this exclusion and apply CWA andNPDES also to ships.The EPA has for this purpose prepared

a generic document called the Vessel Gen-eral Permit (VGP) where all requirementsare laid out, and which must be under-stood to be additional requirements tointernational environmental regulationssuch as MARPOL. EPA has also intro-duced a system for registration, where allvessels that need to be comply must file aNotice of Intent (NOI) with the EPA.With a size limit of 79 feet, 300 gross

tons and 8m3 of ballast capacity, it is for allpractical purposes applicable to all com-mercial oceangoing vessels calling on USterritorial waters.

WHAT IS IT The generic Vessel GeneralPermit (VGP) sets requirements to 26 dif-ferent effluent streams following fromnormal operation of a vessel. The VGPalso sets requirements to logging, record-keeping, inspections and training. Itshould be noted that many of the require-ments are so-called Best ManagementPractices, and do not give any fixedrequirements for processing or discharge. It should also be noted that the

requirement to for instance deck runoff issuch a Best Management Practice, wheredebris and deck spills should be mini-mized. But there is no requirement thatthis water from deck be contained andprocessed, unless there is visible contami-nation of the water.In addition to the generic require-

ments, there are additional local require-ments from individual States. Based oninput from the maritime industry, some ofthese local requirements that were initiallyissued have been deleted. The VGP alsocontains additional vessel type-specificrequirements, but no such requirementsare given for bulk carriers.A significant part of the VGP require-

ments relate to inspections and sampling,most of which can be performed by thecrew. Weekly and annual inspections, dry-docking inspections and quarterly sam-

pling is specified in the VGP. DNV may perform the drydocking

inspection and issue correspondingreport, although this report may also bemade by the owners. Non-scheduled dry-dockings will not be required.The inspections and sampling must be

logged together with any findings and cor-rective actions and the records to be keptonboard. Any non-compliance must bereported to the EPA.The EPA has advised that vessels are

not required to conduct such inspectionswhen they are not within the 3nm territo-rial sea of the US, but vessels must be incompliance when entering these waters.This means that a vessel must have con-ducted a routine inspection within the lastweek or voyage, whichever is more fre-quent, and have had a comprehensiveannual inspection within the last year,prior to entering US waters. Once a vessel has implemented proce-

dures for compliance with EPA require-ments, it may be recommended to contin-ue to follow those policies and practicesnecessary to comply with all aspects of theVGP even if the vessel is not navigating USwaters. This to avoid confusion by theship’s crew as to when the inspectionsshould be conducted, and is particularlyrelevant if the company choose to inte-grate the VGP inspection requirementswith the company’s current managementand operational procedures. Implementation of the VGP further

requires the establishment of a training

US CLEAN WATER ACT

IMPORTANT DATES

19 December 2008:

The VGP became effective and

expires five years thereafter.

06 February 2009:

Discharge of effluents defined in

VGP only allowed in accordance

with VGP requirements.

19 February 2009:

Vessels must meet the VGP’s

inspection, training,

recordkeeping and reporting

requirements.

19 September 2009:

Submission of a NOI for VGP

coverage is required within this

date. As EPA is developing an

electronic system (eNOI), no NOI

should be submitted before

19 June 2009.

USEFUL LINKS

Further information can be

found at the EPA NPDES

homepage:

http://www.epa.gov/npdes/

vessels

The full text of the VGP can be

found here:

http://www.epa.gov/npdes/

pubs/vessel_vgp_permit.pdf

Further information regarding

the NOI can be found here:

http://cfpub.epa.gov/npdes/

enoi.cfm


plan to ensure that the crew is familiarwith, and fully understand, the VGPrequirements and their integration intothe onboard procedures. Records shouldbe maintained to demonstrate that thecrew has attended appropriate training,which could be in the form of an electron-ic course.

GUIDANCE FOR OPERATORS Many ofthe VGP requirements will already beimplemented in the company’s manage-ment system and operating procedures,since they are already required by currentinternational or federal rules/regulationsor are part of normal safety, quality andenvironmental management systems andprocedures.

However an operator should carefullyconsider the current extent of implemen-tation of the VGP requirements, and com-plete a review of all 26 discharge require-ments, in order to determine those thatare applicable, and which of them are notcovered within the onboard procedures.Systems and procedures need then to beupdated to include new requirements.The required inspection and training

scheme, as well as recordkeeping shouldalso be implemented in the system.As this is a new regulatory system, it

remains to be seen how the system will beimplemented and how it will be enforcedin practice. We can only advise to followthe development closely. EPA has statedthat the Agency will be focusing on com-

pliance assistance (as opposed to enforce-ment) during the first six months the Per-mit is effective.It should be noted that any noncompli-

ance with the requirements of the VGPconstitutes a violation of the Clean WaterAct and may lead to prosecution. Questions regarding the NPDES system

should be directed directly to EPA.

Poor fuel quality and increasedmaintenance costs can tax savings

from slow steaming

Lamb’s seminal book was written at theadvent of residual fuel use by commercialships, when many vessels were still operat-ing on gas oil or diesel oil. His advice isespecially apt now, given the concern overthe potentially higher maintenance billsfor ships embarking on slow-speed steam-ing, which may significantly offset thepotential savings in fuel costs. Fuel-efficiency strategies – such as sys-

tematic bunker management, enhancingengine monitoring and maintenance,improving the hull and propeller condi-tion as well as slow-speed steaming – haveall received market attention as a meansto reduce fuel consumption and CO2emissions. However, slow-speed steamingalso implies that engines are not operatedat their rated capacities, which couldcause lower engine temperatures andpressures, a drop in efficiency, and a possi-ble increase in particulate matter emis-sions. Compliance with NOx emissionrequirementes may also require to beassessed.Poor quality fuels can cause engine

problems whether a vessel is slow steamingor operating at normal speeds.In the past couple of years, high

bunker fuel prices and the blending offuel with little attention paid to the originand quality of the cutter stock have result-ed in fuel quality becoming more suspect.Ironically, the blending is often carried

out in order to meet certain quality andregulatory requirements.Fuels that are unstable due to the

incompatibility of blend components,poor ignition and combustion properties,excessive sedimentation and chemicalcontamination are becoming more com-mon even as the fuels appear to have metthe ISO 8217: 2005 specification. Therehas also been an increase in bunker fuelwith elevated levels of abrasive fines and alow flash point.Fuel quality issues can cause incom-

plete burning, in turn leading toincreased deposition of carbonaceousmaterials in exhaust spaces, economisersand turbochargers, and the clogging ofengine parts such as piston rings.As slow-steaming vessels reduce their

power, they may therefore be more vulner-able to the problems described.The answer to such problems is – again

ironically – to power up and boost thecombustion efficiency so as to burn off asmuch of the fuel as possible and minimisethe deposits.Slow steaming may affect fuel injection

and burning processes, bringing aboutpoor fuel ignition and combustion. Thescavenge pressures generated at lowerloads may also not be optimal, furthercontributing to the deterioration of com-bustion efficiency.In addition, the steam output from the

economiser will be reduced and may notbe sufficient to meet the plant’s heatingrequirements.The cylinder oil feed rate is another

area requiring attention during slowsteaming. Under-lubrication can lead toacid formation and cold corrosion. Onthe other hand, excessive cylinder lubrica-tion causes hard deposits to form on pis-ton crowns and also reduces ‘controlledcorrosion’, which in turn could causecylinder liner bore polishing and scuffing. Both under-lubrication and over-lubri-

cation can wear down the cylinder linersrapidly. In the modern cylinder lubrica-tors where the cylinder oil feed rate is pro-portional to both the engine load and thefuel sulphur content, the ship crew shouldadjust settings according to the sulphurcontent of the fuel as specified by theengine manufacturer. Ships operating onlow sulphur fuels over long periods oftime may require a switch to a cylinder oilwith a lower ‘Total Base Number’, or TBNfor short. Excessive cylinder lubrication may

cause cylinder oil to carry over into scav-enge and exhaust spaces. If ignited, thecylinder oil could set off scavenge fires orexplosions in the exhaust uptakes and tur-bochargers. Hence, close attention needsto be paid to the adjustment of cylinderoil feed rates during slow steaming.As far as fuel quality trends go, DNV

EFFECTS OF SLOW STEAMING


In ‘Petroleum and its Combustion in Diesel Engines’, published in 1955, John Lambdemonstrated remarkable foresight when he warned that “imperfect combustion in any typeof internal-combustion engine is always accompanied by greater wear and tear of vital parts”and that “the cost to make good the damage done in a week might well exceed a year’s

increase in the fuel bill due to running an engine under such conditions”.

TEXT: THOMAS TAMPI, DNV PETROLEUM SERVICES


Petroleum Services is receiving morereports of increasing problems with fuelignition and combustion quality. Fuel oils with sub-par ignition and com-

bustion properties can engender poor fueleconomy, loss of power, the build-up ofcarbonaceous deposits, damaged pistonrings, burnt piston crowns, ruined cylin-der lubrication, and fatigue failure or themetal-to-metal contact of shock-loadedcomponents. Even turbocharger explo-sions caused by poor fuel ignition andcombustion have been reported.A number of variables, including

engine type, model and age, load profileand operational conditions, can influencehow well an engine tolerates fuels withpoor ignition and combustion properties.Medium and high speed diesel engines,and in general engines of older design,are more prone to operational problems

when consuming such fuels, particularly atlow and part load.Ships may have some success in mitigat-

ing poor ignition and combustion byblending a distillate fuel or residual com-ponent with good ignition and combus-tion properties into the problem fuel, butagain, onboard fuel blending may not bepracticable.This brings us back to the issue of slow

steaming. Vessels operating on reducedspeed should first determine the ignitionand combustion quality of the fuel in use,since slow speed coupled with low loadoperation can be problematic if the fuelhas poor ignition and combustion proper-ties. Some engine manufacturers are offer-

ing upgrade kits for their low speedengines to help shipowners and operatorssave on fuel costs while slow steaming

their ships. They are also offering evalua-tion of compliance with the IMO NOxemission requirements during slow steam-ing.When slow steaming their vessels, some

shipping companies may not have ade-quately factored increased maintenanceand repairs into the total operating costs,as such outlays become more apparentonly during routine maintenance overtime. Reducing these hidden costs success-fully can therefore bring about substantialoverall savings.At the end of the day, good housekeep-

ing and operational vigilance remain thekeys to reducing maintenance and operat-ing costs. Companies considering a slow-steaming strategy should not overlookthis.


The Nauticus Air and Nauticus Environ-ment modules offer an easy, low-costmethod for ship owners and operators tomonitor their environmental performance.The system is configurable to customerneeds and based on maritime best prac-tices. Once the relevant monitoring andmeasurement parameters have been select-ed, the environmental indicators provideinformation on emissions to air, waste han-dling and discharges to sea.

EMISSIONS TO AIR – SHIPPING CANALSO IMPROVE The shipping industry isfacing strong international pressure to

reduce its CO2, NOx and SOx emissions.In addition, economic instruments arebeing established at national levels. In thisrespect, the guidelines proposed by theIMO for a standardised Energy EfficiencyOperational Indicator (EEOI) are a suit-able measure to use. The EEOI is calculat-ed on the basis of the fuel consumed,cargo transported and distance sailed, aswell as carbon emission factors. The com-puted indicator values can be comparedfor a fleet, sister ships or specific periods oftime and eventually be used to minimiseemissions from transport. This benchmark-ing approach can help to drive the ship-

ping industry towards higher energy effi-ciency and lower emissions.

NAUTICUS AIR Nauticus Air allows thefuel consumption, transported cargo anddistance sailed to be registered. Using thecalculation method and carbon emissionfactors specified and recommended bythe IMO, the EEOI is calculated on a day-by-day basis or over a selected period,such as a voyage leg, and shown in graphi-cal charts. Air emissions, such as SOx,NOx, PM and CH4, are shown in thereports. Vessel data may be registered viathe noon and port reports in the DNV

The increased focus on the environmenthas created a need for the improved

monitoring of environmental factors in shipoperations. DNV offers help to companiesthat wish to improve their environmental

performance monitoring.

TEXT: MAGNE A. RØE

Nauticus Airand NauticusEnvironment


Navigator product or via a specific inputform. The xml-files are sent via mail tothe DNV server and imported into thecentral database. With an internet con-nection, users may also use the web regis-tration tool directly.

NAUTICUS ENVIRONMENT Nauticus Envi-ronment is an extended EnvironmentalPerformance System based on maritimebest practices. In addition to the EEOI, italso includes registration and reporting onother aspects, such as discharges to sea,ballast water, chemicals, etc – configurableto your company’s needs and set-up.

BENEFITS� Supports international standards, includ-ing Global Reporting Initiative stan-dards, ISO 14001 and IMO MEPCCirc./471

� Produces EEOI charts and air emissionreports for the vessels in your fleet (Nauti-cus Air) or a total overview of your envi-ronmental profile (Nauticus Environment)

� Emission factors and calculations verifiedby DNV

� Benchmarking against industry best prac-tices to document and profile your envi-ronmental performance both internallyand externally

� A flexible way of reporting according todefined indicators, aggregation levelsand user access rights

� Charterers, authorities and other stake-holders are increasingly demandingschemes for the continuous improve-ment of environmental performance.

Aegean Bulk:Improving energy use

Aegean Bulk was established in Athens in 2000 with a clear objective: ‘To provide the safe transportation of cargoes worldwide with respectto the environment’. The company has today a fleet of five bulk

carriers and a newbuilding programme for another eight ships: fourKamsarmax vessels with STX and four geared Supramax bulk carrierswith SPP. These ships will be delivered in 2010 and 2011 respectively.

TEXT: MAGNE A. RØE

AEGEAN BULK


The DNV-classed Aegean Bulk fleet trades worldwide,and typical cargoes include iron, coal, grain and wheat.“We have initiated a programme with DNV to analyseour energy use and the results of this programme havebeen a positive learning experience for us, in which wehave concluded that substantial energy savings areachievable through minor adjustments to our opera-tions,” says Haris B. Giantzikis, the Technical Managerof Aegean Bulk.Captain Dimitris Mattheou, the Quality, Training

and Environmental Manager, states that the EnergyEfficiency and Fuel Management programme providedby DNV’s consulting arm is successful in achievingArcadia’s goals of caring for the environment whilealso improving the fleet’s performance. “We have expe-rienced the programme to be based on mutual respect,and the DNV experts have provided us with some veryuseful insights into how to improve our efficiency. Theresults of this will reduce considerably our overall CO2emissions,” says Mr Mattheou.Phase one of the Energy Efficiency and Fuel Man-

agement programme had the following three mainobjectives: Assessment of the current company per-formance; Identification of potential improvementsand Provision of decision material for further actions.In more detail, the following operational aspects werecovered: Voyage Performance, Vessel Performance,Fuel Management, Main and Aux Engines Perform-ance, Energy-Consumers, and Organisation & Strategy.Following the completion of the project, the companywill produce an Energy Efficient and Fuel Manage-ment Plan with the aim of maximising energy efficien-cy by minimising the fleet’s CO2 emissions.

“The changes we have seen in global shipping overthe last three quarters of a year have been rather dra-matic, especially in the bulk carrier market. Examiningall our operations is, of course, a good driver to get theprocess going, but is not the only driver. We are alsoconcerned about the global environment, and we seethat legislation will be adopted to curb emissions. Oneof the key challenges for us will be to maintain oursound reputation in the market by vigorously pursuinga policy of continuous improvements in safety, qualityand the environment. Our ongoing work to achievefuel savings and reduce atmospheric emissions isimportant in this respect,” says Mr Mattheou.“We are certified by DNV as being in compliance

with ISO 9001 and ISO 14001 for quality and environ-mental protection respectively. We have the OHSAS18001 certification for occupational health and safety,certification for Risk Management Assessment andfinally the Green Award – our vessel the M/V Afovos

was the first ever bulk carrier to be given the GreenAward for having met the stringent requirements relat-ed to quality, safety, environment, management andtechnical aspects. This means a lot to us, as all of thisclearly demonstrates that we not only talk about thesematters but also take them seriously and act according-ly,” says Mr Mattheou.Most Aegean Bulk Co Inc vessels are Greek flagged,

with Greek officers and crew members from the Philip-pines. “We have developed our own training facilitycertified by DNV as a Maritime Training Center andthis has really helped us to improve our performanceand retain our crew members,” concludes CaptainDimitris Mattheou.

Aegean Bulk’s Haris B. Giantzikis, Technical Manager (left) and Captain Dimitris

Mattheou, Quality, Training and Environmental Manager.

Ioannis Kourmatzis, DNV’s Regional Manager for Southern Europe Maritime, and

Karin Struijk, Deputy Managing Director Green Award Foundation. Mr Kourmatzis

is holding the ‘Future by Cooperation’ award which is a token of Green Award’s

appreciation for hosting the ceremony.

THENAMARIS

BULK CARRIER UPDATE NO. 2 2009 | 17

Thenamaris:Optimising the transport chain

Optimising the transport chain may be the only way for substantial reductions in the environmental footprint of the seaborne transportation system for the

delivery of goods for the world, as it has currently evolved.

TEXT: MAGNE A. RØE

We met Emmanuel A. Vordonis, ExecutiveDirector, together with Vassilis Lam-propoulos, Technical Manager ofThenamaris Ships Management in Greece.Located at the water front of Vouliagmeni,not far from the old Athens airport,Thenamaris operates a fleet of 40 vessels,10 bulk carriers and 30 tankers with atotal current capacity of about of 3.9 mil-lion dwt tons.

Mr Vordonis represents the companyand the Greek tankers community inIntertanko, where after many years of serv-ice is nearing the completion of his termin the Executive Committee of the organi-sation. In our discussion with him, wefocussed on strategic issues on howThenamaris works to minimize environ-mental footprint of its operations, but alsoon some of his views on how the wider

maritime industry could seriously con-tribute in the substantial emissions reduc-tion, which are required. We always haveto bear in mind the environmental targetsof 20% or 30% CO2 reduction that scien-tists and the global community are settingin the hope of reversing the process ofconstant heating and climatic change.What has become clear, Mr Vordonis

says, is that the reductions that can be

achieved after intense systematic effort onthe side of technical operations, are limit-ed only to a few percentage points, i.e.1%, 2% or 3% at the max. If we are toachieve higher gains, which can createreductions comparable to our communitytargets and the creation of hope forretarding climatic changes, then, we needto look beyond the technical performanceof our own energy plants and to laterallyseek new areas of operational optimisa-tion. This leads us beyond the territory ofeach individual company and the limits ofthe global shipping community. We need to look into major changes

of the complete logistical chain, removeinefficiencies and work together withcharterers, receivers, terminals and eventhe trading arms of our counter-parts toremove sub-optimality of the system,reduce ballast legs, triangulate, avoidpart cargoes, waiting times and make anycreative combination that would max-imise the transport efficiency of our sys-tem’s capacity.By making an internal analysis of our

own pattern of change in Thenamaris, wewere positively surprised to realise that inthe last ten years, by modernising the fleetwe operate, by increasing the sizes andchanging the typology of the ships we run,

we have achieved a strictly measured 40%reduction of bunker consumption andtherefore CO2 emissions, for every ton-mile of cargo we deliver to the world com-munity.The 200 tons/day of an old turbine VL

with just a 120 tons of a modern vessel ofsimilar size, the replacement of two Suez-maxes with a VL, or of two Aframaxes witha Suezmax and so on, have created sub-stantial savings and major changes in thepattern of our operations. Working more,working together with others in optimis-ing the logistical network is a domainworthwhile exploring for major savings.Similar results have been experienced inthe bulk-carrier or container-ship compa-nies that have measured similar positiveresults by increasing the scale of the shipsthey run and the longer hauls in creatingsubstantial environmental gains.The discussions we recently have with

some of our major, closely cooperating,charterers on weather routing and imple-mentation of green charter party terms isalready creating substantial fruits. Certain-ly, while working on this strategic level, wenever forget and relax on strict controlsand optimisation in the technical per-formance of our energy plants. I think that at this stage, it is worth

pointing out how important it is to calcu-late the emissions created or reduced forevery ton-mile of cargo delivered. Thereference of environmental footprint toour direct production unit is the onlyway to allow us comparisons with otherindustry sectors and lead the communityto balanced optimised solutions that willmaximise the cost benefit balance of theoptions we will select. Without such ref-erence to the unit of the ‘social work’each sector of the industry delivers, wewill never be able to make selections thatwill maximise the cost benefit and netenvironmental gains we will create andwe should always bear in mind that theinvestments and costs that will berequired will be huge and therefore themaximization of their utility is of para-mount importanceCommenting on the emissions trading

schemes and other market related fund-raising mechanisms that may contribute inthe reduction of green house gases per-centage in the atmosphere, currentlyunder discussion, I think it is worth point-ing out that all schemes proposed are ineffect creating an increase in transporta-tion cost, which will eventually be trans-ferred directly to the pocket of the end-consumer and simple individual citizen of

THENAMARIS


Emmanuel A. Vordonis, Executive Director of Thenamaris Ships Management. Vassilis Lampropoulos, Technical Manager of Thenamaris Ships Management.

world communities. In particular, it isworth saying that all schemes includingthe bunker levy or the contribution fund,as proposed by the Danish community, oreven the alternative put forward by theJapanese, they all create an additional coston every ton of cargo transported, whichwill be evenly transferred, both to the citi-zens of the rich, but also of the poorersectors of the world. In this respect, theenvironmental responsibility of the highlyconsuming West will be paid in equalterms by the poor non-consuming com-munities, who are striving for the cheapestpossible arrival of medicine, water, foodand other essentials to secure their sur-vival in adverse environmental conditions.So, the issues of the market based taxationof emissions-production, takes an ethicaldimension, which is worthwhile consider-ing before final selections are made. Mr Vordonis believes that in prepara-

tion for the Copenhagen meeting, it isworth that each one of us, together withour institutional or governmental repre-sentations and together with our maritimeflag holder the IMO, we will try to openup our thinking, develop a holistic viewand propose the mechanisms that willbring all stakeholders together for bestand well balanced solutions based on

cross-industry thinking and net social andenvironmental benefit.With Mr Lampropoulos we focused

more on the specifics of how Thenamarisworks for their energy optimization andemissions reduction, as well as the conclu-sions from their joint project with DNV inthis direction. Thenamaris has put a lot of resources

and effort to benchmark the energy man-agement efficiency of operations in orderto identify areas of improvement. The out-come of the benchmarking against indus-try, with the help of DNV clearly revealedthe solid performance, which in order tofurther improve required revising of thesome of the approaches used.As Mr Lampropoulos explained when

targeting to improve by a relatively smallpercentage for each different type of activ-ity (although all together can sum up torelative high percent) and fine tune youneed a very solid measurement frame-work, and the inherited difficulties of the“human in loop” methods need to beaddressed. Higher accuracy and more fre-quent data are needed, without stressingthe already overloaded officers on-board,thus an automated system for collectingall the necessary measurements is the logi-cal direction. Sufficient and accurate data

are essential for understanding, bench-marking and validating any improvementinitiative.Next was to identify the true safe opera-

tional limit of each equipment and re-approach the systems on board fromfirst–principles in order to identifyimprovement areas, which were not identi-fied before. As an example the lowest safeconstant sailing main engine rpm havebeen identified for all of our vesselsenabling the benefit maximization thoughthe extended operational envelope.The project with DNV served as a solid

foundation for these initiatives helpingcommunication and understanding acrossthe Company’s different functions bridg-ing requirements and ideas towards aglobal optimum.



PORT STATE CONTROL

Support from DNV:

Port State Control Tool KitPerformance in port state inspections continues to offer a benchmark

towards the quality of both a vessel, and the owner, which both have thecharterers’ attention. With the oversupply of tonnage in the market, this

becomes even more important for bulk carrier owners.

TEXT: TIM WARD/NIKI MOWINCKEL

The statistics published in the annualreports of the different PSC regimes haveshown a trend of increasing detentions.DNV-classed vessels have over the yearsbeen top performers under the differentPSC regimes, and DNV has co-operatedvery closely with port authorities in thosecases where problems have occurred. In our efforts to continue to offer sup-

port to our clients in this area, we in DNVMaritime in cooperation with our clientshave undertaken research and investiga -tions into how we can cooperate to achieveimproved Port State performance. Theseactivities, which were undertaken in theautumn of 2008, constitute the first phaseof a continuous process aimed at enablingDNV Maritime to offer more advancedadvice, guidance and training on the topicof Port State Control to our global clientbase.

DNV PSC TOOL KIT The research workresulted in the development of the new‘DNV PSC Tool Kit’. This Tool Kit providesan amalgam of tools for both office and seastaff to help focus on the preparation priorto a Port State Inspection and comprises:

1. Port State Control – Top DetentionItems 2008 (Booklet)

2. DNV PSC Wizard – software to enablecreation of a ship-specific PSC Guide

3. Port State Control Posters – Good andBad Practice

4. DNV PSC Tool Kit Folder – for storingall the documentation related to PSCInspections.

This ‘Tool Kit’ has been developed inthe above format to improve communica-tion with crew members and to build own-ership between the new PSC guide and theshipping company, and it can upload com-pany logos and add ship-specific informa-tion and pictures. Our intention is for theTool Kit to become a part of the work activ-ity on board our clients’ vessels. Statistics published by Port State Con-

trol regimes, and understanding of thePSC working processes and our general

survey experience are all important ele-ments forming the basis of the Tool Kitwhich is now available. The DNV Tool Kit will form the founda-

tion for future Port State campaigns byDNV, and will have the ability to store PortState Control Circulars and other updatesas we continue to increase our clients’awareness of this topic.

For more information [email protected]


OPERATIONAL ASPECTS

Cargo handling – Cargo hold cleaning

Cargo handling covers all the activities related to safe transferral, stowing, lashing and securing, taking into account the typical behaviour and characteristics

of the different cargoes to be transported.

TEXT: SÖNKE POHL

According to recent statistical informationfrom P&I clubs, claims due to cargo con-tamination as a result of improper cargohold cleaning are second in magnitudeonly to those due to water ingress fromleaking hatch covers or bilge wells withassociated piping systems, etc. In general, the requirements as to the

cargo hold condition prior to loadingdepend on the previous cargoes carried,the next cargo to be carried, charterers’and shippers’ requirements and therequirements of the authorities at the portswhere the loading and unloading takeplace. Although it is common practicetoday for cargo holds to be inspected bythe receiver prior to loading and, in thecase of grain cargoes, for a fitness certifi-cate to be issued by an independent survey-or, cargoes may still be rejected at the portof discharge.As a general rule and regardless of the

previous cargo carried, all cargo holdsshould be thoroughly cleaned prior toloading the next cargo. This is particulartrue for some dry bulk cargoes which areused as food or feedstuff, but also for otherdry bulk cargoes (e.g. Kaolin, Alumina)used as a basis for semi-finished or finishedproducts do not allow any contaminationfrom residues of a previous cargo.With respect to cargo flexibility, the

Handysize and Handymax segments arethose with the greatest variety as minorbulk cargoes are mainly carried by them.Consequently, the cleaning requirementsafter discharging are most stringent withinthese segments. From a cleaning point of view, there is a

distinction between:

� Clean cargoes (e.g. grain & wheat, fertil-izers, mineral sands)

� Dirty cargoes (e.g. coals, petcokes)� Corrosive cargoes (e.g. sulphur, salt)� Others (e.g. cement, clinkers, phosphaterock, ore concentrates, scrap)

Basically, a ship’s operator has severalcargo hold cleaning options depending onthe previous cargo and the next one to becarried:� Standard cargo hold cleaning comprisesthe simple sweeping of the hold bottomcombined with a wash down using manu-ally operated ordinary wash hoses.

� Portable cargo hold cleaning makes useof combined high-pressure water/air-jetwashing units to wash away cargoresidues.

� Automatic cargo hold cleaning consistsof fixed or portable automatic hold wash-ing machines similar to those used forcleaning cargo tanks in oil tankers.

With respect to cost-benefit, the portableone might be considered the most effi-cient.Effective cleaning using a water/air-jet

unit requires a proper impact, in particularat the shell, in order to get the shadowsides of structural elements in the cargohold (e.g. flanges of hold frames) cleanedby ‘back-flushing’.The selection of the appropriate

water/air-jet unit depends on the height ofthe cargo hold. For ships up to Panamaxsize, a unit with an effective washing heightof about 25 m might be sufficient, whilefor bigger ships an effective washing heightof about 50 m is advisable. In any case, the

efficiency of these units totally depends onthe availability of shipboard water and theair pressure supply. The working pressureof bigger units is in general 7 to 10 bar forboth water and air supply, whereas a pres-sure of 7 bar is sufficient for smaller ones.Water consumption is in the range of 80 to120 m³/h for the bigger units and 18 to 20m³/h for the smaller ones.Consequently, to allow the most effec-

tive operations, it might be necessary to up-grade service pumps, particularly if it isintended to use several units simultaneous-ly. This also applies to the service air com-pressor which has to be sized such that atleast a sufficient air volume at rated pres-sure is supplied to one water/air-jet unitand an air-driven diaphragm pump work-ing simultaneously.For dirty cargoes such as petcoke, it

might not be sufficient to use the above-mentioned water/air-jets alone. At least forthe upper part of the cargo hold, it israther necessary to make use of high pres-sure cleaning, with pumps providing 300bar and more from a crane or cherry-pick-er basket. In addition, chemicals are need-ed to get rid of the stains. The chemicals are generally applied in

foam form, which allows a longer reactiontime. The choice of chemicals must becarefully considered, as odour and causticeffects will affect the next cargo. Whenloading dirty cargoes, a sufficient amountof chemicals and application equipmentshould be ordered in time or provided onboard to avoid delays.It should be ensured that the chemicals

used are environmentally acceptable formarine use and safe for the crew to apply.


The crew should be familiar with the rele-vant safety data sheet and, if necessary, per-sonal protection equipment is to be provid-ed.It is worth mentioning that, for some

cargoes, the cleaning process can be speed-ed up if a slip coat is applied prior to load-ing dirty cargoes, as this forms a chemicalbarrier between the steel structure andcargo.As the washing process makes use of sea

water, it should be common practice torinse the cargo hold with fresh water tominimise the effects of corrosion and pre-vent salt from contaminating the next car-goes. Prior to starting with the fresh waterrinse, the supply line is to be flushedthrough to remove any residual salt water.In the majority of today’s operated

bulk carriers, water and air are suppliedfrom the deck through open hatchesusing loose hoses. The handling of longpressurised hoses might require morecrew than having permanently installedbranch supply lines through the lower

bulkhead stool. It is therefore advisable toconsider upgrading by fitting separatesupply lines.When cargo hold cleaning is carried out

during the voyage and outside environ-mentally sensitive areas, the washing wateris normally ejected from the bilge wells byeither a bilge pump or, more commonly,an ejector driven by a service pump in theengine room, and is discharged directlyinto sea. If the vessel has to perform cargohold cleaning in port prior to loading a‘clean cargo’, the washing water has to bestored in either a ballast tank or, morepreferably, a dedicated wash water holdingtank if provided.Using the standard cargo hold bilge sys-

tem for extracting the washing water maylead to a risk of blocking in-line valves withlarger cargo residue particles. Also, abra-sive types of cargo might be harmful to thebilge pump.Therefore, it is advisable to discharge

the washing water from cargo holds bymeans of portable air-driven diaphragm

pumps with a capacity adjusted to suit thewater/air-jet units that are used.Using portable ejectors for bilging is

effective when discharging directly over-board but is less preferable if the washwater is to be transferred into a dedicatedwash water holding tank due to theamount of water needed to operate theejector. Later on, it can be seen that ejec-tors have a rather low lifting capacity com-pared to that of a pump.To enable convenient handling of the

cleaning equipment, a portable cargoresidue davit should be supplied to theship.The effective cleaning of cargo holds

can be performed provided � the ship is technically fit and prepared tocarry the intended types of cargoes;

� the ship is well equipped with cleaningdevices, arrangements and materials;

� the crew is well trained in performingthe necessary cleaning steps; and

� the time needed to clean the cargo holdsis considered when planning voyages.

Strange market upturn & Chinese iron ore enigmaDry bulk freight rates have continued the upturn over the last two-three months.

On 27 May, the Baltic Dry Index was almost 60% higher than at the end of February.Capesize spot rates had increased from a bottom level of just USD 2,300 per day inearly December to almost USD 57,000. Other sizes have also seen considerable rate

increases before some setbacks or flat developments in the last few days.

TEXT: JARLE HAMMER

On this date, spot rates stood at aboutUSD 21,000 for Panamax, USD 19,000 forSupramax and USD 12,500 for Handy-max. Such rate levels might appear ratherstrange seen against the continued verybleak economic conditions in most coun-tries and the fact that world steel produc-tion during the first four months of theyear was 22.7% lower than in the corre-sponding period last year, with April down23.6%. World pig iron production, requir-ing iron ore and coking coal, was down18.5% in April compared with one year

before. The latest reported figures for 12-month changes in industrial productionshow dramatic declines: Japan down34.2%, the Euro area down 20.2%, andthe USA down 12.5%, compared withsame month one year ago. China is one ofthe very few countries showing growth,with a reported increase of 7.3% in itsindustrial production.The dry bulk freight market has clearly

benefitted from very modest deliveries ofnewbuildings so far this year and a fleetgrowth of only 1.0% over the first four

months of the year. Besides, operationalconditions such as slow-steaming, semi-layup, port congestion in some areas, sub-stantial floating iron ore storage in Chinaand choice of longer routes in order toavoid pirates and canal tariffs, all con-tribute to a firmer tonnage balance. Theoverriding factor however, is the verystrong growth in iron ore imports toChina, up almost 23% in the first fourmonths, whereas the country’s pig ironoutput was up just about 3% and thecrude steel production was at about same

MARKET OUTLOOK


ECONOMIC GROWTH & EXPECTATIONS Economist 21.05

% change IP Infl. GDP GDP GDP12m 12m 2008 2009 2010

USA –12.5 –0.7 1.2 –2.9 1.4

Euro area –20.2 0.6 0.8 –3.7 0.3

Japan –34.2 –0.3 –0.2 –6.4 0.6

S. Korea –10.6 3.6 3.6 –5.9 0.3

China 7.3 –1.5 9.0 6.5 7.3

India –2.3 8.0 5.3 5.0 6.4

Russia –16.9 13.2 6.0 –3.0 2.0

Brazil –10.0 5.5 5.3 –1.5 2.7

Thailand –15.4 –0.9 3.0 –4.4 1.1

Indonesia 1.6 7.3 6.1 –1.4 0.5

S. Africa 8.5 8.5 3.1 –1.8 3.1

level as in the same period last year. Acloser analysis of the Chinese steel indus-try is shown below. The extreme build-upof Chinese iron ore stocks does not bodewell for the subsequent freight market,neither does the enormous order book forbulk carriers.Scheduled dry bulk vessel deliveries

through full year 2009 now at 71.7 milliondwt correspond to about 17% of the fleetof almost 419 mdwt at the beginning ofthis year and scheduled 2010 deliveries at102 mdwt correspond to 24%. Slippages

have continued to accumulate and Fearn-leys has registered deliveries of only 8.7mdwt in the first four months of the year,with 63 mdwt on the paper due to bedelivered in the remainder of the year. Itremains to be seen how much will actuallycome in the course of the year. Cancella-tions are still not expected to have muchimpact before the latter part of 2010. Newbulk carrier orders are negligible so farthis year at just 0.4 mdwt and only 1.2mdwt has been ordered since Septemberlast year. Full year new orders last year

reached about 69 mdwt and almost 156mdwt in 2007.A closer look at size ranges shows very

large differences with regard to orderbook shares.Thus, at the beginning of May, the

order book for 10–50,000 dwt correspond-ed to 20% of the existing fleet (with 4%for 10–25,000dwt, 40% for 25–40,000dwt,and just 3% for 40–50,000 dwt). Going upin sizes, it appears that the order bookshare for Supramax of 50–60,000 dwt wasas high as 112%, whereas the share for


CHINA’S IRON ORE SURPLUS

Million tonnes 2000 4 m 2009

Crude steel prod. 502.0 + 1.7% 170.7 + 0.1%

Pig iron prod. 493.4 – 0.1% 163.8 + 3.2%

Iron ore imports 444.0 + 16.0% 188.5 + 22.9%

Iron ore prod. 824.1 + 15.6% 228.4 – 3.5%

Apparent stockbuilding of iron ore in 2008 equals

almost 70 million tonnes of crude steel. Further increase

of about 20 mt crude steel equivalent first 4 months of

2009. 90 mt of crude steel based on imports equals

about 143 mt of iron ore.

Panamax/Kamsarmax of 60–100,000 dwtwas 46%. Among larger vessels, smallCapesize of 100–150,000 dwt had an orderbook share of 50%, whereas large Capesizeof 150–200,000 dwt saw a share of 88%and for Very Large Bulk Carriers over200,000 dwt, the order book still reachedas much as 130%. For all vessels above100,000 dwt, the order book share stood at92% compared to the existing fleet forsuch vessels. The present strength in the dry bulk

freight market seems unsubstantiated forseveral reasons. Most of the 2009–2010scheduled newbuilding deliveries will gradu-ally flood into the market. The likelihood offurther increases in China’s iron ore stocksseems questionable, but cannot be ruledout. A closer look at the country’s iron oresupply situation shows the following key fig-ures: In 2008, Chinas pig iron productiondecreased marginally, down 0.1%, whereasthe country’s high-grade iron ore importsrose as much as 16.0% to 444.0 mt anddomestic production of low-grade iron orerose 15.9% to 824.1 mt.This implies that the apparent stock

building of iron ore last year correspond-ed to almost 70 mt of crude steel equiva-lent. During the first four months of2009, China’s pig iron production at163.8mt was up 3.2%, whereas iron oreimports were up as much as 22.9% to188.5 mt and domestic iron ore produc-tion fell back 3.5% to 228.4 mt. This canbe translated into a further stock buildingof some 20 million tonnes of crude steelequivalent. Adding this together, sincethe beginning of last year there has beena stock building of iron ore in China cor-responding to about 143 million tonnes,based on imported ore quality. Againstthis it can be observed that China’s steelexports have been cut dramatically, with aprojected decrease of some 40 mt fromlast year’s volume of 60 mt. Adding tothis, World Steel Association in its latestshort range outlook, presented in April,estimated a decrease in China’s apparent

MARKET OUTLOOK



steel use in 2009 of 5%, or just above 20mt.One remarkably positive development

on the tonnage demand side, was the bigjump in coal imports to China in April,with a new monthly record of 9.2 mt,against the sliding coal exports amount-ing to just below 2.0 mt. Last year,China’s coal exports reached 45.4 mt,against an import volume of 40.4 mt.During the first four months this year,however, coal imports at 22.8 mt weremore than twice as large as coal exportsat 9.3 mt. Hammer Maritime Strategieshas for a couple of years maintained thatcoal imports to China probably representone of the largest upsides in dry bulkseaborne trade.The recent substantial downward adjust-

ments in bulk carrier prices combined withthe strengthened freight market has openedfor interesting investment opportunities andthe activity in the second-hand market hasbeen quite high. Using Capesize as a refer-ence, the present break-even rate for a five-year-old vessel, bought in the market now,with an assumed total life-time of 25 years,and requiring 10% return on the total capi-tal, was set at USD 21,300 per day in Fearn-leys’ latest Monthly market report. Over thelast week, the one-year timecharter rate forCapesize jumped from USD 30,000 to USD40,000. Whereas the present spot market forCapesize had surged to almost USD 57,000,Imarex futures were quoted at around USD26,000 for both Calendar 2010 and Calen-dar 2011.In my view, it should come as no big

surprise if these levels turn out to be fartoo high, bearing in mind the big tonnageoverhang, the enormous Chinese iron orestocks and the sad state of the world econ-omy with a seemingly long way to go to getback to conditions before the financial col-lapse last year. A good piece of advice is towatch the fundamentals continuously andtry to look behind the market to get anidea about the sustainability of currentmarket developments.

DNV serving the Maritime Industry during any cycle

www.dnv.com

Looking in the “rear view mirror”, we can see that the global recession hit faster and harder than many could

imagine and shipping, the foundation of global trade, has been hit by this as well. Even while there is

tremendous pressure to conserve capital, for some there are opportunities. As your partner we will support and

assist you to meet your requirements.

Shipping is cyclical by nature –DNV is your partner at all times

It’s about partnership.

bulk carrier update no. 2 2009

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