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Squeezing Every Penny

It?s tough sledding these days in the global ship repair market. Next year should be better.

Credit: NORDMARIN
Credit: NORDMARIN

By Wendy Laursen 2018-08-25 20:21:16

(Article originally published in May/June 2018 edition.)

Even as the ship repair industry tracks the wider shipping upswing, the market remains depressed and hasn’t yet recovered from the crash a decade ago. Ship managers continue to squeeze every penny, and they’re getting expert help.

A growing number of specialized services are being designed to reduce operating costs. U.K.-based Relmar, for example, tackles what it calls “infant mortality” – breakdowns during newbuild commissioning – with its marine reliability-centered maintenance strategy. Bottom line, it's a full lifecycle approach that determines where condition-monitoring will and won't be useful to ensure that major docking periods aren't wasted doing unnecessary maintenance.

New technologies are employing new digital tools to help reduce maintenance and repair costs. Alfa Laval's new remote emission monitor, a data reporting and storage device for its scrubbers, provides a variety of data-driven initiatives that include sending diagnostic and performance data to the cloud for condition-based maintenance services. Technicians can then find the root causes of an alarm and arrive on the vessel with the right parts and information to solve the issue quickly.

“Riding the Scrubber Retrofit Wave”

After rock-bottom prices and fierce competition last year, many yards are hoping to “ride the scrubber retrofit wave,” says Vassilis Vassiliou, Business Manager for ship repair firm INTERYARDS. However, shipowners are still hesitating about 2020 fuel choices. So while many yards are hoping the worst is over – and conditions in Asia, the busiest region for ship repairs, are better than they have been in a while – prices remain at the same competitive levels.

Nor are scrubbers flying off the shelves, says Roy Strand, Chief Operating Officer of Goltens Worldwide. Goltens represents Yara Marine in the scrubber markets of the U.S., Middle East and Singapore. Strand says scrubbers are still a good prospect and have no real deadline: After 2020, shipowners can continue to evaluate the payback of a scrubber versus the price of low-sulfur fuel and install one at any time.

Meanwhile, Goltens remains focused on large engine repairs and also, in its green technologies business, on ballast water treatment systems. “Although the green segment is quite busy, it's not moving at the rate that, globally, any of the original equipment manufacturers or any of the service companies expected,” says Strand. “There are still people who are hoping the requirement for ballast water treatment systems is going to go away. That's not going to happen, and the wait-and-see approach really isn't going to work anymore, so we’re seeing some significant activity on that front. But again, they're going to delay it as long as they can because there's no payback. It's purely compliance.”

Paul Friedberg, Managing Director at NORDMARIN in the UAE, says yards in the region face a daily fight for survival, and ballast water treatment installations are unlikely to have a big impact for the smaller yards focused on the offshore vessel market. Unlike European owners, owners in the Middle East just don't seem interested in fitting systems, and there are 10 yards in the region fighting for the work. 

Friedberg says, however, that the market may become a little more exciting next year with more offshore support vessels coming out of “cold” or “warm” stacking. The potential for a recovery in the oil and gas business is relatively high in the region because the cost of producing a barrel of oil in the Middle East is a whole lot less than in the North Sea, for instance.

In the U.S., Bradley Kerr, Director of Sales & Marketing at Detyens Shipyards, says he’s yet to see an impact from scrubber systems although the spring season has been strong for the yard with both emergency repair work and scheduled maintenance for vessel owners from around the world. The yard has also been repairing Military Sealift Command and MARAD vessels for the U.S. government. Recent work includes the USNS Stockham, USNS Robert Peary, USNS Grumman, USNS Laramie, USNS Apache, USNS Lenthall and the Cape Douglas.

New Financing Options

Newport Shipping, headquartered in the U.K., has announced what it says is a unique ship repair financing proposition where shipowners can stagger 60 percent of their drydocking payments into 12 or more monthly installments. Only 40 percent of the cost is due when the vessel returns to service.

Traditionally, up to 50 percent of drydocking costs are paid over a two- or three-month period. Sometimes yards require all drydocking costs be paid before the vessel returns to service. Spare parts suppliers and equipment manufacturers, on the other hand, are usually unable to extend such credit terms.

Roy Yap, Newport Shipping’s Chief Operating Officer, said the credit payment system covers all maintenance expenses in addition to drydocking costs such as spare parts, paint, specialist work and even equipment retrofits like a ballast water treatment system or scrubbers, which can in some cases comprise the majority of a vessel’s total maintenance budget. The company has expanded its global network of repair yards through an agreement with PaxOcean that yards in Singapore, Indonesia and China will offer the same payment system.

BWT and LNG Retrofits

INTERYARDS’ Vassiliou says yards are gearing up for the first wave of ballast system retrofits. He believes the number of retrofits expected is manageable given available repair facilities because the last extension of the Ballast Water Management Convention’s due dates by the IMO has eased the pace of implementation.

In January, Sefine Shipyard in Turkey commenced operation of its new Aframax drydock, and in April Piraeus Port Authority completed installation of a new floating dock suitable for Panamax vessels. This expansion of existing infrastructure is expected to attract more ships from the wider Mediterranean region.

France's Chantier Naval de Marseille (CNdM) has also opened a new dock that can accommodate vessels over 270 meters long. The dock is the biggest in the Mediterranean and one of the biggest in the world. A special focus is on operations linked to the optimization of energy efficiency and environmental performance of cruise ships – in line with new regulations and cruise lines’ investment strategies. CNdM has partnered with Costa Cruises but is targeting a range of vessels as well as cruise ships.

Hurtigruten has announced plans to retrofit up to nine of its conventionally-powered cruise ships with LNG-fueled hybrid propulsion systems. However, shipping analyst Drewry says that for the existing cargo fleet, retrofitting is a risky option. Retrofitting a dry bulk carrier would cost about $6 million, which is a considerable gamble for owners operating in such a volatile market, and retrofitting LNG engines in small dry bulk and tanker vessels is not possible due to space constraints. It’s not economical for vessels over 15 years’ old either, says Drewry, and retrofits don’t work well for tankers.

However, there are retrofit projects underway. Most recently, Damen Shiprepair in Dunkerque started a unique project resulting from E.U. emissions targets – the conversion of a trailing suction hopper dredger from diesel-electric propulsion to dual-fuel capability for shipowner GIE Dragages Ports. It’s the first conversion of its kind in Europe and part of an E.U.-supported initiative to promote LNG propulsion in short-sea vessels operating along Europe’s Atlantic coast. The dredger conversion is expected to play an important role in demonstrating the feasibility of using LNG as a fuel on smaller vessels. It’s due by December 2018.

Other Damen yards are also benefiting from E.U. initiatives. Flip van der Waal, Managing Director of Damen Oskarshamnsvarvet in Sweden, says the yard's outlook is promising because the government has announced plans to electrify many of its ships.

Upswing in the Caribbean

Damen Shiprepair Curaçao (DSCu) in the southern Caribbean has taken delivery of two docks: a Panamax-class dock for tankers, container ships and other large vessels and a smaller dock suited to tugs, workboats and offshore support vessels. “We plan more investment in the years ahead,” says Lodewijk Franken, Managing Director at DSCu. “We also plan to support regional naval vessels including those of the Royal Dutch Navy. With the support of a Damen Services team, the yard will provide maintenance and repair services to Damen-built tugs and workboats operating in the region.”

In the superyacht market, Miami-based RMK Merrill-Stevens is replacing its 70-ton travel lift with a new 100-ton travel lift, part of a $30 million capital improvement campaign to attract the next generation of vessels.

For Cotecmar in Colombia, the repair market is improving. Located at the Port of Cartagena, Colombia, only 180 miles from the Panama Canal, Cotecmar has been servicing local markets as well as vessels from farther afield – for example, Europe. Despite a perceived vulnerability due to the highly volatile politics between the U.S. and China, the company is optimistic about market forecasts predicting future growth trends.

That optimism is shared around the Caribbean, and most recently, the Maritime Authority of Jamaica announced plans for a floating drydock. The dock is expected to be operational within the next 18 months and will improve the country's competitiveness in servicing the East-West and North-South shipping lanes.

“Wait till Next Year”

Will global repair prices remain at the same very competitive levels next year? Vassiliou says this is unlikely as most forecasts indicate higher demand in the repair and retrofit sector and thus higher prices. Stay tuned! – MarEx 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.