Will the BWM Convention mean a bonanza for repair yards?
TECHNICAL • SHIPREPAIR
Ship repairers face an uncertain future
Paul Bartlett examines the ship repair sector looking to find a potential windfall in new
environmental regulations.
Last year’s plunge in new contracting is already forcing many hungry shipbuilders to downsize or diversify. Inevitably, managers are eyeing up the repair and conversion sector as a possible new revenue stream despite the fact that the new construction and repair businesses are based on entirely different models.
The move has come at a time of significant uncertainty for the world’s repair yards. No-one is yet sure whether the arrival of new regulations in the shape of the IMO’s Ballast Water Management Convention this September and the global 0.5% sulphur cap in 2020 is good news or not.
On ballast water treatment systems, estimates vary as to the number of ships which could be affected. If, as some suggest, 70,000 merchant vessels will need installations, that could land ship operators with a total bill of $40-60bn, according to some estimates, for the joint benefit of system manufacturers and repair yard installers.
Although there have been moves to delink the treatment system installation deadline from the renewal of the International Oil Pollution Prevention Certificate (IOPPC) which usually coincides with a ship’s special survey, most installations will still be carried out between 2018 and 2023.
Visit:
seatrade-maritime.com But how big will this market be?
The reason that nobody knows the number is because sentiment plays such a central in shipping’s decision- making process. So much depends on shipping’s markets and whether operators consider the necessary investment likely to pay back.
For operators of older tonnage, particularly large bulk carriers and tankers, this is unlikely unless the markets are particularly buoyant. And there seems little basis for much optimism at present, although commodity prices are firmer and rates in some sectors have bounced off the bottom. However, there is still a major tonnage overhang to absorb.
Experts indicate that treatment systems fit for purpose on board big tankers and bulkers could have an installed cost of $2-2.5m. Over a five-year payback period, that works out at between $1,200 and $1,500 a day, assuming a modest cost of capital of 5%.
The tanker fleet has a much lower age profile than the dry bulk sector, but there are still close to 400 crude oil tankers of more than 60,000dwt which are over 15 years old, according to Clarkson statistics. Treatment system installations on smaller tankers will obviously cost significantly less, but their owners will still face a tricky investment decision. There are more than 400 products tankers (excluding vessels of less than 10,000dwt) which are older than 15 years, and more than 100 such chemical tankers.
However, the dry bulk sector looks rather different. There are more than 1,900 bulk carriers of more than 10,000dwt which are over 15 years old. Of these, about 170 are baby- capes (120,000dwt) and above.
Operators who decide to install treatment systems between now and the end of the decade will do so in the knowledge that their ships will also have to comply with the IMO’s sulphur cap from then on. So, not only must they make the investment in ballast water treatment installations, but they must also consider how to comply with the new fuel regulations.
Some have already decided to undertake expensive conversions to burn LNG, methanol or even install electrical systems but this is unlikely to be a strategy adopted by most operators. For them, the sulphur cap will be another costly exercise, whether in the form of more expensive low-sulphur heavy fuel, a switch to distillates or a scrubber installation.
Whatever happens, the result of these new regulations will be positive for the world’s repair yards because the requirements will generate new income streams which were not there before. However, if there is a mass exodus of older ships whose owners can’t make the numbers stack up, there’ll be fewer meaty repair jobs on older vessels for repairers to tackle.
And if newbuilding yards suddenly muscle in too, the future could become even more uncertain.
Seatrade Maritime Review • Quarterly Issue 2 • June 2017 87
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