Market Comment

21 April 2010

Tomorrows Technology Today

A survey of fuel efficiency & emission innovations related to ship
design & fleet construction
(Note: This Worldyards Market comment was adapted from a WY presentation at the UAE
National Department of Transport-hosted Environmental Vigilance Summit in March 2010.)

In recent months, there has been a flurry of ordering using standard designs as owners
jump at the chance to contract off-the-shelf ships at low prices.
We are also aware that shipping is squarely in the cross hairs as a politically easy target
due to its green house gas (GHG) footprint.
On 31 March 2010, Lloyds List carried an article with the headline, Shipping seen as soft
target for climate levy
The article noted that Shipping could face a further challenge over its contribution to climate
change as the UN-sponsored Advisory Group on Climate Change Financing holds its first
meeting, adding that . . . shipping is widely seen as a soft target and if a consensus view
emerges from this high level group that shipping should be subject to a levy, it would be hard to
change its opinion.
We also know that leading innovators in shipping have been busy with advanced designs
and technologies aimed at reducing emissions and carbon footprints.
Mitsui Engineering & Shipbuilding (MES) will shortly release new designs for VLCCs
and Handymax bulkers that would cut CO2 emissions and fuel consumption by 30%.
Roughly speaking, the gains are from 10% reduction with the hull design, another 10%
from the propulsion system and the rest through measures such as paint and other
innovations.
Fortunately, emission reduction and sound economic rationale pull in the same direction
to use the words of DNVs Tor Svensen. Thus the existing fleet and newbuilding market
will target reduced fuel costs and emissions at same time. Yet, the shipping market is still
at the early stages of developing a mechanism to reward owners for investing in new
technologies that will reduce later operating costs (not to mention possible exposure to a
carbon tax).
Speaking at an April liner shipping conference, Seaspan chief executive Gerry Wang
urged containership owners to rally to a radical design rethink that would cut ship prices
and reduce operating costs.
He told Lloyds List that when market conditions are booming, there is little incentive for
shipping lines or shipyards to review traditional ship designs. It is during the bad times
that we can do that, he said, explaining that he had been in contact with other
containership owners to gather a critical mass to convince shipbuilders to adopt
dramatically new designs.

Market Comment
21 April 2010

To date, the shipowners that have initiated the most advanced green design efforts are
those companies that own and operate big fleets such as Maersk or MOL. While
mentioning specific examples in the report, it is important to remember that a wide range
of other owners, yards and design companies that are also making efforts to reduce fuel
consumption.
Yet, for owners of tonnage, there has historically been little correlation between building
the best ships and making returns because traditionally the operators don't pay more for
the efficiency even if they would potentially save millions in opex. In other words, there is
no standard interface between operator and owner of tonnage in any sector (bulk, tanker,
or liner) to calibrate the gains from efficiency investments.
Oskar Levander, Head of Conceptual Design at Wartsila Ship Design explained that
because ship operation economic modeling is more focused on lifetime operating costs,
there should be an incentive to invest in fuel efficient (and low emission) designs.
Many tankers and bulk carriers (bulkers) have been traditionally traded as commodity products.
Most new ships entering the market are of standard design, with origins that can in some cases be
dated back a decade or more. In the design process, construction costs rather than the costs of
operation have been the main driver, and the fact that shipowners or operators seldom pay for
bunker fuel themselves has spurred this unhealthy trend, wrote Levander in a recent paper.
Muddying the water is the uncertainty in the shipbuilding industry and shipping industry
about the next wave of environmental restrictions.
Worldyards knows that few owners will willingly pay extra for low emission investments,
yet, whatever ones view on the science of climate change, there appears to be a strong
possibility that shipping will be subject to a strong regulatory mandate to reduce CO2.
That said, a ship operator can save millions a year on bunker through initiatives that will
also cut emissions. The fuel bills for container lines are particularly severe even after the
adoption of slow steaming. It is also clear that in the container industry, client demands
for low carbon footprints such as in the case of Wal-Mart will have the possibility to
spark investment in new technology ships.
However, the point one can make is that an owner is looking at a 25-30 years investment
horizon when it comes to hardware. Even if carbon emissions comes into force 5-10
years later looking at green solutions is still likely to pay off over the investment
horizon.
If carbon were priced at $25 per tonne, against $500 per ton of heavy fuel oil, the fuel
price would play a dominate position in investment calculations. As noted, we believe
there will be an increasing likelihood that shipping will be seen as a target for tax.
We do not know the answers to all these questions, but it is clear that shipping companies
and yards are preparing strategic efforts to lead the pack in the new global context.
Japan has long been at the forefront of green technology, while Korea has also been a
leader in technically complex vessels. We can also see that China has the opportunity to
be at the forefront to design efficient ships as it increases its fleet of nationally-controlled
tonnage.
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Market Comment
21 April 2010

Amongst the shipping companies, some players will position themselves as benchmarkers
and eventual leaders in the efficient green shipping space. As there is greater availability
of measurements and data sets accepted in the industry, there is an increasing trend for
use of operational data sets to frame new expectations, which then raises the bar. Those
who potentially benefit are those who how to build to the new rules before others.
Soren Stig, Senior Director, Head of Sustainability at A.P. Moller - Maersk A/S noted in
comments to Worldyards that, a key message to the yards is that they have an opportunity to
add value to owners by focusing on and proposing solutions that consider operating cost and lifecycle aspect. The pay-back in energy efficiencies initiatives is often very attractive - and even more
so as new regulation is being implemented.

The Maersk business case for green investments

As Soren Stig articulated, Maersks perspective is that yards need to start thinking like shipowners / operators and proactively suggest solutions rather than wait for owners to dictate
requirements.
Maersk executives have said publically that they dont expect shippers to be willing to
pay more for low-carbon transport, but Maersks strategy is to be the carrier of first
choice.
Maersk has been a leader in implementing new technology for all its fleet with
particularly stand-out results for its container fleet.
As Mr Stig presented in the same Abu Dhabi conference as Worldyards, the sustainability
agenda is changing his companys business model in a way that creates specific
opportunities. No container client is willing to pay a premium. We at Maersk do want to be able
to attract the most attractive cargo, said, Soren Stig, Senior Director, Head of Sustainability
at A.P. Moller - Maersk A/S. He explained that with the first right of refusal to fill ships,
there is money to be made on utilization. Maersk has a well known reputation for not
building ships using an off the shelf design, but instead optimizes from an energy
efficiency and environmental point of view.
From our side we want to work with partners that share our objectives and can
contribute pro-actively with new innovation and best practices, said Mr Stig.
There are some 15,000 sensors on Maersk Lines most advanced ships. By Maersk Lines
measure, their CO2 metric is now 76 grams per TEU kilometer against 93 grams per
TEU kilometer as the industry standard. They have set a target of a further 20%
reduction by 2017, which is now challenging their own organization, the shipowners from
which they charter as well as both of their suppliers.
In a SNAME Paper published in October 2009, Maersk shared An Integrated Approach
to Cost-effective Operation of Ships with Reduced Emissions from the owners
perspective, with the following highlights:

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Market Comment
21 April 2010

Average CO2 emission level from Maersk-owned containerships reduced 8.9%

from 2002 to 2007. (81.1g CO2 emissions per TEU km in 2007)
Degradation of hull can be up to 30% to 40% added fuel consumption, making
anti-fouling crucial
Trim optimization effort initiated in 2006 (savings of at least 1%)
Optimise designed of hull form resulted in 7.7% energy savings.
Original design from yard fulfilled contractual terms, but Maersk used operational
data from specific route to optimise.
Just modified the bulb region as the changes were limited for hull form due to
cargo intake.
Propeller super long-stroke with lower RPM provided 3% gain on the main
engine shaft.
Lower RPM allow switch from 8.3 m to 9 m propeller diameter with 5% efficiency
improvement
Waste Heat recovery 9% of main engine shaft power (generally at full
operations and above load limit)
Total savings related to initial design 22% per year and 8700 tonnes of fuel
(26,000 tonnes of CO2)

Lloyds Register on design hurdles & bulker case

Lloyds Registers Robert Tustin (Asia's Technical Manager for New Construction) has
said that ship buyers will increasingly drive the innovation process. He predicted that
shipping market leaders of the future will be those which can respond to regulatory
requirements and market expectations by building their fleets with low carbon or green
ship technologies.
The core defining issue for the shipyards and their customers is that the low carbon
shipping future will require substantial development effort and investment.
He suggested that this hurdle of design and engineering effort to create a green ship
design will create fewer options offered to the marketplace than before.
He predicted a consolidation of low carbon basic design and engineering expertise in a
relatively small number of global shipbuilders, noting that Lloyds Register has a range of
new technology concepts under review and development related to green shipping.
As an example, Lloyds Register is working with Shenzhen-listed Shanghai Bestway
Marine Engineering Design to jointly develop a new fuel-efficient bulk carrier that will
be evaluated by using the International Maritime Organizations new Energy Efficiency
Design Index (for more detailed discussion on EEDI see below).
Work will focus on finding energy-efficient alternatives for a 35,000 dwt bulk carrier and
will include research into: bow-shape optimization, wake-fields in the stern, propeller
arrangements, deckhouse arrangement, low friction anti-fouling coatings, energy efficient
machinery and systems and optimised structural and hull designs.

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Market Comment
21 April 2010

Work conducted by the LR Strategic Research Group found that fuel efficiency gains of
up to 20% were shown to be achievable by optimizing the hull shape. Savings of about 8%
were also shown to be possible by applying appropriate coatings to the hull and further
potential fuel savings of up to 8% were shown to be possible by replacing an old turbocharger, with another 5% to 7% possible by improving the fuel injection system.

DNV solution matrix & Quantum containership

A study by DNV Maritime from the perspective of a ship classification society found that
the shipping industry, by 2030, could cut emissions by 30% at a zero-cost even
considering fleet growth. Up to 50% could be achieved if CO2 is priced at $100 per tonne
or the fuel prices increase beyond the conservative rates used in the study. While the
existing fleet can achieve 15% reductions, the biggest benefits will come from building
greener, more efficient ships.
DNV pointed out that regulations will be needed to lower emission enforcement when the
economic benefits of better fuel consumption are not as compelling. LNG will become a
very attractive alternative and green fuel option for many ships in many trades as gas
prices are now developing in a different pattern than the conventional fuel prices.
In April, DNV unveiled its Quantum ship design a containership that has a number of
advanced hull design features and also the option to install natural gas engines
retroactively.
The baby post-panamax vessel of between 5,000 teu and 6,500 teu uses an aircraft carrier
overhang shape above the waterline. The concept design suggests that marine diesel and
LNG with four gensets could power two electric-powered pods/
There are also gains from lightweight materials with a sandwich plate design.
The implied conclusion from the DNV investment and operational research is that energy
saving features can improve business results - but if the target was set to a high level then
someone has to pay the bill. Shipping is typically a business at very low margins, so the
cost to be passed on to users as margins reduce.

MOL case for new generation ore carrier

MOL has unveiled a concept for an environment-friendly, large-scale iron ore carrier
called the ISHIN-III that will play a key role in the Japanese carrier's future dry bulk fleet.
The ISHIN-III concept has two main features. It uses waste heat energy recovery to
assist propulsion cut carbon dioxide emissions even at low speeds.
The combination of a turbocharger that can operate at high efficiency even at low RPM
and an electronically-controlled main engine reduces CO2 emissions even during a lowspeed voyage. By introducing these two technologies, the concept aims to cut CO2
emissions by 30%. Overall CO2 emissions can be reduced by over 50% with the
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Market Comment
21 April 2010

application of wind-driven technologies. Wind Challenger Project is being led by

Tokyo University, MOL, ClassNK and various suppliers.
The costs are estimated at 10% higher than a conventional bulk carrier in the 300,000
dwt class, but if it can recover 10% of the heat released from main engine exhaust gases
and use it to generate electricity to power auxiliary motors on the propeller shaft, this
means that for a vessel that uses 100 tonnes of fuel a day, there would be a savings of 10
tonnes through heat recovery. For a ship trading 300 days a year and fuel at $500 per
tonne, the annual savings is $1.5m. The company claims there is no loss of cargo carrying
space, though there would be some extra training needed for personnel.
Two other radical new concepts developed by MOL as next generation designs are in the
car ferry and car carrier segments.

Energy Efficiency Design Index (EEDI)

A working group was set up at the International Maritime Organisations Marine
Environment Protection Committee (MEPC 60), which did not really achieve very much
at its March meeting except to refer the issues to an inter-sessional working group.
While various papers were 'noted', nothing much was agreed. This leaves the industry
with voluntary guidelines on the EEDI, with the recommendation for owners to try the
formula and report back to the IMO on how it works. Though the discussions were not
fruitful in March, the IMO is working to amend Annex VI of the International
Convention for the Prevention of Pollution from Ships (MARPOL) as it relates to
newbuildings. Politics appeared to have derailed progress, but there are two meetings
scheduled in coming months to pave the way for an October agreement.
Once the rules come into force, then there will be a regulatory requirement for an energy
reference measured by the energy efficiency design index (EEDI). The concept is to have
an energy rating related to new ships similar to an energy consumption sticker on a
refrigerator at the appliance shop.
The accord is expected to be amended then with the regulation to come into effect by
around 2013, but with guidelines already published, the market could start using the
EEDI before then.
At present, there is no firm proposal (some papers into MEPC60 do have some ideas, but
they are only ideas at this stage) to make meeting specific levels of EEDI mandatory.
Japan's idea, however, is to make it mandatory, and refund money to those who fit energy
efficiency equipment. But this would have to be verified by the flag state or a recognized
organization such as the classification societies, a verification process that will create new
complexities for shipowners.
Japans proposal for reduction ratios for six ship types with three phases:
Phase 1; Contracts are concluded in 2013-2017
Phase 2; Contracts concluded during 2018-2022
Phase 3; Contacts in 2023-2027
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Market Comment
21 April 2010

(Source: Marine-net)
The EEDI approach takes four factors into consideration (as stated verbatim in ABS
Bulletin):
An emission factor derived from the fuel consumed by the main engine running at 75%
of rated installed power. Ice class ships would get an adjustment credit.
An emission factor derived from the fuel consumed by a nominal auxiliary engine power
source sufficient to supply normal sea loads. This would be calculated as a function of the
main engine output regardless of the actual unit installed.
An emission factor derived from the fuel consumed at 75% of the rated auxiliary
generator power consumption. Vessels with a waste heat recovery system would receive a
credit.
A factor will be applied to reflect innovative energy efficient technologies that have been
incorporated into the design.
To arrive at the index, the sum of the first three factors, minus the fourth factor is divided
by the product of the ships cargo capacity, reference speed and a non-dimensional factor
to account for speed reductions in a specified sea state. (source: ABS)

Engine maker & shipbuilder initiatives

Worldyards surveyed activities at engine makers such as Wrtsil and MAN B&W as
well as the Korean and Japanese shipyards:
In addition to propulsion, Wrtsil is researching the following fields: air lubrication,
long-lasting hull coatings, wind power, hydrodynamics & propellers, and waste heat
recovery, seeking to reduce friction, fuel consumption, optimizing hull lines, etc. Its
Waste Heat Recovery efforts applied to containerships have been proved successful and
the effort will be expanded to a wider range of ship types, including tankers and bulkers.
MAN Diesel joined hands with Daewoo Shipbuilding & Marine Engineering Co., Ltd.
since February 2010 to develop and exploit the adaptation of DSMEs high-pressure
cryogenic gas-supply system for installation with MAN B&W ME-GI engines;

Gas-injection, dual-fuel, low-speed diesel engine

Any ratio of fuel-oil and gas,
4T50ME-X R+D test engine to be rebuilt as a 4T50ME-GI engine ready to
operate on natural gas by end-2010.
Applying the ME-GI engine and DSME system to a 14,000 TEU containership
could potentially reduce annual operation costs by $12m or greater, based on
current gas and oil prices.
SOx, NOx (with EGR or DeNox) and CO2 emissions would also be reduced at the
same time.

In February 2010, Samsung Heavy Industries held a big bash where they unveiled its
plan to build only eco-friendly ships from 2015, by achieving a 30% reduction in
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Market Comment
21 April 2010

greenhouse gas emissions. Samsung thus claims to be the first shipbuilder in the global
shipbuilding industry to declare a green management policy that includes a detailed
vision for the development of eco-friendly products and the reduction of GHG emissions.
Focus areas will include optimal shape of ships that will maximize fuel efficiency, WHR
devices and low-temperature combustion devices. In particular, the company has set a
goal of building ships by developing LNG and hydrogen fuel cells, superconduction
electricity-powered motors and cables, and CO2 collection technology, jointly with
universities and private research centers.
Samsungs Geoje Shipyard has been designated to be a green workplace by developing
eco-friendly shipbuilding facilities, using eco-friendly paints and saving energy, while
building a green network by providing technical support to its partners to reduce
greenhouse gas emissions, and by introducing a certification system.
Comparing with its Korean counterparts, Japanese yards have been found to be investing
less on environmental concerns. The following are reported by Marine-net:
Mitsubishi Heavy R&D budget of its ship division in fiscal 2009 is Y3 bn. This is
triple compared to 10 years ago, but reportedly a fraction of South Korean majors
[though it is unclear how much of Korean R&D is directed at offshore].
Universal Shipbuilding Corp. spent Y2.4 bn in fiscal 2008, which was its peak
level.
Most other yards less than Y1 bn level.
National Maritime Research Institute (NMRI) under the wing of Japans Ministry of
Land, Infrastructure and Transport is working on the project of ZEUSthe National
Zero Emission Ultimate Ship, which as a one report put it is a suitably Olympian name
for a Herculean goal. Namely, NMRI is expecting to develop ships that will call at ports
to recharge their batteries and generate no emissions.
NMRI is making efforts to produce a 40% energy saving on container ships via methods
such as ultra-wide twin skeg hull, reaction pods, a stream-lined bow bridge, a step belt
above the bulbous bow and air lubrication. Air lubrication is now being tested on an
NYK subsidiary ship just delivered by Mitsubishi Heavy Industries with microbubbles
generated along the hull bottom to reduce resistance.
The focus on hull form tweaks has thus far to get its 40% reduction and the next move is
on electric propulsion, using solar panels and shore power supply systems to cut
emissions by as much as 80% by 2030. The final furlong will involve incorporating fuel
cells.

Fuel Cell as the future solution

The fuel cell has been seen as one of the most promising solutions to reduce emissions to
air from fossil fuel power production, and improve energy efficiency. Fuel cells are now
available in many sizes and are widely used in todays world. (While there is credible
efforts focused on nuclear propulsion, this market comment has excluded this technology
because of the extensive hurdles to immediate adaption.)
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Market Comment
21 April 2010

The fuel cell working principle is rather like a battery that doesn't need recharging. It
operates as long as it is fed with fuel. It can boast to be silent, clean and efficient.
Furthermore, many types of fuels can be used to produce such cells, including natural gas,
bio-fuels, methanol, hydrogen or even light fuel oils. Fuel cell price is currently around 6
times that of marine diesel engines (including installation). Yet, significant reduction in
manufacturing cost is expected due to economy of scale effects when mass production
starts.

Concluding thoughts
After reviewing the various initiatives, in this edition of market comment, we conclude
with the contention that the road ahead will now be dictated by shipping market
mechanisms rather than the technology itself. We believe that the paradigm shift will be
mapped out by answering the following questions;
1. Will there be externally imposed political mandate to reduce CO2 be imposed
externally?
2. What mechanisms will be developed to mitigate shipowner's resistance in terms of
reduced cost, ship operation efficiency and so on?
3. Will shipowners/operators pass all or part of the cost onto cargo owner or consumer?
4. Which shipowners/shipyards will move first and using what investment logic to invest
in the new generation of ship design?

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