As more industries acknowledge the role of climate change in economic growth and labour productivity, entire segments of the economy are taking steps to limit their environmental impact. This year, maritime shipping is facing new environmental regulations from the International Maritime Organization. Under the new regulations, known as the sulphur cap, all ships sailing the world’s oceans have to immediately reduce the amount of sulphur they release into the atmosphere. This regulation could potentially lead to huge costs for cargo shipowners and operators, as well as a rise in freight fees, globally.

Old ships, new rules

According to industry estimates provided by Shipping and Freight Resource, more than 90 percent of the global vessel fleet will have to have to rely on sulphur cap-compliant fuels after 1 January 2020, while the remaining lines will choose to invest in different technologies and operational investments such as scrubbers.

Shipowners anticipate that the sulphur cap may result in an increase in shipping fees globally, says Michael Borisov, Chief Investment Officer at Leon MFO Investments. This is due in part to the nature of the market for ships. Most cargo tankers and bulkers have a lifespan of 20-30 years.

“Many companies are relying on a scenario that involves other companies writing off old ships (due to the changes in regulation). Therefore, there will be a shortage of supply in the transportation market, and this will spur demand and raise freight fees,” Borisov says.

Annually, no more than 5 percent of the world’s cargo ships are being replaced, Borisov says, so in practical terms, the new regulations mean that companies will have to make changes to their ships currently at sea.

“A number of shipping firms have old fleets that require retrofitting or commissioning new ships with engines that burn cleaner fuels,” Borisov says.

These existing vessels should either switch to more expensive sulphur cap-compliant fuels or install scrubbers, which clean sulphur from ships’ exhaust.

Scrubber: the word of the year

The IMO regulation effectively launched a technological revolution in scrubber systems. Since the beginning of the year, the word ‘scrubbers’ dominated international newsfeeds in the industry. According to available data, more than 3,000 vessels had been equipped with scrubbers by the time the sulphur cap entered into force. Euronav reportedpurchasing its first ships with scrubbers; DHT, a US-listed owner of very large crude carriers, says it has saved USD 14.6m by using scrubbers on almost half its fleet; and Seanergy Maritime announced that it has completed the installation of scrubbers on five capesize vessels, or 50 percent of its owned fleet, with USD 14m investments overall.

“The costs of installing scrubbers are fixed, while the costs of compliant fuels are unpredictable and depend on oil prices, refinery pricing and even geopolitics,” says Borisov, adding that for ships that will be replaced in the near-to-medium term, both scrubbers and compliant fuels may look like temporary solutions for shipowners.

Going beyond compliance

This increase in the use of scrubbers, or Exhaust Gas Cleaning Systems (EGCS), as a cost-effective means to achieve compliance has led to a revival of the discussion around their reliability, however.

According to experts from Wärtsilä, one of the world’s leading suppliers of marine scrubber systems, the biggest concern with EGCS is corrosion of the system or the piping, which can result from poor design, construction, or installation. Wärtsilä has provided scrubbers for a variety of vessel types, from oil tankers to cruise ships to fishing vessels, and has made reliability a focus of its scrubber offerings. Material used in Wärtsilä scrubbers is subjected to extensive testing and research by third-party experts and in independent analyses.

“It is no accident that scrubber reliability is emerging or rather, re-emerging, as an issue now,” says Sigurd Jenssen, Director of Exhaust Gas Cleaning at Wärtsilä.

An unreliable scrubber system significantly compromises compliance with the sulphur cap.

“Safe return to port is always key, so you are not going to be penalised for sailing to the port you were going to if your scrubber stops working,” says Jenssen. “But whether you have to get it fixed straight away or can continue sailing until the spares are available and repairs arranged is up to the port state.”

Suppliers lacking substantial experience in the marine market may not be able to recognise the full consequences of their choices or the scale of corrosion that can occur. Beyond risking fines and detentions, a vessel that is non-compliant due to a faulty scrubber might also tarnish the reputation of its parent company and other vessels in the fleet. According to       the Marine and Port Authority of Singapore, previous non-compliance will be part of the risk profiling that will be used to determine which vessels are subject to inspection when they arrive at port.

“The risk and costs associated with non-compliance are extremely high. When we look at the competitive landscape for scrubbers, we see several companies that have no service network at all, many who are newcomers to the marine world and actually none that have a network comparable to ours,” says Jan Othman, Director of Exhaust Treatment at Wärtsilä.

Wärtsilä has more than 10 years of experience in designing scrubbers and has installed its solutions on a variety of vessel types, from oil tankers to cruise ships, from fishing vessels to cable layers. The company has tested its materials itself and conducted extensive research with third-party experts, as well as confirming its selections against independent analysis.

Wärtsilä is also incorporating the latest technological developments into its EGCS. The system’s automation and control system is being developed to enable even better cybersecurity and easier integration for big data functions. A new standard control system will be able to connect to Wärtsilä’s Data Collection Unit, an integrated data bridge that collates sensor readings from multiple sources on the ship. This data is then fed back to Wärtsilä to help both optimise and improve a vessel’s automation and control systems on both current and future journeys.

These developments provide yet another way to assist shipowners in reducing both fuel costs and emissions, making progress on the journey to a Smart Marine Ecosystem.

Source:
https://www.wartsila.com/twentyfour7/environment/silent-revolution-at-sea-imo-sulphur-cap-2020-regulations-set-to-change-maritime-shipping

As more and more suppliers arrange search parties [pun for: conducting cost-benefits analysis], significant time and costs associated with shipping is seldom recovered, and the future looks grim for suppliers who have not evaluated onshoring options. In fact, the supply chain impact may be significant as the maritime industry prepares for one of the most significant changes in its recent history: IMO 2020 rules that will be met with escalating costs and operational challenges.

What is IMO 2020? What is the impact?

Starting January 1, 2020, all ships operating in the open sea must comply with stricter environmental regulation set by the International Maritime Organization (IMO 2020), aiming to reduce sulphur oxide emissions from sea vessels by 85%.

Operational challenges will be considerable, and the costs astronomical, with a total global impact in excess of $1 trillion over five years, according to S&P Global Platts Analytics estimates.

While the onus for compliance falls on carriers, price volatility will continue with anticipated service disruptions as thousands of ships are taken out of the market to fit equipment called scrubbers (or a switch to low-sulfur fuel or use of liquidized natural gas). In fact, overall prices of container transportation and freight rates have already increased significantly, including one indicator—the Baltic Dry Index—that surged in September to its highest since November 2010.

Fleets will consider factors such as the age of their vessels, trading routes and locational availability of the various fuel options. However, with concerns around demand outstripping supply, fuel costs will increase along logistics timelines and availability of shipping. These costs and implications will be passed down to those shipping materials.

What’s the best option for shippers today?

We would be remiss to say that there are no benefits to offshoring, but the concept became too common practice. Many companies moved production to low-cost countries, worried that competitors would gain a cost advantage; fixating on a component’s unit price rather the total cost of ownership, which oftentimes results in a 20% to 30% miscalculation of actual offshoring costs. Some of the most commonly cited costs include inventory carrying costs, shipping, travel expenses and communications issues, rising offshore wages, as well as intellectual property risks.

Today, many U.S. manufacturers are reevaluating production and sourcing locations and are realizing major benefits of reshoring for large volume of high-quality products.

In the molded rubber category, an uptick in reshoring began years ago with motivations tied to quality standards and reducing supply chain exposure. This resurgence was largely due to an unbalanced increase in production costs with a steady, and even declining standard for quality. For example, from 2000 to 2016, indexed manufacturing labor costs increased 400% in China, compared to only 2% in the U.S.

In the last year, however, macro trends, trade war realities and regulations have further made the case clear for onshoring across industries, as OEMs realize the total costs of ownership of Made in USA components to be lower on average and declining.

Because of this—and impending IMO 2020 compliance—the supplier and OEM partnership will become more important than ever before, and companies that can source a local supplier will gain the advantage.

What to look for in a parts supplier?

When a shipment isn’t crossing international borders or taking a long voyage over water, logistics costs are lower, far less complex and ensure a higher confidence of on-time delivery.

Whether doing business locally or across borders, when producing or assembling parts, OEMs should turn to suppliers that can truly address logistical gaps and overall manufacturability through design enhancements, advanced product quality planning and material offsets. Time to market can be reduced by leveraging fast prototyping, development and production, with secondary operations. For example, manufacturers often find it easier and more cost-effective for part suppliers to perform various assembly operations. This can range from simple packaging of various components to highly automated cells for part assembly and boxing.

Along with automated production processes, OEMs should source vertically integrated suppliers that work as true partners, from conception to commercialization. If you must continue to do business with foreign manufacturers, make sure they understand the pace needed to launch new products, process efficiency techniques, like design for manufacturability, and can produce parts to exacting specifications. Don’t sacrifice quality or reliability, and never allow maritime industry changes to delay shipping or increase costs for parts that can be made domestically.

Steve Anton is president of Rahco Rubber Inc., a vertically integrated manufacturer of custom-engineered, precision molded rubber components and sealing solutions.

Source:
https://www.industryweek.com/supply-chain/article/22028676/lost-at-sea-the-impact-of-new-maritime-trade-regulations