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Shippers Must Reduce Costs, Boost Efficiency

By Jim Rhodes and Frank Soccoli Thursday, September 11, 2014, 4:07 PM


So what’s keeping ship operators awake at night these days? Plenty, it seems. Sluggish recovery from a lingering worldwide recession, unsustainable debt loads, endemic overcapacity in most shipping trades, punishing freight rates, rising costs of fuel and regulatory compliance and a lingering sense that ships are not running as efficiently as they could. The last two topics – reducing fuel costs while complying with emission regulations and improving ship operating efficiency – will take center stage at SHIPPINGInsight 2014, scheduled for Sept. 30 – Oct. 2 in Stamford, Conn.

Fuel: Search for Alternatives
Let’s start with the biggest headache – the inexorable rise in costs of fuel and compliance with new regulatory requirements. Fuel currently accounts for more than half of daily ship operating costs. That percentage will likely rise as the more stringent Emission Control Area (ECA) requirements for low-sulfur content come into force. Since Aug. 1, 2012, ships sailing within 200 nm of the U.S. coast have been required to burn fuel with a sulfur content of not more than one percent. While it is expected that supplies of compliant distillates will be more readily available when the more stringent 0.1 percent sulfur content requirement comes into effect Jan. 1, 2015, costs of fueling ships and complying with emission regulations will surely continue to rise.
It’s hardly surprising that shipowners and shipmanagers are looking hard at ways to reduce fuel costs. A relatively minor improvement of just one or two percentage points can produce substantial savings on the bottom line. One option is switching over from diesel and distillate fuels to liquefied natural gas (LNG), which burns much cleaner and meets all current and projected ECA emission requirements. The movement to LNG is gaining momentum. There are currently more than $3 billion worth of LNG-powered ships on order in North American shipyards, according to a report recently released by the American Bureau of Shipping (ABS).
While LNG has its cheerleaders, there are plenty of skeptics, who point to the lack of infrastructure for delivering, storing and bunkering with LNG on a wide scale. So far, most of the LNG initiatives are for vessels such as ferries and offshore supply vessels operating out of fixed bases where bunkering infrastructure can be more easily implemented. It doesn’t help that guidelines and regulations for LNG bunkering have not been issued by federal, state or local authorities, leading to confusion in the marketplace. Critics also note that LNG requires more storage space on ships, which means shorter times between bunkering and/or diminished cargo capacity, and that the capital costs of retrofitting an existing ship for LNG propulsion must be weighed against the high cost of installing scrubbers to meet the emission requirements. Costs of scrubber systems are moving downward and may provide an attractive alternative to LNG switchover, especially on existing ships.
To be sure, there are other alternative fuels besides LNG being proposed and tested. They include emulsified fuels (mix of petroleum fuels and water), which are said to burn cleaner and more efficiently, and methane-based fuels such as dimethyl ether (DME) which can be burned in existing diesel engines. DME has been gaining traction increasingly in the transportation industry, and most major U.S. long-haul truck builders have active DME development programs in place.
Given the timeliness of the topic, SHIPPINGInsight 2014 will include a full-day Marine LNG Symposium immediately preceding the two-day Fleet Optimization Conference, with an impressive lineup of speakers, moderators and panelists who will look at all aspects of the subject. The symposium will be kicked off by keynote speaker Edward Scott, COO of Excelerate Energy.

Efficiency: Better Data and More of It
One of the major inhibiting factors in achieving greater efficiencies in ship operations is the paucity of data flowing from ship to shore. How, for instance, can you improve fuel efficiency in real-time unless you can measure, record and analyze key performance indicators (KPIs) from the ship’s onboard systems and sensors, and make adjustments as needed?
In other industrial sectors, “big data” has become a key element in managing and controlling assets. Increasingly, smart devices are “talking” with other smart devices, exchanging data without human intervention. The marketplace for machine-to-machine (M2M) connectivity is one of the fastest growing sectors in the world today. It’s sometimes referred to as the “Internet of Things” (IOT) or as “telematics” (from the automatic transfer of telemetry from a remote device). Driven by demand for connectivity, the M2M sector is growing at an astonishing pace. Cisco, a market leader in M2M, predicts there will be 25 billion devices connected to the Internet in 2015 and 50 billion by 2020. The net value of the M2M market will be an estimated $14.4 trillion.
A primary driver of rapid growth in M2M is the abundant availability of high-bandwidth wireless connections. Therein lies the rub when it comes to ships, which spend their time far beyond the range of terrestrial high-speed wireless networks. The problem is the limited communication bandwidth available on maritime satellite channels – not to mention the extremely high costs of satellite airtime.
Happily, the next generation of satellites being placed into orbit by companies like Inmarsat, Iridium and ORBCOMM will be capable of much higher data rates, making it possible for smart devices to exchange more data at faster speeds – although at what cost remains to be seen.
In the last five years we have seen a significant rise in new starts-ups entering the maritime space offering automated ship to shore solutions combined with sophisticated data analytics to improve ship performance levels. We expect to see more in coming months.
If this subject interests you, we’re happy to tell you there will be a special focus on smart systems and ship-shore data connectivity at the SHIPPINGInsight 2014 Fleet Optimization Conference in October. Panel sessions will look at designing and building efficient ships, fuel and propulsion management, ship performance and optimization, human capital management and fleet intelligence and optimization. For full conference details and to register to attend, visit: www.shippinginsight.com


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