Sunday, June 16, 2024

Project Explores Retrofit for LNG Cargo Ship to Hydrogen-Powered Fuel Cells

Samskip cargo ship — Kvitnos transports cargo from Rotterdam north along the Norwegian coast (Samskip)

Norway is funding another project to explore the potential of converting an LNG-fueled multipurpose cargo ship to operate with fuel cells and hydrogen fuel. ENOVA, the Norwegian government fund designed to support initiatives to accelerate decarbonization will provide funding to logistic provider Samskip along with partners TECO 2030 and Blom Maritime to develop the plans for the conversion.

The project will be working with Samskip’s 2015-built vessel Samskip Kvitnos, a 4,900 dwt RoRo cargo vessel. The Kvitnos operates from Rotterdam north along the Norwegian coast as far north as Hammerfest. The project is the latest in a series of efforts sponsored by ENOVA that look to employ hydrogen to decarbonize operations along the Norwegian coast.

“With the delivery of our LNG-propelled multipurpose vessels back in 2015, Samskip already offered one of the world’s most environmentally friendly cargo ships,” said Are Grathen, Samskip Regional Director Norway and Sweden. “With this grant from Enova, and in close cooperation with fuel cell provider TECO 2030, we will continue our endeavor to enable full zero-emission propulsion which in turn will further pave the way for our H2-propelled newbuilds coming out next year and bring us closer to our net-zero targets for 2040.”

The goal of the project is to prepare the designs and explore the feasibility of converting the 394-foot (120-meter) vessel to hydrogen operations. The information will be used for an investment decision to retrofit Kvitnos. The project also aims to facilitate long-term hydrogen fuel supply contracts based on the vessel’s fixed route along the Norwegian coast.

Blom Maritime will support the project with naval architects, piping engineers, and structural engineers to produce the documentation needed to obtain preliminary approval for the fuel cell and hydrogen solution. Blom Maritime has its main expertise in engineering for retrofitting solutions, a great strength for this project.

TECO 2030 would supply the fuel cells and hydrogen fuel. They will contribute their knowledge of hydrogen propulsion to the design project.

Samskip highlights that it already has one hydrogen-powered container vessel under construction in the SeaShuttle project. This new retrofit project with Kvitnos may become Samskip’s second hydrogen project.

The SeaShuttle project was launched in 2023 with an order from India’s Cochin Shipyard to build two vessels which are being called the world’s first zero-emission feeder container vessels. The contract calls for ships with a nominal capacity of approximately 500 TEU (365 45-foot containers reports the shipyard). They will be hydrogen-powered and designed for remotely controlled, and autonomous-ready operations between the Oslo Fjord and Rotterdam. Construction began in March 2024 on these vessels.

Iconic Ocean Liner SS United States Ordered to Leave Berth by September

The iconic ocean liner ss United States is facing a new challenge in the more than decade-long struggle to repurpose the once fastest passenger ship in the world for a new use as a static attraction. The ship has been ordered to vacate from Pier 82 in Philadelphia by September 12, 2024, prompting the non-profit that owns the ship to scramble to find a new location and cover the costs of moving the nearly 1,000-foot-long vessel. In an odd quirk of fate, the decision came 25 years to the day after the ss United States was listed on the National Register of Historic Places because of her “compelling national significance.”

SS United States Conservancy had been fighting in court with Penn Warehousing operator of the Philadelphia pier where the vessel has languished for the past 28 years managed by a caretaker. U.S. District Court Senior Judge Anita Brody ruled today that the landlord could not arbitrarily double dockage fees without notice as the non-profit claimed it had done, but also ordered the vessel to leave the dock. During the court battle, the landlord accused the ship of having damaged the berth while the Conservancy said it was all part of an effort to evict the ship.

“While the Conservancy was vindicated in not being compelled to pay a large sum of back rent to the ss United States’ pier operator, the ruling makes clear this iconic American symbol is in peril,” said Conservancy President Susan Gibbs, the granddaughter of the ship’s famed designer, William Francis Gibbs. “The judge’s decision gives us a very limited window to find a new home for the ss United States and raise the resources necessary to move the ship and keep her safe.”

The Conservancy says it has been exploring potential pier locations in the Philadelphia area and along the East Coast able to accommodate the former ocean liner. The Conservancy has also been engaging in targeted outreach to federal and state officials who could help with that effort.

“Relocating a ship the size of the ss United States (53,000 gross tons and 990 feet in length) is complex and costly. It requires funds for insurance, tugs, surveys, and dock preparations to ensure the ship’s safe passage to a new home,” Gibbs said.

Since acquiring the ss United States in 2011, the Conservancy has been seeking a redevelopment plan while also working to educate the public about the ship’s history. Built by Newport News Shipbuilding and Drydock Company in Virginia, the liner was a vision of William Francis Gibbs, one of America’s most noted naval architects of the 20th century. Built during the Cold War, the ocean liner’s capabilities were kept top secret, but she took the title of the fastest Atlantic passenger liner on her maiden voyage between New York, Southampton (England), and back to New York at speeds above 35 knots. It was rumored during her sea trials she touched an unheard of 40 knots for an ocean liner.

The ss United States maintained regular Atlantic service to France and England and later added calls in Germany through the 1950s and into the 1960s often carrying world leaders, political figures, and celebrities, as well as business executives, tourists, and immigrants. She would operate a limited number of cruises before competition from the jet airplane and declining U.S. government subsidies and revenues from transporting members of the military caused the liner to be laid up in November 1969. She had operated for just 17 and a half years.

The United States government acquired the ship but in 1980 sold her to a real estate developer and then she would pass through a series of owners each with plans to redevelop the ship. The Conservancy in November 2023 working with RXR, a New York-based real estate development firm, and MCR, a hotel management company, released a full redevelopment plan to turn the liner into a mixed-use destination and museum. The Conservancy said the redevelopment plan can be adapted to any suitable homeport city, but it cannot advance until a permanent home for the ship is secured.

Surveys of the hull have shown that the vessel remains solid 72 years after she entered service. The interior fittings however were stripped from the ship many years ago creating a blank space ready for redevelopment. The Conversancy reports it will be launching an urgent campaign to aid with the efforts to relocate the vessel while it continues to work on the long-term redevelopment effort.

UK Report: Control Transfer Error Sent a Trawler Into the Side of a Tug

Red diesel spills into the water from the tug Shovette as another tug works to stabilize it (MAIB)

The UK's Marine Accident Investigation Bureau (MAIB) has released its report into an allision between a trawler and a moored tug at the port of Hull in 2022. The accident was caused by a mismatch between the controllable pitch propeller's control levers when transferring control from the bridge to the engine room, according to the agency.

On June 24, 2022, the Kirkella returned from a fishing voyage and transited up the Humber to her usual berth at King George Dock in Hull. The master took the helm control at the starboard wing station for berthing. At about 0531, the master berthed the vessel alongside the pier in the southeastern corner of the terminal, without incident. The crew passed lines over to the dock, and the vessel was securely tied up by 0606, with two head lines, two stern lines and four spring lines. The crew began running out the gangway.

At 0611, with the voyage fully over, the master began the sequence for shutting down the ship's engines. He transferred helm control to the center console, and then transferred control to the engine room. The first engineer was on duty in the engine control room and pressed a touchscreen button to accept control of propulsion. The engine control room's pitch control lever was set at 85 percent, and the propeller shifted to match this (unintended and unwanted) "ahead" setting.

Seconds later, the Kirkella began to move ahead. The first officer was on the bridge and noticed almost immediately, and raised the alarm, just in time to watch the stern lines part. The master called the engine room to order an engine shutdown, and he hit the emergency stop button on the center console to declutch the engine.

The ship's momentum continued to carry her forward, parting two more mooring lines and dragging the gangway off the dock. Within 10 seconds, the bow of Kirkella hit the moored harbor tug Shovette amidships, below the waterline. The tug began spilling diesel into the harbor and taking on water, but the swift response of another local tug prevented it from capsizing and sinking.

Illustration courtesy MAIB

The MAIB's investigation homed in on the vessel's propulsion control system, a sophisticated Rolls-Royce Helicon-X3 installed during outfitting in Norway in 2018. The Helicon-X3 is an advanced design typically used for complex DP vessels that require digital control of multiple thrusters.

SOLAS rules and IACS universal rules require an interlock to prevent sudden propulsion control changes when transferring control between consoles. According to the system's operating manual, it did not have an interlock to prevent control switching between the bridge and engine room consoles when the propulsion pitch control lever positions differed between the sending end and the receiving end. The Rolls-Royce design was approved by class in 2016, and the vessel's specific unit passed factory acceptance testing.

The bridge officers were used to the lack of an interlock, and they always set the controls to "stop" before switching consoles in order to prevent an abrupt change; this was an informal practice and was not documented in procedures. On the day of the casualty, the first engineer was busy with administrative work and accepted the transfer of control from the bridge to his station without noticing that the pitch control setting on his console was at 85 percent - a predictable human error, made more likely by a long 12-hour shift and by a lack of formal procedure, according to MAIB.

"As fitted to Kirkella, the Rolls-Royce Helicon-X3 propulsion control system did not align to the standard of [IACS] UR M43.12, which required a means to prevent significant alteration of the propelling thrust when transferring control," MAIB concluded. "The Rolls-Royce Helicon-X3 propulsion control system had been fitted to other vessels with remote control stations in the engine control room. Those systems might also not align with the requirement of UR M43.12."

The MAIB has issued a notice to industry operators about this potential issue, and the shipowner has asked the OEM to change Kirkella's propulsion controls to retrofit an interlock.

Is Chile Moving Too Fast on Green Hydrogen Production?

The South American nation could export vast amounts of fuel for the green transition, but local concerns persist

The Haru Oni demonstration plant in the Magallanes region (HIF Global file image)

[By Yasna Mussa]

The Chilean government has set out ambitious plans and targets to develop green hydrogen, and to grow an industry it believes holds much promise for the country. Chile has some of the best natural conditions in the world for the renewable energy needed to produce the gas, and the government says that pursuing the fuel would help put the country on the path to decarbonization.

These advantages have been enthusiastically promoted, but local organizations say a lack of information about these plans – and the speed with which they are progressing – is concerning.

In May, Chilean President Gabriel Boric’s administration introduced the Green Hydrogen Action Plan following a consultation with a committee of experts. This set of 80 measures is designed to establish social and environmental safeguards as the industry scales up, building upon the plans that Chile’s former president, Sebastián Piñera, laid out during his second term (2018–2022).

Chile has three main goals for its hydrogen industry: to produce the world’s cheapest green hydrogen by 2030; to be among the top three exporting countries by 2040; and, by 2025, to have 5 gigawatts of renewable energy capacity dedicated to electrolysis, the process of splitting water with electricity that is used to create “green” hydrogen.

A 2020 study commissioned by the government said green hydrogen development should create at least 94,000 jobs by 2050. During May’s presentation of the Green Hydrogen Action Plan, President Boric said: “We want to position ourselves as one of the most competitive producers in the world, being a leading exporter by 2040.”

For the government and the industry, a significant part of that potential lies in the southern region of Magallanes. Its wind energy could be harnessed to produce as much as 13% of the world’s green hydrogen, according to a study by the Chilean energy ministry.

The Association of Green Hydrogen Producers of Magallanes (H2V Magallanes) reports that investments in nine projects have been so far established in the region.

A green hydrogen race

The economy of Magallanes is currently driven by cattle ranching, the fossil fuel industry, tourism and fish farming. However, its location as the southernmost region of Chile, and one of the least populated, could be ideal for green hydrogen development: the latest census from 2017 registered 166,533 inhabitants across its generous surface area of 132,297 square kilometers.

Anahí Urquiza, a doctor in natural sciences and member of the Green Hydrogen Action Plan’s strategic committee, explains the appeal of Magallanes: “These are places that have a very good quality of renewable energy potential, but also large territories available to install wind farms or solar panels.”

Dialogue Earth spoke to Ana María Ruz, the executive director of the Green Hydrogen Industry Development Committee, an initiative of the government’s Production Development Corporation (Corfo). Ruz echoes Urquiza: “There is an extensive territory available, most of it far from the most relevant urban centres… Winds in Magallanes show [capacity] factors – that is, the percentage of time the plant is generating energy – close to 60%, which is even higher than [Europe’s] North Sea parks.”

In order to meet the region’s green hydrogen capacity goals, authorities are planning to convert the Gregorio Maritime Terminal – the southernmost crude oil refinery in the world. Chile’s National Petroleum Company (ENAP) and six international energy companies signed a deal for the project in 2023.

Another project earmarked for San Gregorio is the Haru Oni plant, which would be run by the energy company Highly Innovative Fuels. Harnessing the Strait of Magellan’s consistent strong winds via turbines, this energy would power the electrolysers that split water into its components: oxygen and hydrogen. This green hydrogen would then be combined with carbon dioxide to produce synthetic methanol, which is the basis for electrofuels, or e-fuels. (E-diesel, for example, can be used for transport.) Currently in its pilot phase, Haru Oni could be among the first operational e-fuel plants in the world.

Companies from Spain, Belgium, Italy, the United States and China are interested in setting up production plants in Chile, according to Corfo. In October 2023, President Boric made a state visit to China during the Third Belt and Road Forum, during which technology and innovation exchanges were a prominent topic. The Chilean delegation included the general manager of H2V Magallanes, María Isabel Muñoz.

Dialogue Earth consulted Paulina Ramírez, a researcher at the University of Chile’s Energy Centre who also works on projects associated with the green hydrogen action plan. She stresses the importance of the country becoming a pioneer in the nascent industry: “This is an opportunity to take advantage at a time when the competition is still being established.”

Part of the green hydrogen challenge, explains Ramírez, is adapting and developing the necessary infrastructure and equipment. “In Chile, we have the opportunity to host the entire value chain in-house,” she adds.

Like any gamble, Chile’s green hydrogen plans involve risk: success will depend not only on domestic progress, but also global demand trends. But Ramírez believes early action will be rewarded. “The first country that achieves mass production and closes a contract with another country is the one that will secure the market,” she says. “In the end, it is a competition.”

A new ‘sacrifice zone’?

Though green hydrogen developments are arriving thick and fast in Magallanes, they are building in tandem with environmental concerns.

The Gregorio Maritime Terminal takes its name from the bay and wetlands of San Gregorio of the Strait of Magellan’s northern coast, an area of immense biodiversity. The area’s tidal characteristics and freshwater wetlands make it rich in algae and attractive to a diverse range of birds, including the endangered red canquén.

Local civil society organizations, scientists, and experts are concerned that while the dominant narrative surrounding green hydrogen underscores its displacement of fossil fuels, producing it at scale could require large tracts of land and may see ecosystems sacrificed – something they point as being not quite so “green.”

Such sacrifices in the name of industry have already been made in Chile, including at Quintero-Puchuncaví Bay in the central region of Valparaíso. Its industrialisation began in the 1960s, bringing thermoelectricity, chemical, and oil production to the area. The subsequent pollution has directly affected the health of local inhabitants and their ecosystems, and seen such areas dubbed as “sacrifice zones”.

The role of water in green hydrogen production has been another source of concern, with the regions of Chile that have been earmarked for green hydrogen development lacking the requisite fresh water supplies. This has prompted strategies involving salt water treatment to be planned for several projects. According to a recent report by International PtX Hub, a green hydrogen initiative from the government of Germany, Chile’s green hydrogen industry will consume 107 million cubic metres of desalinated water annually by 2030.

“Desalination plants also have a big impact,” explains Urquiza. “Especially if designed on a large scale, as in the case of Magallanes. It would undoubtedly have a tremendous environmental and social impact, because it means transforming a region where you have to build large ports, increase traffic, and generate a large migration of workers to these territories.”

Urquiza warns green hydrogen should not be seen as a “silver bullet”, rather an alternative that requires exploration; if green hydrogen generation is not developed to be sustainable, this emerging industry will thwart its own environmentally positive aims, she says.

Community interventions

“The truth is that the green hydrogen industry is already established in the Magallanes region,” says marine biologist Gabriela Garrido, who is also a part of the Citizen’s Panel on Hydrogen in Magallanes, a region-wide network of environmental and scientific organisations. Garrido is concerned that there are already companies advancing with projects in the region. She claims they have been gathering information and carrying out monitoring for the past three years, regardless of whether these projects are ultimately approved by the state’s environmental assessment service.

In December 2023, a coalition of regional and national organizations signed an open letter to the government, imploring President Boric not to create a new “sacrifice zone” in Magallanes. The letter identifies and rejects “the way in which the government and private companies are promoting the development of the ‘green’ hydrogen industry throughout the country, with the case of the Magallanes Region and the Chilean Antarctic being of extreme concern.”

Garrido claims the industry “is already putting pressure on the territory in social, media and political terms, and also intervening in localities and communes that are extremely vulnerable, where it is very easy to arrive with a briefcase full of hope and money.”

This pressure has translated into the presence of professionals sent by companies already installed in Magallanes, Garrido claims, adding that they are attempting to exert influence in various areas: neighborhood councils, cultural committees, offering gifts to schools such as greenhouses, as well as through talks and other types of services. “They intervene in the social fabric,” she says.

The Citizen’s Panel on Hydrogen in Magallanes is concerned about such interventions in these isolated communities, which Garrido says are typically neglected by state and regional authorities; the possibility of jobs and investments in local public services is inevitably welcomed. “They are communes that have deficiencies in terms of electricity, sewage, internet connection, education and health,” she explains. “When you come with these promises, it is very easy to charm.”

The companies represented by the Magallanes hydrogen association did not respond to questions posed by Dialogue Earth. Ana María Ruiz from Corfo said that the Green Hydrogen Action Plan included a wide public participation from people in Magallanes and that not everyone there is against the industry. She said the industry is developing in a “planned and orderly” way and taking into consideration social and environmental aspects, adding local value.

Urquiza recognizes that Chile’s green hydrogen ambitions are built upon uncertainties and rely on underdeveloped technologies: “There are several problems that have not been solved in order to lower the costs of energy production so that it is viable and can effectively have an impact on the energy transition in different sectors.”

Garrido echoes these technical concerns: “The problem has to do with the fact that this way of attacking the decarbonization of the energy mix is not yet technologically viable.”

According to its Green Hydrogen Action Plan, the Chilean government will establish the necessary social, environmental and labor standards for the industry by 2026. Before his term finishes at the end of 2025, President Boric expects to have confirmed between 10 and 12 green hydrogen projects for the country.

Yasna Mussa is a Chilean freelance journalist whose work has been published in the New York Times, Washington Post, La Tercera, El País and Radio France International, among other outlets. She is the co-founder of Revista Late.

This article appears courtesy of Dialogue Earth and may be found in its original form here.

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

Nations Push Back the Timeline for Arctic Fishing Rules

Arctic coastal states have failed to agree on a protocol for commercial fishing in the central Arctic Ocean. The countries had met last week in South Korea for the third conference of parties (COP3) on the Central Arctic Ocean Fisheries Agreement (CAOFA), but could not reach a deal. The parties include Canada, China, Denmark on behalf of Faroes Islands and Greenland, Iceland, South Korea, Norway, Russia, United States and EU.

The central Arctic Ocean is the largest area of the high seas in the Arctic. It spans an area approximately 2.8 million square kilometers, almost the same size as the Mediterranean Sea.

While no commercial fishing is currently taking place in the high seas of the central Arctic Ocean, climate change could open up the region. Historically, the region has only been accessible using icebreakers. In anticipating future commercial fishing in the region, the 10 states in 2018 signed CAOFA after two years of negotiation.

The agreement put a moratorium on commercial fishing in central Arctic Ocean until at least 2037. The time would allow parties to put in place the necessary rules to protect sensitive ocean ecosystems and species in the agreement area. This would help prevent overexploitation and uncontrolled fishing that could negatively impact target and non-target species.

CAOFA had set a deadline of 25 June 2024 for parties to agree on these measures. But during the meeting last week, the countries noted that the full suite of conservation and management measures are yet to be finalized. Based on this, the parties agreed to push the deadline to the next conference, set for June 2025 in Norway.

Meanwhile, the members adopted a Joint Program for Scientific Research and Monitoring (JPSRM) implementation plan. It sets out a comprehensive body of work to be completed, which will inform the specifics of any exploratory fishing. This includes mapping key ecosystems, identifying vulnerable and sensitive habitats, and collection of indigenous knowledge as required by CAOFA.

“It’s encouraging to see broad consensus and belief by the Parties in the spirit of CAOFA, that this sensitive ecosystem must be understood before industrial activity can take place here,” said Susanna Fuller, Vice President of Conservation at the environmental campaign group Oceans North, who was a delegate at the COP3 meeting.

Samsung Says Russia’s Zvezda Illegally Terminated $4B Shipbuilding Deal

Samsung shipbuilding — Samsung says Russia's Zvezda illegally terminated two contracts for block production for Arctic tankers (SHI file photo)

U.S. sanctions against Russian interests and specifically the listing of the Zvezda shipbuilding complex in 2024 are being cited as the reason behind the cancelation of a roughly $4 billion shipbuilding deal between Zvezda and Samsung Heavy Industries. The Russians' unilateral decision to pull out of the deal came after nearly two years of increasing sanctions by the U.S. and South Korea and the U.S. move earlier this week that included further targeting of the Arctic oil operations.

"The Russian client unilaterally claimed that the contract was not fulfilled during a negotiation process,” Samsung Heavy Industries wrote in a stock exchange filing. “Since the contract termination notice is illegal, we plan to file a complaint with the Singapore Arbitration Court to dispute the illegality of the contract termination and scope of return, while continuing negotiations.”

Samsung Heavy Industries has a long history of working with Zvezda and between 2019 and 2021 celebrated a series of high-profile shipbuilding agreements for the Koreans to design and deliver blocks for tankers that would be completed at Zvezda. The total contracts called for 22 vessels with a combined value of approximately $5.7 billion.

Five vessels under the 2019 contract were delivered, but the 2020 and 2021 agreements were hampered by the increasing sanctions. Samsung was designing the vessels when the first sanctions were imposed after the invasion of Ukraine. Competitor Daewoo Shipbuilding canceled three contracts with the Russians in 2022 citing failure to make installment payments while initially, Samsung Heavy Industries sought to continue its projects.

Samsung Heavy Industries reports in 2022 it invoked Force Majeure, suspending the design work for 10 LNG carriers and seven shuttle tankers. That portion of the contract is reported to be valued between $3.7 billion and $4.2 billion. Samsung reports it discussed future implementation plans for the contract with Zvezda.

When Zvezda was designated by the U.S. in February 2024, Samsung notes it was blocked from working with Zvezda. They said further negotiations were ongoing with the Russian shipowner.

Zvezda filed a notice demanding termination of the contract on June 11. Further, the Russians are demanding the return of $800 million in installment payments already advanced to Samsung Heavy Industries along with interest.

The notice came as the U.S. earlier this week targeted Russia’s planned LNG projects with new sanctions. They included Zevzda, expanding the listing on three Arctic LNG tankers, and in total targeting seven vessels all tied to the LNG operations.

Samsung Heavy Industries in its stock exchange filing said it plans to dispute the termination notice. They will seek arbitration.

Newbuilding Prices Reach Highest Level in 16 Years Driven by Strong Orders

After years of downturn and a soft decade through most of the 2010s, the industry trade group BIMCO reports shipbuilding prices are reaching new highs. Overall order prices are up to the highest point since 2008 having increased a further three percent in 2024. The resurgence comes as some sectors have begun to react to emerging environmental regulations while segments such as tankers returned to newbuild after a long drought.

Chief Shipping Analyst at BIMCO Niels Rasmussen points to the resurgence in orders as helping to drive up prices. The global orderbook he highlights has grown by 72 percent since 2020, reaching its highest level since early 2012. It is up a further two percent year-to-date, which Rasmussen highlights as contributing to a 53 percent increase in prices versus the most recent low in late 2020. Shipyards’ global order book currently stands at 133 million Compensated Gross Tonnage (CGT), an increase of 56 million compared to the order book’s most recent low in late 2020.

“So far this year, the tanker and LNG segments combined have been the main drivers of growth in the global order book,” says Rasmussen. “In addition, the LPG tanker, cruise ship, chemical tanker, and RoRo ship orderbooks have seen double-digit growth. Segments such as cruise began rebounding after the pandemic while LNG is being driven by strong demand and the expansion in Qatar. Tankers had been at a low point due to the prolonged slump in oil markets.

BIMCO highlights that LNG and containerships have accounted for respectively 35 percent and 30 percent of the increase while bulk carriers, tankers, and LPG have accounted for the rest. The orderbook for containerships, however, BIMCO points out peaked during the first quarter of 2023 and has fallen since then although there are expectations that another wave of orders may be coming. Year-to-date, the containership orderbook has fallen 16 percent, as the segment works to absorb its record orders in the past few years. Currently, containerships are deviating from the overall growth trend in shipbuilding orders but the bulk carrier orderbook is also down three percent in 2024.

BIMCO also highlights that the shipbuilding industry was plagued by overcapacity in the last decade between 2010 and 2020. Prices during the 2010s they report only varied +/- 10 percent from the period’s median price. Significant capacity came out of the shipbuilding during the decade which in part has contributed to the longer lead time for deliveries for new orders.

Between 2010 and 2020, Rasmussen calculates that the median order book vs capacity ratio was 2.2, declining to 1.7 during the second half of 2017. Since then, the ratio has climbed from 2.1 in late 2020 to 3.7 currently, the highest since 2010.

This improvement has helped fuel the price increases. The 53 percent price increase in just 3.5 years may seem dramatic says Rasmussen but “it is worth remembering that the average annual price increase between 2010 and 2024 has only been 2.3 percent,” even though manufacturing wages in China have more than tripled.

“Looking ahead, the need to start replacing the large generations of ships built in the 2000s, as well as the need to decarbonize, appear to bode well for future contracting,” says Rasmussen. “Avoiding a massive build-up of shipyard capacity like in the 2000s will be critical if shipyards are to avoid a rise in overcapacity and a scenario where prices fall back to the levels seen in the 2010s.”

This year’s orders have exceeded the forecasts from many analysts who expected a slower pace versus the past few. The South Korean shipyards, however, have reported strong orders while focusing mostly on higher-priced ships and avoiding commoditized segments. HD Korea Shipbuilding & Offshore Engineering for example reported today that it has received orders for a total of 111 ships and one offshore unit, worth $12.11 billion, achieving 89.7 percent of its annual order target of $13.5 billion for 2024.

Suez Canal Authority Extends Discounts as Traffic and Revenues Plummet

A sight no longer seen: a Maersk boxship on an Asia-Europe rotation, transiting the Suez Canal (SCA file image)

It is now over six months since the Red Sea crisis began and as expected, Egypt’s Suez Canal has taken a hit with the economic impact now becoming clear. Data released this week for last month shows that revenues of the Suez Canal dropped by 64.3 percent to approximately $337.8 million, compared to $648 million recorded in May 2023, according to Egypt’s business newspaper Al-Mal news.

The number of vessels transiting the canal in May also dropped to 1,111, which is lower than 2,396 ships that crossed during a similar period last year. As a result of reduced ship traffic, the cargo volume passing through the Suez Canal dropped by 68.5 percent last month to about 44.9 million tons. In May 2023, the total cargo tonnage was 142.9 million tons.

As the Houthi onslaught on merchant shipping in the Red Sea escalates, major ocean carriers have been forced to avoid the Suez Canal, instead preferring the longer route around Africa.

In February, Egypt’s Finance Minister Mohamed Maait projected that the Suez Canal revenue loss could be absorbed by last year’s stellar performance. The returns during the fiscal year 2022/2023 hit a record-breaking $9.4 billion, representing almost two percent of Egypt’s GDP. However, Maait has cautioned that prolonged tension in the Red Sea could see further revenue loss. This will burden the state treasury, specifically due to rising fluctuations in the exchange rate against the dollar.

Meanwhile, in an attempt to bolster the competiveness of the canal, the Suez Canal Authority (SCA) last week extended fee discounts for a range of vessels on selected long-distance trades. Initially, SCA had introduced the fee reductions back in January, with some discounts as high as 75 percent for product tankers and crude carriers on voyages between Americas and Asia.

The new extension of discount rates will be valid until end of the year, covering 12 categories of ships including bulk carriers, containerships and LNG carriers.

In addition, yachts will also be entitled to a special discount initiative as SCA moves to boost marine tourism in the Red Sea region. This will see introduction of a 50 percent reduction on transit fees for yachts under 300 tons. The promotional measure will effect from July to October and will coincide with the sixth edition of the Egypt International Yacht Show.

Cargo Volumes Dip at Southern California Ports Despite Strong Outlook

Container volumes declined at California's two large port in May (Port of Los Angeles)

Container volumes moving at the Southern California ports dipped in May despite an overall positive trend and positive outlook. While many U.S. ports reported strong growth in volumes both Los Angeles and Long Beach reported monthly declines after a string of monthly year-over-year gains and bucking the trend which saw the overall U.S. trade gap widening in May.

Announcing a decline of over eight percent for total container volumes in May, the Port of Long Beach said “shifting trade routes and canceled voyages led to a decline in cargo.” Imports slid 4.5 percent to 345,271 TEUs while exports decreased 21.1 percent to 100,885 TEUs, for a total of 695,937 TEU in May. The port has been under 700,000 TEU for four of the first five months of 2024 but it came after a strong 750,424 TEU in April.

“I am confident we will see additional cargo as we work with industry partners to rebuild our market share in this increasingly competitive environment,” said Port of Long Beach CEO Mario Cordero.

The neighboring Port of Long Beach similarly reported an approximately three percent decline in total volumes versus May 2023 to just under 753,000 TEU. Imports were off five percent in May 2023 while the port’s executive director Gene Seroka said the results were “in line with projections,” and emphasized the consistent performance of the past few months.

The one strong spot was in exports at the Port of Los Angeles which reached a new milestone of 12 consecutive months of year-over-year gains. Exports were up 24 percent in May to nearly 126,000 loaded TEU with Seroka emphasizing they were working with the agricultural community and others to continue the growth.

While forecasts including the National Retail Federation are calling for continued cargo volume growth, the Port of Los Angeles projected June would be consistent with volume “in the mid to upper 700s TEUs.” While they see it as consistent, they expect unlike 2023 when volumes peaked in June 2023, the outlook is for continued growth.

“As we gear up for the second half of the year, our forecast indicates more robust activity on our docks throughout the summer,” said Seroka.

The Port of Long Beach’s CEO Cordero said “I anticipate a moderate increase in cargo as we move into summer.”

For the first five months of 2024, the Port of Los Angeles’ volume is up 18 percent to 3.9 million TEU. It is below the peak levels when the port surpassed 10 million TEU. Similarly, the Port of Long Beach is up 10 percent so far in 2024 having moved more than 3.4 million TEU.

The West Coast ports continue to work to recover volume as the markets softened after the pandemic and experienced labor uncertainties. A year after settling its longshore contracts the Socal ports highlight that they are well positioned. After volumes shifted to the U.S. East Coast and Gulf Coast during the labor uncertainty, the ports may see a reversal after the International Longshoremen’s Association suspended talks on a U.S. East Coast labor contract. They have threatened a strike if there is no agreement by the expiration of the contract on September 30. 2024.

Port of Seattle Requires All Homeported Cruise Ships to Use Shore Power

Port of seattle shore power — Courtesy Port of Seattle

The Port of Seattle has become the first port in the United States to require that every homeported cruise ship must use shore power. It follows after a similar rule imposed by the state of California, but is the first time that a port has imposed such a requirement independently.

The port's commission passed the new rule on Tuesday, and it will take effect in the 2027 season. This is three years earlier than anticipated by the port's climate plan.

“In passing this order, the commission turns the port’s 2030 goal of universal shore power use into a 2027 requirement, which is only possible due to the significant investments made by the cruise industry and the port," said Port Commissioner Fred Felleman. "Marketing such investments should also appeal to the environmental interests of travelers who have chosen to cruise to Alaska."

When cruise ships use shore power, they cut their emissions at berth by about 80 percent, according to the port. This saved emissions equaling about 2,700 tonnes of carbon dioxide in the 2023 season, the port said.

To make this possible, the port is extending shore power service to Pier 66, and it should be available to cruise ships there as of this summer. With the completion of this project, all of the port's cruise berths will be shore power-capable, six years ahead of schedule.

The shore power initiative is one aspect of Seattle's "Green Corridor" project with its partner seaports in British Columbia and Alaska. All Seattle-based cruise ships depart for the Inside Passage and Southeast Alaska, calling in either Vancouver or Victoria, and the recurrent port calls make the route amenable for installing and using sustainable fuel infrastructure.

"We appreciate the leadership shown by the Port of Seattle to move ocean going ships off of fossil fuels by committing to transition 100% of homeported cruise vessels to shore power. And, we call on other ports to follow the leadership of the Port of Seattle to move ports and shipping to a zero-emissions future," said Fern Uennatornwaranggoon, Climate Campaign Director for Ports at Pacific Environment.

Red Sea Diversions Are Causing Port Congestion in Singapore

As shipping lines divert traffic away from the Red Sea to avoid the persistent menace of Houthi rebel attacks, new routes are reshaping the patterns of marine traffic and port calls around the world. Vessels normally assigned to other trades have been diverted to the core Asia-Europe service lane, which is now thousands of miles longer than before because of the need to circumnavigate Africa.

One unexpected outcome has been extra demand for bunkering and transshipment at the already-busy port of Singapore, as ships fuel up for a longer haul and offload the cargo that they would previously have delivered to the Mideast on the way to Suez.

As demand for transshipment rose, Singapore's container volume in the first five months of the year climbed nearly eight percent over the same period in 2023. According to Drewry, Singapore's container terminal utilization rate nearly hit 90 percent in May, a level where productivity often begins to decline because of excess crowding. Drewry director Jayendu Krishna told Bloomberg that boxships are "bunching up" in Singapore and other hubs beause of route and schedule changes, leading to congestion.

According to tracking service Portcast, delays at Singapore have extended up to seven days, and up to 450,000 TEU worth of containerized vessel capacity was waiting to berth at the port as of the end of May. Terminal operator PSA Singapore is reactivating some of the facilities at its older Keppel Terminal in response to the extra demand, and some container carriers are skipping the port altogether in order to keep their schedules on time.

"This year, congestion at Singapore Port is primarily caused by ships returning to Asia off-schedule after longer voyages around the African Cape due to the Red Sea crisis and missed weekly sailings," explained Portcast. "The diversions have caused ships to arrive in Asia unpredictably, exacerbating congestion at Singapore’s port."

The disruption in Asian hub ports is helping to support higher container rates, according to Maersk Group. The number-two ocean carrier recently raised its profit outlook for the year, largely because of the effects of congestion and diversion on the supply of container ships.

The Cape of Good Hope diversions have affected about 90 percent of the container ship traffic that once passed through the Red Sea and the Suez Canal. Each diversion adds about $1 million in fuel costs and 1-2 weeks of voyage time, but saves the shipowner up to one percent of the vessel's value in war risk insurance costs. In a new report released Thursday, the U.S. Defense Intelligence Agency said that the Houthi campaign of anti-ship missile strikes has affected the interests of at least 65 nations, according to DIA, and at least 29 major energy and maritime companies have diverted away from the Red Sea because of the risks. The list of affected countries includes Houthi allies and sympathizers, like Iran, Russia and China.

WWIII

Vietnam Speeds Up its Land-Reclamation Work in the Spratly Islands

Barque Canada Reef in the Spratly Islands, before large-scale Vietnamese land reclamation (Sentinel 2)

Vietnam has dramatically accelerated its effort to build island bases atop reefs in the Spratly Islands, where it maintains a string of outposts to stake out its maritime claims.

According to the Asia Maritime Transparency Initiative (AMTI), Vietnam's reef-to-island dredging program added nearly 700 acres of reclaimed land in the Spratlys over the past six months. By way of comparison, Vietnam only reclaimed about 400 acres last year, and about 340 acrew in 2022. This brings Vietnam's total dredging and landfill activity to more than 2,300 acres across the Spratly Islands, or about half the amount of new land that China has created over the past decade.

China's bases are by far the largest in the archipelago, topped by the 1,500-acre expanse of Mischief Reef. But two of Vietnam's biggest outposts now rank in the top five. It has nearly doubled its territory at Barque Canada Reef to about 400 acres, and the feature is now large enough to host a strategic military runway (if Vietnam should choose to build one). China currently has three bomber-capable runways in the Spratly Islands, one each at Mischief, Subi and Fiery Cross Reefs.

Underlying the rapid expansion is a technological change. According to AMTI, satellite imaging shows that Vietnam has begun using cutter suction dredges to excavate sand and coral, in addition to the more time-consuming clamshell method. The rapid progress at Barque Canada Reef appears to be powered by cutter suction dredges.

Like most features in the Spratly Islands, Vietnam's largest outposts are contested by neighboring nations, including Taiwan, the Philippines, China and Malaysia. The most significant contest for dominance in the area is between China and the Philippines, and while Manila also lays claim to Vietnamese-occupied features, its reaction to Vietnam's accelerated reclamation program has been muted.

"Vietnam does not initiate illegal, coercive, aggressive, and deceptive actions against us, unlike China," explained Philippine Navy Commodore Roy Vincent Trinidad in an interview.

Both sides have misgivings about China's intentions in maritime affairs. China's coast guard and maritime militia routinely harass and damage Philippine vessels near Second Thomas Shoal and Scarborough Shoal, and China has repeatedly infringed on Vietnam's exclusive economic zone.

"Vietnam focuses on minding their own affairs," added Philippine Coast Guard spokesman Jay Tarriela in comments to local media. "They do not engage in harassing our fishermen or illegally deploying coast guard vessels and maritime militia in the waters surrounding our occupied maritime features."

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