The Logical Illusion of ECO-Ships

MIT International Shipping Club

Presentation
September 2011

Boston, March 7, 2013

A Bit of History

Eco-ships is an old story New leap after every energy shock Steam turbine disappeared after 1980 First large 3000 TEU containerships in 1972 designed for 30 knots

Response after Oil Shock

Steam turbine containerships re-engined New VLCCs and containerships only with diesel engine Projected FO price in 1981 for 1990 was $40 a barrel Engine technology leaped from 165gr/bhp hr to 125 gr/bhp hr and long stroke engines appeared

Where are we now in terms of Technological Development?

The oil shocks of 1973 and 1980 already incentivized eco-ships Engine efficiency research has reached a plateau with electronic engines Hull form development as well Technology for energy saving appendages, painting still progress Emission control on NOX will make engines less efficient

What are really the Shipyards claiming?

Better consumption at full load evenkeel beaufort 0 weather conditions at a lower speed

How?
By increasing the propeller diameter and lowering RPM By more economic ultra long stroke engine By optimizing the hull for a lower speed mainly making it shorter and beamier (containerships) All the above however are still on paper. The real savings at sea still remain to be seen.

What is Really True?

The efficiency of the larger propeller is achieved at the expense of propeller immersion. Increased trim to compensate will reduce in practice the efficiency benefits Wider hull will experience greater resistance in heavy weather conditions so the effect of saving in real conditions may be diminished The main engine SFOC savings are marginal

Can existing Ships Adapt?

The main engine can be de-rated and together with TC cutout will operate efficiently at low loads The propeller can be replaced by a new one, optimized for lower speeds Modify the shape of bulbous bow With these changes on a 8,500 TEU containership built in 2010 compared to a new design you can get the theoretical difference down to 6%

Existing design improvement

Investment cost : approx. USD 2,000,000

Engine derating & new propeller 6%

Additional device 2% Low resistance coating 2% Trim optimization 2%

Total improved fuel efficiency: 12% 8

New design specifications

Electronic engine with tuning 4% Long stroke engine 2%

Additional device 2% Propeller efficiency 3% Low resistance coating 2%

Optimum hull form 5%

Total fuel efficiency: 18% 9

Assume that there are 10 % consumption savings ECO vs Conventional

Examine the case of a post-panamax 5,000 TEU containership

For a new 5,000 TEU containership the TCE required for a 12% equity IRR is $23,200 USD/day hence the optimal speed is 16.5 knots
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What are the Economics on an Asia Brazil Run?

At an average speed of 17 knots, a sailing distance of 24,295 miles, 27.2 port days & consumption differential 10%:

$589 $582 $582

$577 $570 $570

$550 $549 $549

$548 $548 $548 $548

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How does an Investment Compare?

Containership Investment Appraisal
10% consumption differential 15% consumption differential

5,000 TEU New design

5,000 TEU existing design at 12% Equity IRR

5,000 TEU Existing design at market price

5,000 TEU existing design at 12% Equity IRR

5,000 TEU Existing design at market price

Price Equity IRR Financing Opex TCE Year built 12

$44.0 mil. 12% 60% $7,000 $23,202 2014

$31.4 mil. 12% 40% $8,000 $21,266 2000

$20.0 mil. 26.7% 40% $8,000 $21,266 2000

$28.2 mil. 12.00% 40% $8,000 $20,031 2000

$20.0 mil. 22.7% 40% $8,000 $20,031 2000

Assessment for a Kamsarmax Bulk-Carrier

Examine the case of a Kamsarmax Bulk-Carrier

For a new Kamsarmax Bulk-Carrier the TCE required for a 12% equity IRR is $16,150 USD/day hence the optimal speed is 13.6 knots
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What are the Economics on an Asia Europe Run?

At an average speed of 14 knots, a sailing distance of 25,009 miles, 30 port days & consumption differential 10%:

$589 $582 $582

$577 $570 $570

$550 $549 $549

$548 $548 $548 $548

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How does an Investment Compare?

Kamsarmax Bulk-Carrier Investment Appraisal
10% consumption differential 15% consumption differential

80,000 dwt Kamsarmax New design

80,000 dwt 80,000 dwt Kamsarmax Kamsarmax existing design at existing design 12% Equity IRR at market price $24.5 mil. 12% 40% $5,000 $14,716 2007 $20.0 mil. 17.2% 40% $5,000 $14,716 2007

80,000 dwt Kamsarmax existing design at 12% Equity IRR $22.5 mil. 12% 40% $5,000 $14,005 2007

80,000 dwt Kamsarmax existing design at market price $20.0 mil. 14.9% 40% $5,000 $14,005 2007

Price Equity IRR Financing Opex TCE Year built 15

$30.0 mil. 12% 60% $5,000 $16,143 2014

Do we Need ECO-Ships?

At present we don't need new ships

The premium the eco-ship can command is very small compared to the investment required
$424 $426 $426 $422 $435 $435 $418 $418 $418 $414 $414 $414

Investment on existing ships is more profitable at todays prices

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