Shipyards’ eco designs are a marketing gimmick, say owners

Morten Arntzen: does not make economic sense.

John Dragnis: boxship industry was still hesitant towards ordering.

Angeliki Frangou: a lot of hype about ordering eco ships at the moment.

Put away your chequebooks, Seanergy chairman and chief executive Dale Ploughman urged owners.

Morten Arntzen: does not make economic sense.

Morten Arntzen: does not make economic sense.

Related articles

Builders need the orders but shipping needs no new tonnage, say critics

LEADING publicly listed shipowners say shipyards are using eco-design vessels as a marketing gimmick to entice companies to order ships at a time when additional tonnage simply is not needed.

This was the universal view from owners across the tanker, dry bulk and containership markets speaking at Capital Link Shipping’s Posidonia forum in Athens today.

With each of the major bulk markets still struggling to absorb newbuildings ordered during the boom that continue to hit the water every week, putting money into the pockets of shipyards simply because they are offering cheap prices is not a good idea.

Addressing the forum’s tanker panel, Navios Group chairman Angeliki Frangou said that there was “a lot of hype” about ordering eco ships at the moment, most of it hot air not reality.

Overseas Shipholding Group president and chief executive Morten Arntzen argued that it did not make economic sense to order an eco ship when you could pick up secondhand or resale vessels at prices that would generate capital returns.

Owners should not “go out and order just for the sake of keeping some people, primarily the yards, happy”, said Tsakos Energy Navigation chief operating officer George Sargolou.

Similarly, during the forum’s containership panel, Danaos Shipping president and chief executive John Coustas said that the push for eco ships was “definitely more marketing than anything else”.

Shipping and shipbuilding are mature industries and if yards claim they can reduce consumption by up to 20% with existing technology “then they must have been doing a pretty bad job before”, he said.

Mr Coustas’ view is that the industry should optimise its current fleet, not order more vessels simply to refill yards’ forward orderbooks. This mirrored comments made by other leading figures during the inaugural Lloyd’s List Business Briefing on Sunday.

Although Goldenport Holdings chief executive John Dragnis said that some of the recent eco-design containerships being delivered from yards are earning slightly more than their standard panamax vessels in the time charter market, the boxship industry was still hesitant towards ordering.

DryShips chief operating officer Pankaj Khanna agreed with his fellow dry bulk panellists about the eco-design debate, saying it was “a great marketing campaign from the yards”.

Promises from some yards that they could easily shave 5%-6% off fuel consumption figures remained unproven in many cases, Mr Khanna said.

This point was echoed by Safe Bulkers chairman and chief executive Polys Hajioannou, who said that while some eco designs offered quality prospects, others did not. Although there were some “promising developments” coming from Chinese yards, he had “doubts about the reality of them being achieved”.

His advice to owners ordering eco ships from China was to insist on being present during engine testing, “to make sure they show on paper they can deliver”.

By comparison, he said, Japanese yards were more likely to deliver their fuel-efficiency promises.

Seanergy chairman and chief executive Dale Ploughman urged owners to put away their chequebooks. Having seen companies convince banks that financing eco-design ships was a good idea due to the environmental benefits, he said it made no sense, as every additional ship ordered has a detrimental effect on the long-term recovery of the industry.

If people stopped ordering today for the next couple of years, by 2014 the market could balance out and offer owners decent freight rates, he said.

“I ask people with money in your pocket, don’t go out and spend it; please keep it in your pocket,” Mr Ploughman said.

Hellenic Carriers chief executive Fotini Karamanlis doubted whether many owners would be able to order eco vessels, however, given the reduction in bank finance.

“Do they pose a threat to supply? In theory, yes. However, it will be very difficult to see massive orders of new ships because credit is scarce and very expensive,” she said.

Asked whether new generation fuel-efficient ships could create a two-tier market, Mr Hajioannou pointed out that the only reason there has been so much focus on fuel efficiency is because of today’s high fuel price environment that continues to trouble owners and operators.

If bunker prices remained at the high levels of $650-$750 per tonne seen over the last year then eco-designed ships would have a better future. However, if the fuel oil price goes down there will be no need for a two-tier market.

Mr Khanna added that compared to the current dry bulk fleet of 650m dwt in service, the orderbook for eco-design ships was around 10m dwt, making it highly unlikely that a proper two-tier market will develop overnight or even in the next five years.

Comments from the Capital Link event contrast with comments made by Rickmers Holding chairman Bertram Rickmers at the Lloyd’s List Business Briefing. Mr Rickmers said that even vessels being delivered today had become obsolete as soon as they hit the water, due to their old design.

He said he had no interest in buying up smaller companies’ vessels when he could order new fuel-efficient containerships.

However, Mr Rickmers told the same event that shipyards were owners’ “enemies”, as their desperate bid to fill berths was devaluing assets.

Discussion from the audience following the Capital Link forum supported the theory that it would be best for owners to wait before ordering eco-design ships, particularly given the uncertainty surrounding global emissions.

Although the International Maritime Organization’s environmental efficiency design index will come into use from January 2013 for newbuilding orders whose EEDI value must be below a specific benchmark value for that ship type, the industry is waiting to hear what market-based measures will be imposed on shipping to reduce CO2 emissions.

For this reason, some delegates argued that it would be better for owners to wait until there was more clarity on how the shipping community will contribute to global targets before thinking about ordering eco-design vessels.

By that point, the market might also be improving and yards should have been able to develop better technology to cope with the high oil-price environment.

This supports recent comments by other shipowners such as Seaspan chief executive Gerry Wang, who believes that yards need to go back to the drawing board to deliver greater innovation in newbuilding designs.

Not a subscriber? Take a trial

Critical information and insight are essential to spot opportunities & anticipate market shifts. You are only a few short steps away from experiencing all Lloyd’s List has to offer.

More Ship Operations Market Data

Clean 572 (-16) Dirty 791 (-4) Baltic Tanker Indices

Adobe Flash is required to view chart
More detailed charts and tools
Lloyd's List Outlook 2016

Lloyd's List Outlook 2016

Your year ahead in shipping for all key sectors in 2016

RSS feedMore Ship Operations

Top 100 interactive timelines

Top 100 interactive timelines

View the key events in the year that have helped shaped Top 100

Get full content access now

5 reasons to subscribe

  1. Unrestricted access to Lloyd's List online
  2. Access to Lloyd's List via App for iPhone and iPad
  3. Regular in-depth special features
  4. Daily news alerts and sector round-ups
  5. Track your topic tool

Subscribe Today for Instant Access Unsure? Request a trial