ECO ships could lead to a two-tier freight market in the future

2014-10-26

While the latest developments in the oil market and subsequently in the prices of bunker fuels are favoring ship owners, in the long term the rise of ECO vessels is a trend that makes business sense, even more so if owning an ECO vessel not only saves operating expenses, but also commands a higher fee. Attempting to make sense of the latest trends in the market for ECO vessels, was Intermodal’s latest weekly report, where it was noted that “the ECO vessels are already here but the oil and bunker prices are plummeting to their cheapest level since 2010. Is this development coming as a verification to the shipowners that have been dismissive of the benefits of the new designs? Moreover, are we experiencing the two tier market that was discussed a few years ago?”, the report asked.

According to Mr. Theodore Ntalakos, “on the sale & purchase front, the answer is clearly a yes… and a no… Although there is nothing new about the preference towards Japanese vessels from both charterers and buyers as they were always a different tier from Chinese, there is a substantial price gap of about twenty percent between the modern Chinese vessels and the ones built based on new designs with electronic engines, optimized hulls, energy efficiency devices etc. Furthermore, good quality new Chinese ships maintain their values not far from their Japanese piers. We recently compared the consumption of two kamsarmax vessels, one was built in Japan in 2007 and one in China in 2013 equipped with electronic engine and fuel efficient propeller (no optimized hull form). The fuel efficiency of the two vessels was very similar. So the new ECO vessels and all the new technologies used on them are already taking their market share, the charterers’ preference and one can safely say that are here to stay. With the oil price plummeting however, it’s also easy to make the opposite argument. I distinctly remember a discussion I had with a well-known Taiwanese shipowner during a forum; I was (I still am) defending the new ECO designs and was repeating to him “The oil price will only go up!” to which he replied with his experience from the crises of the previous decades saying “I fully agree with you (and all the energy reports on the planet for that matter) . . . but what if it doesn’t?”, Ntalakos noted.

He added that “cheaper bunkers clearly favor the owners that bought discounted Chinese ships that few people would consider, mainly because of their higher fuel consumption. The desired rate of return on an investment can come either from the higher earnings of a highly efficient ECO vessel, but also from the lower initial investment on a less fuel efficient vessel. Fact is that the fuel efficiency benefit disappears as bunker prices drop. It also seems that this trend will probably continue at least in the short term as according to data from the International Energy Agency, the forecast of global oil demand for 2014 has been revised at lower levels since last month on reduced expectations of economic growth and the weak recent trend. Annual demand growth is now projected to drop in Q1 & Q2 2015 and rise again in Q3 of 2015, as the macroeconomic backdrop improves”, he said.

Meanwhile, “on the other hand, while new sources of oil supply have driven the oil price to its current lows, not seen for almost half a decade, demand for oil has actually been on the rise and as more oil is being produced and consumed now than in 2011 it will be interesting to see how the oil price – and the bunker prices – will develop in the future. The truth is that irrespective of bunker prices, a more efficient vessel will always be more competitive and there is no doubt that there are other considerations when evaluating a new shipping investment, such as EEDI and emissions’ control imposed by the regulatory bodies that only new ships can address. And although complying with these regulations may not have a positive effect in the pockets of shipowners like the reduced fuel consumption does, for a forward looking owner the new designs and the new technologies should be the main part of their strategy. Emission control is also here to stay and the industry must adapt to the new requirements”, Intermodal’s broker concluded.

Source from : World Maritime News

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