Shipping Innovation

SHIPPING INNOVATION

Cover design by Joost van Grinsven Based on a photograph by A.P. Møller - Maersk

SHIPPING INNOVATION Niko Wijnolst Tor Wergeland

With special contributions from:

Kai Levander Anders Sjöbris Eelco van Rietbergen Clemens van der Nat

IOS Press

Published by: IOS Press BV under the imprint Delft University Press Nieuwe Hemweg 6B 1013 BG Amsterdam The Netherlands Tel. +31-20-6883355 Fax. +31-20-6870039 E-mail: [email protected] www.iospress.nl www.dupress.nl Under Auspices of: Euromed Management, Ecole de Management, Marseille P.O. Box 921 13288 Marseille cedex 09 France www.euromed-management.com Distributed by: Dynamar B.V. Postbus 440 1800 AK Alkmaar The Netherlands Tel. +31-725147400 Fax. +31-725151397 E-mail: [email protected] www.dynamar.com

First published January 2009 Shipping Innovation - N. Wijnolst & T. Wergeland ISBN 978-1-58603-943-1 © 2009 N. Wijnolst, Tor Wergeland and IOS Press. All rights reserved.No part of the material protected by this copyright may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system, without the permission of the publisher: IOS Press. LEGAL NOTICE The publisher is not responsible for the use that might be made of the following information.

PRINTED IN THE NETHERLANDS

Preface

PREFACE There were not many textbooks on shipping available for the students in the early 1990s. That is why we decided to write SHIPPING in 1996. One year earlier, Niko Wijnolst had published DESIGN INNOVATION IN SHIPPING, based on work at the Delft University of Technology. The two books taken together offered a comprehensive insight and overview into the dynamics of global shipping and maritime innovation. Although the core of the books held its value, we decided to make an update of the two books and merge them into one new textbook SHIPPING INNOVATION destined for a broad spectre of maritime students and professionals. We also added some substantial new parts and invited a few colleagues to contribute. We are convinced that the current textbook offers a one-stop-shopping to those students and professionals who wish to get acquainted with the multifaceted aspects of global shipping and its everlasting innovation dynamics. The book has 30 chapters, of which the vast majority is written by us. For some subjects we have used the expertise of other colleagues. These are: x

x

x

Kai Levander, naval architect with Aker Yards, Finland, who contributed two insightful studies on the mission-based design process of a Panamax containership and a ro-ro vessel (Chapters 23 and 24); Anders Sjöbris, marine engineer/consultant with Lloyd’s Register - Fairplay, Gothenburg, who has been a pioneer on the environmental aspects of shipping since the beginning of the 1980s in Sweden, and who contributes a chapter on sustainable shipping and innovation (Chapter 26); Eelco van Rietbergen and Clemens van der Nat, marine engineers/naval architects in the Netherlands, contribute an innovation case-study on the revolutionary design of a ballast-free ship (Chapter 27).

Apart from these contributions, we used material from earlier books, and material based on projects developed with students at the Delft University of Technology over the period 1988-2000. In that context we would like to mention: x x x x x x

Jan Inge Jenssen: Chapter 20 - Innovation and maritime clusters; Erik Jakobsen: Chapter 21 - The Norwegian maritime cluster; Mogens Schrøder Bech: Chapter 21 - The Danish maritime cluster; Remko van der Lugt: Chapter 25 - Forest products ship case-study. Ernst Vossnack†: Chapter 28 - Chemical tanker case-study; Marco Scholtens, François Bello, Marieke Boer: Chapter 29 - Malacca-max containership case-studies;

Writing a text is one thing, but making it into a book is something else. We like to thank Frans Waals for his valuable work turning the manuscript into an attractive textbook and for adding valuable knowledge and comments.

v

Preface We are very pleased that we have undertaken this task and - most of all - that we have finished it in a reasonable time. We do hope that you enjoy the end result and we welcome your comments and suggestions. We have used a lot of visual material in the book, which we have attempted to trace back to its original publication. In some instances we were not able to do that. We apologise for that and we excuse ourselves if we have not mentioned the sources. We do hope that the authors of this textbook for students, which is not a commercial venture in the first place, could be forgiven for this omission. Finally, we should like to thank Euromed Management for its support to this challenging project without which this book would not have seen the light of day.

Niko Wijnolst Rotterdam [email protected]

Tor Wergeland Copenhagen [email protected]

November 2008

vi

Preface

TABLE OF CONTENTS Preface .................................................................................................................................................... v Table of Contents ................................................................................................................................ vii Introduction ........................................................................................................................................... 1 PART I - SHIPPING AND THE GLOBAL ECONOMY ................................................................. 5 1. 1.1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. 2.3. 2.4. 3. 3.1. 3.2. 3.3. 3.4. 4. 4.1. 4.2. 4.3. 4.4.

Global Economy and Seaborne Trade ........................................................................................ 6 A dash through the history of shipping and trade .................................................................. 6 Economic growth, trade growth and shipping demand.......................................................... 8 International trade from a consumption point of view ......................................................... 18 Main commodities in international shipping. ...................................................................... 24 Endnote: Shipping and geopolitics revisited........................................................................ 46 Global Shipbuilding Dynamics .................................................................................................. 48 Global shipbuilding 1947-2002 ........................................................................................... 49 Global shipbuilding 2002-2007 ........................................................................................... 56 Methodology for analysing the shipbuilding industry ......................................................... 61 Shipbuilding outlook 2008................................................................................................... 76 Global Shipowning Dynamics.................................................................................................... 81 Flag states development ....................................................................................................... 81 The rise and fall of shipping nations .................................................................................... 87 Regulatory framework of shipping ...................................................................................... 88 Shipping policy .................................................................................................................... 93 Analysis of Shipping Markets.................................................................................................... 98 Basic elements of an industry analysis ................................................................................ 98 Case 1: Tanker Shipping .................................................................................................... 112 Case 2: Cruise Shipping ..................................................................................................... 135 Case 3: The ferry market ................................................................................................... 157

PART II - SHIP INNOVATION ...................................................................................................... 177 5. 5.1. 5.2. 5.3.

Oil Tankers................................................................................................................................ 178 1859-1900 - Birth of the oil industry ................................................................................. 178 1900-1938 - Takeoff period ............................................................................................... 182 1938-1979 - Growth period ............................................................................................... 185 vii

Preface 5.4. 5.5. 5.6. 6.

1979-2008 - Restructuring and regulatory change............................................................. 191 2008 - 2030 - Fossil fuels depletion and climate change ................................................... 196 Examples............................................................................................................................ 199 Bulk Carriers ............................................................................................................................ 205

6.1. 6.2. 6.3. 7.

Dry bulk carrier ship types................................................................................................. 207 Seaborne trade.................................................................................................................... 214 Examples............................................................................................................................ 224 Container Ships ........................................................................................................................ 229

7.1. 7.2. 7.3. 7.4. 7.5. 7.6. 8.

S-curve shift in general cargo shipping ............................................................................. 231 Economies of scale in containership design ...................................................................... 234 Post-Panamax container ships ........................................................................................... 237 Open-top container ships ................................................................................................... 240 Dis-economies of scale in container shipping ................................................................... 243 Examples............................................................................................................................ 245 Gas Tankers .............................................................................................................................. 248

8.1. 8.2. 8.3. 9.

LPG carriers ....................................................................................................................... 248 LNG carriers ...................................................................................................................... 253 Examples............................................................................................................................ 261 Chemical Tankers ..................................................................................................................... 265

10. Other Ship Types ...................................................................................................................... 278 10.1. 10.2. 10.3.

Commercial vessels ........................................................................................................... 278 Industrial, service and naval vessels .................................................................................. 295 Examples............................................................................................................................ 299

11. Shortsea Shipping ..................................................................................................................... 309 11.1. 11.2.

European shortsea shipping ............................................................................................... 309 Innovation in shortsea shipping ......................................................................................... 317

12. Ship Costs .................................................................................................................................. 334 12.1. 12.2. 12.3. 12.4.

Capital cost ........................................................................................................................ 334 Operating costs .................................................................................................................. 338 Voyage costs ...................................................................................................................... 350 Cargo handling costs .......................................................................................................... 351

13. Benchmarking, S-Curves and Innovation .............................................................................. 353 13.1. 13.2. 13.3.

Benchmarking .................................................................................................................... 353 Benchmarking Panamax bulk carriers ............................................................................... 358 S-Curves and innovation .................................................................................................... 368 viii

Preface 14. Triggers for Shipping Innovation ........................................................................................... 382 15. Ports and Shipping ................................................................................................................... 401 PART III: INNOVATION THEORY ............................................................................................. 408 16. Innovation and Wealth Creation............................................................................................. 409 16.1. 16.2. 16.3. 16.4. 16.5.

Models of the innovation process ...................................................................................... 410 Innovation and economic growth ...................................................................................... 414 European Innovation Scoreboard....................................................................................... 417 Forces on innovation .......................................................................................................... 421 Concluding remarks ........................................................................................................... 423

17. Innovation and Business .......................................................................................................... 425 17.1. 17.2. 17.3. 17.4.

Innovation and environmental turbulence ......................................................................... 425 Innovation management ..................................................................................................... 436 Diffusion of innovation ...................................................................................................... 440 Bottom-line of innovation .................................................................................................. 447

18. Innovation and the Individual ................................................................................................. 449 18.1. 18.2. 18.3. 18.4.

On Archimedes and other great thinkers ........................................................................... 449 What is creativity: Origins and perspectives ..................................................................... 451 The structure-of-intellect model ........................................................................................ 453 Improving creative thinking............................................................................................... 454

19. Innovation and Creativity ........................................................................................................ 458 19.1. 19.2. 19.3.

Views of knowledge .......................................................................................................... 459 Creativity and perception ................................................................................................... 464 Creative problem solving and opportunity search ............................................................. 469

20. Innovation and Maritime Clusters .......................................................................................... 477 20.1. 20.2. 20.3. 20.4.

What is a cluster and why are clusters important? ............................................................. 477 The emergence, growth, and decline of clusters ................................................................ 482 Innovation, competitiveness and growth ........................................................................... 485 Coordinating institutions and public policy ....................................................................... 487

21. European Maritime Clusters ................................................................................................... 493 21.1. 21.2. 21.3. 21.4.

The Norwegian maritime cluster ....................................................................................... 493 The Danish maritime cluster .............................................................................................. 504 Performance indicators and cluster enablers...................................................................... 514 Research, Development and Innovation ............................................................................ 521

PART IV: SHIP DESIGN AND CASE-STUDIES ......................................................................... 532 ix

Preface 22. Ship Terminology and Design Methods.................................................................................. 533 22.1. 22.2. 22.3. 22.4.

Ship terminology................................................................................................................ 533 Design methods.................................................................................................................. 540 Shipping innovation methodology ..................................................................................... 549 Mission-based ship design ................................................................................................. 557

23. Container Ship Design ............................................................................................................. 565 23.1. 23.2.

Container ship characteristics ............................................................................................ 565 System-based ship design .................................................................................................. 575

24. Ro-ro Vessel Design .................................................................................................................. 615 24.1. 24.2.

Ro-ro vessel characteristics ............................................................................................... 615 System-based ship design .................................................................................................. 626

25. Forest Products Ships............................................................................................................... 641 26. Sustainable Shipping ................................................................................................................ 658 26.1. 26.2. 26.3. 26.4. 26.5.

Analysis of propulsion systems of the world fleet ............................................................. 658 Environmental awareness and emission control ................................................................ 663 New technologies ............................................................................................................... 670 Port of Rotterdam emissions .............................................................................................. 678 World fleet emission calculation ....................................................................................... 686

27. Ballast-Free Ships ..................................................................................................................... 690 27.1. 27.2. 27.3. 27.4.

Ballast water issues ............................................................................................................ 690 Solutions for ballast water ................................................................................................. 694 Ballast-free ship design ...................................................................................................... 700 Development of the MonoMaran ....................................................................................... 702

28. Chemical Tanker ...................................................................................................................... 711 28.1. 28.2.

Description of the design ................................................................................................... 712 Financial evaluation ........................................................................................................... 719

29. Malacca-Max Containership ................................................................................................... 723 29.1. 29.2. 29.3.

Ship design......................................................................................................................... 724 Multi-porting versus hub-feedering - a cost model............................................................ 752 Feedering between Rotterdam and UK .............................................................................. 763

30. Thinking out of the Box ........................................................................................................... 779 31. Chapter Notes ........................................................................................................................... 795 31.1.

References.......................................................................................................................... 795 x

Preface 31.2. 31.3. 31.4.

Figures ............................................................................................................................... 806 Tables ................................................................................................................................. 825 Symbols ............................................................................................................................. 83

xi

Preface

xii

Introduction

INTRODUCTION Shipping Innovation is built up around four themes: Shipping and the global economy, Ship innovation, Innovation theory, and Ship design and case-studies. The 30 chapters cover almost all the relevant knowledge domains of shipping and innovation within its broader context.

Part I: Shipping and the global economy This part sets the scene for understanding the importance of shipping and seaborne trade within the global economy as well as the long-term competitive advantages that countries attempt to establish and how they may succeed and fail in shipping and shipbuilding. Chapter 1 - Global economy and seaborne trade starts with international trade and the role of shipping in the past and the present. Not only in terms of volume of trade, but also in value terms. The patterns of seaborne trade, major trade routes and the shifts over time are discussed as well as its impact on average transport distances and overall transport demand and production, expressed in ton-miles. Finally, the importance of political events on demand and innovation underline the extremely global nature of the business of shipping. Chapter 2 - Global shipbuilding dynamics demonstrates the volatile nature of the shipbuilding sector and the change of fortunes over the past period of almost 50 years. Established shipbuilding nations are constantly challenged by new entrants with more advantageous factor costs which lead to dramatic adjustments in these sectors. The once dominant position of Europe was successfully challenged by Japan, which in turn was challenged by South Korea, which in turn is being challenged by China. In spite of this competitive pressure, the shipyards in Europe repositioned themselves and now they still build ships with a very high value added, because of their capacity to innovate. Innovation and the related innovation networks, or maritime clusters, are an essential part of the competitive advantage of Europe, which is the subject of Part 3. Chapter 3 - Global shipowning dynamics shows the dramatic changes in shipowning since the postWW2 period. In 1948, a few countries dominated shipowning, while, with the spectacular growth of shipping, many new countries became overnight important maritime nations with substantial fleets. This chapter underlines again the international and open character of the shipping markets and the way in which countries may create a competitive advantage. In spite of all the competition, European shipowners still own 40 percent of the world fleet, a position that is maintained witnessing the newbuilding order books. Innovation stands again at the basis of this strong position, as most of the innovations in ship types, and marine equipment are still being developed in Europe, triggered by European shipowners. Chapter 4 - Analysis of shipping markets, provides a methodological framework for analysing shipping markets, based on a detailed discussion of three major, but completely different markets: tanker, cruise and ferry shipping. The objective is to understand the drivers and dynamics behind these markets which form an important input for strategy development within shipping.

Part II: Ship innovation After setting the scene in Part 1, the amazing world of ship innovation is the subject of Part 2. This part contains 11 chapters covering not only most of the shipping segments, but also traces its origins 1

Introduction and innovations over time. It concludes with a methodological framework for understanding - and predicting - triggers and change for innovation in shipping. Chapter 5 - Oil tankers tells the story of the oldest basic ship type innovation since the general cargo vessel. Up till that time, the cargo was adapted to the characteristics of the general cargo vessels through its packaging in drums, bales, bundles, and the like. The invention of the oil tanker, some 150 years ago, started a quest for adapting the ship to the characteristics of the cargo. The consequent chapters on bulk carriers (Chapter 6), containerships (Chapter 7), gas tankers (Chapter 8), chemical tankers (Chapter 9), and other ship types (Chapter 10) tell the background stories of how shipowners created a competitive advantage through basic ship type innovation, and consequently improvement, process and service innovations. Chapter 11 - Shortsea shipping introduces a different segmentation of shipping which is opposed to deepsea shipping. Shortsea shipping plays a vital role in Europe and many other regions of the world, as an integral part of the transport networks. The port-sea time ratio’s of shortsea shipping is quite high and differs from that of deepsea shipping, as the distances are shorter in shortsea shipping, as the name already suggests. Port turnaround, and thereby cargo handling time and costs, should be optimised, which requires a lot of innovation now and in the future. This domain of shipping is probably one of the new frontiers for European shipping, as Europe, which is surrounded by many seas from the Baltic Sea, North Sea, Atlantic Ocean, Mediterranean Sea, and Black Sea. Economic integration of Europe can only take place if shortsea shipping becomes even more competitive through innovation. Ports play an important role in that respect, as they connect the sea lanes to the land-based transport infrastructure. Chapter 12 - Ports and shipping illustrates that ports usually adapt to changes in shipping, otherwise they will become less competitive and lose their position in the logistical chains. Adapting to, for example, the increase in economies of scale of ships, resulting in more draught, and wider access channels and longer berths and terminals, is the most relevant impact on ports innovation. This book is about innovation and more precise about the way innovation is triggered in shipping. A prerequisite for this is to understand the cost structure of shipping. Chapter 13 - Ship costs, outlines the cost structure of owning and running ships, and the long term trends of these costs. This provides the foundation for understanding the areas where further improvement innovations or step-changes in technology or systems, so-called S-curve shifts may have to take place. Chapter 14 - Benchmarking, S-curves and innovation provides the tools for analysing the cost and revenue data of ships in order to benchmark these against competition, to plot the impacts over time of improvement innovations in products and processes and the diminishing returns on investment due to (technical) limits. This provides the springboard for finding sets of triggers for innovation in shipping. Chapter 15 - Triggers for shipping innovation presents and documents six classes of triggers that help structure the often random walk across the innovation landscape. These six types of innovation triggers stand at the basis of the shipping innovation methodology presented in Part 4. This core chapter in the book offers a conceptual framework that will help the individual to recognise patterns of change amidst the chaotic information overload with which many managers are confronted. It will strengthen the mental model of the manager and this may lead to a pro-active attitude towards innovation and change.

2

Introduction

Part III: Innovation theory Innovation is not restricted to shipping but it is an integral part of all aspects of the economy and life itself. Part 3 presents five perspectives on the theory behind innovation. It also discusses the importance of maritime clusters for innovation in shipping, and identifies enablers of clusters. Finally, the important link between research, development and innovation is briefly touched upon. Chapter 16 - Innovation and wealth creation defines the theoretical context of innovation from a macro-perspective, while Chapter 17 -Innovation and business, zooms in on the relationship between innovation, the type of business, strategy and structure. However, innovation always starts at the individual level, and Chapter 18 - Innovation and the individual, discusses just that. Finally, all innovation is generated by the confluence of many competences of the individual or teams, in particular creativity. Chapter 19 - Innovation and creativity digs deeper into the perception change techniques that are at the core of creativity and thereby it forms the starting point or trigger of all innovations. Chapter 20 – Business clusters, innovation and value creation explains the importance of dense networks of business sectors which facilitate innovation and a host of other important impacts. The strength of maritime Europe depends to a large extent on the strength of these intricate networks of maritime sectors that constitute a cluster. The workings of these maritime clusters is illustrated in Chapter 21 - European maritime clusters, which contains the description of two important maritime clusters of Norway and Denmark. The European Commission has recently underscored the importance of maritime clusters for the competitiveness of Europe, by including the strengthening of maritime clusters in the agenda for an integrated European maritime policy. Clusters can be reinforced by focusing policies on certain enablers. Finally, it contains a brief discussion of research, development and innovation (R, D&I).

Part IV: Ship design and case-studies Innovation in shipping is not always easy, as there are many constraints, ranging from technical to economic, from operational to financial, from environmental to political, in short, it is complicated. In Part 4 ship design methodologies are presented as well as a number of case-studies of shipping innovation, which completes the bird’s eye view that is offered by Shipping Innovation. Chapter 22 - Ship terminology and design methods offers the basic vocabulary for the non-initiated students and professionals. Like in every profession, complicated words may deny access to the basic knowledge domains of the maritime world and thereby inhibit the participation of laymen in the innovation cycle. It also offers an overview of the various ways in which ships have and can be designed. Finally it proposes a shipping innovation methodology, a roadmap for the students and professionals for finding triggers for innovation and incorporating creativity in the innovation process. Chapter 23 – Container ship design contains a unique and detailed example of the design of a Panamax containership, using the mission-based design approach, as developed by. Kai Levander during his many years at Aker Yards and its forerunners in Finland. The step by step process highlights the interactive and rigorous way in which ships are designed, linked to their mission. Chapter 24 contains a unique and detailed example of the design of a roll-on/roll-off (ro-ro) vessel, using the mission-based design approach. Chapter 25 - Forest products ship innovation is important as logistical costs constitute a major part of the landed price of forest products. Creating a strong export position thus requires innovative and low cost transport and that has happened over past decades. In this study, dating from the early 1990s, 3

Introduction which was made in Finland, an integral system innovation for the logistic chain of paper reels was developed, based on a simple principle off “reels-on-wheels”. The creative approach behind this concept is an important element of the case, as it underlines the need for the introduction of out-of-thebox thinking in the design process of ships as stimulated by the proposed shipping innovation methodology. Chapter 26 - Sustainable shipping illustrates the efforts that have been undertaken to create more sustainable and environmentally friendly shipping, in particular the subject of emissions from ships engines, and how to reduce these, as well as how to measure the emissions in a reliable and cost efficient way. A case-study is presented on the emission from ships in the port area of Rotterdam, as well as the results of a recent NTUA study on the global emissions of the world fleet and its major segments. Chapter 27 - Ballast-free ship innovation is triggered by the new IMO regulations that oblige shipowners to clean ballast water before discharging it. This proves to be no easy task, and therefore some design groups set out to find a way to eliminate ballast water all together. In this study, a number of solutions are presented, based on an ongoing innovation project in the Netherlands. Success in eliminating ballast water from ships would represent a major contribution to sustainable shipping; in fact it would be a fundamental S-curve shift since the first use of sea water to ballast ships, some 150 years ago. Chapter 28 - Chemical tanker innovation summarises a design study which was done in the beginning of the 1990s for a Norwegian shipowner. A cylinder tank type chemical tanker was designed that offered substantial financial and operational advantages over the current parcel tanker designs. The study shows that ultimately, a S-curve shift in chemical tanker design has to occur if the quality of seaborne chemicals transport is to be improved in a fundamental way and port times of chemical tankers can be reduced. Chapter 29 - Malacca-max containership documents the development of an 18,000 TEU containership, dubbed Malacca-max, is based on the draught limitation of the Strait of Malacca (21metres draught). This case-study was made in 1998/1999 and after its publication at the end of 1999; it caused a lot of comments. In the meantime it is likely that before 2010 there will be a giant like this ship sailing the seas, as the fuel economy of the ship cannot be beaten. Apart from the ship design process, the impact on ports from the introduction of very large containerships (hubs) has been studied in the Hamburg-Le Havre range of ports and a model was developed to compare the financial impacts of a hub-feeder (spoke) system with the existing multi-porting call patterns. Finally, this theoretical model was applied to a real world case provided by the container line P&O Nedlloyd. The deepsea calling pattern in the year 2000 to and from the United Kingdom was compared with a hub-feeder system out of Rotterdam to the UK. This exercise provided unexpected positive insights into the network economy of the introduction of mega-containerships and a hub-feeder call pattern. Finally, Chapter 30 - Thinking out-of-the-box concludes Shipping Innovation with an encouragement to students and professionals to dare to go beyond the status quo of today, and to dream and speculate about the future. An example is discussed on the impacts of a future economy based on hydrogen as energy source and its impact on shipping. You are invited to develop your ideas and share these with us in order to continue the virtuous innovation circle in shipping that generations before us have started. Chapter 31 – Notes contains references, lists of figures and tables, as well as a list of symbols. 4

Part I - Shipping in the Global Economy

PART I - SHIPPING AND THE GLOBAL ECONOMY

5

Part I - Shipping in the Global Economy

1.

GLOBAL ECONOMY AND SEABORNE TRADE

The shipping industry is quite unique in the way it interacts with the global economy. On the one hand, shipping technologies have greatly influenced the way the world has developed and how it looks today, and on the other hand economic and political events influence how we interact and trade with each other across long distances, and in term this influences the demand for transportation services. No other industry plays such a dual and vital role in the workings of the global economy and is so dependent on it.

1.1. A dash through the history of shipping and trade Not to know what has been transacted in former times is to be always a child. If no use is made of the labours of past ages, the world must remain always in the infancy of knowledge Marcus Tulius Cicero (106-43 BC) Writer, politician and great roman orator.

The history of ships goes back thousands of years. All the way through history up until the 19th century, the only means of navigating the seas were the use of paddles, ores and sails. Sailing vessels have thus played a great role in the history of mankind. More than 1000 years BC the Phoenicians built a large trade empire thanks to their superior ships. More than 1000 years ago, the Vikings built fast, sea-going keeled ships and ventured far from home all over Europe and discovered Greenland and America. The Hanseatic cog became the backbone of trade within a most successful Northern Europe trade monopoly established in the 13th century by an alliance of guilds: the Hanseatic league, which controlled international trade in Northern Europe for about 200 years. In the late 15th century when Vasco da Gama sailed around Africa and found India and Christopher Columbus happened upon America, the Chinese already sailed the Indian Ocean with expeditions of 20-30.000 people in 9-mast junks 400 feet long and 150 feet wide (as compared to Columbus’ Santa Maria of 90x30) and established trade relations all the way to Africa. In a way one could say this was the initial spark of globalisation as Ferdinand Magellan (1480-1521) reached the Philippines, the Portuguese landed in Japan, Francis Drake (1540-96) circumnavigated the world and Willem Barents (1550-1597) explored the ocean to the north in search of another passage. With all these discoveries of new land and resources followed the inevitable - a strife to control the riches with a succession of wars in Europe and widespread imperialism accompanied by trade control within each empire, culminating in the English Navigation Act of 1651, giving English ships a monopoly on trade with the colonies, resulting in new wars with the Dutch. Through superior ship technology, the Dutch fluyt, a most economic and efficient cargo vessel, the Dutch challenged the British Empire on the high seas. Economic development, partly due to the newfound riches, eventually led to the industrial revolution and with that the need to organise the economy more efficiently. The first capitalistic institutions - like the Bank of England (1694) - were established and trade was mostly conducted in the mercantilist view that export is good and import is bad and gold is best.

6

Part I - Shipping in the Global Economy

Period/ hegemony 1256Ͳ1441 None 1430Ͳ1588 Portugal 1588Ͳ1670 Holland

1670Ͳ1815 England

Competing nations

Mainevents

Prevailingtrade regime



x x x x

TheHanseaticLeague,1256 The Hanseatic cog ThecannonͲarmedcaravel TreatyofTordesillas1494

Regionalfree trade

x x x x x

FailedSpanishinvasioninEngland TheEnglish'lowͲcharged'galleon TheDutchfluytcargovesselandCalvinism EnglishNavigationAct1651 ThreeAngloͲDutchWars

Competingglobal tradingblocs

x

Dutchmonarch’saccedetoEnglishthrone 1688 BankofEngland1694 ActofUnionwithScotland1707 Theindustrialrevolution AdamSmith,‘Thewealthofnations’1776 Americanindependence1783 Napoleonwars GradualendtomercantilisminEurope

Fromempire tradingblocs towardstrade liberalisation

GermancustomsunionͲZollverein1834 AbolitionoftheCornLaws1846 AbolitionoftheNavigationAct1849 TheCobdenͲChevalieragreement1860and theprincipleofMFN(mostfavourednation) Germanyunifiedin1871 Steamvessels

Further liberalisation towards globalfreetrade after1850

RenewedprotectionismincontinentalEurope WorldWarI DieselͲpoweredvessels

Freetradewith elementsof protectionism

TheGreatDepression Surgeofprotectionismglobally WorldWarII

General protectionism

TheGATT1947,theWTO1995 Containervesselsafter1960

Trade liberalisation

Spain,England, Hollandand France England, Portugal,Spain andFrance

Holland,France, America

x x x x x x x 1815Ͳ1880 Brittain

USA, Germanstates

x x x x x x

1880Ͳ1914 Tripolar 1918Ͳ1945 Multipolar 1945 USA

Germany, Britain, x USA x x US,Britain, x Japan,Germany x x Japan,(EU) x x

Tradeduopoly

Table 1: Influence of shipping on political power and trade Eventually, intellectuals like Adam Smith (1723-1790) started to speak of markets and the invisible hand, and pointed out the advantages of trade. Still it took some time and more intellectual influence like the writings of John Stuart Mill (1806-1873) - before the Navigation Act was abolished in 1849 7

Part I - Shipping in the Global Economy and international trade became possible without any restrictions at all. This chain of events coincided with the evolution of the motor ship, first steam, then diesel, and should have led to a long, prosperous period of free trade and economic progress. Instead the world economy saw protectionism, a tragic World War I, depression and yet another devastating war - World War II. Since the end of that war the emphasis has been again on liberalising world trade and obtaining peace and prosperity through trade and co-operation. The shipping contribution has been to develop a multitude of different ship types that can carry almost anything from liquid gas to dangerous chemicals, heavy offshore equipment, bulk commodities like iron or and coal and eventually anything that one could put inside a box for shipment - the container. The successful introduction of the containership on intercontinental trade routes is no doubt one of the most important events behind the rapid globalisation of the world over the last 25 years. High-value goods can today be shipped anywhere in the world at very low prices, so location of economic activity has completely changed its role and meaning. Shipping has once again contributed to changing the world. Table 1 offers a compact summary of this dash through history.

1.2. Economic growth, trade growth and shipping demand Shipping is literally living from carrying international trade, so it is of interest to study the relationship between international trade and the demand for shipping and how this relates to growth in general.

Export growth and seaborne transport demand

Totalseabornetrade(billiontonͲmiles)

Figure 1 shows the development of total seaborne trade from 1962-2007. It shows clearly how shipping demand was affected by the two oil price jumps in 1973/74 and 1979/80. 35 30 25

Oilpricejumps 217%

103%

20 15 10 5 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

Figure 1: Seaborne trade, billion ton-miles (Fearnleys) In the period 1967-1973, just before the first oil price shock, seaborne trade showed average yearly growth rates of impressive 13.8%. After 1973, it took 17 years before world seaborne trades came up

8

Part I - Shipping in the Global Economy on the same level again as in 1973. In the 1990s, the average growth rate was 3.2%, but in the last five years of Figure 1 - 2003-2007, growth has averaged 6.4%. International trade statistics measure trade as values, often in US$, while seaborne trade is measured in a volume-distance unit, ton-miles (TM), without assigning any value to the cargo. This makes it questionable to try to compare directly trade development and TM-developments. Gross Domestic Product (GDP) is also a value measurement - the sum of all value added in a country or region and thus a measurement of value generation. In Figure 2, seaborne trade, GDP and world total export have been converted into indices, with a starting value of 100 in 1962. The three variables follow widely different growth paths. In 2007, compared with 1962, international trade was almost 100 times bigger (97.2), GDP 32 times bigger and seaborne trade only 7.5 times bigger. This may seem as a paradox, since shipping is living from carrying the world trade that has become 100 times bigger over these 45 years only to induce 7.5 times as big shipping volumes. During the last 40-50 years many goods have become smaller and lighter, but often more valuable. Computers are excellent examples - in the early 1970s there were mainframe computers needing as much space as an office desk, but with memory capacities in the 64-128 K range and storage capacities in the 10-20 MB range. This chapter has partly been written on an Apple MacBook Air that is less than 2 cm thick, weighs less than 1.5 kg, but has 2 GB of memory and can store 80 GB of data. In general, the volumes per US$ value have come down, inversely the US$-value per ton transported has increased. This is shown quite clearly in Figure 3. 12,000

Index(1962=100)

10,000 8,000 6,000 4,000 2,000 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 Exports

SeaborneTrade

GDP

Figure 2: Export, GDP and seaborne trade (Fearnleys), (World Bank, 2008)

9

2,000

10

1,800

9

1,600

8

1,400

7

1,200

6

1,000

5

800

4

600

3

400

2

200

1

0

0

1962

1972

1982

US$/tonexported(leftaxis)

1992

Ton/US$exported

US$/Tonexported

Part I - Shipping in the Global Economy

2002

Ton/US$exported(rightaxis)

Figure 3: Volume/value relationships ni international trade (Fearnleys) (WTO)

Growth correlations for GDP, exports and seaborne ton-miles Although GDP, exports and seaborne trade show very different growth paths, it could still be interesting to examine the correlation of growth to see if one could establish some rule of thumbs as to these macro-relationships. Figure 4, sourced from (World Bank, 2008) and (WTO), shows the relationship between growth in GDP and growth in world exports for the period 1970-2007. It indicates that in this 38-year period for each per cent growth in GDP, world export has on average been growing 1.45% and the correlation is fairly good. Figure 5 to Figure 8 examines the 4 decades separately. From these four figures one could conclude that in the 1970s growth in GDP was associated with higher growth in exports than for the whole period, while in the 80s and 90s, the coefficients are lower. After the turn of the millennium, the relation is back to the period average with strong correlation. Figure 9, sourced from (Fearnleys) and (World Bank, 2008), shows the correlation between GDP growth and seaborne trade. The correlation here is very weak, but still indicates that on average a 1 per cent increase in GDP has generated less than half per cent increase in seaborne trade. Figure 10 to Figure 13 examines the sub-periods decade by decade. There is a similar situation with this pair of correlation - the current decade is close to the average, while the 70s and 80s are very different. The last relationship is between exports and seaborne trade. Ceteris paribus, one would expect to find high correlation, but Figure 14, sourced from (Fearnleys) and (WTO), indicates that is not the case

10

Part I - Shipping in the Global Economy

50%

%changeinworldexports

40% 30% 20% 10% 0% Coeff.:1.45 R²=0.65 Ͳ10% Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldGDP,currentprices

Figure 4: GDP versus export growth 1970-2007

50% 1974

%changeinworldexports

40%

1973

30% 1979

20%

1972 1970 1976

10%

1978 1977 1971

Coeff.:1.87 R²=0.42

1975

0% 0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldGDP,currentprices

Figure 5: GDP versus export growth in the 1970s

11

Part I - Shipping in the Global Economy

25% 1980

%changeinworldexports

20% 1987

15%

1988

10%

1986 1989 1984

5% 0%

1985

1981 1983

Ͳ5%

Coeff.:1.21 R²=0.65

1982

Ͳ10% Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

%changeinworldGDP,currentprices

Figure 6: GDP versus export growth in the 1980s

25%

%changeinworldexports

20%

1995

15%

1994 1990

10% 1992

5%

1996 1997

1999 1991

1993

0% 1998

Coeff.:1.21 R²=0.72

Ͳ5% Ͳ2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

%changeinworldGDP,currentprices

Figure 7: GDP versus export growth in the 1990s

12

Part I - Shipping in the Global Economy

25% 2004

%changeinworldexports

20% 2003 2006 2005

15% 2000

2007

10% 5%

2002

0% Coeff.:1.42 R²=0.76

2001

Ͳ5% Ͳ2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

%changeinworldGDP,currentprices

Figure 8: Correlation between GDP and export growth 2000-2007

%changeintonͲmilesseabornetrade

20% 15% 10% 5% 0% Ͳ5% Ͳ10%

Coeff.:0.41 R²=0.17

Ͳ15% Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldGDP,currentprices

Figure 9: GDP versus seaborne trade 1970-2007

13

Part I - Shipping in the Global Economy

20% %changeintonͲmilesseabornetrade

1973

15% 1970

10%

1972

1976

1971 1974

5% 1979 1977

0% 1978

Ͳ5%

1975

Coeff.:0.055 R²=.001

Ͳ10% 5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldGDP,currentprices

Figure 10: GDP versus seaborne trade 1970s

10%

%changeintonͲmilesseabornetrade

1984 1989

1988 1986

5% 1987

0% 1985

Ͳ5%

1980

1981 1983

Ͳ10% Coeff.:0.67 R²=0.32

1982

Ͳ15% Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

%changeinworldGDP,currentprices

Figure 11: GDP versus seaborne trade 1980s

14

Part I - Shipping in the Global Economy

6% 1997

%changeintonͲmilesseabornetrade

5% 1990 1995

1991

4% 19931996

1994

3% 1999

2%

1992

1% 0% Coeff.:0.12 R²=0.1

1998

Ͳ1% Ͳ2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

%changeinworldGDP,currentprices

Figure 12: GDP versus seaborne trade 1990s

25% %changeintonͲmilesseabornetrade

2004

20% 2003 2006 2005

15% 2000

2007

10% 5%

2002

0% Ͳ5% Ͳ2.00%

Coeff.:0.39 R²=0.57

2001

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

%changeinworldGDP,currentprices

Figure 13: GDP versus seaborne trade 2000-2007

15

Part I - Shipping in the Global Economy

%changeintonͲmilesseabornetrade

20% 15% 10% 5% 0% Ͳ5% Ͳ10%

Coeff.:0.30 R²=0.30

Ͳ15% Ͳ10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

%changeinworldexports

Figure 14: World exports versus seaborne trade 1970-2007

20% %changeintonͲmilesseabornetrade

1973

15% 1970

10%

1972

1976 1971

1974

5% 1979 1977

0% 1978

Ͳ5% Coeff.:0.23 R²=0.15

Ͳ10% 5.00%

10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% %changeinworldexports

Figure 15: World exports versus seaborne trade 1970s

16

Part I - Shipping in the Global Economy

%changeintonͲmilesseabornetrade

10% 1984 1989 1986

5%

1988

1987

0% 1985

Ͳ5%

1980

1981 1983

Ͳ10% Coeff.:0.42 R²=0.28

1982

Ͳ15% Ͳ10.00%

Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldexport

Figure 16: World exports versus seaborne trade 1980s

%changeintonͲmilesseabornetrade

10% 1984 1989 1986

5%

1988

1987

0% 1985

Ͳ5%

1980

1981 1983

Ͳ10% Coeff.:0.09 R²=0.12

1982

Ͳ15% Ͳ10.00%

Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldexport

Figure 17: World exports versus seaborne trade 1990s

17

Part I - Shipping in the Global Economy

%changeintonͲmilesseabornetrade

9% 2005

7%

2000

5%

2003 2006

2004

2007

3% 1%

2002

2001

Ͳ1% Ͳ3% Coeff.:0.29 R²=0.80

Ͳ5% Ͳ10.00%

Ͳ5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

%changeinworldexport

Figure 18: World exports versus seaborne trade 2000-2007

1.3. International trade from a consumption point of view Figure 2 clearly shows the very high growth in international trade, particularly over the period 20022007. This has been seen as a (natural) reflection of the globalisation process, with fewer trade restrictions and availability of cheap transportation. The three main aggregates in international trade statistics as reported by WTO are: x x x

Agricultural products; Fuels and minerals; Manufactures.

Figure 19 shows the shares of these aggregates for selected years. The share of agricultural products seems to be steadily declining. Fuels and minerals are very much influenced by the oil price. It is, therefore, to be expected that the share was high in 1980 after the second oil price shock, as well as in 2006 when oil prices were on the way to new record highs. This has curbed the trend for manufactures somewhat, but they still constitute more than 70% of all exports in the world. Figure 20 shows the time development of this since 1980. The value share of agricultural products has been reduced by 50% in this period, while the share of manufactures has gone up from less than 60% to around 80% by the turn of the millennium. As explained above, the high oil prices have reduced that market share for manufactures in later years.

18

Part I - Shipping in the Global Economy

Agricultural products

Fuelsand minerals

Manufactures

0%

10% 1980

20%

30%

1990

40% 2000

50%

60%

70%

80%

2006

Figure 19: Shares of value of world exports for main aggregates, selected years (WTO)

Shareofworldmerchandiseexport(%)

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1980

1985

Agriproducts

1990

1995

Fuelandmining

2000

2005

Manufactures

Figure 20: Shares of value of world exports for main aggregates 1980-2006 (WTO) If one looks at sub-categories of commodities to see which commodity groups are currently the fastest growing, Figure 21 could be instructive. The figure shows that pharmaceuticals are currently the fastest growing commodity group in world exports, but also iron & steel and fuels are growing rapidly, which is good news for shipping and a turnaround of the trend in the 1990s. The figure seems to 19

Part I - Shipping in the Global Economy indicate that changes in the pattern of world trade may happen quickly and may have significant implications for sub-groups of commodities

Indexofvalueofexports(Year2000=100)

350 300 Food

250

Fuels 200

Steel Chemicals

150

Pharmaceuticals

100

Telecom 50

Clothing

0 1990

1995

2000

2005

Figure 21: Indices of value development for selected commodity groups 1990-2006 (WTO)

1.3.1.

International trade from a shipping point of view

As stated above, shipping lives from carrying volumes rather than values, but it is not easy to find data to show clearly how this develops over time. The United Nations started a project to create a database with figures in tons and ton-miles for 134 commodity categories according to the SITC classification1, but unfortunately this data project was closed down. The last year for which comparable data exists is 1986, more than 20 years old, but it will still illustrate a valid point. Figure 22 shows the share of the three main commodity aggregates as a percentage of the value of total exports and as a percentage of the total transportation work associated with shipping these commodities by sea. In that particular year manufactures constituted 70% of the value of total world exports, but only 10% of the transportation work needed to ship this export by sea. For fuels and minerals we have the opposite situation. This commodity group constituted only 15% of the total value of exports, but required 70% of all seaborne transportation work. For the agricultural commodities, this imbalance is much smaller. International shipping is extremely dependent on the transportation of only a handful of commodities. The five most important commodities are all bulk commodities, liquid bulk and dry bulk. A summary of the seaborne trade commodity composition is given in Table 2. The 5 main bulk commodities constitute 57.7% of the tons and 69.3% of the ton-miles. This is exactly of the same order of magnitude as Figure 22 indicated for the 1986 situation.

1

Seeunstats.un.orgfordetailsonclassificationschemes

20

Part I - Shipping in the Global Economy

Manufactures

Fuelsand minerals

Agricultural products

0%

10%

20%

30%

%ofvalue

40%

50%

60%

70%

80%

%ofTM

Figure 22: Comparison of value of total export vs. share of transport, 1986 (WTO) (UN, 1989) The average length of haul varies across the commodities. The liquid bulks, iron ore and grain and to a lesser extent coal, are associated with long hauls, while all the other commodities are traded on shorter routes, generating less transportation demand per ton. Changes in average distances have tendency to amplify structural changes of new trade patterns. This will be discussed in later sections. Commodities Crudeoil Oilproducts Ironore Coal Grain Allothercommodities Totalseabornetrade

Milliontons 1,888 535 799 798 332 3,220 7,572

% 24.9 7.1 10.6 10.5 4.4 42.5 100

BilliontonͲmiles 9,685 2,755 4,790 3,750 1,857 10,095 32,932

% 29.4 8.4 14.5 11.4 5.6 30.7 100

ALH 5,130 5,150 5,995 4,699 5,593 3,135 4,349

Table 2: Five main commodities in seaborne trade (Fearnleys) The development over time is illustrated in Figure 23. It clearly illustrates the negative effects of the oil price shocks in 1973/74 and 1979/80. It took about 15 years just to get back to the same level of transportation demand. The development in the period 2002/07 has been remarkable, indeed, and is one reason why shipping, an particularly bulk shipping, has enjoyed a long period of high earnings.

21

Part I - Shipping in the Global Economy

SeabornetradebmilliontonͲmiles)

35,000 30,000 25,000

Others

20,000

Grain Coal

15,000

Ironore

10,000

Oilproducts Crudeoil

5,000 0 1962

1967

1972

1977

1982

1987

1992

1997

2002

2007

Figure 23: Seaborne trade development 1962-2007 (Fearnleys) It is interesting to study the market shares for commodity groups in this development, and this is illustrated in Figure 24. The average market share for the 5 main commodities combined over this 45year period is close to 75%. It is a very interesting point that although container shipping has been consistently showing growth rates of 8-10% per annum for decades, while the bulk sector have been growing around 2-3% p.a., then the market share for ‘all other commodities’ is about the same as 45 years ago. International shipping is, therefore, to an extreme degree dependent on a few, key commodities. This is not likely to change over night. The overall conclusion of the last two sections is that looking at international trade from a value or a volume perspective makes a lot of difference. To further emphasise this important point, the previously mentioned UN Database with data for 1986 has been used to make some illustrations of the point. Figure 25 shows the market shares of world exports and the share of total seaborne transportation generated from those exports. Europe and Far East Asia show similar traits, their exports generate relatively little transportation work compared to their importance in the value of trade. This is very much opposed to the Middle East and Australia, where even a small share of exports generates high market shares of transportation work. Middle East, with less than 4% of total export values, represents more than 20% of total seaborne transportation work. Figure 26 indicates that the picture is completely different when it comes to imports. Western European imports show a more balanced picture, while the figures for Far East Asia indicate that a share of imports of about 8% generates almost 35% of all transportation work. The explanation for that is the situation for Japan. Japan needs to import all its raw materials for industrial production, so imports to Japan is highly biased towards raw materials, which again is what generates most of the seaborne transportation work.

22

Part I - Shipping in the Global Economy

Shareofworldmerchandiseexport(%)

100% 90% 80%

Averagefivemainbulks

70% 60% 50% 40% 30% 20% 10% 0% 1962

1967

1972

1977

Oilandoilproducts

1982

1987

1992

Threemaindrybulk

1997

2002

2007

Other

Figure 24: Seaborne trade development 1962-2007, market shares (Fearnleys)

Figure 25: Share of exports versus ton-miles 1986 (Wijnolst & Wergeland, 1996)

23

Part I - Shipping in the Global Economy

Figure 26: Share of imports versus ton-miles 1986 (Wijnolst & Wergeland, 1996) These data have finally been used to calculate how much transportation work that is generated by US$ 1 of exports or US$ 1 of imports. This is shown in Figure 27 and indicates that what is generating most seaborne transportation would be: x x x x

Exports from Australia; Exports from the Middle East; Exports from Latin America; Imports to Far East Asia.

This is, of course, based on the trade structure of the year 1986, but serves to emphasise the more general point that for shipping not only the commodity composition of world trade is important, but also who is trading with whom. Structural changes in world trade patterns are important for the underlying demand for transportation services.

1.4. Main commodities in international shipping. The purpose of this section is to present more details on the trades associated with the main commodities in seaborne trade. In addition to the five main bulk commodities, some details on selected minor bulk commodities will be given and main trade routes for container shipping will be discussed.

24

Part I - Shipping in the Global Economy

Figure 27: Ton-miles per US$ of trade 1986 (Wijnolst & Wergeland, 1996)

Oil Oil is by far the most important commodity for international shipping and in addition it is a strategic resource in the global economy, partly controlled by a cartel where the main players are situated in the Middle East - a region of constant unrest and political instability. Oil is also a main contributor to the emission of greenhouse gases, and is thus a potential future target for environmental regulation. Any person who is interested in international shipping must, therefore, follow the oil market with interest. Table 3 gives an overview of the trade flows in the crude oil market. The totals for 2006 are also compared to figures for 1994 and 1972, which makes it possible to study structural changes in the crude oil market. Middle East remains the dominating export area, although the market share is down to 47.5% from over 60% before the first oil price shock and slightly down from the 50.9% in 1994. The main trades from the Middle East are no longer to Europe, but to Asia, accounting for over 40% of total world imports, compared to 28% for North America and around 25% for Europe, that had a market share of 56.4% in 1972 and 29.3% in 1994. Japan imported about the same amount in 2006 as in 1972, but the market share is down from 18 to 11%. Almost 90% of Japan’s import originates in the Middle East. Other Asia, i.e. Asia excluding Japan, is the main growth area for oil imports, with a market share in 2006 over 30%, which is almost a doubling of the 1972 figure. 75% of this import comes from the Middle East. In addition to the Middle East - Asia trades, some main crude oil trades are x x x x

Caribbean - North America; West Africa - North America; Middle East - North America; Russia - Northern Europe.

25

Others

2006Total

2006(%)

1972Total

1972(%)

64.2

119.2

187.4

426

28.8

880.8

47.5

714.6

50.9

735.6

62.4

7.3

5.7

1

0

0.4

0

14.4

0.8

20.4

1.5

50.5

4.3

NorthAfrica

31.6

52.6

39.1

0.1

8.8

4.2

136.4

7.4

101

7.2

160.2

13.6

WestAfrica

13.4

17.6

102.3

9

60.4

18.1

220.8

11.9

140.9

10.0

92.2

7.8

Caribbean

To/From MiddleEast NearEast

1994(%)

1994Total

OtherAsia*

55.2

Northwest Europe

Japan

NorthAmerica

Mediterranean

Part I - Shipping in the Global Economy

10.8

8.6

178.6

0.4

8.5

3.3

210.2

11.3

176.9

12.6

58.4

5.0

SEAsia

0

0

5.7

9.2

32.7

18.1

65.7

3.5

76.4

5.4

43.3

3.7

Others

117.2

72.2

78.9

4.5

34.8

18.4

326

17.6

172.9

12.3

38.9

3.3

Total2006

235.5

220.9

524.8

210.6

571.6

2006 (%)

12.7

11.9

28.3

11.4

30.8

Total1994

194.3

217.9

382

226.6

382.3

1994 (%)

13.8

15.5

27.2

16.1

27.2

421.7

242.2

68.2

213.6

233.4

35.8

20.5

5.8

18.1

19.8

Total1972 1972 (%)

90.9 1854.3 4.9

100 1403.1 100 1179.1 100

*Other Asia is part of ‘Others’ for 1994 and 1972

Table 3: Crude oil seaborne trades 2006, million tons (Fearnleys) Figure 28 shows the development over time in total crude oil shipments in both tons and ton-miles. The larger variation in the ton-miles figures are caused by changes in the trade pattern that leads to changes in the average distances. This is illustrated in Figure 29. There have been remarkable large variations in the average length of haul during this period. In the late 60s and early 70s OPEC increased its market share to over 50% and contributed mainly with long hauls to USA, Europe and Japan. After the oil price shocks, countries tried to be less dependent on OPEC supply. USA turned towards Venezuela and Mexico, Japan towards Indonesia, while Europe started developing their own offshore resources. The combined effect was that the ALH fell from a level of over 7000 nm to almost 4500 nm within a few years. When OPEC started to increase their market shares again from a low 30%, the average length of haul started to rise again and seems to have levelled out between 5000 and 5500 nm. This is an important feature of the tanker market, so a forecaster must not only specify quantities but also look at where growth (or decline) is expected. Figure 30 is an alternative way of looking at the issue as it illustrates how many ships would be needed to carry an extra 1 million barrels per day on various routes. Oil products were not affected as much as crude oil by the oil price shocks in the 70s, as shown in Figure 31 and has been a fairly steady growing market since the early 1990s. The oil product market is more fragmented than the crude oil market, with much more short-haul trades. The largest trading area is in North Europe in the Baltic and North Sea range, where about 20% of the total market volumes are shipped. The only long hauls with some volume are the exports from Middle East to Japan. USA has a lot of products import from the Caribbean area, but also some from Western Europe 26

3,000

12,000

2,500

10,000

2,000

8,000

1,500

6,000

1,000

4,000

500

2,000

0 1962

Crudeoiltrade(billiontonͲmiles)

Crudeoiltrade(milliontonnes)

Part I - Shipping in the Global Economy

0 1967

1972

1977

1982

1987

Tons

1992

1997

2002

2007

TonͲmiles

8,000

80%

7,000

70%

6,000

60%

5,000

50%

4,000

40%

3,000

30%

2,000

20%

1,000

10% 0%

0 1965

Opecshareofoilproduction(%)

Aveargedistanceinnauticalmiles

Figure 28: Crude oil seaborne trade 1962-2007 (Fearnleys)

1970

1975

1980 ALH

1985

1990

1995

2000

2005

Opecshare

Figure 29: Average length of haul in crude oil trades 1965-2007 (Fearnleys) (BP, 2008)

27

Part I - Shipping in the Global Economy

MiddleEastͲ USA MiddleEastͲ WesternEurope MiddleEastͲ Japan MiddleEastͲ Asia NorthSeaͲ USA NorthSeaͲ NorthWestEurope 0

10

20

30

40

50

60

600

3600

500

3000

400

2400

300

1800

200

1200

100

600

0 1962

BilliontonͲmiles

Milliontons

Figure 30: Number of 250,000 dwt VLCCs required to carry 1 mbd

0 1967

1972

1977

Oilproducts(tons)

1982

1987

1992

1997

2002

2007

OilProducts(tonͲmiles)

Figure 31: Development of oil products shipments 1962-2007

Iron ore Iron ore is the primary raw material for steel production and the world has seen a dramatic development in steel production and iron ore imports in later years. Figure 32 shows the development of steel production in the world and the incredible development in China. In 1997, China produced about the same amount of steel as Japan - around 100 million tons per year. In 10 years time China has 28

Part I - Shipping in the Global Economy

600

1400

500

1200 1000

400

800 300 600 200

400

100

200

0

Worldtotal(milliontons/year)

Selectedcountries(Milliontons/year)

soared to more than 450 million tons per year, contributing greatly to a total world steel output increase from around 800 million tons in 2000 to around 1300 million tons in 2007. The steel production in developed countries has been fairly stable, but within the group ‘others’, countries like Brazil, Russia and India have been expanding. China is, however, alone producing the same as all countries (in the group others) put together. The effect of this is of course reflected in the trade figures for iron ore. This is illustrated in Figure 33, where the growth rates in the period 2000-2007 have been on average 10% per annum.

0 1991 China

1996 EUͲ12

2001 Japan

S.Korea

2006 Others

world

Figure 32: Development of oil world steel production 1991-2007 (Clarksons, 2008) Table 4 shows the structure of the iron ore trades in 2006. Total figures for 1994 have been included for the sake of comparisons. Brazil and Australia are totally dominating as exporters of iron ore. Together they account for two-third of the market with about equal shares. In 2006 China accounts for over 40% of all imports and 40% of that again comes from Australia. North Europe and Japan used to account for about two-third of all imports - in 2006 this was down to half of that with about 18% to Japan and 14% to UK/Continent. The average distance in iron ore trades show an increasing trend with no discernible variations as indicated in Figure 34. The increasing trend basically reflects that Brazil is expanding in Asia, which represent long hauls. The enormous growth in iron trades 2003-07 raises the question if this can continue much longer. The key to this is no doubt China. At the time of writing at the end of 2008, the third quarter figures for China’s import may show signs of weaker demand, but it will be for future updates of this book to see if that is a lasting trend. The quarterly import figures are given in Figure 35.

29

900

6000

750

5000

600

4000

450

3000

300

2000

150

1000

0 1962

BilliontonͲmiles

Milliontons

Part I - Shipping in the Global Economy

0 1967

1972

1977

1982

1987

1992

Ironore(tons)

1997

2002

2007

Ironore(tonͲmiles)

OtherAfrica

NorthAm.

S.Am.Atl.

S.Am.Pac.

Asia

Australia/N.Z.

1.4

6.6

6.8

11.7

58.5

0.1

0.9

8.3

103.4

Mediterranean EuropeOther

1.7

1.6

2.8

0.8

0.6

13.2

Ͳ

0.6

1.0

22.4

3.1

18.5

4.8

2.5

20.4

0.5

3.0

0.5

11.0

Ͳ

0.5

0.7

39.1

5.3

20.5

5.4

USA

0.0

0.3

Ͳ

Ͳ

0.0

4.6

0.3

Ͳ

0.0

5.2

0.7

14.2

3.7 30.3

14.1 105.6

27.4

2006(%)

1994(%)

WestAfrica

UK

Total1994

OtherEurope

9.2

To/From

Total2006

Scandinavia

Figure 33: Development of iron ore shipments 1962-2007 (Fearnleys)

Japan

Ͳ

0.1

Ͳ

5.3

1.5

30.8

2.1

14.6

79.9

134.3

18.3 116.1

China

Ͳ

1.9

0.1

12.7

4.8

79.1

7.0

84.7

126.8

317.3

43.2

FarEastOther Others Total2006 2006(%) 1994Total 1994(%)

Ͳ

0.8

Ͳ

2.8

1.6

22.6

2.1

2.0

36.9

68.8

9.4

86.9

22.7

3.8

2.2

0.4

0.0

3.8

25.5

0.8

6.4

0.4

43.3

5.9

21.1

5.5

17.2

28.6

10.4

31.5

24.7

245.2

12.4

109.8

253.9

733.8

2.3

3.9

1.4

4.3

3.4

33.4

1.7

15.0

34.6

19.0

3.6

10.0

19.4

26.3

134.1

13.3

32.9

124.1

5.0

0.9

2.6

5.1

6.9

35.0

3.5

8.6

32.4

100 382.9 100

* China was part of ‘Far East other.’ in 1994

Table 4: Iron ore trade flows, million tons (Fearnleys)

30

Part I - Shipping in the Global Economy

Averagelengthofhaul(thousandnm)

7 6 5 4 3 2 1 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Figure 34: Average length of haul (ALH) in iron ore trades (Fearnleys)

Quarterlyimports(milliontons)

140 120 100 80 60 40 20

2008ͲQ1

2007ͲQ1

2006ͲQ1

2005ͲQ1

2004ͲQ1

2003ͲQ1

2002ͲQ1

2001ͲQ1

2000ͲQ1

1999ͲQ1

1998ͲQ1

1997ͲQ1

1996ͲQ1

1995ͲQ1

1994ͲQ1

1993ͲQ1

0

Figure 35: Quarterly import of iron ore in China 1993-Q1- 2008-Q3 (Clarksons, 2008)

Coal Coal is a commodity with two main uses: Power generation and steel production. It is also important in the production of cement and has several other industrial uses. Coal has also been used for ages as a domestic fuel. Coal is a commodity with many names that are closely connected either to the use of the coal or the quality of the coal. Coal is basically peat that has been buried for million of years 31

Part I - Shipping in the Global Economy subjected to high temperatures and high pressure. The quality of the coal has to do with its ‘organic maturity’. The ultimate coal is known as anthracite and has a carbon content of more than 92% and virtually no impurities. This coal can be hard to ignite, but eventually it burns without any smoke. On the other end of the scale we have a less hard type of coal, known as brown coal. It is beyond the scope of this section to go into great detail about coal as such, but Table 5 offers a simple summary of coal types and their uses, including some percentage estimates of their relative supply in the world. Browncoal(47%) Lignite(17%) SubͲbitumenous(30%) 



Powergeneration

Powergeneration/ Cement

Hardcoal(53%) Bitumenous(52%) Metallurgical/ Steamcoal Cokingcoal Powergeneration/ Iron&steel Cement

Anthracite(1%)  Smokelessfire

Table 5: A simplified classification scheme for coal (World Coal Institute)

1994(%)

1994Total

5.8 40.7 0 Ͳ 20.8 6.1 0 43.2 23.6 140.3 18.6 79.7 20.8

2006(%)

9.0 103.2 Ͳ 0 20.7 9.2 Ͳ 31.6 3.3 177.0 23.5 117.6 30.7

2006Total

7.4 14.3 1.2 3.7 0.2 0.4 0.2 1.7 0.6 29.8 4.0 16.9 4.4

Others

6.4 5.5 13.6 5.7 2.1 19.7 2.9 5.6 3.8 65.2 8.6 47.7 12.4

OtherFarEast

4.3 3.1 4.7 2.5 0 1.8 0.5 8.5 0.1 25.6 3.4 22.3 5.8

Japan

SouthAmerica

14.0 19.7 36.2 17.6 0.4 34.9 12.0 7.4 2.6 144.9 19.2 69.9 18.2

OtherEurope

From/To NorthAmerica Australia SouthAfrica SouthAmerica China FSU Oth.therEurope Indonesia Others 2006Total 2006(%) 1994Total 1994(%)

Mediterranean

UK/Cont

For transportation purposes, the quality of the coal is not a consideration, but when making analyses of the coal market, it is important to know the various uses of coal and where the different qualities are mined. In general one could say that Asia and Africa have relatively more hard coals than brown coals, while Europe has more brown coals, as do USA. Table 6 describes the structure of coal trades in 2006, with comparative totals for 1994. As for iron ore, Australia is the dominant player in coal trades. Historically, USA used to be the second largest exporter, but in later years, Indonesia has expanded their export of coal dramatically, soon to rival Australia as a leading exporter. USA is currently on level with the other 3rd-tier countries like South Africa, China and the Former Soviet Union at a level about 1/3 of the market share 12-15 years ago.

5.2 52.1 6.9 87.3 22,8 52.1 238.7 31.7 130.3 34,0 7.1 62.8 8.3 53.7 14,0 27.7 57.3 7.6 21.7 5,7 17.4 61.7 8.2 24.3 6,3 1.6 73.8 9.8 14.8 3,9 0.5 16.2 2.1 19.6 5,1 54.9 152.8 20.3  . 5.0 38.9 5.2 31.6 8.3 171.5 754,4    22.7  100   29.3   383.4  7.7    100

Indonesiawaspartof‘Others’in1994

Table 6: The structure of coal trades 2006, million tons (Fearnleys) (Wijnolst & Wergeland, 1996) 32

Part I - Shipping in the Global Economy

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

900

Milliontons

750 600 450 300 150 0 1961

1967

1972

1977

Coal(tons)

1982

1987

1992

1997

2002

BilliontonͲmiles

On the import side there is less drama. Japan’s market share of over 30% has been gradually reduced, but Japan is still the largest importer. The fastest growth has been in the group of ‘Others’, which in 2006 constituted 23% of all imports, three times as much as in 1994. The development of seaborne trade in coal is shown in Figure 36. The fairly similar development over time for both tons and tonmiles indicates that there is no clear trend in average distances for coal trades, and this is confirmed in Figure 37, where the average has been around 5000 nm for the period in question. Just like iron ore, coal has been growing fast after 2002. Each of the commodities accounts for around 800 million tons per year, with iron ore generating more ton-miles because of longer ALH.

2007

Coal(tonͲmiles)

Figure 36: Development of coal shipments 1962-2007 (Fearnleys)

Grain The seaborne trades in grains naturally follow seasonal variations in different parts of the world. The main source of unexpected trade flows often follow after crop failures. Grain trades are, therefore, sometimes quite unpredictable, yet generally follow a fairly stable pattern. Table 7 shows main grain trades in 2006, with comparable figures for 1994. Note that in this table the exporters are on top of the table, the importers are identified on the left. The Far East represents 36% of total imports and is by far the largest import region. Within this region, Japan is playing a steadily decreasing role relatively speaking Japan imported about the same amount - 30 million tons - in 2006 as for 1994. Europe and the Americas (both North and South) are the second-tier importers with close to 20% each. On the export side, the Americas dominate with about 75% of total exports, about 8% more than in 1994, but with South America contributing much more in 2006 - this region accounted for 30% of exports in 2006, as opposed to 10% in 1994. The time development of grain trades is illustrated in Figure 38, together with the development of world population. As can be seen, the volumes of the market follow the overall trend of world population, albeit with lots of variations.

33

Part I - Shipping in the Global Economy

Averagelengthofhaul(thousandnm)

7 6 5 4 3 2 1 0 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007

2006(%) 1994Total 1994(%)

632 2,367 0 6,100 1,871 8,598 548

14,215 18,109 1,760 13,100 1,298 9,423 4,188

122,997

21,878

97,702

20,116

62,093

37.9 91,811 49.8

6.7 21,267 11.5

30.1 19,252 10.4

6.2 16,046 8.7

19.1  35,978  19.5 

1994(%)

36,557 6,515 14,920 6,619 586 31,777 728

1994Total

2,533 2,936 6,536 4,006 1,830 3,998 39

2006(%)

Others

Australia

SouthAm.

5,367 14,900 37,779 3,536 24,436 33,371 3,608

2006Total

To/From: Europe Africa Americas IndianOcean Japan Oth.FE Others 2006Total

Canada

USA

Figure 37: Average length of haul in coal trades, 1962-2007 (Fearnleys)

59,302 44,827 60,995 33,361 30,021 87,167 9,111

18.3 13.8 18.8 10.3 9.2 26.8 2.8

26,707 25,262 33,774 17,540 30,871 44,493 5,707

14.5 13.7 18.3 9.5 16.7 24.1 3.1

324,784   





100 

 184,354 



100

Table 7: The structure of grain trades 2006, thousand tons (Fearnleys)

34

350

7

300

6

250

5

200

4

150

3

100

2

50

1

0

0

1962

1967

1972

1977

1982

1987

1992

Graintrade

1997

2002

Worldpopulation(billionpeople)

Graintrade(milliontons)

Part I - Shipping in the Global Economy

2007

Wordpopulation

Figure 38: The development of grain trades (Fearnleys) (World Bank, 2008)

Bauxite, alumina and phosphate rock

 1,775  0  0 1,775 3.7

    1,050 800 1,850 3.9

 0  0 9,100 626 9,726 20.3

450 18,167 5,732 6,676 11,594 5,260 47,879 

2006(%)

2006Total

 4,572 5,732 4,743 450 400 15,897 33.2

Others

450 11,820 0 1,933 994 3,434 18,631 38.9

Japan

North America

From/to: Mediterranean Africa Jamaica Oth.Americas Asia Australia 2006Total 2006(%)

Other Europe

UK/Cont

The 5 main bulk commodities described above account for about 75% of all seaborne transportation work. There are, however, a multitude of other bulk commodities that do play an important role, particularly for smaller bulk carriers. The next ‘tier’ of bulk commodities are bauxite and alumina, which are the primary input to the aluminium industry and phosphate rock, which provides primary input in the production of fertiliser. Table 8 shows the main bauxite trades

0.9 37.9 12.0 13.9 24.2 11.0  100

Table 8: Main bauxite trades 2006, thousand tons (Fearnleys) Although Australia is by far the biggest bauxite mining country in the world, it is not the biggest exporter, mainly because it refines the bauxite to alumina as shown below. Africa, particularly Guinea, accounts for almost 40% of exports in 2006. Jamaica also has a substantial bauxite exports. Europe and North America absorb over 70% of the exports and is totally dominating on the import side. 35

Part I - Shipping in the Global Economy

 0 685 1,576 5.2

2006(%)

841 0

Japan 0 0 0 201 800 4,250 644 5,895 19.4

0 1,106 1,592 0 2,973 673 6,343 20.8

2006Total

880  600 1,412 2,177 150 0 1,203 6,421 21.1

1,469  670 3,814 4,678 1,399 15,031 3,377 30,438 

2.2 12.5 15.4 4.6 49.4 11.1

Others

50 

N.Am.

Oth.Eur.

From/to Mediterranean Africa Jamaica OtherAmerica Asia Australia Others 2006Total 2006(%)

UK/Cont

Alumina, or aluminium oxide, is closely related to bauxite, as the former is produced from bauxite with the so-called Bayer process. Alumina is for 90% used to produce aluminium. The alumina trades are shown in Table 9.

539 70 455 709 449 7,808 173 10,202 33.5 

100

Table 9: Main alumina trades in 2006, thousand tons (Fearnleys)

Tofrom UK/Cont Med Oth.Eur. Americas Japan OtherAsia Australia Others 2006Total 2006(%)

699 1,887 2,078 4,393 157 3,296 394 604 13,506 45.7

232 140 384 675 149 3,126 24 344 5,075 17.2

879 283 868 139 159 4,363   6,691 22.6

806  1352   461   2,619 8.9

     613 44  6,57 2.2

  62 1 281 649 25  1,019 3.4

2,616 2,310 4,744 5,209 746 12,508 487 948 29,567 

2006(%)

2006Total

Others

PacificIsl.

FSU

N.East/R.Sea

OtherAfrica

Morocco

Australia is by far the biggest exporter with about half of all export, while Africa has a very small export, mainly reflecting that there is little refining of bauxite taking place in Africa - instead Africa exports this raw material to other regions. On the import side, Europe and North America accounts for about 47% of all alumina imports, while the group others accounts for 33%. A substantial trade hidden in that number is the imports to China from Australia. The seaborne trades with phosphate rock are summarised in Table 10 and one should note that the exporters are listed across the top and importers down on the left side of the table.

8.8 7.8 16.0 17.6 2.5 42.3 1.6 3.2  100

Table 10: Main phosphate rock trades in 2006, thousand tons (Fearnleys) 36

Part I - Shipping in the Global Economy Morocco is the undisputed leading exporter with almost half of total exports. Behind the terms ‘other Africa’ and ‘Near East/Red Sea’ are mainly Tunisia and Jordan so these three countries have more than 80% of world exports of phosphate rock. The majority of this export ends up in Asia (42%) or Europe (35%).

Minor bulks The commodities described above are normally called the major bulks. There are, however, a multitude of other commodities that are shipped in bulk carriers, the so-called minor bulks. Information about the trade in these commodities is harder to obtain, and often one gets a fragmented picture. Table 11 and Table 12 show all the reported minor bulk trades with a volume exceeding 1 million tons for 2005 and 2006 as reported by Fearnleys. The word ‘trade’ is used in a broad sense here, some of the trades could be total import to a country or total exports from a country, thus involving more than one trade. The purpose is not to give a complete picture of the minor bulks, but to get a flavour of what kind of commodities are behind the term and what countries that are involved in the various trades. STEELPRODUCTS ChinaͲWorld CISͲWorld ECͲ3rdc. KoreaͲWorld BrazilͲWorld TaiwanͲWorld USAͲWorld Japan–SouthKorea JapanͲChina JapanͲThailand Japan–OtherAsia JapanͲTaiwan Japan–NorthAmerica JapanͲOthers COPPER ChileͲJapan OthersͲJapan ZINC AustraliaͲKorea CHROME WorldͲChina

2006 50,0 32,2 24,3 18,1 12,7 9,7 9,3 8,5 6,3 3,5 3,4 3,3 2,3 1,7 

2005 27,2 31,3 30,9 15,5 12,4 8,5 9,5 7,5 5,9 3,9 3,0 3,3 1,7 1,0 

2,0 1,1 

1,9 2,0 

1,4 

0,6 

4,3

3,0

IRON&STEELSCRAP USAͲWorld UKͲWorld JapanͲWorld AustraliaͲWorld CanadaͲWorld RussiaͲWorld WorldͲChina World–SouthKorea NICKEL IndonesiaͲJapan NewCaledoniaͲJapan Philip.ͲJapan SULPHUR CanadaͲChina SaudiͲAfrica CanadaͲLat.Am UREA FSUͲAsia M/E–NorthAmerica M/EͲAsia M/EͲOceania

2006 14,0 7,4 7,7 1,3 4,0 9,8 5,4 5,6 

2005 13,0 6,1 7,6 0,9 3,1 12,7 10,1 6,8 

2,2 1,0 1,0 

2,2 1,2 1,3 

3,6 1,1 1,0 

4,0 1,3 0,9 

3,2 1,4 5,8 1,2

2,0 1,2 5,2 1,2

Table 11: Selected minor bulk trades 2005/06, million tons (Fearnleys)

37

Part I - Shipping in the Global Economy CEMENT ChinaͲWorld JapanͲWorld GreeceͲWorld SpainͲWorld POTASH FSUͲChina FSUͲAsiaexChina CanadaͲAsiaexChina Canada–LatinAmerica FSU–LatinAmerica Germany–LatinAmerica CanadaͲChina JordanͲAsia IsraelͲAsia GermanyͲAsia MANGANESEORE WorldͲChina SALT MexicoͲJapan AustraliaͲJapan AustraliaͲKorea

2006 36,1 10,1 3,4 1,5  5,0 3,8 3,5 2,2 2,2 1,2 1,2 1,2 1,1 1,0  6,2  4,4 3,7 1,3

2005 22,2 10,2 3,8 1,4  5,7 4,7 3,6 2,1 2,1 1,1 2,3 1,3 1,7 0,7  4,6  3,6 4,0 1,4

PETROLEUMCOKE USAͲOthers USAͲEurope USAͲJapan ChinaͲWorld COKE ChinaͲWorld JapanͲWorld OILͲCAKES S.AmericaͲEU LIMESTONE JapanͲTaiwan JapanͲFEexTaiwan GYPSUM MexicoͲUSA ThailandͲJapan TAPIOCA ThailandͲChina QUARTSANDSILICASAND AustraliaͲJapan 

2006 11,2 10,0 3,1 2,4  14,5 2,0  22,8  1,7 1.3  2,5 1,0  3,8  1,2 

2005 10,6 11,0 3,4 2,1  12,9 1,6  21,7  1,8 0.9  2,5 1,0  2,8 2,8 1,2  

Table 12: Selected minor bulk trades 2006, million tons (Fearnleys) It could be noted that China is quite dominating in several of the trades, e.g. steel products, chrome, sulphur, cement, potash, manganese ore, coke and tapioca.

Container trades Although the major bulk commodities account for around three-thirds of all seaborne transportation, it could be argued that the container segment is of equal importance. It is no doubt that the success of container shipping is one of the primary reasons for the rapid globalisation of the world economy. High value commodities can today be shipped from one end of the globe to the other without contributing much to the final price in terms of transportation costs - they are for all practical purposes negligible. From a statistical point of view there are several problems with container shipping, however. First of all it is virtually impossible to link container trades with cargo information - there is no statistical system that properly can document what is inside all the containers in a way that container statistics can be turned into commodity statistics. One can, however, count the boxes, but not totally without difficulty, as there are many types of boxes in the market. The standard ISO container is a box with external dimensions: 20 feet long, 8 feet wide and 8 feet, 6 inches high. This is the box size that is referred to by the standard measurement in container shipping, the so-called TEU - Twenty-foot 38

Part I - Shipping in the Global Economy Equivalent Unit. All other containers will in principle be converted to this measure. A 40 feet long container - probably the most popular one in use - will thus count as one FEU or two TEUs.2 Then comes the problem of the very counting itself. A number of questions need answers: x x

x

x

Who should count the boxes? (shipper, shipowner, port, customs) When should the boxes be counted? o When lifted on board? o When unloaded from the ship? o Each time it is lifted and moved? How many times should they be counted? o Just once? o In both the port of loading and unloading? o For every lift? Should empty boxes also be counted?

No standard has been developed for this, so there are several types of statistics available. When port statistics is the basis for data, the boxes will be counted several times, at least twice. In ports with a lot of transhipments, boxes will be counted twice in the same port. So if the unit of measure in a data set is ‘million TEUs lifted’, one should expect a number of 3-4 times the number of boxes actually in the market. When double-counting has been eliminated, the unit of measure will be ‘million TEUs’ and this will normally include the empty containers. Then some source may report ‘loaded units handled’, where both double-counting and empties are accounted for and finally one can find sources where the TEUs are converted into tons, using estimates of weight. As if these are not enough alternatives, one could also use fleet deployment statistics, i.e. how much TEU capacity that is available on a specific route as a measurement of the size of a particular trade. Then the final problem is that even if one agrees to the method of counting and the measurement to use, one still could end up with different estimates for the same market. Comparing the estimates from companies like Drewry, Clarkson and Dynamar on total million TEUs for the year 2006, they vary from 110.2 to 128,3 million TEU. It is beyond the scope of this section to have an opinion about what are the ‘right’ figures. In practice the choice of data will be made either based on trust or on pure convenience. In the following, both Drewry figures and Clarkson figures will be used. Table 13 sets out the structure of world container traffic. The figures in Table 13 indicate that the incidence of empties has been fairly stable around 21%. Table 14 shows the development of empties and transhipment

2

Thereisafairlyaccuratedescriptioninwikipedia(http://en.wikipedia.org/wiki/Containerization)

39

Part I - Shipping in the Global Economy  Year 2000 2001 2002 2003 2004 2005 2006

Porthandling TEU Full Empty 236.3 186.2 50.1 248.3 193.9 54.4 278.5 219.9 58.6 314.8 249.4 65.4 361.6 287.3 74.3 399.0 316.6 82.4 440.4 348.3 92.1

PortͲtoͲport Full Empty 139.1 37.5 144.5 40.5 162.2 43.2 184.2 48.3 211.4 54.7 233.3 60.7 256.6 67.9

Transhipment Full Empty 47.0 12.7 49.4 13.8 57.7 15.4 65.2 17.1 75.9 19.6 83.3 21.7 91.6 24.2

Worldtraffic TEU 69.6 72.3 81.1 92.1 105.7 116.6 128.3

Annualgrowth (%)  3.9% 12.2% 13.6% 14.8% 10.3% 10.0%

Table 13: World container traffic and its components, million TEUs (Drewry, 2007)  Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

TEU 88.1 96.6 106.3 117.0 131.3 145.4 158.2 176.3 190.8 210.4 236.3 248.3 278.5 314.8 361.6 399.0 440.4

Porthandlings Full 70.2 77.6 85.2 94.1 107.2 118.7 127.7 142.1 149.5 165.9 186.2 193.9 219.9 249.4 287.3 316.6 348.3

Empty 17.8 19.0 21.1 23.0 24.2 26.8 30.5 34.3 41.3 44.5 50.1 54.4 58.6 65.4 74.3 82.4 92.1

Shareempty (%) 20.2% 19.7% 19.9% 19.6% 18.4% 18.4% 19.3% 19.4% 21.6% 21.1% 21.2% 21.9% 21.0% 20.8% 20.5% 20.7% 20.9%

Transhipment TEU (%) 15.5 17.6% 18.1 18.7% 20.4 19.2% 23.7 20.3% 27.4 20.8% 31.2 21.5% 35.2 22.2% 40.6 23.0% 45.1 23.6% 51.7 24.6% 59.7 25.3% 63.3 25.5% 73.0 26.2% 82.3 26.2% 95.5 26.4% 105.0 26.3% 115.8 26.3%

Table 14: Development of empties and transhipment handling 1990-2006, million TEUs (Drewry, 2007) The more or less stable share of empties seems almost paradoxical, because when looking at the main routes, there are large imbalances and these are increasing, which means that more and more boxes need to be repositioned. This can be clearly seen when examining the various trades. When it comes to trade routes, the container business has adopted its own terminology. There are typically 3 main routes - the East-West, the North-South and the intra-regional. For the East-West routes, trades are either Eastbound or Westbound, and for the North-South, the trades are either Northbound or Southbound. So, as examples, the route from Europe to the Far East will be an Eastbound East-West route, while

40

Part I - Shipping in the Global Economy the route from Latin America to Europe will be a Northbound North-South route. Table 15 to Table 17 show the details of the routes on main trades. Tradearea Transpacific Transatlantic EuropeͲFarEast EuropeͲMidͲEast N.AmericaͲMidͲEast FarEastͲMidͲEast EuropeͲSAsia N.AmericaͲSAsia FarEastͲSAsia MidͲEastͲSAsia TotalEastͲWest

Eastbound 13,780 2,433 5,058 2,135 360 550 700 310 1,245 100 

Westbound 5,361 3,567 11,277 760 200 3,500 1,100 825 1,680 600 

Imbalance 8,419 1,134 6,219 1,375 160 2,950 400 515 435 500 

%oftrade 44.0 18.9 38.1 47.5 28.6 72.8 22.2 45.4 14.9 71.4 

Totaltrade 19,141 6,000 16,335 2,895 560 4,050 1,800 1,135 2,925 700 55,541

%EastͲWest 34.5 10.8 29.4 5.2 1.0 7.3 3.2 2.0 5.3 1.3 100

Table 15: Container trades on the East-West route 2006, thousand TEUs (Drewry, 2007) A striking feature of the East-West route is exactly the big imbalances on almost every trade. Far East is exporting almost 18 million more containers than they are importing. This obviously creates a challenge in the repositioning of empty boxes. Not surprisingly, the two dominant trades are the ones between North America and the Far East and between Europe and the Far East and together they represent almost two-thirds of the East-West trades and around 28% of all container traffic. Trade EuropeͲLatinAmerica EuropeͲAfrica EuropeͲAustralasia N.AmericaͲLatinAmerica N.AmericaͲAfrica N.AmericaͲAustralasia FarEastͲLatinAmerica FarEastͲAfrica FarEastͲAustralasia ME/SAsiaͲSouth SouthͲSouth TotalNorthͲSouth

Southbound 1,200 1,700 450 2,250 250 275 1,150 1,550 2,050 480 355 

Northbound 1,750 900 186 2,450 189 210 1,200 975 1,100 630 355 

Imbalance 550 800 264 200 61 65 50 575 950 150 0 

%oftrade 18.6% 30.8% 41.5% 4.3% 13.9% 13.4% 2.1% 22.8% 30.2% 13.5% 0.0% 

Total 2,950 2,600 636 4,700 439 485 2,350 2,525 3,150 1,110 710 21,655

%ofroute 13.6 12.0 2.9 21.7 2.0 2.2 10.9 11.7 14.5 5.1 3.3 100.0

Table 16: Container trades on the North-South route 2006, thousand TEUs (Drewry, 2007) The imbalances are less serious on the North-South trades (on average 17% as opposed to 40% on the East-West trades). The biggest trade is between North and South America and all trades together constitute about 17% of the world container traffic.

41

Part I - Shipping in the Global Economy Region Asia Europe NorthAmerica MidͲEast LatinAmerica SouthAsia Africa Australasia TotalIntraͲRegional

thousandTEU 37,222 9,478 1,595 393 1,084 225 635 492 51,124

Share(%) 72.8 18.5 3.1 0.8 2.1 0.4 1.2 1.0 100

Table 17: The inter-regional container trades 2006, thousand TEUs (Drewry, 2007) There are two interesting points regarding the inter-regional trades. First of all the total size of interregional markets are almost as large as the total East-West trades and secondly the extreme dominance of the inter-Asian market which constitutes almost 75% of all inter-regional markets and this market alone is about the same size as all container trades between Asia and Europe and Asia and USA put together. Table 18 offers some explanation for this. During the decade 1998-2007 container handling has been growing on average 10.8% for the world as a whole. In the less developed Asian countries and in China the average growth rate has been twice that of the average. An average growth rate of 23.1% implies that the inter-regional market in China is 8 times as big in 2007 as it was in 1998. It is also interesting to note that Japan is the area with the lowest growth of all the regions. Japan does no longer play the dynamic role it used to play for international shipping, the focus is now on China. Region

Containerhandlinggrowth1998Ͳ2007(%)

TotalEurope

7.8

NorthͲWest Mediterranean

7.9 7.6

TotalAsia Japan NICs China Other TotalNorthAmerica WestCoast EeatCoast Other Allothers Millionteulifts Millionteu

13.7 6.1 7.4 23.1 21.0 7.6 6.4 8.6 6.9 8.5 10.8 9.5

Table 18: Growth in container lifts in various regions of the world, 1998-2007 (Clarksons, 2008)

42

Part I - Shipping in the Global Economy

Summary of main commodities in seaborne trade The commodity distribution in seaborne trade, measured in tons transported, is summarised in Figure 39 and Figure 40 for the years 1987 and 2007. From the figures one can see that container, coal and LNG have become visibly larger and grain, phosphate rock and other dry bulk visibly smaller. For the others there are more moderate changes. The overall conclusion is that international seaborne trade is totally dominated by a few liquid and dry bulk commodities, and will remain being so for a long time. LPG,1% LNG,1% Oilprod,12%

Ironore,10% Coal,9%

Grain,7% Baux/alum,2% Phosrock,1%

Crudeoil,32%

Container,6%

Otherdry,18%

Figure 39: The commodity distribution in seaborne trade in tons 1987 (Clarksons, 2008) LPG,1% LNG,3% Ironore,11%

Oilprod,11%

Coal,11%

Grain,4% Baux/alum,1% Phosrock,0%

Crudeoil,29%

Container,18 % Otherdry,11%

Figure 40: The commodity distribution in seaborne trade in tons 2007 (Clarksons, 2008) 43

Part I - Shipping in the Global Economy It could be interesting to examine if the development of demand for the various main commodities are highly correlated or not. By looking at the percentage growth in ton-miles for all the years 1963-2007 and estimating the pair-wise linear relationship among the 5 main plus the group other dry bulk, the conclusion is very clear: there are no strong correlations among any pair of these variables, which means that they all are subject to segment specific influences more important than general business cycles. This is important to keep in mind when analysing a particular segment. The regression results are summarised in Table 19. A few relations (1,6,8) show fairly high, positive coefficients, but the overall goodness of fit (R2)3is very poor for all regressions, for many (3,7,8,9,13,14,15) there is no sign of correlation at all.  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

%p.a.growthintonͲmilesfor: Crudeoil Crudeoil Crudeoil Crudeoil Crudeoil Oilproducts Oilproducts Oilproducts Oilproducts Ironore Ironore Ironore Coal Coal Grain

CorrelatedwithgrowthinTMfor: Oilproducts Ironore Coal Grain Otherdrybulk Ironore Coal Grain Otherdrybulk Coal Grain Otherdrybulk Grain Otherdrybulk Otherdrybulk

Coefficient4 0.14 0.45 0.07 0.18 0.16 0.46 Ͳ0.19 0.61 0.05 0.36 0.38 0.23 Ͳ0.03 0.03 0.04

R2  0.08 0.28 0.01 0.03 0.22 0.07 0.01 0.09 0.004 0.13 0.10 0.28 0.0007 0.004 0.01

Table 19: Correlation of growth for dry bulk commodities 1963-2007 (Fearnleys) Finally, it could be interesting to compare the various commodities as to recent growth trends. In Figure 41 - Figure 43 the seaborne trade in tons for the various commodities have been converted to index number to facilitate comparisons over time. Figure 41 shows the development for dry bulk. As can be seen, steam coal and iron ore have been growing much faster than other dry bulk commodities in this period. Phosphate rock shows negative growth. Figure 42 shows the development for liquid bulk, where LNG has been growing twice as fast as the other segments. Finally Figure 43 shows the three fastest growing segments against the main groups. The growth rates for seaborne trade in tons for the period 1986-2007 have on average been: containers (9.4%), LNG (7.7%), steam coal (6.9%), iron ore (4.4%), major bulks (4%), minor bulks (2.9%), and total seaborne trade (3.8%).

The R2 is basically the square of the correlation coefficient and indicates the proportion of variability in the dependant variable that is explained by the underlying linear relation with the independent variable (column 3). An R2 of 0.28 thus indicatethatonly28%ofthevariabilitycanbeaccountedforbytheunderlyingmodel.

3

4Thecoefficienthereistheregressioncoefficientinalinearequationwherethegrowthinthevariableinthefirstcolumn isafunctionofthegrowthinthevariableinthesecondcolumn

44

Part I - Shipping in the Global Economy

Index(1986=100)

450 400 350 Ironore

300

Cokingcoal

250

Steamcoal

200

Grain

150

Baux./alum. 100 Phos.rock 50 0 1986

1991

1996

2001

2006

Figure 41: Growth in dry bulk commodities 1986-2007 (Clarksons, 2008)

Index(1986=100)

600 500 400 Crudeoil 300

Oilproducts LPG

200

LNG 100 0 1986

1991

1996

2001

2006

Figure 42: Growth in liquid bulk commodities 1986-2007 (Clarksons, 2008)

45

Part I - Shipping in the Global Economy

Index(1986=100)

800 700 600

Container

500

LNG Steamcoal

400

Ironore 300

Majorbulks

200

Minorbulks

100

Total

0 1986

1991

1996

2001

2006

Figure 43: Growth in selected commodity groups 1986-2007 (Clarksons, 2008)

1.5. Endnote: Shipping and geopolitics revisited This chapter started by pointing out how shipping and ship technologies historically have influenced world politics and trade regimes. This endnote takes a look at the reverse situation: How political events have influenced the shipping industry. Figure 44 shows the development of earnings for a Panamax bulk carrier for the period 1947-2002. The volatility of earnings is quite substantial, but most of the extreme fluctuations are all associated with events in the world economy of a rather unpredictable nature. Most of these events are self explanatory. The three OPEC events may need some clarification: x

OPEC I This was the embargo that OPEC initiated on October 17, 1973 against those nations that had supported Israel in its conflict with Syria, Egypt and Iraq. This hit the Western world hard and put an abrupt end to some very prosperous shipping years.

x

OPEC II The second oil price shock in 1979/80 had an interesting side effect in that steel producers started to convert from oil to coal, which was relatively cheaper. This initiated a surge in the demand for coal that in the short run could only be met by US supply out of Hampton Roads. A combination of new dry bulk demand and congestion problems in Hampton Roads sent dry bulk freight rates to new heights, quite the opposite of what happened to the tanker market.

x

OPEC III In 1985, Saudi Arabia stopped being the only country within OPEC that was willing to keep on cutting quotas to try to keep the oil price high. The result was a drop in oil prices that stimulated the shipping markets.

46

Part I - Shipping in the Global Economy

450

OPECII++

400 MiddleEastcrisis

Index(1947=100)

350 300

Sept11

OPECI

KoreanWar

250 200 150 OPECIII

100 50 Closure andreopeningofSuez

0 1945

1955

1965

ArabͲIsraeliwars

1975

Invasion inKuwait Asiancrisis

1985

1995

2005

Figure 44: Political events and earnings of Panamax vessels 1947-2007 In more recent years, the financial crisis in Asia in 1997 had a clear negative impact on the markets as did the terrorist attack in New York on September 11, 2001. At the time of writing, the world is seeing another financial crisis looming. It remains to be seen how that will affect shipping. One thing is certain, however, and that is that shipping will continue to be affected by events in the world economy much more than any other sector, simply because it is so integrated in the global economy through its role as the primary carrier of world trade.

47

Part I - Shipping in the Global Economy

2.

GLOBAL SHIPBUILDING DYNAMICS

Maritime industries have for centuries been part of the global economy and they have to face new and low-cost competitors over and over again. In the past, their competitive position was to a large extent determined by technological innovation, exemplified by the two shifts in propulsion, from wind power to steam engine power and from steam engine power to diesel engine (internal combustion) power. In the second half of the 20th century, the economic positions of the traditional maritime countries were challenged by the newly industrialised countries. Shipbuilding is one of the maritime industries which suffered most from the new competition of countries like Japan and later on South Korea and currently China. Consequently, the labour force at West-European shipyards declined dramatically between 1975 and 2002 as Table 20 illustrates. Labourforce Belgium Croatia Denmark Finland France Germany Greece Ireland Italy

1975 10,245 n/a 18,900 18,000 40,354 105,988 10,159 1,633 36,260

2002 n/a 10,957 3,360 6,150 6,800 23,300 3,000

Labourforce Netherlands Norway Poland Portugal Romania Spain Sweden UK

1975 39,850 29,000 n/a 17,100 47,000 n/a 31,500 55,999

2002 9,000 5,266 20,132 2,350 20,400 7,876 Ͳ 7,000

461,988

136,029

13,438 Total

Table 20: European shipyard labour force 1975 and 20025 The data for base year 1975 for the countries Croatia, Poland and Spain are not available. If these numbers would have been added, then the reduction in the labour force at the European shipyards would have even exceeded 70% over this period. The displacement of so many workers created major social and political problems. However, the loss (fall) for European shipbuilding countries meant a gain (rise) for other countries, in particular in Japan and South Korea. These countries are in turn challenged by China. And so the cycle will continue to repeat itself. Structural changes have not only taken place in world shipbuilding, but also in world shipping (Chapter 3). The analysis is divided into two time periods: 1947-2002 and 2003-2008. Without the historical perspective of the post-WW2 period, the longer term dynamics of the shipbuilding market will be difficult to grasp.

5

 These figures include repair and new building work forces at European shipyards. (AWES, 2003) http://www.awesͲ shipbuilding.org)

48

Part I - Shipping in the Global Economy

2.1. Global shipbuilding 1947-2002

40

4000

35

3500

30

3000

25

2500

20

2000

15

1500

10

1000

5

500

0

0

1947

1957

1967 GT

1977

1987

Numberofships

Grosstonnage(millionGT)

The Shipping Statistics Yearbooks of the Institute of Shipping Economics and Logistics (ISL) in Bremen provide a unique and consistent source of data, upon which the following graphs are based. Figure 45 shows the world shipbuilding output over the 55-year period from 1947 to 2002 amounting to 911 million GT. During this period 108,000 ships were built. On average almost 2,000 ships per annum, with a peak production of 3,000 in the early 1970s and the rather stable number of 1,500 since the mid-1980s. 6

1997

Numberofships

Figure 45: World shipbuilding output 1947-2002 This section discusses the development in the major shipbuilding nations of the post-WW2 period. The output of the major shipbuilding nations over the period 1961-2002 was 840 million GT, and almost 89,500 ships. Figure 46 to Figure 48 illustrate the development over time of the shipbuilding output of the Netherlands, Norway, Denmark, Germany, France, Spain, United Kingdom, Italy, Finland, Sweden, Poland, United States, Japan, South Korea and China. A summary over the period is provided in Table 21. The shipbuilding output of The Netherlands over the period 1961-2002 amounted to 14 million GT, and consisted of almost 4,300 ships. The share of the Netherlands measured in GT is 1.7% and 4.8% in number of ships. After the rapid expansion in the 1970s, the contraction and restructuring in the Netherlands was painful and fast. Consequently, a new industry model emerged for the shipyards. The yards became the assembly plant where many subcontractors contributed to the construction. A flexible and low-cost shipbuilding and marine equipment sector was the end result which specialises in relatively small, but high-tech ships. It is remarkable that the Dutch shipyards are able to produce such a relatively high percentage of the number of ships. 6

Theanalysiswaspublishedearlierin(Wijnolst,Jenssen,&Sødal,2003)

49

Part I - Shipping in the Global Economy

180

1.6

160

1.4

140

1.2

120

1

100 80

0.8

60

0.6 0.4

40

0.2

20 1981 GT

1991

300

2.5

250

2

200

1.5

150

1

100 50

0

2001

1961

0 1971

Numberofships

1981 GT

Numberofships

160

1.8

180

1.6

140

1.6

160

1.4

120

1.4

140

1.2

120

1.2

100

1 80 0.8 60

0.6 0.4

40

0.2

20

1961

Grosstonnage(millionGT)

1.8

0

0 1971

1981 GT

1991

1

100

0.8

80

0.6

60

0.4

40

0.2

20

0 1961

2001

0 1971

Numberofships

1981 GT

1

100

0.8

80

0.6

60

0.4

40

0.2

20

0

0 1971

1981 GT

1991 Numberofships

2001

Grosstonnage(millionGT)

120

1961

1991

2001

Numberofships

Spain

1.2

Numberofships

Denmark Grosstonnage(millionGT)

2001

France

Numberofships

Grosstonnage(millionGT)

Norway

1991

Numberofships

1971

350

3

2.5

250

2

200

1.5

150

1

100 50

0.5

0

0 1961

Numberofships

1961

400

0.5

0

0

4 3.5

Numberofships

1.8

Grosstonnage(millionGT)

Germany

Numberofships

Grosstonnage(millionGT)

Netherlands

1971

1981 GT

1991

2001

Numberofships

Figure 46: Shipbuilding output by country 1961-2002 The shipbuilding output of Norway over the period 1961-2002 amounted to 15 million GT, and consisted of 3,350 ships. The Norwegians are like the Dutch clearly specialists in smaller ships. The share of Norway in world output measured in gross tonnage is 1.8% and 3.7% in number of ships. After the restructuring following the second oil crisis in 1979, a number of yards has been struggling

50

Part I - Shipping in the Global Economy to maintain a critical mass in shipbuilding. These yards have specialised in offshore ships, which was triggered by the phenomenal growth of the Norwegian offshore sector since the oil crises. The shipbuilding output of Denmark over the period 1961-2002 amounted to 21.2 million GT, and consisted of 1,700 ships. The share of Denmark in world output measured in gross tonnage is 2.5% and 1.9% in number of ships. In 2002 Danish shipbuilders produced only a few ships and those were mostly for a captive owner. The declining trend in output since 1973, especially measured in numbers, raises serious questions about the shipyard viability in this country in the near future. The shipbuilding output of Germany over the period 1961-2002 consists of two statistics: before 1990 and thereafter, when Eastern Germany was reunited with Western Germany. In the statistics the East German output is added as from 1966 to 1989. The total output amounted to 52.6 million GT (of which 7.9 million for Eastern Germany), and consisted of 6,950 ships. The share of Germany of world output measured in gross tonnage is 6.3% and 7.8% in number of ships. The shipbuilding output of France over the period 1961-2002 amounted to 19.6 million GT, and consisted of 1,840 ships. The share of France of world output measured in gross tonnage is 2,3% and 2% in number of ships. France became a leading shipbuilding country in the early-1970s, but had to restructure its yards when new tanker orders dried up in the aftermath of the second oil crisis. Now it maintains a certain position in cruise vessels. The shipbuilding output of Spain over the period 1961-2002 amounted to 23.1 million GT, and consisted of 4,820 ships. The share of Spain of world output measured in gross tonnage is 2.8% and 5.4% in number of ships. Spain went, like most of the other European countries through a major restructuring. The extensive government support during this post-oil crisis period has helped to maintain the current shipyard capacity and output. The shipbuilding output of the United Kingdom over the period 1961-2002 amounted to 25.5 million GT, and consisted of 3,420 ships. The share of the UK in world output measured in gross tonnage is 3% and 3.8% in number of ships. The United Kingdom was during the steam era the foremost shipbuilding nation in the world. It was able to make the transition to the diesel engine era and was in 1961 one of the leading shipbuilding nations in the world, with an output of 1.4 million GT and more than 250 ships. The UK has not been able to restructure its merchant shipbuilding industry and in 2002 it almost stopped building merchant vessels. “The end of a once mighty industry”, as a newspaper summarised the situation. The shipbuilding output of Italy over the period 1961-2002 amounted to 20 million GT, and consisted of 1,680 ships. The share of Italy in world output measured in gross tonnage is 2.4% and 1.9% in number of ships. Italy is a country like Spain, where government support has resulted in a bouncing back of shipbuilding output after the tanker boom of the 1970s. In the last decade it increased its output in GT to pre-oil crisis levels. Italy has also succeeded in building many cruise vessels, which is one of the reasons behind the relatively high share on a GT basis. The shipbuilding output of Finland over the period 1961-2002 amounted to 9.4 million GT, and consisted of 1,020 ships. The share of Finland in world output measured in gross tonnage is 1.1% and 1.1% in number of ships. Finland is a particular case in Europe as it was until 1990 to a large extent dependent upon the shipbuilding orders of the former Soviet Union. When these orders stopped, its shipbuilding industry more or less collapsed, although it still is one of the technology leaders in the world. Its relatively high GT share comes from cruise vessel construction. 51

Part I - Shipping in the Global Economy

320

0.5

50

1.4

280

0.45

45

0.4

40

0.35

35

0.3

30

0.25

25

0.2

20

0.15

15

0.1

10

0.05

5

1.2

240

1

200

0.8

160

0.6

120

0.4

80

0.2

40

0

0 1971

1981 GT

1991

0

0

2001

1961

1971

Numberofships

1981 GT

60

1

50

0.8

40

0.6

30

0.4

20

0.2

10

0 1981

1991

90 80

2.5 70 2

60 50

1.5 40 1

30 20

0.5 10

0

GT

Numberofships

3

Grosstonnage(millionGT)

70

1.2

Numberofships

Grosstonnage(millionGT)

1.4

1971

2001

Sweden

Italy

1961

1991

Numberofships

1961

Grosstonnage(millionGT)

1.6

Numberofships

Finland

Numberofships

Grosstonnage(millionGT)

UK

0

2001

0

1961

1971

Numberofships

1981 GT

1991

2001

Numberofships

Poland 120

0.7

100

0.6 80

0.5 0.4

60

0.3

40

Numberofships

Grosstonnage(millionGT)

0.8

0.2 20

0.1 0 1961

0 1971

1981 GT

1991

2001

Numberofships

Figure 47: Shipbuilding output by country 1961-2002 The shipbuilding output of Sweden over the period 1961-2002 amounted to 30.9 million GT, and consisted of 1,270 ships. The share of Sweden in world output measured in gross tonnage is 3.7% and 1.4% in number of ships, which is considerable as hardly any new buildings have been delivered since 1985. Sweden was one of the most successful and innovative shipbuilding countries; the first bulk carrier Cassiopeia was built there in the mid-1950s, it rode the wave of tanker new buildings, and it 52

Part I - Shipping in the Global Economy still is the third largest builder in the world behind Japan and South Korea measured over the 41 years from 1961-2002. The restructuring of the shipyards was not successful and the country missed an alternative like the Norwegians had in the booming offshore industry. Sweden is a country that rose fast as a shipbuilding nation, but fell even faster and dead to the ground like no other country. The shipbuilding output of Poland over the period 1961-2002 amounted to 17.6 million GT, and consisted of 2,260 ships. The share of Poland in world output measured in gross tonnage is 2.1% and 2.5% in number of ships. Poland went through a severe restructuring like all the other countries, but even without massive government assistance it staged a remarkable comeback in the early 1990s after the collapse of the communist world of which it was part. There are a number of European shipbuilding nations not mentioned here, like Belgium and the former Yugoslavia. Belgium has stopped all new buildings a number of years ago, while the former Yugoslavia has fallen apart. Croatia produced in 2002 seventeen ships with a gross tonnage of 417,000 GT. There are four more countries that have been or are relevant in world shipbuilding: United States of America, Japan, South Korea, and China. The shipbuilding output of the United States over the period 1961-2002 amounted to 14 million GT and consisted of 4,750 ships. The share of the USA in world output measured in gross tonnage is 1.6% and 5.3% in number of ships. Shipbuilding output reached a peak of 1.4 million GT during the years of the second oil crisis, but diminished rapidly thereafter and almost became zero in 1990. It picked up a bit in the late 1990s because of special financial arrangement for US built ships and operating in US waters. US shipbuilding was extremely innovative during the WW2 period when it introduced new and highly productive ways to build ships like the Victory’s, the Liberty’s and T2 Tankers. It currently has a large naval shipbuilding industry which is not exposed to world competition. The shipbuilding output of the Japan over the period 1961-2002 amounted to a staggering 365 million GT, and consisted of 31,800 ships or on average 775 ships per annum. The share of Japan in world output measured in gross tonnage is 43.5% (!) and 35.5% in number of ships. In 1961 Japan had already a massive shipbuilding output of 17.2 million GT and 627 ships. It was by far the largest shipbuilding nation, long before the oil tanker boom of the late 1960s and 1970s. Over a forty year period it constructed almost 44% of the world fleet in gross tonnage terms and almost 36% in number of ships. It is amazing that even in 2002 Japan maintained this output share. The reason behind this success is a very innovative drive in production technology; Japan still has the highest shipbuilding productivity and continuously improves its performance. Therefore some countries like South Korea and China had a hard time in competing with this country in spite of their lower factor costs, although they have surpassed Japan since (section 2.2). The shipbuilding output of South Korea over the period 1961-2002 started only in 1973 and amounted to a phenomenal 119 million GT over the remaining 29 years, and consisted of 3,310 ships. The share of Korea in world output measured in gross tonnage is 14.2% and 3.7% in number of ships since it entered the international shipbuilding market in 1973. South Korea has aggressively expanded its shipbuilding capacity and has become the largest shipbuilder in world in 2002. It has been successful by a combination of efficient production techniques and financial engineering. The shipbuilding output of China over the period 1961-2002 started only in the 1980s, but really took off in 1992. The output amounted to 17 million GT and consisted of 1,700 ships. The share of China measured in gross tonnage is 2% and 1.9% in number of ships since it entered the international shipbuilding market in the 1980s. 53

Part I - Shipping in the Global Economy US

Japan 18

1 180 0.8 0.6

120

0.4 60

Grosstonnage(millionGT)

240

1.2

Numberofships

1000 14 12

800

10 600 8 6

400

4 200

0.2

2

0 1961

1200

16

0

0 1971

1981 GT

1991

1961

2001

0 1971

Numberofships

1981 GT

320

14

280

12

240

10

200

8

160

6

120

4

80

2

40 0

0 1971

1981 GT

1991 Numberofships

2001

Grosstonnage(millionGT)

16

1961

2001

Numberofships

China

Numberofships

Grosstonnage(millionGT)

SouthKorea

1991

2.5

250

2

200

1.5

150

1

100

0.5

50

0 1961

Numberofships

Grosstonnage(millionGT)

300 1.4

Numberofships

1.6

0 1971

1981 GT

1991

2001

Numberofships

Figure 48: Shipbuilding output by country 1961-2002 Figure 49 shows the average share of shipbuilding countries in output (measured in GT) over the 41year period, compared to their share in 2002. This clearly illustrates the rise and fall of shipbuilding nations. Figure 50 shows a similar graph for the number of ships that has been produced by each country. This picture is quite different. Japan, South Korea and China still take the first three positions. However, the Netherlands and Norway are also important, as they take the fourth and fifth place in 2002. For a country it is more important to produce a large number of ships, than to produce a large gross tonnage. Each ship needs very expensive marine equipment and the value added by this equipment is much higher than the value added by the steel that goes into the ship’s hull. This analysis shows that the shipbuilding market in 2002 was in fact made up of two very big shipbuilding countries and 10-12 sub-top countries. The two biggest countries (Japan and South Korea) have a market share measured in GT in 2002 of 75%, while over the previous 40-year period the two leading countries (Japan and Korea) had a market share of 85%. From this it is clear that critical mass in shipbuilding pays dividend. Possibly through increased efficiency, purchasing power, short delivery times, standardisation, close knit clusters of shipbuilders and marine equipment manufacturers.

54

Part I - Shipping in the Global Economy

50

4

Share in 2002 (%) (output 33.4 million GT)

South Korea

Share in 2002 (%) (output 33.4 million GT)

3.5 40

Japan

30

20

3 2.5 2

Italy Poland

1.5 Finland

1

10 China

Denm ark Norway

Netherlands

0.5

France Spain

Germ any

0

UK Sweden

0 0

10

20

30

40

50

0

Share 1961-2002 (%) (Total output 840 million GT)

1

2

3

4

Share 1961-2002 (%) (Total output 840 million GT)

Figure 49: World shipbuilding output ranking in GT

40

7 Netherlands

6 Norw ay

Share in 2002 (%) (output 1553 ships)

Share in 2002 (%) (output 1553 ships)

30 Japan

20 South Korea China

10

5 4 Spain

3 Poland

2

Italy France

Netherlands Germ any

1

Denmark Sw eden

UK

0

0 0

10

20

30

Share 1961-2002 (%) (Total output 89,500 ships)

40

0

1

2

3

4

5

6

7

Share 1961-2002 (%) (Total output 89,500 ships)

Figure 50: World shipbuilding output ranking in number of ships

55

Part I - Shipping in the Global Economy

Netherlands Norway Denmark Germany France Spain UK Italy Finland Sweden Poland US Japan SouthKorea China Other Total

Grosstonnage (millionGT) 14.0 15.0 21.2 52.6 19.6 23.1 25.5 20.0 9.4 30.9 17.6 14.0 365.0 119.0 17.0 76.1 840.0

Numberofvessels  4,300 3,350 1,700 6,950 1,840 4,820 3,420 1,680 1,020 1,270 2,260 4,750 31,800 3,310 1,700 15,330 89,500

ShareGT (%) 1.7 1.8 2.5 6.3 2.3 2.8 3.0 2.4 1.1 3.7 2.1 1.6 43.5 14.2 2.0 9.0 100.0

ShareNumber (%) 4.8 3.7 1.9 7.8 2.0 5.4 3.8 1.9 1.1 1.4 2.5 5.3 35.5 3.7 1.9 17.3 100.0

Table 21: Shipbuilding output by country 1962-2002 If the ranking of shipbuilding nations in 2002 is compared with the ranking in 1961 (Table 22), then the fall and rise of shipbuilding nations becomes apparent. In 1961 Japan was already the leading shipbuilding nation in the world, based on GT, followed by the United Kingdom, Germany, Sweden, France, The Netherlands, USA, Italy and Norway. #

Country

1 2 3 4 5 6 7

Japan UK Germany Sweden France Netherlands USA

GT # 1,719,400 1,382,400 1,038,300 736,500 543,500 467,300 402,200

8 9 10 11 12 13 14

Country Italy Norway Denmark Poland Spain Finland Other Total

GT 383,400 332,800 190,500 181,700 145,600 105,900 2,000,000 9,629,500

Table 22: Shipbuilding nations in 1961

2.2. Global shipbuilding 2002-2007 The year 2002 was with hindsight a turning point in global shipbuilding as Figure 51 illustrates. The period 2003-2006 witnessed a stellar growth of shipbuilding output and order books of the yards. 56

Part I - Shipping in the Global Economy

Completedgrosstonnage (millionCGT)

160 140 120 100 80 60 40 20 0 1996

1998

2000

Orderbook

2002

2004

Completion

2006 NewOrders

Figure 51: World shipbuilding 1996-2006 (CESA, 2007) European shipbuilding benefited also from this tidal wave in newbuilding orders, but in CGT terms, much less than their Asian rivals, as Figure 52 shows.

Competedgrosstonnage (millionCGT)

20 18 16 14 12 10 8 6 4 2 0 1996

1998 Orderbook

2000

2002 Completion

2004

2006 NewOrders

Figure 52: European shipbuilding 1996-2006 (CESA, 2007) However, CGT-output is not the only relevant measure for the success of the shipbuilding industry. The turnover and the related value added are more important indicators. In that respect, European shipyards have been star-performers as turnover exceeded that of Japan, South Korea and China in 57

Part I - Shipping in the Global Economy almost every year between 1996 and 2004, while it was almost equal in the years 2000, 2005 and 2006. The development of the turnover of the major shipbuilding blocks is shown in Figure 53.

Valueofcompletedtonnage (billionUS$)

20 18 16 14 12 10 8 6 4 2 0 1996

1998 CESA

2000 SouthKorea

2002

2004 Japan

2006 China

Figure 53: Shipbuilding value 1996-2006 The major reason behind these remarkable figures is the dominant position of the European yards in the high-value complex ships segments, such as cruise ships and offshore vessels. Table 23 illustrates the product-mix of the Europe, Japan, Korea and China. Countries try to upgrade their portfolio towards high-tech and complex vessels, but that is easier said than done as it requires a whole cluster of marine equipment suppliers to innovate the advanced equipment and systems that are the essential elements of these ships. Country CESA Japan SouthKorea China

Standard 21% 28% 40% 19%

HighͲvalue 58% 72% 60% 81%

Cruiseships 21% 0% 0% 0%

Table 23: Complexity of ships built, per country The European shipyards (the 27 countries of the European Union plus Norway) increased their market share in CGT terms of newbuilding orders from 12% in 2004 to 16% the year after. The phenomenal growth in tanker, bulk carrier and container ship orders in 2006 and 2007 reduced this relative indicator substantially, mostly because of the aggressive order intake by Chinese yards. The market share of Japanese yards declined dramatically from 30% in 2004 to 10% in the first half of 2007, thus becoming almost equal to the share of the European yards (Figure 54).

58

Part I - Shipping in the Global Economy

1QͲ2007

2006

2005

2004

0%

20% CESA

40%

SouthKorea

60% Japan

China

80%

100%

Other

Figure 54: Share of CGT (%) The very long term dynamics of the shipbuilding output (GT) over the eighty year period of 19252005 is shown in Figure 55. The once mighty shipbuilding industry in the United Kingdom which produced 50% of the world output in 1925, disappeared from the radar in the 1980s, as was discussed already in a previous section. A similar fate seemed to have fallen upon the remaining European shipbuilding countries, which produced 40% of the output in 1925 and were decimated in the 1990s to a mere 10%. The first country to challenge the European yards was Japan, which at its peak produced almost 50% of the GT output, but which has lost a lot of ground in the 1990s to South Korea and in the 2000s to China. One could speculate which country will challenge these shipbuilding giants? Probably India and Vietnam, but time will tell, as the overinvestment in shipyard capacity and the development of labour productivity are important variables that will determine the ultimate test of the ambitions of these countries. The exceptional demand for newbuildings since 2003 has triggered a tremendous investment in newbuilding capacity, as Figure 56 illustrates. Over the period 1998-2010, Europe’s shipyard capacity will increase with a modest 20% to 6.9 million CGT, Japan’s capacity with 40% to 10 million CGT, South Korean’s capacity with 350% to 15.8 million CGT and China’s capacity with 1100% to 14.7 million CGT. The total of these countries thus increases from 20.6 million CGT in 1998 to a projected 50 million CGT in 2010.

59

Part I - Shipping in the Global Economy 100% 90% 80%

60% 50% 40% 30% 20% 10%

UK

OtherEurope

USA

Japan

SouthKorea

China

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

1945

1940

1935

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0% 1925

ShareofGT(%)

70%

Other

Figure 55: World shipbuilding output (share of GT)

2010

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0

10

20

30

40

50

60

Shipbuildingcapacity(millionCGT) CESA

SouthKorea

Japan

China

Other

Figure 56: World Shipbuilding capacity (million CGT)

60

Part I - Shipping in the Global Economy It is self-evident that the growth of the shipping and offshore industries does not warrant a 250% increase in shipyard capacity in the long term. CESA estimates that the long-term newbuilding requirement is 30 million CGT. A structural overcapacity seems to be in the making. It is as if nobody has learned the lessons from the 1970s when the oil crises spoiled the party in tanker shipping and demand for newbuildings. It is good to remember the table at the beginning of this chapter in which the dramatic reduction in shipyard employment as a consequence of the structural overcapacity of shipyards forced the painful lay-off of 100.000s of workers. Figure 57 shows the dramatic reduction of the shipyard capacity that took place from the shipbuilding boom in the mid-1970s to the end of the shipping crisis at the end of the 1980s. Is history going to repeat itself? Probably yes, but time will tell. The future competitive position of the shipyards will be determined by a number of factors, such as the labour cost and productivity.

Volumeofcompletions (millionCGT)

The Asian shipyards have a strong competitive advantage in the cost of rolled steel plates, which is an important cost element of ships. In Europe the price went up from US$ 600 to US$ 900 (+50%), while Far Eastern yards enjoy the benefits of semi-captive steelworks which increased prices only by 10%. It is self-evident that Asian yards are indirectly subsidised which in good shipbuilding markets may not be a insurmountable problem, but in a bad market will make the difference in staying in or going out of business. 40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0

0 1970 1973 1976 1979 1982 1985 1988 1991 1994

Japan

Europe

SouthKorea

Other

Est.worldcapacity

Figure 57: World completions versus estimated shipbuilding capacity (JAMRI, 1995) This raises a number of theoretical questions regarding the analysis of the competitive advantages of the shipbuilding industry in the various countries. The following section will provide a framework for understanding and analysing the fundamentals of this industry.

2.3. Methodology for analysing the shipbuilding industry The global shipbuilding industry is spread over many countries and many shipyards. These yards produce a multitude of different vessels, ranging from standard bulk vessels to highly sophisticated 61

Part I - Shipping in the Global Economy gas carriers, cruise vessels and research vessels. It is, therefore, not obvious how one should go about analysing the many markets for building ships. The questions that academics should pose are for example: x x x x

Does there exist one global shipbuilding market? What does the industry cost curve look like? How do you define and measure shipbuilding capacity? What is the importance of exchange rates for shipbuilding prices?

In this section these questions will be addressed. As very few publicised studies are available, a study published in (Wijnolst & Wergeland, 1996) will be used to illustrate the methodology of analysing the shipbuilding industry.

One, global shipbuilding market

Newbuildingprices (millionUS$)

From an economic point of view, the main question must be: Is it relevant to talk about one world market for the building of ships? It may be relevant to aggregate if either the products are very homogeneous (which they are clearly not), or if the capacity offered is fairly homogeneous and technology diffusion fairly rapid, so that the links between the various segments are strong. It can be argued whether this is the case in shipbuilding. To see this, one can inspect the price development for a number of different ship types. If prices are strongly correlated, this is a clear indication of market segments being closely connected. In Figure 58 some newbuilding prices are given for the period 1970-1994. 100 90 80 70 60 50 40 30 20 10 0 1970 RoͲRo(5,000dwt) Products(30,000)

1975

1980 Drybulk(120,000dwt) LPG(75,000cu.m.)

1985

1990 VLCC

Figure 58: Indicative newbuilding prices for selected ship types 1970-1993 In Table 24 the partial correlation coefficients among prices for 12 different ship types are given for the same period. The prices behind the table have been corrected for the purchasing power of US$ and are deflated by a general US$ deflator to give comparable prices over time, while Figure 58 contains actual prices in the money of the day. 62

Part I - Shipping in the Global Economy

RoͲRo Drybulk(30) Products LPG(24) Container Drybulk(70) Crude(80) LPG(75) LNG Drybulk(120) Crude(130) Crude(250)

1.00 0.68 0.81 0.85 0.79 0.66 0.90 0.78 0.66 0.80 0.94 0.41

 1.00 0.92 0,97  0.90 0.93 0.93 0.60 0.89 0.98 0.60

  1.00 0,84 0.63 0.91 0.98 0.91 0.65 0.96 0.96 0.69

   1.00 0.82 0.96 0.82 0.84 0.95 0.86 0.84 0.86

    1.00  0.65 0.86 0.83 0.80 0.67 0.69

     1.00 0.66 0.91 0.48 0.94 0.80 0.56

                        1.00    0.86 1.00   0.78 0.60 1.00  0.97 0.96 0.62 1.00 0.97 0.92 0.78 0.97 0.87 0.69 0.78 0.70

          1.00 0.90

Crude (250,000dwt)

Crude (130,000dwt)

LNG 3 (125,000m )

LPG 3 (75,000m )

Crude (80,000dwt)

Drybulk (70,000dwt)

Container (3,500TEU).

LPG 3 (24,000m )

Oilproducts (30,000dwt)

Drybulk (30,000dwt)

RoͲRo (5,000dwt)



Drybulk (120,000dwt)



           1.00

Table 24: Correlation coefficients among newbuilding real prices (Haddal & Knudsen, 1996) As the table quite clearly indicates, all segments show a price development where the prices are quite closely correlated to those of other segments. The lowest correlation is for the partial relation between the VLCC and the 5,000 dwt ro-ro, which is not too surprising. The average correlation coefficients for 12 ship types studied (average correlation with the 11 other ship types) is shown in Table 25 Shiptype

Correlation Shiptype

RoͲro5.000dwt Bulk30.000dwt Producttanker.30.000dwt LPG24.000m3 Container3.500dwt Bulk70.000dwt

0.75 0.77 0.85 0.88 0.75 0.79

Tanker80,000dwt LPG75,000m3 LNG125,000m3 Bulk120,000dwt Tanker130,000dwt Tanker250,000dwt

Correlation 0.86 0.83 0.71 0.85 0.89 0.70

Table 25: Average price correlation coefficients 1970-1994 All coefficients are above 0.70, so the general conclusion must be that newbuilding prices are affected by the same market forces over time, so one of the criteria for aggregation seems to have been fulfilled. Technological diffusion is more difficult to observe and measure. One possibility is to examine a market segment where technological development is fairly rapid and the final product fairly advanced. In a study of fast passenger ferries, a database of about 1300 vessels was constructed. By comparing the total number of ships produced per year with the number of active yards in each year, a picture as Figure 59 emerges. 63

100

50

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45

80

40

70

35

60

30

50

25

40

20

30

15

20

10

10

5

0

0

Numberofactiveyards

Numberofvessels

Part I - Shipping in the Global Economy

1955 1960 1965 1970 1975 1980 1985 1990 1995 Production

Activeyards

Figure 59: Production of fast ships versus the number of active yards It is very interesting to note that the number of active yards is directly proportional to the volumes produced. That means that it seems like almost any yard could produce fast ships if the demand is high. There does not seem to be a time lag in this mechanism either. This implies that technological diffusion is fast in shipbuilding and shipbuilding capacity is in principle very flexible, which is the important point if one wishes to aggregate. A common measurement of capacity and production is important if one wants to compare individual productions that may be very different in composition. The usual measurement of DWT or GT is not particularly good, as there is hardly a one to one correspondence between each of these measures and the amount of work a yard must put into producing different vessels. For that purpose a new measurement was introduced to better reflect the amount of work that goes into the various ship types. By multiplying the gross tons with a correction factor, which varies from ship type to ship type, the compensated gross ton (CGT) is obtained. This gives the shipbuilding industry a common measure facilitating comparisons and making aggregation easier. The conclusion is that it seems relevant to talk about one, global market for the building of ships. The price correlation is very high for most segments, so prices obviously adjust quickly to either regional or ship type differences. The technological diffusion process is also very rapid, making it difficult, if not impossible to protect a new innovation or design from strong competition.

The shipbuilding industry cost curve As it is relevant to talk about one, global shipbuilding market, the next problem is to find a good way of analysing the various producers in this market. One possibility is to use the so-called industry-cost curve approach, or the Salter-diagram (Salter, 1960) as it is also called. The idea behind the methodology is to recognise that variations in costs from producer to producer have to do with three elements: cost level in country of production, technology and productivity. If the technology is fairly equal, the local cost level and productivity become the two most important elements in comparing 64

Part I - Shipping in the Global Economy

Price,Costs

firms across nations. By ranking the producers according to their cost level, a simple industry cost curve can be obtained, as indicated in Figure 60. In this figure only 4 yards have been included. The height of each column is a measure of cost level, while the width of each column indicates the capacity of the yard. If the level of demand is as indicated in the figure, the price will be equal to the cost level of yard 3, and at this price level price yard 4 is not competitive and is assumed to close down. A marginal rise in the price level, however, as indicated, might make it worthwhile to reopen yard 4, which will put a downward pressure on the price and yards 1-3 will produce less than before. Nextavailable capacity increment

Market demand

Marketprice

Unbuilt yard Yard4 Yard2

Yard3

Yard1

CGT Figure 60: Simplified industry cost curve To better understand what lies behind the industry cost curve, it could be useful to relate it to traditional production theory. In Figure 61 the cost structure for a typical producer is shown. A producer will produce optimally when price is equal to marginal costs. The producer will produce as long as the price is at least equal to the average variable costs. Are prices lower, then the producer will not produce at all. This gives the heavy line as the relevant supply curve for a producer. If prices are P, then optimal output is y, and the firm has a profit Ȇ(y) equal to the shaded area. Under perfect competition, a positive profit will attract newcomers. The long-run effect in a situation where all firms have the same cost structure is that prices will be pushed down to a level equal to the average cost of the representative firm. This is indicated by the Pfkl in the figure, which gives the optimum production, where price is equal to marginal cost, which again is equal to average cost.

65

Price,Cost

Part I - Shipping in the Global Economy

MC

ShortͲrun supplyfunction AC

ѓ(y)

AVC

P pfkl

yfkl

Y

Output

Figure 61: Cost structure for a producer under perfect competition If cost differences do exist among producers, the picture becomes slightly more complicated. This is illustrated in Figure 62. The four firms will supply to a level where price is equal to marginal costs, so aggregate supply is equal to the sum of the four producer marginal cost curves. At this price the more productive firms (to the left of the marginal producer) will produce where price is equal to marginal costs and best practise firms will earn a profit. To make the industry cost curve operational, one would in principle need to have data for each producer's marginal supply curves. If one assumes, however, that each producer is relatively small compared to the total production, an approximation can be made by collecting data on average costs and realistic production capacity. This is, however, only an approximation, and one should bear in mind that total capacity is actually a function of price. Another problem is for which units to collect data? One possibility would be to simply collect data for all yards in the world and rank them according to cost levels. The advantage of this is that one would get a very accurate picture of relative competitiveness. The main disadvantage is caused by the difficulties in getting reliable data. Another possibility is to use countries as a counting unit. The advantage is that data are normally obtainable at this level. The disadvantage is that the average data might not be a good indicator of the individual yards' competitiveness. The problem is illustrated in Figure 63. In (a), three countries are illustrated, each with two yards. The average costs for the countries are C1, C2 and C3 and their capacities are the sum of the two yards in each country. If individual yards had been used as the unit, the industry cost curve would look like (b), with a rather different ranking order of firms. One argument in favour of using countries as the unit is that one important cost component, labour cost, is nationally determined. If there are large differences in labour costs across countries, then these differences are likely to affect the whole group of countries. This is, therefore, the approach normally taken.

66

Part I - Shipping in the Global Economy

Price,Cost

MC3 MC4

MC2 MC1

pfkl

AC4

AC3 AC2 AC1

Y1

Y3

Y2

Y4

єYfkl

Output

Figure 62: Cost structure for four producers

C3

a) C2

Y6

C1 Y4 Y5

Y2 Y3

Y1

b) Y6 Y2 Y1

Y5

Y4

Y3

Figure 63: The counting unit problem

67

Part I - Shipping in the Global Economy To better understand what is involved, an example from the construction of the 1993 industry cost curve could be useful. The steps involved are: identifying the basis for cost comparisons, collecting data for cost components, collecting data for total capacities, and constructing the industry cost curve.

Cost components and their relative importance To compare yards, a common unit for cost measurements must be found. The main components of costs for building ships are: labour costs adjusted for productivity, steel costs, costs of main engine, costs of other equipment, administration costs, etc. The first four of these cost components constitute some 90% of total costs, and it is within these four components that the biggest differences will be found. It does not make sense to stipulate an average cost for the components mentioned. One needs to find a specific ship that can be representative for the average shipbuilding operation. In this connection two main considerations must be made: x x

The vessel type must be of average sophistication; The size of the vessel must be reasonably representative.

On the low end of sophistication one finds the standard bulk carriers, ranging from the ULCCs, VLCCs and down to Handysize dry bulk carriers. On the other extreme one finds vessels like cruise vessels, research vessels, self-unloaders, etc. Somewhere in the middle range one finds on the one hand the advanced LNG and LPG vessels, the chemical tankers and on the other the combination vessels as well as the products tankers. The latter category was chosen partly because it is a vessel that easily could be built by any of the 23 shipbuilding nations considered, and it has a fairly high degree of equipment installed, higher than the standard bulk vessels with a very high steel cost. By comparing data from UK yards with those from Polish and Ukrainian yards and further checking this against the McKinsey study from 1989, the distribution of costs was established as given in Table 26. These distributions of costs were then utilised for the study of the general newbuilding market and a special study for the building of VLCCs. Costcomponents Labour Steel MainEngine Equipment Total

Producttanker(40,000dwt) 36% 13% 13% 38% 100%

VLCC 43% 19% 11% 27% 100%

Table 26: The cost composition of representative vessels

Cost comparisons across shipbuilding nations A main cost component in building ships is the labour cost. This consists of two main components: The general wage level of the country in question and the productivity of labour. Without going into details about how the various estimates were established, Table 27 gives a summary of wage cost comparisons for the countries in the study.

68

Part I - Shipping in the Global Economy Country Germany Belgium Denmark Finland France Italy UK Netherlands Norway Spain Portugal USA Japan Korea Taiwan China Brazil Ukraine Russia Poland Croatia Romania Bulgaria

Wageindex 100 83 83 67 99 77 56 83 87 59 33 71 124 39 33 3 15 2 2 9 6 4 4

Productionindex 100 86 125 109 98 85 73 118 109 70 39 0 213 106 60 28 35 22 18 39 37 37 32

Totalindex 100 96 66 61 101 90 76 70 80 85 85  58 37 55 11 43 9 11 24 17 11 14

Table 27: Wage rate and productivity compaction in world shipbuilding Similar evaluations were made for the other cost components, and a summary of all cost evaluations is given in Table 28. The most striking feature of the figures in the table is to be found in the productivity numbers. Japan is more than two times as productive as Germany; Russia has a productivity about 18% of that and China only 28%. The other striking figures are the extremely low wage rates in China and the former communist countries. For the other cost components, the variations are much smaller, mainly due to the fact that all components are available as products in a world market. Transportation costs and local suppliers are then main reasons for the cost differences.

Shipbuilding capacities The next step then is to determine how much capacity each shipbuilding nation can offer. This is not an easy task, partly because capacity depends on prices, as discussed above, but also for other reasons. There is no precise definition of shipbuilding capacity that is commonly used. Various studies have different approaches to capacity assessment. In a study, S. Nagatsuka (JAMRI, 1989), establishes a measure of maximum capacity that assumes that:

69

Part I - Shipping in the Global Economy Country CoefficientͲ>t Germany Belgium Denmark Finland France Italy UK Netherlands Norway Spain Portugal USA Japan Korea Taiwan China Brazil Ukraine Russia Poland Croatia Romania Bulgaria

Labour Productivity Steel MainEngine Equipment Total Subsidies 36%  13% 13% 36% 100% 100 100 100 100 100 100.0 15.4 83 86 100 100 100 98.7 11.8 83 125 100 100 100 87.9 7.0 67 109 90 90 100 83.7 2.5 99 98 100 100 100 100.3 12.0 77 85 90 110 100 96.5 14.5 90.1 56 73 90 100 100 8.1 83 118 100 100 100 89.4 8.0 87 109 100 110 110 98.1 12.0 59 70 93 95 100 92.9 13.9 33 39 93 95 100 93.1 9.3 71 0 120 115 100   110 91.7 124 213 110 110  39 106 87 95 90 71.5  33 60 92 95 100 82.4 4.1 3 28 97 85 85 60.1  15 35 93 100 100 78.7  2 22 111 85 90 63.1   2 18 111 80 85 61.3 80 85 66.5  9 39 114 6 37 119 85 90 67.0  4 37 111 85 90 63.8  4 32 111 85 90 64.9 

Totalafter subsidies 84.6 86.9 80.9 81.2 88.3 82.0 82.0 81.4 86.2 79.0 83.8  91.7 71.5 78.3 60.1 78.7 63.1 61.3 66.5 67.0 63.8 64.9

Table 28: The composition of a general cost index for world shipbuilding x x x x

The yards have an optimum mix of ship types relative to the physical facilities; No bottleneck situations (e.g. crane or steel cutting capacity) occur; Sufficient number of workers with sufficient productivity can be supplied; Production planning and materials flows are optimal.

Normally, at least one, but often several of these conditions will not be fulfilled. Attempts have thus been made to establish a measure of 'realistic capacity'. This measure takes into account that the factors mentioned will not always be in optimum conditions. For Japan, lack of skilled workers is a main restriction, while in Croatia and Ukraine, crane capacity is a problem. The numbers in Table 29 are a summary of the estimates made. The former communist countries represent a major problem in these estimates. For some of the yards in these countries, the capacity utilisation factor has been as low as 20-30% in later years. What the realistic capacity is, is very difficult to estimate.

70

Part I - Shipping in the Global Economy

Country Germany Belgium Denmark Finland France Italy UK Netherlands Norway Spain Portugal Japan 

Realisticcapacity (thousandCGT) 1,300 125 500 330 220 325 205 345 350 400 80 5,700 

Country Korea Taiwan China Brazil Ukraine Russia Poland Croatia Romania Bulgaria Others*  Worldtotal

Realisticcapacity (thousandCGT) 3,650 400 400 414 548 221 660 440 580 20 2,000  19,413

Table 29: Estimate of realistic shipbuilding capacities

An industry cost curve for shipbuilding The cost data from Table 28 and the capacity data from Table 29 are sufficient to construct an industry cost curve for the shipbuilding market for 1993. The result is given in Figure 64. With a total production of 12.12 million CGT in 1992, Japan appears to be the marginal producer and thus the country that determines the price level of shipbuilding. Many of the countries to the right of this production level should according to this methodology, not be competitive to a price level set by Japan. In practice, however, and as indicated in Table 28, heavy subsidising of national shipbuilding industries takes place. The industry cost curve would look different if drawn after subsidies. It is also important to remember that the industry cost curve is made up of country averages. Countries to the right of the marginal price may still have individual yards that are competitive. It is interesting to note that Japan in 1993 had a cost level almost 30% above the South Korean. In a similar study made for the year 1989, Japan had slightly lower costs than South Korea. This reflects the dynamics of industrial development and is a phenomenon that can clearly be illuminated by constructing an industry cost curve. The industry cost curve can be used as an estimate of what the supply curve in shipping looks like in the short run. This could be put together with a demand curve like indicated in Figure 65. The shape of the demand curve for shipbuilding has been argued for by Martin Stopford and others. The lower elasticity in the right end of the curve is due to the fact that at this high price level, only those very few shipowners with very profitable trading opportunities (or unrealistically high expectations) will order ships. At the lower end orders will be limited by lack of trading opportunities, financial limitations and longer delivery times from the yards.

71

Part I - Shipping in the Global Economy France Belgium Italy Portugal 100

Norway

UK

+28.3%

Bulgaria Russia

Worldproduction1992,12,12millionCGT

nce Other

Germany

Span

Japan

Brazil Taiwan Finland Denmark TheNetherlands

SouthKorea

Croatia

Poland

Rumania

Ukraine

China

60

RealisticWorldCapacity 19.4millionCGT

GeneralCostIndesx

Figure 64: The industry cost curve for the shipbuilding industry 1993

DemandCurve

100

60

WorldShipbuildingSupplyCurve

Worldproduction1992,12,12millionCGT

RealisticWorldCapacity 19.4millionCGT

Figure 65: Demand and supply picture - world shipbuilding 1992-1993

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Part I - Shipping in the Global Economy

ShipPrice

This demand and supply picture gives a very static picture of the state of the market, and is of limited value for a more dynamic analysis of the shipbuilding market. Figure 66 illustrates what may happen if demand suddenly increases. In this figure both demand and supply have been drawn as straight lines for simplicity. Initially one has equilibrium at level X0 with corresponding price P0. If demand shifts, this will lead to a temporary jump in prices, as supply will move along the short term marginal cost curve for the marginal producer. This will give a price increase up to P1. This new price leads, however, to increased production from all the others and more efficient producers and shifts the supply to the right, giving a new equilibrium at XL. If the price increase also leads to investments in new yards (or the opening up of closed ones), long term supply may even shift further and actually lead to a lower price XN.

Currentproduction

Demand

Possibleshortterm productionincrease

Shiftindemand

Longerterm production capacity

P1

Longertermproduction capacityafter investmentsinnewand moreefficientyards

P0 PN

X0

X1

XL XN

CGTCompleted

Figure 66: Possible price dynamics in the shipbuilding market

Industry cost curve for building of large tankers Although it has been argued that it is relevant to talk about one, global market for shipbuilding, there is, in principle, nothing that prevents one from making a study on a segment of the market. The market for large tankers is an obvious candidate, as the cost structure for VLCCs is different from that of the representative vessel above and because there is a clear limit to how many yards will have sufficient capacity to build large tankers. A similar exercise as that of Table 28 could be done by establishing a cost structure for the production of VLCCs, using the cost shares of Table 27 for VLCCs. The results are given in Table 30. The industry cost curve can again be made on the basis of the two previous tables and looks like Figure 67. An exercise like this can illuminate the problem discussed in the market about a possible lack of shipbuilding capacity for the renewal of the old tanker fleet. This analysis seems to indicate that this is not a serious problem and prices will only have to rise some 1213% to activate the capacity required.

73

Part I - Shipping in the Global Economy Country CoefficientͲ> Germany Belgium Denmark Finland France Italy UK Netherlands Norway Spain Portugal USA Japan Korea Taiwan China Brazil Ukraine Russia Poland Croatia Romania Bulgaria

Labour Productivity 43%  100 100 83 86 83 125 67 109 9 98 77 85 56 73 83 118 87 109 59 70 33 39 71  124 213 39 106 33 60 3 28 15 35 2 22 2 18 9 39 6 37 4 37 4 32

Steel MainEngine Equipment Total Subsidies Totalafter subsidy 19% 11% 27% 100% 100 100 100 100.0 15.4 84.6 100 100 100 98.5 11.8 86.7 100 100 100 85.3 6.8 78.5 90 90 100 80.4 2.4 78.0 100 100 100 100.4 12.0 88.4 90 110 100 94.9 14.2 80.7 87.6 90 100 100 7.9 79.7 100 100 100 87.2 7.8 79.4 100 110 110 95.3 11.6 83.7 93 95 100 91.4 13.7 77.7 93 95 100 91.6 9.2 82.5 120 115 100    87.8  87.8 110 110 110 87 95 90 67.3  67.3 92 95 100 78.7 3.9 74.8 97 85 85 55.3  55.3 93 100 100 73.9  73.9 111 85 90 58.4  58.4 111 80 85 57.4  57.4 114  63.8 80 85 63.8 119 85 90 63.4  63.4 111 85 90 59.3  59.3 111 85 90 60.6  60.6

Table 30: Composition of a cost index for VLCC production

The importance of exchange rates for shipbuilding prices In the period 1985-1988, ship prices (and second-hand values) of ships increased fairly markedly as can be seen from Figure 58, where e.g. a VLCC doubled in value in three years. This is difficult to understand from figures like Figure 65, as no dramatic shift in either demand or supply seems to have taken place in this period. In this period Yen appreciated against the US dollar, with a value in 1985 around 250 Yen/US$ to about half of that in 1988. In a study in 1989, McKinsey & Co. analysed in detail what had happened to the components of the price of a VLCC built in Japan. This is illustrated in Figure 68. In 1985 a VLCC could be purchased in Japan for 8.8 billion Yen, and in 1988 the price had increased to 9.4 billion Yen - an increase of about 7%. This was mainly due to a 1.2 billion increase in equipment costs, but a reduction in steel costs of about 0.24 billion and a remarkable reduction in labour costs of 429 million Yen. This was due to an incredible increase in productivity in a period where wage rates increased rapidly in Japan.

74

GeneralCostIndesx

Part I - Shipping in the Global Economy

Uncertain

100

+30.5%

USA

France

Germany

Spain

Japan

UnitedKingdom

Brazil Taiwan Denmark

SouthKorea

China

5

RealisticVLCCCapacity 3.920millionCGT

VLCCproduction1992,1.890millionCGT

Figure 67: The industry cost curve for the VLCC shipbuilding segment 1993

Price increase inYen +1,183

Ͳ429

Ͳ240

8,825

Price 1985

Price increase inUS$

+77

Million Yen

EquipͲ Labour Profits ment

9,147

39.5

Price 1988

Price 1985

Million US$

73

Price 1988

Figure 68: Price component development 1985-1988 for VLCCs in Japan

75

Part I - Shipping in the Global Economy The same ship paid for in US dollars, had a price of 39.5 million US$ in 1985 and 73 million US$ in 1988, or an increase of 97%. About 90% of this was due to the appreciation of Yen, so the price increase was not primarily a signal of lack of shipbuilding capacity or dramatic increases in demand, but simply an adjustment of exchange rates. Since Japan was the marginal supplier and US dollar is the main accounting unit for shipping income, this change had a marked and fairly dramatic impact on the freight markets (mainly because the long term break-even rate level shifted substantially upwards). This was a development many shipping analysts completely misunderstood.

2.4. Shipbuilding outlook 2008 The model for the analysis of the competitiveness of the shipbuilding industry as presented in section 2.3, was based on data for the year 1993. Since then structural changes in competitiveness have taken place within the shipbuilding industry. Clarkson Research Services has since 1993 been publishing the monthly World Shipyard Monitor. Based on this comprehensive monitor, the - February 2008 situation in shipbuilding capacity, output, orders and prices are briefly summarised. This shows that global shipbuilding dynamics are still important and that the only constant in this market is change. There are about 160 shipyards with a total capacity of some 48 million CGT. Their combined output in 2007 was 2,009 ships with a total deadweight of almost 80 million ton, and 34 million CGT (Table 31). The value of these newbuildings amounted to UD$ 190 billion in 2007, with dry bulk carriers accounting for US$ 88 billion, containerships for US$ 53 billion, and tankers for US$ 41 billion. Figure 69 shows the sharp rise in investment in ships since the dramatic year 2002 when just over US$ 20 billion was invested. The strong demand for ships has also created a steady upward pressure on prices, as Figure 70 illustrates for the tanker newbuilding prices. Over the last seven years, the price of a VLCC has increased 123 percent from US$ 65 million to US$ 145 million. All other tankers types have shown similar increases, which supports the findings of the previous section. The combined order book stands in January 2008 at 9,346 ships with a deadweight of 510 million ton, and 180 million CGT (Table 32), and Figure 71 shows the deliveries in the years to come. Asian yards have order books of 158 million CGT, European yards of 19 million CGT. Approximately 50 million CGT will be added in each of the coming three years, an absolute record in the history of global shipbuilding. 7

7

Industrysourcesbelievethatupto30%ofnewbuildsatAsianyardswillbedelayedorcancelled.Itisforexampleforecast that48milliondwtcontractedbyChineseGreenfieldyardscouldbecancelled.

76

Part I - Shipping in the Global Economy 200 Investment(billionUS$)

180 160 140 120 100 80 60 40 20 0 2000

2001

2002

Container

Gas

2003

2004

Drybulk

2005

2006

2007

Wetbulk

Figure 69: Total investments by vessel type

Newbuildingprices (millionUS$)

160 140 120 100 80 60 40 20 0 2003 Handy

2004 Panamax

2006 Aframax

2007 Suezmax

2008 VLCC

Figure 70: Tanker newbuilding prices

77

Part I - Shipping in the Global Economy

Output(millionCGT)

60 50 40 30 20 10

Japan

Europe

China

SouthKorea

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

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1997

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0

Others

Figure 71: Scheduled output by region

Container(>3,000TEU) Container(<3,000TEU) Combos Drybulk(Capesize) Drybulk(Panamax) Drybulk(Handymax) Drybulk(Handysize) Liquidbulk(VLCC) Liquidbulk(Suezmax) Liquidbulk(Aframax) Liquidbulk(Panamax) Productstanker Chemicaltanker Specialised 0

20

40

60

80

100

Newbuildingvsshareexistingfleet(%) End2007

EndJan2008

Figure 72: Order book as percentage of existing fleet

78

Part I - Shipping in the Global Economy  Japan SouthKorea Taiwan China OtherAsia TotalAsia Germany Denmark France Italy Netherlands Spain Finland Norway Turkey Poland Ukraine Croatia OtherEurope TotalEurope Brazil USA Other TotalOther GrandTotal

1998 6.4 3.4 0.3 1.2 0.4 11.7 1.0 0.3 0.2 0.8 0.4 0.3 0.3 0.3 0.1 0.5 0.0 0.2 0.5 4.9 0.0 0.5 0.2 0.7 1.73

1999 5.9 4.3 0.3 1.0 0.4 12.0 0.8 0.3 0.2 0.8 0.5 0.3 0.3 0.3 0.2 0.5 0.0 0.2 0.3 4.7 0.0 0.4 0.2 0.6 17.3

2000 6.0 5.8 0.3 1.3 0.3 13.7 0.8 0.2 0.3 0.6 0.4 0.3 0.2 0.2 0.1 0.5 0.0 0.2 0.4 4.2 0.0 0.3 0.2 0.5 18.5

2001 6.0 5.7 0.2 1.3 0.3 13.6 1.1 0.2 0.4 0.6 0.3 0.2 0.3 0.2 0.1 0.5 0.0 0.3 0.2 4.4 0.0 0.3 0.1 0.4 18.4

2002 6.3 6.1 0.3 1.6 0.5 14.9 1.1 0.2 0.3 0.6 0.4 0.2 0.4 0.4 0.1 0.4 0.1 0.3 0.3 5.0 0.0 0.4 0.1 0.5 20.3

2003 6.5 6.8 0.3 2.5 0.5 16.5 0.9 0.2 0.4 0.7 0.3 0.5 0.2 0.4 0.2 0.2 0.0 0.3 0.3 4.6 0.0 0.4 0.1 0.5 21.7

2004 7.6 8.0 0.3 2.9 0.5 19.3 0.9 0.2 0.1 0.7 0.4 0.4 0.2 0.1 0.2 0.4 0.1 0.4 0.3 4.4 0.1 0.3 0.1 0.4 24.2

2005 8.0 9.3 0.3 3.7 0.7 22.0 1.1 0.3 0.0 0.4 0.3 0.1 0.0 0.2 0.4 0.5 0.0 0.4 0.4 4.1 0.1 0.2 0.1 0.4 26.5

2006 9.3 10.9 0,4 4.8 0.9 26.3 1.1 0.3 0.2 0.5 0.4 0.2 0.2 0.3 0.4 0.5 0.0 0.4 0.6 5.1 0.1 0.2 0.1 0.4 31.8

2007 8.8 11.6 0.4 5.9 0.9 27.5 1.2 0.3 0.2 0.7 0.4 0.3 0.3 0.4 0.6 0.3 0.0 0.4 0.6 5.7 0.1 0.2 0.1 0.4 33.6

Table 31: Major shipbuilding country output (million CGT)

79

Part I - Shipping in the Global Economy  Japan SouthKorea Taiwan China OtherAsia TotalAsia Germany Denmark France Italy Netherlands Spain Finland Norway Turkey Poland Ukraine Croatia OtherEurope TotalEurope Brazil USA Other TotalOther GrandTotal

1998 11.0 9.3 0.7 2.2 0.8 24.0 2.0 0.4 0.8 2.2 0.6 0.7 0.7 0.4 0.3 0.9 0.1 0.5 1.1 10.7 0.1 0.9 0.3 1.2 36.0

1999 10.5 10.7 0.8 3.1 0.7 25.7 2.1 0.4 1.1 2.0 0.5 0.5 0.7 0.4 0.2 0.9 0.1 0.4 1.0 10.4 0.1 0.8 0.2 1.0 37.1

2000 12.1 14.8 0.7 3.9 0.6 31.7 2.6 0.2 1.0 2.3 0.5 0.5 1.0 0.6 0.3 1.5 0.1 0.7 0.9 12.3 0.1 0.8 0.2 1.0 45.1

2001 11.7 14.6 0.5 4.7 0.7 32.6 2.1 0.5 0.8 2.0 0.6 0.8 0.8 0.6 0.3 1.1 0.1 1.1 0.9 11.6 0.1 0.8 0.2 1.1 45.3

2002 13.7 15.0 0.5 5.2 1.1 35.4 1.4 0.3 0.6 1.6 0.7 0.8 0.5 0.4 0.4 0.9 0.2 0.9 0.8 9.3 0.1 0.8 0.3 1.2 45.9

2003 20.5 24.1 1.0 8.4 1.4 55.4 2.0 0.5 0.3 1.3 0.6 0.5 0.3 0.1 0.5 1.3 0.2 1.1 0.9 9.8 0.2 0.5 0.2 0.9 66.1

2004 2005 2006 2007 2008 25.1 28.4 32.3 30.0 29.9 31.6 34.4 43.8 64.5 65.4 1.2 1.3 1.4 1.7 1.8 12.3 16.9 29.1 53.1 53.8 2.5 3.4 5.0 7.9 7.8 72.6 84.4 111,6 157.2 158.7 2.4 3.7 3.7 3.4 3.4 0.9 0.9 0.6 0.6 0.6 0.5 0.7 0.8 0.8 0.8 1.5 2.4 2.5 2.6 2.6 0.6 0.9 1.2 1.1 1.1 0.3 0.6 0.8 0.9 0.9 0.6 0.8 0.8 0.7 0.7 0.4 0.7 1.4 1.6 1.6 0.9 1.5 2.0 2.4 2.4 1.7 1.5 1.4 1.2 1.2 0.1 0.1 0.1 0.2 0.2 1.5 1.4 1.2 0.9 0.9 1.5 2.2 2.4 2.7 2.7 12.7 17.3 19.0 19.3 19.2 0.2 0.2 0.5 0.8 0.8 0.4 0.6 0.8 0.9 0.9 0.2 0.2 0.4 0.6 0.6 0.8 1.0 1.7 2.3 2.3 86.1 102.7 132.2 178.8 180.2

Table 32: Order book by country (million CGT)

80

Part I - Shipping in the Global Economy

3.

GLOBAL SHIPOWNING DYNAMICS

The growth of the world’s merchant fleets also shows a rise and fall pattern as is the case in shipbuilding. It is amazing to see that global shipping after the WW2 was the domain of a handful of countries. In this chapter, the development of flag states, those countries that have a ship register, is considered in more detail. This has become much harder since the 1980s when the reflagging of ships to open registers has taken a flight and the link between shipowning and country of domicile has become blurred. The development over the period 1961-2002 illustrates the rapid globalisation of shipping. The exceptional growth of the world fleet in certain segments can be linked to certain countries. The shipping fortunes change over time, as it does in shipbuilding. This is not surprising as shipping is the only truly global, competitive industry in the world, since several hundreds of years. Understanding its dynamics is thus a great way to understand what is in store for many other lessglobalised industries. The data are based on the Shipping Statistics Yearbook of ISL.

3.1. Flag states development

1000

100

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90

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70

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60

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50

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40

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0 1910

Numberof(thousand)

Grosstonnage(millionGT)

The world merchant fleet increased from 39 million GT and 22,500 ships (over 100 GT) in 1911 to 585 million GT and 88,700 ships in 2002. The continuous growth curve over this 91-year period was only briefly interrupted in the aftermath of the second oil crisis in the early 1980s when many new oil tankers became obsolete overnight and the global economy entered into a severe recession.

0 1930

1950 GT

1970

1990

2010

number

Figure 73: World merchant fleet In 1961 the world fleet had a capacity of 136 million GT and numbered 37,800 ships over 100 GT. In 2002 it had a capacity of 585 million GT and numbered 88,700 ships. The net increase over this 41year period was 449 million GT and 50,900 ships. Figure 74 shows that the world shipbuilding output 81

Part I - Shipping in the Global Economy was almost double these numbers over the same period of time. The difference between the 840 million GT of new ships and the 449 million GT of net fleet capacity increase amounts to 391 million GT. The ships constituting this volume have been sold for demolition or have been casualties of accidents and thus lost. Based on an average conversion factor of deadweight to gross tonnage of 0.5, the existing demolition data, which is published in deadweight capacity, has been compiled and translated into gross tonnage. The reported demolition over the 40 year period amounted to 355 million, which is only 7% lower (381/355) than the theoretical level of demolition, and thus rather accurate. The average level of ship demolition over the period 1961-2002 has been 9 million GT, or approximately 18 million dwt. This illustrates that the replacement market for ships is very substantial.

Grosstonnage(millionGT)

40 35 30 25 20 15 10 5 0 1960

1970

1980 output

1990

2000

demolition

Figure 74: Newbuilding versus demolition The peaks in ship demolition correlate with the low levels in the freight markets. The extreme demolition levels in the early 1980s have been caused by the 50 percent reduction in demand for oil tanker transport following the second oil crisis in 1979. The high level of demolition in more recent years is partly caused by the ban on single hull tankers following the Exxon Valdez (OPA 90), the Erika and Prestige oil spills. The severe world recession following the second oil crisis triggered a very important change within the shipping world. Shipowners, trying to reduce their costs to the minimum in order to survive, left massively their national flags in order to make use of open registers, often called flags of convenience, which offered a freedom to hire cheap third world crews and to avoid paying corporate and income taxes. The open registers had been around since the prohibition in the United States and the WW2, but their growth since the 1980s has been unprecedented. Many new international registers sprung up and lured the shipowners, often with little or no technical and operational infrastructure. The quality standards of shipping slipped during this period and the issues of the substandard ships, shipowners and flag states emerged during these tumultuous 1980s.

82

Part I - Shipping in the Global Economy During the pre-1980s period, the national registers were the norm. In the period thereafter, the international registers took over. At the same time, the rise of the new shipping countries, created a new and often fatal competition for the traditional shipowning nations. These structural changes had many consequences, which will be explored in more detail. In 1948 82% of the world fleet was registered in only nine flag states. The USA was the premier flag state, followed by the United Kingdom, and thereafter seven smaller flag states: Norway, France, the Netherlands, Panama (mostly US shipowners), USSR, Canada and Sweden. By 1980, 32 years later, the world fleet had grown by 523% and 17 flag states made up 82% of the world fleet. Liberia had become the largest flag state. The register of this African country was managed out of the USA, and it was, together with the other international register Panama, home of many American owners. The two major new flag states, Japan and Greece, surpassed the UK, which fleet had stagnated in size in the intermediate period. The spectacular growth of Liberia, Japan, Greece and Panama between 1948 and 1980 is shown in Table 33. 1948 USA UK Norway France Netherlands Panama USSR Canada Sweden Other         Total

MillionGT 29.2 18 4.3 2.8 2.7 2.7 2.1 2 2 14.5         80.3

Share(%) 36 22 5 3 3 3 3 2 2 18

1980 Liberia Japan Greece UK Panama Norway USSR USA France Italy Germany Spain India Netherlands Denmark Brazil Sweden Other 100 Total

MillionGT 80.3 41 39.5 27.1 24.2 22 23.4 18.5 11.9 11.1 8.4 8.1 5.9 5.7 5.4 4.5 4.2 78.7 419.9

Share(%) 19 10 9 6 6 5 6 4 3 3 2 2 1 1 1 1 1 19 100

Table 33: Major flag states in 1948 and 1980 The world economic recession which started in 1980 has left its mark in shipping in the decades thereafter. Many ships moved from the traditional national register to the international register, often located on small islands. Besides, many other countries became involved in shipping, sometimes in a big way. In 1948 only 3 percent of the world fleet was registered in an international register (Panama). By 1980 there were two major international registers: Liberia and Panama. Under these two independent registers 25 percent of the world fleet was registered or 104.5 million GT. By 1991 the number of international registers had increased dramatically with the Bahamas, Cyprus, and the 83

Part I - Shipping in the Global Economy Norwegian International register. The five registers accounted for 159 million GT, or 36 percent of the world fleet in 1991. Another decade later, 2002, the basic shift from national registers to international registers has continued as Table 36 illustrates. Many new islands have joined the ranks, like Malta, Marshall Islands, St Vincent & Grenadines, Isle of Man, Bermuda, Antigua & Barbuda and many smaller ones like the Pacific island of Vanuatu. The civil war in Liberia caused a flight from this register to a more stable place like Panama, which is by now the largest international register by far. The fleet under these listed independent registers totals 290 million GT, or 52 percent of the world fleet. Argentina Australia Belgium Brazil Canada Denmark Finland France Germany Greece India Italy Japan Netherlands Norway Poland Spain Sweden USSR UK USA Yugoslavia Other Liberia Panama Total

1948 0.7 0.5 0.4 0.7 2.0 1.1 0.4 2.8 0.0 1.3 0.3 2.1 1.0 2.7 4.3 0.2 1.1 2.0 2.1 18.0 29.2 0.2 3.6 0.8 2.7 80.3

1950 0.9 0.5 0.5 0.7 1.9 1.3 0.5 3.2 0.5 1.3 0.4 2.6 1.9 3.1 5.5 0.2 1.2 2.0 2.1 18.2 27.5 0.2 4.7 0.2 3.4 84.6

1960 1.0 0.6 0.7 1.1 1.6 2.3 0.7 4.8 4.5 4.5 0.9 5.1 6.9 4.9 11.2 0.6 1.8 3.7 3.4 21.1 24.8 0.7 7.2 11.3 4.2 129.8

1965 1.3 0.7 0.8 1.3 1.8 2.6 1.0 5.2 5.3 7.1 1.5 5.7 12.0 4.9 15.6 1.0 2.1 4.3 8.2 21.5 21.5 1.0 11.8 17.5 4.5 160.4

1970 1.3 1.1 1.1 1.7 2.4 3.3 1.4 6.5 7.9 11.0 2.4 7.4 27.0 5.2 19.3 1.6 3.4 4.9 14.8 25.8 18.5 1.5 19.1 33.3 5.6 227.5

1975 1.4 1.2 1.4 2.7 2.6 4.5 2.0 10.7 8.5 22.5 3.9 10.1 39.7 5.7 26.2 2.8 5.4 7.5 19.2 33.2 14.6 1.9 35.0 65.8 13.7 342.2

1980 2.5 1.6 1.8 4.5 3.2 5.4 2.5 11.9 8.4 39.5 5.9 11.1 41.0 5.7 22.0 3.6 8.1 4.2 23.4 27.1 18.5 2.5 60.9 80.3 24.2 419.9

Table 34: Development of major flag states 1948-1980 (million GT)

84

Part I - Shipping in the Global Economy Country 1981 Argentina 2.4 Australia 1.8 Bahamas 0.2 Belgium 1.9 Brazil 5.1 Canada 3.6 China 7.7 Cyprus 1.8 Denmark 5.0 Finland 2.4 France 11.5 Germany 7.7 Greece 42.0 HongKong 2.6 India 6.0 Italy 10.6 Japan 40.8 Liberia 74.9 Netherlands 5.5 Norway 21.7 Panama 27.7 Philippines 2.5 Poland 3.6 SaudiArabia 3.1 Singapore 6.8 SouthKorea 5.1 Spain 8.1 Sweden 4.0 Taiwan 1.9 Turkey 1.7 UK 25.4 USA 18.9 USSR 23.5 Yugoslavia 2.6

Other Total

1982 2.3 1.9 0.4 2.3 5.7 3.2 8.1 2.1 5.2 2.4 10.8 7.7 40.0 3.5 6.2 10.4 41.6 70.7 5.4 21.9 32.6 2.8 3.7 4.3 7.2 5.5 8.1 3.8 2.1 2.1 22.5 19.1 23.8 2.5

1983 2.5 2.0 0.9 2.3 5.8 3.4 8.7 3.5 5.1 2.4 9.9 6.9 37.5 4.4 6.2 10.0 40.8 67.6 5.0 19.2 34.7 3.0 3.7 5.3 7.0 6.4 7.5 3.4 2.9 2.5 19.1 19.4 24.5 2.5

1984 2.4 2.2 3.2 2.4 5.7 3.4 9.3 6.7 5.2 2.2 9.0 6.2 36.0 5.8 6.4 9.2 40.4 62.0 4.6 17.7 37.2 3.4 3.3 3.9 6.5 6.8 7.0 3.5 34.0 3.1 15.9 19.3 24.5 2.7

1985 2.5 2.1 3.9 2.4 6.1 3.3 10.6 8.2 4.9 2.0 8.2 6.2 31.0 6.9 6.6 8.8 40.0 58.2 4.3 15.3 40.7 4.6 3.3 3.1 6.5 7.2 6.3 3.2 4.3 3.7 14.3 19.5 24.7 2.7

1986 2.1 2.4 6.0 2.4 6.2 3.2 11.6 10.6 4.6 1.5 5.9 5.6 28.4 8.2 6.5 7.9 38.5 52.6 4.3 9.3 41.3 6.9 3.5 3.0 6.3 7.2 5.4 2.5 4.3 3.4 11.6 19.9 25.0 2.9

1987 1.9 2.4 9.1 2.3 6.3 3.0 12.4 15.7 4.9 1.1 5.4 4.3 23.6 8.0 6.7 7.8 35.9 51.4 3.9 6.4 43.3 8.7 3.5 2.7 7.1 7.2 4.9 2.3 4.5 3.3 8.5 20.2 25.2 3.2

31.1 32.9 36.9 37.7 421.2 424.8 422.9 448.8

40.7 416.3

44.0 405.0

46.5 403.6

1988 1.9 2.4 9.0 2.1 6.1 2.9 12.9 18.4 4.5 0.8 4.5 3.9 22.0 7.3 6.2 7.2 32.1 49.7 3.7 9.4 44.6 9.3 3.5 2.3 7.2 7.3 4.4 2.1 4.6 3.3 8.3 20.8 25.8 3.5

1989 1.8 2.5 11.6 2.0 6.1 2.8 13.5 18.1 5.0 0.9 4.4 4.0 21.3 6.2 6.4 7.6 28.0 47.9 3.7 15.6 47.4 9.4 3.4 2.1 7.3 7.8 4.0 2.2 5.2 3.2 7.6 20.6 25.9 3.7

1990 1.9 2.5 13.6 2.0 6.0 2.7 13.9 18.3 5.2 1.1 3.8 4.3 20.5 6.6 6.5 8.0 27.1 54.7 3.8 23.4 39.3 8.5 3.4 1.7 7.9 7.8 3.8 2.8 5.8 3.7 6.7 21.3 26.7 3.8

1991 1.7 2.6 17.5 0.3 5.9 2.7 14.3 20.3 5.9 1.1 4 6 22.8 5.9 6.5 8.1 26.4 52.4 2.9 23.6 45 8.6 3.3 1.3 8.5 7.8 3.6 3.2 5.9 4.1 6.6 20.3 26.4 3.3

48.8 51.4 54.5 402.8 410.6 423.6

56.4 436.2

Table 35: Development of major flag states 1981-1991 (million GT)

85

Part I - Shipping in the Global Economy Country

Grosstonnage (millionGT) 129.0 52.7 35.8 29.1 27.5 23.6 21.4 19.4 16.0 15.8 14.4 13.1 13.0 10.2 10.0

Panama Liberia Bahamas Greece Malta Cyprus Singapore Norway(NIS) China USA HongKong Japan MarshallIslands Italy RussianFederation

Country UnitedKingdom StVincent&Grenadines Germany DanishInternational India SouthKorea IsleofMan Bermuda Turkey Netherlands Philippines Malaysia Antigua&Barbuda Iran Taiwan

Grosstonnage (millionGT) 7,2 7,2 6,9 6,9 6,5 6,3 6,2 6,1 6.0 5,8 5,6 5,5 5,0 4,8 4,6

Table 36: Top-30 ship registers 2002 Figure 75 shows the increase in registration under international registers in absolute and relative numbers. If the 54-year trend continues in the future, than national registers might become the exception, rather than the rule in shipping. 600

GrossTonnage(millionGT)

500 400 International

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Figure 75: Increase in international registers 1948-2002

86

Part I - Shipping in the Global Economy A structural change happened during the transition period of 1980-1991 in ship management. The independent ship manager evolved to manage many of the ships under the international registers. These were often located in new places, removed from the traditional shipping centres. The International Ship Management Association was formed to set quality standards, as the sub-standard level of many shipping operations was easily blamed on these independent ship managers. What can and have the national registers done to counteract this development? Some national registers, like that of the Netherlands took measures to create a level-playing field for the shipowners. This example, which worked for the Netherlands, has been adopted by several other European countries like Germany and the United Kingdom.

3.2. The rise and fall of shipping nations What happened to the eight major flag states that totalled 80% of the world fleet in 1948 by this time? Figure 76 shows the development of these countries over the 43-year period of 1948-1991, as well as the growth of the world fleet. There are three striking developments in this graph. The world fleet increased from 80 million GT in 1948 to 436 million GT in 1991, a growth of over 500 percent. The two major flag states in 1948, the USA and UK, were halved by 1991. The USSR was able to expand its fleet and maintain its position during the 43 year period. Norway’s register grew aggressively until the second oil crisis, when some of its tanker owners went bankrupt. Special fiscal incentives helped to revive its flag to pre-oil crisis levels. The national flag of France declined as many tankers and bulk carriers were reflagged to the dependent French register on the Kerguelen Islands. The national flag fleet of the Netherlands declined gradually after the second oil crisis, and this lasted until the new shipping policy was introduced by 1996. Since 2002 the fleet has grown with more than 60 percent. The structural change towards independent registers has confused the shipowning picture in a formidable way. It has become detective work to reconstruct ownership. In the ISL Shipping Statistics Yearbook 2007 the top-30 shipowning countries are listed, based on the country of domicile (Table 37). Thus the national flag fleets and foreign flag fleets have been added. Although these data are sometimes not very accurate, its order of magnitude is a good indicator for the rise and fall of shipping nations over the period of 1948-2007. Please note that the fleets in this table are not measured in gross tonnage, but in deadweight tons. The largest shipowning country in 2007 is Greece, which came almost out of nowhere to world prominence in 50 years; Japan is still a good second, which also developed its fleet since WW2. Germany, China and the Norway make up the remainder of the top-five shipowning countries. The table shows many rises of new shipping nations, and some of the traditional ones managed to stay in the ranking, but clearly lost out, like France and the Netherlands. In the near future some countries may challenge the current leaders. In 2007 the world fleet was registered for two thirds of its deadweight under foreign flags, i.e. flags that were not the national flag of the country of domicile of the shipowner. The independent or open registers have thus become a dominant factor in shipping since WW2. This raises the question why owners prefer to register their ships under foreign flags, in particular in open registers. Before we can answer this question it is necessary to briefly explain two related issues: the international regulatory system that affects shipping and the role of national and international shipping policies. 87

Part I - Shipping in the Global Economy

500

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Figure 76: Top-9 major flag states of 1948 against the rest of the world

3.3. Regulatory framework of shipping Ships and shipowners have to adhere to a host of regulations, either national or international in nature. It is important to understand this regulatory context as it determines to a large extent also the economics of ship operations and the value added in the country as a whole. The objective of this paragraph is to briefly outline the relevant regulatory levels and to refer to other sources for a more extensive discussion. The history of shipping as described in many books, often relates to its role in trade and warfare. Indeed, in the past naval power almost equated to control of the trade routes. The power of the strongest, or the survival of the fittest was the simple framework to which the nations and shipowners had to adhere. Warfare was an inevitable part of the cycle of dominating trade routes, and thus economic wealth. The first international regulatory shipping framework was born out of necessity to circumvent this mechanism, when the Dutch were at their pinnacle of naval power in the first half of the 17th century. It all started with the publication of a book by Hugo de Groot (Grotius), a Dutchman who published in 1633 “Mare Liberum”, or “Free Seas”. He formulated the new principle that the sea was to be considered international territory and all nations were free to use it for trade. By proclaiming “freedom of the seas” De Groot provided a suitable ideological justification for the Dutch to break up various trade monopolies through its formidable naval power and then themselves of course establishing its own trade monopoly, but preferably by peaceful means, thus avoiding war. The reluctance of the merchant class in the Netherlands to invest in an expensive dedicated naval force also motivated this course of action. The outfitting of merchant ships with some naval power (cannons, etc.) was a much more cost-efficient way to operate a global fleet and achieving both objectives of seaborne trade growth and naval protection. It is self-evident that the Dutch got away with this approach for some time until the British challenged their positions, which stands at the basis of the many Anglo-Dutch wars that followed. 88

Part I - Shipping in the Global Economy # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Country National Greece 49.2 Japan 11.6 Germany 12.8 China 31.1 Norway 13.9 US 9.5 HongKong 19.7 SouthKorea 13.8 UK 9.1 Singapore 14.7 Taiwan 4.3 Denmark 9.7 Russia 5.9 Italy 11.6 India 12.8

Foreign 121.1 135.3 72.5 37.9 35.9 25.5 26.8 17.9 15.7 10.2 20.6 11.6 11.0 3.8 1.3

Total # 170.3 16 147.0 17 85.3 18 69.1 19 48.0 20 45.4 21 45.2 22 31.7 23 25.0 24 25.0 25 24.9 26 21.3 27 16.9 28 15.3 29 14.2 30

Country Switzerland Belgium SaudiArabia Turkey Iran Netherlands Indonesia UAE Malaysia Sweden France Cyprus Kuwait Spain Canada Total Others World

National 0.8 6.3 1.0 6.4 8.8 3.8 4.3 0.5 5.9 1.9 2.7 2.4 3.5 0.9 0.8 279.8 27.6 307.4

Foreign 11.5 5.7 10.8 4.7 1.2 3.9 2.2 5.8 0.4 4.4 3.1 2.6 1.3 3.6 3.2 618.8 29.2 648.0

Total 12.3 12.0 11.7 11.1 9.9 7.6 6.5 6.4 6.4 6.2 5.7 5.0 4.8 4.4 4.0 898.6 56.8 955.4

Table 37: Top-30 shipowning countries 2007 (million dwt) The seed of freedom of the seas that Hugo de Groot sowed, gradually took root in the minds of many shipowners and politicians in particular of those countries with weak trade and shipping positions. By the 20th century it had become an accepted doctrine, but the formal regulatory framework in which this concept was formulated, UNCLOS, was only agreed upon in 1982. And still today not all countries have ratified it. The United Nations Convention on the Law of the Sea is the cornerstone of today’s maritime laws. It extends its influence from the deep seas (beds) to the coastal waters and exclusive economic zones. Figure 77. UNCLOS endorses the right of any sovereign state to have a ship register and thus to become a flag state, provided that there is a “genuine link” between ship and shipowner. Since the flag state can define the nature of that link, in practice this “genuine link” criterion has no meaning. From a conceptual point of view, the freedom of the seas principle has been internalised as the leading global principle of the governance of the seas. The acceptance of the general principle took almost 400 years to become the new global paradigm. Figure 78 illustrates the S-shaped relationship of the level of international acceptance of a global regime for the governance of the seas, over time. It took many centuries before the process was accomplished.

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Territorialsea3Ͳ12miles Contiguouszone(12miles)

200milezone Exclusiveeconomiczone

Highseas Continental shelve

Deepseabed

Figure 77: Maritime zones

AcceptanceandInternationalRegulations high UNCLOS 1982

Mare Liberum

HugodeGroot~1633

low time

Figure 78: Paradigm 1: Freedom of the seas In the meantime, the quality of ships had become an issue in the 18th century in the United Kingdom as many ships, crews and cargoes were lost and insurers had to pay up. This led to the creation of the first ship register in the world in which ships were classified according to their quality. The grading system was disputed by shipowners and to make a long story short, it resulted in the 18th century in the creation of a forerunner of the modern classification societies (Lloyd’s Register) as we know these today. The self regulatory system of setting standards for the quality and safety of ships and to look after the implementation was the basis for many flag states to develop their own system of rules and regulations during that period. The world at the end of the 18th century thus became a patchwork of rules and regulations for maritime safety, without a global standard. The trigger for the creation of the first global standard was the overloading of ships in particular in the United Kingdom. In 1876, Samuel Plimsoll introduced in Parliament the concept of indicating a maximum loadline on the ship’s hull in order to put an end to the dramatic loss of life at sea. His courageous battle against the vested interests and the resistance to change is well documented in a recent publication (Jones N. , 2006). It took about 60 years before a global loadline standard was accepted. In the meantime another dramatic 90

Part I - Shipping in the Global Economy loss of life at sea triggered the birth of the first global convention, the sinking of the Titanic in 1912. This led in 1914 to the Solas convention (Safety of Life at Sea) in its most basic form. After WW2 the United Nations took the initiative to create the Inter-governmental Maritime Consultative Organisation (IMCO) in 1958, which changed its name in 1982 into International Maritime Organisation (IMO). This institution is responsible for most of the rules and regulations that govern the maritime world since. Again, at a higher conceptual level, the process of the making of more technical rules and regulations, which was fragmented for hundreds of years, only became a global regime in very recent years. Figure 79 shows the S-shaped curve of acceptance over time. This development was the second paradigm shift that affected deeply the global shipping industry and created the basis for a level playing field for the shipowners as common (minimum) standards of safety and operation were established. Acceptance High 1912– Titanic 1914Ͳ SOLAS

1958Ͳ IMCO/IMO

1876Ͳ Plimsoll 1764Ͳ Lloyd’sRegisterofships Low Time

Figure 79: Paradigm 2: Ship design and operations The governance of the seas as attempted by UNCLOS did create a legal framework, but many issues were not resolved yet, such as the growing problems of overfishing, exploitation of the seabed, and marine pollution. Therefore, a number of United Nations agencies (IMO, FAO, IOC, UNESCO, WMO, WHO, UNEP, UNIDO) took the initiative to found the Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection (GESAMP) in 1967. This agency has been instrumental in the formulation of many action plans to protect the marine environment, but it has not yet reached the status of acceptance by the global community that would allow it to formulate international conventions like under the IMO. The focus of GESAMP to establish a global and holistic regulatory framework for the protection of the marine eco systems is an admirable step in itself, but it also represents a future paradigm shift in the “cowboy or frontier” mentality that once characterised shipping. Figure 80 illustrates the development over time of this new paradigm.

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Acceptance High Stillalong waytogo

1967GESAMP

Low

Time

Figure 80: Paradigm 3: Protection of marine eco systems And there is no end in sight for the extension of the international regulatory framework in the maritime world. The attack on the Twin Towers in New York (9/11) triggered an unprecedented reaction from the United States to improve the security of seas. Because of the tragic event, the US, through its dominant position in the world economy and trade, forced the entire shipping community to accept a new kind of regulation: International Ship and Port Security (ISPS). Never in the history of shipping, a far reaching set of rules and regulations have been accepted and implemented in such a short period of time. Figure 81 illustrates the paradigm, which is not finished yet, as attempts are being undertaken to securitise the entire logistical chains, from the factory floor to the end user. This is the fourth major paradigm shifts that took place in the shipping world. In all four paradigm shifts, dramatic events play an important trigger role and are responsible for many innovations thereafter. Regulatory change is one of the key triggers for change. Acceptance High Steep paradigm shift 2001Ͳ ISPS

Low Time

Figure 81: Paradigm 4: Security of the seas

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Part I - Shipping in the Global Economy The fifth and final paradigm shift in the making, is the concept of Common Maritime Space. This is not triggered by disasters but rather by the need to create a single internal transport market in the European Union. The EU has created a single transport market with the exception of the shipping market. The reason for this exemption of shipping is the complicated international framework of UNCLOS. Europe cannot create a separate regime as that would upset the delicate balance that has been reached so far. However, as Europe is surrounded by seas and these seas form an integral part of the inter-European transport networks, a modus operandi has to be found to create a Common European Maritime Space without upsetting the international order. This will be one of the major challenges for the European Commission in the coming years. Figure 82 visualises the S-curve that is still ahead before the new paradigm on a Common Maritime Space will become globally shared regulatory framework. Acceptance High

Justgetting started

2006Ͳ Europeanmaritimepolicy Low Time

Figure 82: Paradigm 5: Common maritime space

3.4. Shipping policy It will be clear from the previous section that there are several constraints for a country when it defines its shipping policy. Gunnar K. Sletmo (Sletmo, 2002) presents a useful typology of regulations in international shipping. The first question he poses is: What is maritime policy? Traditionally, the emphasis has been on national shipping policy. Such policies are usually promotional in nature and aim either at promoting a nation’s merchant marine or protecting it from competition from fleets of other nations or both. Stakeholders in today’s shipping policies include national and international agencies, national and international shipping companies, their customers (shippers/receivers of cargo), the owners and employees. Today’s regulatory activities in shipping fall into two broad categories: those that deal with the rights and obligations of States, and those that directly affects commercial operations and practices. Table 38 provides a simple typology. Michael Roe (Roe, 2002) adds other dimensions to the typology by formulating the broader context (political, economic, technical, organisational, social, spatial, legal, managerial) and the various institutional levels of a country (international, supra-national, national, regional, local). Figure 83 schematically summarises these complex relationships. 93

Part I - Shipping in the Global Economy  States’rights&obligations

Commercialoperations& practices

National Labourlaws;Cabotage; competition;ownership&flag rules Cargoreservations;Labourlaws; Shipregistration;Taxation

International Flagstate&portstate inspections;Lawofthesea;Safety &environmentalregulations Cargoliability;International labourrules;UNCTADcodefor Linerconferences

Table 38: Regulation issues in international maritime transport Sletmo, also poses the question of “why do we have maritime policies?“ The simple answer is that if a country does not formulate such a policy, others will do it indirectly for them and that may be to their detriment. In particular, developing countries in the 1970s promoted cargo reservation in combination with a national fleet as a way of also reaping some of the benefits of shipping. These arguments for a national shipping policy have been nicely summarised by Goss and Marlow (Goss & Marlow, 1993) as: x x x x x x

The infant industry argument (i.e. “young” industries need protection in early stages); Import substitution in order to develop new industries in developing countries; Shipping capacity is needed to carry trade; Contribution to the balance of payments (i.e. saving or earning foreign exchange); Defence purposes - provide shipping capacity during military conflict; Need to be present in international organisations in order to participate in the international policy decision and rule-making process.

Some countries, like the Netherlands have been maritime nations for centuries, but many new countries without a fleet, started an international ship register and became flag states overnight, making some money in the process. Many obscure islands thus became overnight new shipping nations, but the quality of the administrations was often substandard as there existed no infrastructure. Therefore, IMO has developed the Member State Audit Scheme to monitor the quality of flag states. The private sector Roundtable of international shipping associations has published Shipping Industry Guidelines on Flag State Performance with the purpose to encourage shipowners and operators to examine whether a flag state has sufficient substance before using it, and to put pressure on their flag administrations to effect improvements that might be necessary. The Guidelines provide an excellent overview of the flag state responsibilities, which fall under the headings quality of administrative infrastructure, ratification of international maritime treaties, implementation and enforcement of these treaties, supervision of ship surveys, implementation of the requirements regarding the International Safety Management Code and the relevant maritime security conventions and codes, the certification of qualified seafarers, employments standards, casualty investigations, movement between flags, participation in the IMO audit scheme, and participation in IMO and ILO meetings. The Roundtable publishes its summary data on flag state performance8 and thus provides a valuable tool to assess the various flags.

8

http://www.marisec.org/flagͲperformance

94

EUͲ ECS

Contexts

Institutional level

UNͲ IMO

Political

Economical

Ministry of shipping

Technical

Otherpolicies

Legal

Managerial

Devon County

City/port Plymouth

OrganisaͲ tional

Related sectoral policiies

Spatial

Historical legacy

Social

Interest group

Contexts

Part I - Shipping in the Global Economy

Figure 83: The context for shipping policy making (Roe, 2002) What are the economic implications of choosing a ship register in one flag state rather than another? Stopford identifies four principal reasons (Stopford, 1997, pp. 431-432) 1. Tax, company law and financial law. A company that has registered a ship in a particular country becomes subject to that country’s commercial laws. These laws will determine the company’s liability to pay tax and impose regulations in such areas as company organisation, auditing of accounts, and employment of staff and limitation of liability. All of these affect the economics of the business and the competitive advantage of the shipowner. 2. Compliance with maritime safety conventions. Ratification by the flag state of all international conventions will leave the shipowner little choice but to maintain high standards in the operation of the vessels. However, it might be attractive to the less scrupulous shipowner if the flag state has not ratified the SOLAS convention, which might facilitate him to cut corners thereby saving on equipment, maintenance. 3. Crewing and terms of employment may be more favourable under some flag states as employment of high cost nationals can be avoided. 4. Naval protection of the flag state, or, the change of flag state in order to avoid a blacklisting in some countries, like this happened in the Middle-East when ships made port calls in Israel. The traditional flag states linked to countries with captive fleets and resident shipowners, have seen their market share in ship registration dwindle in the aftermath of WW2, which was accelerated in the 1980s when the shipping markets were so depressed that the only option to survive for many owners was flagging out to open registers in order to reduce cost by complying to minimum standards and exemption from most corporate and other taxes. 95

Part I - Shipping in the Global Economy Two thirds of the world fleet measured in deadweight ton is currently registered in open registers. These flag states earn a fee that makes a contribution to their economy. The real economic benefits of shipping are of course not derived from the registration itself. The important element for a flag state is that either the shipowning and operations staff is located in the country, or the seafarers. The real measure for the contribution of shipping to the economy is the creation of direct and indirect value added. That is why many traditional flag states have countered the flagging out trend by offering a level playing field to their shipowners. This means a flexible manning arrangement regarding the necessity to employ nationals onboard the ships, tonnage tax which means a zero tax on profits, and an array of indirect fiscal and other measures to reduce the cost of seafarers, stimulate investment and innovation and so on. In the Netherlands the crisis in the shipping market of the 1980s lead to an exodus of the Dutch flag register, and even of entire shipping companies. This in spite of a very supportive attitude of the government towards the sector which was mainly directed towards subsidising investments in Dutch flagged ships with the idea behind it that this will create employment for Dutch seafarers, which is good for the economy. Nevertheless, the trend could not be stopped, and therefore several studies were done to understand what was wrong and what could be done to counter the downward spiral. After a detailed economic analysis of all the shipping company’s accounts it was shown that contrary to intuition, the value added created by the Dutch seafarers for the Dutch economy was only 30% of the total value added of the shipping sector (Peeters, Debisschop, Vandendriessche, & Wijnolst, 1994). The remaining 70% of the value added is created on land by the shipowning operations. This insight stood at the basis of a new shipping policy which was introduced in January 1996 which aimed to lure back the ships under the Dutch flag, but most of all bring back and expand shipowners to do business in the country. Shipping is one of the drivers of the maritime economy and therefore understanding and strengthening of the flag and the shipowning function is a key-variable in maintaining a vibrant and dynamic maritime cluster. Figure 84 shows the ways in which the value added is defined. The direct value added consists of the sum of the personnel cost (wages and salaries), depreciation and profit/loss. The economic importance of the maritime cluster - any cluster, sector or company for that matter - is expressed in terms of direct and indirect production, value added and employment. The value added also has an impact on the back flow to the government and other macro-economic variables. The direct economic impact is generated within the cluster itself. These direct activities generate an indirect effect on the rest of the economy via purchases by maritime sectors from other sectors in the country. The indirect effect creates turnover, value added and employment in the supply industry, has in turn a multiplier effect on their suppliers, and so on. The indirect economic impact of the cluster on the rest of the economy is calculated with an input-output model. This is a quantitative model which has been constructed on the basis of the detailed cost-structures of the various sectors and companies within these sectors.

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Part I - Shipping in the Global Economy Directeconomicimpact

Indirecteconomicimpact Intermediate Goodsand services

Directoutput

Intermediategoods andservices

Valueadded (indirect)

Import

Personnelcosts

Consumption effect

Directaddedvalue Depreciation Profit/loss

Investment effect

Directbackflowtothegovernment

Indirectbackflowtothegovernment

Figure 84: Direct, indirect and other economic impacts (Wijnolst, Jenssen, & Sødal, 2003)

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4.

ANALYSIS OF SHIPPING MARKETS

There are many ways of studying a particular industry or market segment, but generally there are two main approaches: x x

Formal modelling; Industry analysis.

Formal models can be of many different types, ranging from simple spreadsheet models to large (often spreadsheet-based) decision support systems. They could be pure econometric models or general equilibrium models using advanced solution algorithms, or they could be system dynamics models. The industry analysis, in contrast, is more descriptive in purpose, but would normally try to apply some form of (theoretical) framework in order to add a degree of analysis to the description. This chapter aims at discussing how an industry analysis could be structured, and offers three examples of analyses for the oil tanker, cruise and ferry segments.

4.1. Basic elements of an industry analysis Most companies do their business without using models. Through practice and experience, managers develop an implicit understanding of how things work, what the competition is like, how to advertise, what strategies are more likely to succeed, and how to develop the company’s products or services? In general, however, it is useful to make the understanding of a market more explicit. This can be achieved by conducting an industry analysis. There is no single method or approach on how to make a good analysis, as it will vary from industry to industry and largely depend on its motives for doing the analysis. This section will try to indicate the main elements of an industry analysis, and some of the considerations that must be made during the process. The main elements of an industry analysis are summarised in Table 39. Not all of these issues will have to be covered in every analysis; it will of course depend on the industry in question and the purpose of conducting the analysis. The critical analytical parts of an industry analysis are those where some method or framework is applied to the industry in question. In addition, the definitions of the industry, as well as the conclusions of the analysis, are fundamental parts of the analytical work involved. The rest of the analysis is the descriptive part, where key data elements for analysis can be found. Referring to Table 39, one could argue that the activities 1 and 6-9 are the analytical parts of the industry analysis and 2-5 are the basic descriptive parts. It is difficult to specify in detail what should be included in the descriptive parts of an industry analysis, but the table indicates some main items normally present in a typical analysis and tries to stress the purpose of each section. This book offers numerous examples of descriptive elements that would be a natural part of particularly the section devoted to market history.

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Part I - Shipping in the Global Economy  1

2

Mainsections Definitionand delimitation

Markethistory

3

Thesupplyside

4

Structureofdemand

5

Competitionand marketstructure

6

Supplyanddemand balance

SubͲitems Criteriaforsegmentation: - Shipsize - Geography - Productcharacteristics - Crosselasticities

-

Purpose/Comments

- Aprecisedefinitionofthemarketisnecessary, butnotalwaystrivialtomake.

- Sometimeslessthanperfectdelimitationsmust memadeduetodataavailability

Initialinnovation Maincompanies/persons Growthrates Cyclicality Phasesofdevelopment Newinnovations

- Understandhowthisindustrycameintobeing

Noofplayers Dominatingfirms Marketleaders Concentrationratios Company/industryprofitability

- Canthefirmsexertanyformofmarketpower? - Anyfirmswithoveraverageearnings? - Ifso,why?(Size,strategy?)

No.ofplayers Dominatingfirms Negotiationpower

-

Freecompetition Monopolisticcompetition Oligopoly Monopoly Thedegreeofoversupply Importanceofproductivity factors

andhowithasdevelopeduntilthecurrent situation. - Innovationdriven? - Demanddriven? - Supplydriven?

Fragmentedorsegmenteddemandside? Contractnegotiationrelations Customerloyalty/switchingcosts

Howintensiveistherivalryamongfirms? Towhatextentistherestrategicinteraction amongtheplayers? - Canaparticularmarketformbeidentified?

- Whatisthemarketsituation? - Developmentofearnings - Isitcurrentlyanormalorveryspecialmarket situation?

7

8

9

Industry attractiveness

-

Criticalsuccess factors(CSFs)

Examples: - Qualityofoperations - Costleadership - Strategy - Customerrelation management - Research&development 

Summaryoffindings

Applyingaformalframework: Businesssystem Strategictypesofshipping Portersfiveforcesorthe7 factorsframework

- Whatarethemainfactorsdeterminingthis industry’sattractiveness(ifatallattractive)

- Basedonsections1Ͳ7,theCSFstrytoidentify factorsthatcharacteriseindustrywinners

- Ifacompanyperformswellonallelementsof thelistofCSFs,itwillsucceedinthisindustry

- Whatislearnedaboutthisindustryofstrategic importancetoacompanyinthisbusiness?

Table 39: Main elements of an industry analysis

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The definition of an industry In principle, to define an industry should be a simple task, but it is not really as straightforward as it seems. One could actually argue that to precisely define an industry may in some cases be the most demanding task of the whole industry analysis. Some examples may illustrate the problems involved. Assume that the industry in question is the tanker market. One definition could then be “The tanker market is the market for all tankers”. This is hardly a practical definition, as one would have to include different ships like: x x x x

Crude oil carriers; Product carriers; Chemical carriers; Gas carriers.

It is quite obvious that the chemical carrier market is widely different from the crude oil market, and would warrant a separate industry analysis. The definition could then be narrowed down to the market for all crude oil tankers, and some of the problems would be solved, but not all. One would still be left with questions like: “Should all ships that are capable of carrying crude oil be included or just those ships that are classified as crude oil tankers? Classified by whom? Should there be a size limit? (Do the VLCCs and the coastal tankers of 300 GT belong to the same industry?)”. One will soon discover that to define an industry in a precise way is actually quite difficult. Another example: Cruise vessels and ferries would normally be regarded as belonging to different industries, but is the ship Color Fantasy that operates as a ferry between Oslo and Kiel a cruise vessel or a ferry? There are in practice many overlaps between business sectors - so the search for one, clear definition of an industry may be challenging. It is important, however, and one will eventually have to make a decision of where to draw the boundaries of the analysis. Figure 85 illustrates the main dimensions of the problem.

Focus of the analysis

Wide

Productor service/ technologies

Geography

Customers/ market segments

Time

Narrow Narrow

Wide

Figure 85: Four dimensions of industry delimitation

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Part I - Shipping in the Global Economy Before deciding on a suitable industry definition, one should consider each and all of the four dimensions and decide on a wide or narrow focus. The commentary below uses the cruise shipping industry as an example, but the problem is very general. 1. Customers or market segments Companies that share the same set of customers are usually in the same industry. When defining the cruise industry, then the customer base could be: All potential cruise passengers if one adopts a very wide focus. With a more narrow focus, one could make a distinction between the mass cruise market as opposed to the niche cruise markets and narrowing further down would reveal that many different segmentations would be possible, like river cruises. 2. The product(s) or service (the technologies involved) Companies selling the same (or similar) products or offering the same (or similar) service belong in general to the same industry. For the cruise industry there could be many considerations, e.g. do the ships offering river cruises belong to the same industry as the big cruise vessels operating out of Miami? Are mega-yachts regarded as cruise vessels? 3. The geographical dimension Some markets are global in nature, some are more regional, so geography may be important the delimitation considerations. In the cruise market, the American, European and Asian markets are very different in nature and in principle could be subject to separate industry analyses. 4. The time dimension Time considerations will basically affect the choices to be made along the other three dimensions. The longer the time horizon, the more market segments will tend to have potential overlaps, technologies could spread to more markets and geographical boundaries become less clear. In the very short run, cruise vessels in the Caribbean will not trade in Europe, but in a longer time perspective, these cruise vessels could move to any other market segment. Very often the definition of an industry will be affected by the availability of data. Data providers are also faced with delimitation problems, and their choices may affect the actual possibilities of getting relevant information for an analysis. An example: The Swedish company ShipPax provides data for the cruise and ferry industries. Their definition of a ferry contains several elements: x x x x

Is larger than 1000 GT; Has passenger accommodation; Sails on a regular line; Uses ro-ro technology for the transport of cars and commercial vehicles, having sufficient height on car deck(s) for this (no open deck only).

The first of these elements is clearly a restriction - there are many ferries in existence smaller than 1000 GT. Still, there are strong arguments for sticking to this definition, because the data provider makes an effort in checking all information for consistency and their data will normally be comparable over time. This is in practice often more important than having the largest possible data set. As a general rule, data rarely exist in the form one wants it for a particular analysis. With less than perfect data, one will have to make compromises, and more often than not, one ends up with doing the best one can with what is actually available.

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Industry attractiveness Porter’s five forces The overall purpose of an industry analysis is to identify what makes this industry ‘tick’, i.e. what really determines the overall profitability of companies in a particular industry. For more than 20 years the dominating theoretical contribution to help analysing this issue has been Michael Porter’s so-called 5-forces model. (Porter, 1985) and this is still the main tool used by students as well as practitioners when conducting an industry analysis. Porter’s five forces are illustrated in Figure 86.

New entrants Barriers to entry Size and switching costs

Suppliers

Size, volume and switching cost

Rivalry

Customers

Degree of consolidation, Economies of scale Industry growth

Substitutes

Degree of sustituability, buyer switching costs

Figure 86: The five forces determining industry attractiveness, adapted from (Porter, 1985) The horizontal axis deals with suppliers and customers and the focus is to what degree they have power in dealings with the companies in this business. The vertical axis deals with threats to existing companies: the threat from potential newcomers and the threat of products or services that may compete with the existing offers. In the centre is the competitive structure of the industry. As a whole, these five factors determine the profitability potential. There is a large literature explaining and discussing Porter’s five forces in great detail. This section gives only a very short summary of the main features to look for when applying the five forces in an industry analysis. x

x

Bargaining power of suppliers is likely to be high if: o The market is dominated by few, large suppliers; o There is no substitute for the input in question; o There is a genuine threat of forward integration; o The switching costs of changing suppliers are high. Bargaining power of customers is likely to be high if: o There is a concentration of buyers; 102

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x

x

x

o The buyers typically buy large volumes; o The switching costs for the buyers are low; o Close substitutes are plentiful. The threat of new entrants is low if: o Barriers to entry are high; o Access to raw materials or distribution channels is controlled by the incumbents. The threat of substitutes is high if: o Brand loyalty is low; o The market is price sensitive; o Switching costs for customers are low. The competitive climate is favourable if: o There are few players; o There is room for individual strategies; o The market growth is high; o There is a high degree of product differentiation; o Barriers to exit are low.

The bottom line is that if you happen to be in an industry where suppliers and customers have little bargaining power, where it is little to fear from newcomers or close substitutes, the number of competitors are low and the product or service is differentiated, then you are in a very attractive industry. It is rare, however, that one finds an industry where all the five elements are either entirely favourable or unfavourable at the same time. All sorts of combinations are possible, and then it will be a matter of weighing the various dimensions against each other to form an overall opinion. When applying the Porter’s five forces framework in shipping, a few observations can be made from a practical point of view. The Porter framework was created with a typical manufacturing business in mind. Shipping is supplying a service, so the framework needs to be adapted to that. The box ‘suppliers’ seems to cause problems as some actually confuse suppliers with the supply side of the market, which is completely wrong, as the supply side is representing all the rivals. Suppliers to e.g. crude oil tanker operators can be many, e.g.: x x x x x x x x x x x

Shipyard; Ship equipment producers; Broker; Agent; Bunker oil supplier; Ports; Technical management company; Commercial management company; Classification society; Insurance company; Banks.

One way of avoiding confusion is to think of suppliers in terms of all the companies that are sending your company invoices for products or services rendered, while customers are companies to whom your company send invoices. In most cases one would find the suppliers to shipping to have little bargaining power, with the possible exception of segments where the technology or ship itself is very 103

Part I - Shipping in the Global Economy special and important (cruise, ferry, FPSOs9), where both shipyard and ship equipment producer could have high bargaining power. Another issue is related to substitutes. One has a tendency to think of substitutes in a narrow fashion other ship types that could provide a similar service. If one studies shortsea shipping, however, one needs to consider road and rail transport as substitutes as well. Perhaps the most important term in the Porter framework is barriers to entry. There are many definitions of barriers to entry, but essentially one needs to think about barriers to entry as obstacles that make it difficult for a new firm to enter an industry. Barriers to entry in shipping can be many, but falls naturally in some main categories, as pointed out in section 2.3: x x x x

Investment in physical capital; Investment in human capital; Economies of scale; Creation of customer loyalty.

In shipping, investment in physical capital is mostly related to investments in ships, sometimes even over-investment. If a possible newcomer sees that incumbents are investing in more ships than is deemed necessary, they may hesitate to enter a market where oversupply will depress earnings. Investments are also made in innovative new ships and designs. As a general observation, the dissemination of new technology in shipping happens fast, so the harvesting window for innovations tends to be very short. The investment in human capital as a barrier to entry is mostly found in more specialist operations, where operational experience is of vital importance, e.g. LNG, LPG, chemical shipping. It may be difficult for a newcomer to secure a sufficiently experienced staff to set up business within these segments. Economies of scale in shipping are important in some sectors (like global container business or cruise), where unit costs decrease with the size of the operation. Economies of scale may also be present on the income side, i.e. by being large one could have better bargaining positions than smaller operators. Customer loyalty can to some extent be built up. We know it from the airline industry, where the bonus-programmes aim at keeping customers loyal. We also know this from liner shipping, where liner conferences use rebate systems to keep the shippers loyal to a specific liner service. In a global world where supply chain management and logistics play a vital role, some shipping companies have developed strategies to become total logistics providers rather than just ship operators. The ultimate aim is to create real switching costs for customers, as nothing is more efficient in keeping the customers ‘loyal’. Reputation (branding) is also part of this picture. Chemical shipping is a good example of an industry where barriers to entry are present in all the four categories mentioned above: x

Investment in physical capital o The ship itself is expensive and represents high initial investment costs;

9

FloatingProduction,StorageandOffloadingvessel

104

Part I - Shipping in the Global Economy o

x

x

x

The market leaders in chemical shipping have been investing more aggressively than the average, keeping the size of the chemical carrier fleet slightly ahead of demand growth; o Large investments have been made in dedicated chemical terminals, enabling the dominating firms to offer storage and cargo consolidation facilities to customers. Investment in human capital o Chemical shipping handles several hundreds of different cargoes, some of which are dangerous cargoes. Operational experience is, therefore, extremely important in this business. Economies of scale o Economies of scale exist mostly on the income side. One needs at least 5-6 ships (this is also a point regarding initial investment costs for eventual newcomers) in order to set up an intercontinental trade route, and companies with many ships can offer their customers flexibility and reliability in a way smaller operators cannot, and therefore the large companies tend to get more (or better) contracts than the smaller ones. Creation of customer loyalty o Building of dedicated terminals, offers of total logistics services and long-term personal relations with big customers are all means to secure customer loyalty.

The force related to rivalry in an industry is a key to understanding a particular business. In general one could say that the larger the number of players in an industry, the closer the competitive situation will be that of perfect competition - a situation where market prices cannot be influenced by the action of any one player, so there is no strategic interaction among the players. This is the case for the bulk sector - there are so many players and no one is big enough to have any influence whatsoever on the market price. On the other end of the competitive scale we have monopoly - one single player in the market, which is very rare in shipping. One can find it in the ferry business, where some companies may have monopoly on a specific route, but also in that business there is competition and rivalry on most routes. For most other shipping sectors, the competitive situation lies somewhere in between monopoly and pure competition. In the global economy one sees tendencies towards consolidation in many sectors, led on by car manufacturers and oil companies, where mergers and acquisitions have created very large entities over the last decade or so. This is also the case for several shipping segments - one can see tendencies towards consolidation to (hopefully) gain market power and curb the intensity of rivalry. When conducting an industry analysis, some measurements of the degree of consolidation or concentration may be employed. The two most common measures are x x

Top-firm ratios (where ‘Top’ could be 4, 8, 10, 20, etc); Herfindahl index.

A 4-firm ratio is simply the sum of the market shares of the top-4 firms in an industry. A 4-firm ratio above 40% is regarded as a sign of an oligopolistic industry, i.e. a fairly concentrated industry where there will be strategic interaction among the players. Competition authorities tend to monitor the development of such industries. A Herfindahl index, also known as the Herfindahl-Hirschman Index (HHI) is defined as the sum of the squares of the market shares of all individual firms (Hirschman, 1964). The idea is that by using the squared numbers, higher weight is placed on large numbers, i.e. large companies. If all companies of an industry are of equal size, then the HHI will be 1/N, where N is the number of companies. The HHI, therefore, ranges from 1/N to 1 (or when using percentage numbers to 10000 (= 1002)). 105

Part I - Shipping in the Global Economy As an example, consider an industry with only 2 players with the same size. Then we have: ‫ ܫܪܪ‬ൌ

ͳ ͳ ൌ ൌ ሺͲǤͷଶ ൅ ͲǤͷଶ ሻ ൌ ͲǤͷ ܰ ʹ

As a rule of thumb, the HHI is used as follows: x x x

HHI less than 0.1 (or 1000) is considered an unconcentrated index. HHI between 0.1 and 0.18 (between 1000 and 1800) is considered moderately concentrated. HHI greater than 0.18 (or 1800) indicates high concentration.

In Europe, competition authorities are particularly interested in changes in the HHI when mergers or acquisitions take place. A change of more than 0.025 (or 250) is considered a serious increase of concentration in an industry.

The 7-factor framework A very similar framework to Porter’s five forces used by leading consultant companies is what we here will call, in want of another name, the 7-factor framework. Table 40 summarises these factors.  1 2 3 4 5 6 7

Factor Barrierstoentry Competitors Products Switchingcosts Demandgrowth Fixedcost Barrierstoexit

Higherprofitability High Few Different High High Low Low

Lowerprofitability Low Many Similar Low Low High High

Table 40: The 7-factor framework of industry attractiveness The terms in the previous table are the same as have been discussed above in relation to Porter’s five forces. One could argue that the 7-factor framework concentrates on three of Porter’s forces: Threats of new entrants (factor 1 and 7), bargaining power of customers (factor 4) and rivalry (factors 2,3,5,6 and 7), disregarding the role of suppliers and substitutes. By placing a particular industry on what should be regarded as 7 different scales, one could get a visual picture of the industry and maybe able to form a conclusion as to the attractiveness of the industry, which will be higher the more factors are placed to the left of the scales in the table. Examples of the use of this framework are given in the cases in this chapter.

Some micro-based frameworks Both Porter’s five forces and the 7-factor framework are looking at the industry from a macro-, industry-level point of view. Porter has also developed frameworks from a company point of view that may be useful when looking at the attractiveness of an industry. His figure showing 3 generic strategies is widely used and is illustrated in Figure 87. The basic idea is that a company should be aware of it’s source of competitive advantage - if it is production efficiency and associated low costs or if it is the company’s ability to innovate and differentiate itself from competitors. Then the company must consider the scope - weather the target should be broad or narrow and the three (four) strategies follow as illustrated. 106

Narrow target

Broad target

Part I - Shipping in the Global Economy

1

2 Cost leadership

3A

Differentiation

3B Cost focus

Lower cost

Differentiation focus

Dif f erentiation

Competitive advantage Figure 87: Three generic strategies (Porter, 1985)

Narrow target

Broad target

The big consultant companies have over the years developed several similar frameworks that have been and are still being used in practice. One of these is known as the BCG Advantage Matrix, developed by Boston Consulting Group and illustrated in Figure 88

Specialisation

Volume

Fragmented

Stalemate

Lower cost

Dif f erentiation

Number of approaches to achieve advantge Figure 88: The BCG Advantage Matrix (Boston Consulting Group, 1970)

Strategic types in shipping Another framework that was developed explicitly for shipping in a project co-operation between McKinsey & Co. and the Centre for International Economics and Shipping at the Norwegian School of Economics and Business Administration in the mid 1980s could also be useful when conducting an 107

Part I - Shipping in the Global Economy industry analysis. This framework has been presented previously (Wijnolst & Wergeland, 1996) but will be expanded upon here. The basic idea is that there are two main sources for creating competitive advantage in shipping: x x

The exploitation of economies of scale; The degree to which one might differentiate one’s service.

By applying these two dimensions, one gets four generic types of shipping, as shown in Figure 89, with the corresponding characteristics described.

Insignif icant

Signif icant

Contract shipping

Industry shipping

Concentrated industry Positive scale effect of fleet size Fairly homogeneous service Liquid second-hand market Close customer relations

Concentrated industry Positive scale effects of fleet size Specialised services Difficult second-hand market Tailor-made customer service

Fragmented industry No scale effect in fleet Homogeneous service Liquid second-hand market Little direct customer contact

Local monopolies Limited scale effects Specialised services Difficult second-hand market Direct customer contact Specialty shipping

Commodity shipping

Insignif icant

Signif icant

Differentiation Figure 89: Strategic types of shipping When there are no economies of scale and the services are homogeneous in nature, one will get what is called commodity shipping, and this as close to perfect competition as one could get. A network of brokers, basically eliminating the need for direct customer contact, is efficiently servicing such markets. When the degree of differentiation is large, but no economies of scale exist, one will get specialty shipping, which tends to create (temporarily) local monopolies, but not necessarily always. When there is no differentiation, so the service is fairly homogeneous, but economies of scale exist, one will get contract shipping. It is called contract shipping because the economies of scale are more on the income side than on the cost side as mentioned above, so bigger size implies greater chance to secure good contracts. Finally, the combination of high economies of scale and high degree of differentiation will result in the industry shipping segment, where tailor-making the service to the needs of customers is essential while at the same time exploiting economies of scale. The existence of economies of scale will inevitably lead to consolidation pressures in the pursuit of scale advantages, and one would expect to see a movement towards oligopoly in those segments, while in the cases of commodity- and specialty shipping one would expect to see rather fragmented industries. In Figure 90, selected ship segments have been placed in this framework.

108

Part I - Shipping in the Global Economy

Significant

Industryshipping LNG

Chemicals

Cruise Globalcontainer LPG Car

Handybulk

RoͲro Ferry

Insignificant

Economies of scale

Contractshipping

Containerfeeder Largebulk Divingvessel Crudeoil

Specialtyshipping

Commodityshipping

Insignificant

Significant Differentiation

Figure 90: Examples of shipping segments as strategic types Bulk shipping has all the characteristics of a commodity shipping market with no differentiation and no economies of scale. In Figure 90 the Handysize bulk carrier has been placed closer to the contract shipping box to reflect the fact that in this segment some success has been made in forming large pools that claim to have achieved better contracts because of size. The Norwegian company Western Bulk is an example of a Handymax operator believing in size: “Cargo contracts are entered into for various durations and are harmonised with the company’s global trading pattern to capture operational synergies, thereby ensuring stability in earnings and enhanced service levels towards our customers”.10 The container business has been divided into two distinct different businesses in Figure 90. For global operators, economies of scale advantages are constantly being pursued, but at the same time they try to tailor-make their services to the door-to-door needs of customers, so this is an industry shipping segment, indeed. Container feeder services, however, have more the characteristics of commodity shipping, with limited scope for exploiting economies of scale and little room for differentiation. Chemicals and LNG are prime examples of contract shipping segments, where size matters in securing good contracts. The two best examples of specialty shipping are ferries and diving support vessels. One could argue that in the ferry market, each route is unique and a market of its own. A company with a concession to operate a route will, therefore, has a local monopoly on this route. Apart from that, the ferry industry is very fragmented, so monopolies are just very local. The service is highly specialised, with a service tailor-made for a particular route, so ferries are specialty shipping. Diving support vessels also fall into this category. There are no apparent signs of economies of scale advantages. No less than 103 different companies operate the 128 diving vessels currently in operation11. No company owns more than 3

10

(www.westernbulk.no)

11

Lloyd’sRegisterFairplaydatabaseSeaͲWeb.

109

Part I - Shipping in the Global Economy vessels and only 3 companies have 3 vessels each: Houston-based Oceaneering International, Delaware-based CDI Prometheus and Abu Dhabi-based Mutawa Marine Works. The vessels are highly specialised for its purpose, so diving vessels are clearly specialty shipping. Cruise is a concept-oriented business, where each ship in principle has its own concept tailor-made to the target group. At the same time there are huge economies of scale advantages, particularly regarding the ‘hotel’-operation and in marketing, which makes cruise a prime example of industry shipping. Car carriers are also in this category with tailor-made operations to match the needs of car manufacturers. Economies of scale are present, like for chemicals, as one needs to be relatively big to win contracts. Ro-Ro and LPG are not so clearly in any one category, so they gravitate towards the middle. The placement of a segment in this framework is not static, however. On the contrary there are lots of dynamics in shipping and segments may change character over time. In relation to the topic of this book, Figure 91 illustrates the dynamics of innovation.

Insignificant

Significant

Contractshipping

Industryshipping

Marketcooperation realeconomicsofscale

Successfulniche operation

Copying, overcontracting

Specialisation Innovation

Specialtyshipping

Commodityshipping

Insignificant

Significant

Differentiation Figure 91: The dynamics of innovations in shipping More often than not new innovations have their origins in either money or people engaged in the bulk sector. A new ship type, concept or design will tend to create a new specialty shipping segment, often with an initial monopoly profit that will attract attention. Over time this special segment could move in the direction of contract shipping, as happened to the chemical carrier. Chemical shipping started in the late 1950s as conversions of oil product tankers and quickly became a success. Over time the chemical tanker has been more and more standardised, so the degree of differentiation has been reduced. The chemical tanker segment is today one of the most concentrated ones in modern shipping, with a top 4-firm ratio over 75%, so this innovation has followed the path of standardisation and consolidation. The new segment could also move in the industry shipping direction as the car carrier segment has. Back in the 1950s cars were carried in many different types of ships, but mostly bulk vessels. In 1964 110

Part I - Shipping in the Global Economy the first pure car carrier PCC Dyvi Anglia was delivered by Torsvik Yard to shipowner Jan Erik Dyvi. The ship had a capacity of 450 cars (Bruaasdal, 1992). This market has seen a similar development as with chemicals when it comes to consolidation - today the top 4-firm ratio is about 60%, and although the car carrier itself has become more and more standardised, the integration of the logistics itself has become more and more customer-oriented. The largest PCCs today have a capacity of over 6000 CEU12 - a clear indication of economies of scale in the vessel itself. There is also a chance that a new segment could end up back in the commodity shipping box. This has happened to many innovations, e.g. the combination carrier and the heavy-lift vessel. News travel fast in shipping and it is easy to copy new ideas. Over-contracting of competing concepts coupled with fierce competition has sent many new specialty shipping segments back into a market regime of commodity shipping. The four strategic types of shipping require different approaches to the business. It is important to know the characteristics of the market in which one is operating and try to design organisations and strategies suitable for the structure of the market. Figure 92 tries to summarise a kind of idealised organisation for each of the four strategic types of shipping, by hinting at what the organisations should be good at in order to succeed

Insignif icant

Signif icant

Contract shipping

Industry shipping

Professional , quality-oriented organisation Primary focus: World class operations Life-cycle costing orientation and customer satisfaction Flexible and scalable organisation Primary focus: Asset management Low-cost operations Market understanding

Customer oriented organisation Primary focus: customer relation management Quality operation and life-cycle costing attitudes

Flexible and quick-to-act organisation Primary focus: Entry deterrence Customer development Market positioning and financial skills

Specialty shipping

Commodity shipping

Insignif icant

Signif icant

Differentiation

Figure 92: Focus, orientation and skills for strategic types of shipping

Critical Success Factors For an industry analysis to be truly useful for a company in that industry, the analyst should try to translate the main findings of the analysis into a list of critical success factors. CSFs could be seen as check list for success. If a company is good at all items on the CSF-list, it will be a winner in the industry.

12

CEU–CarEquivalentUnit

111

Part I - Shipping in the Global Economy CSFs could be many different things and involve widely different areas like finance, strategy, organisation, operations management, research- and development and human resource development. A list of CSFs is completely industry and context dependent. Figure 92 in the previous section could be seen as an attempt of specifying some more generic CSFs, and may generate ideas of what to look for. The rest of this chapter is devoted to three examples of industry analyses that was conducted as part of the EU-project FLAGSHIP, with funding from the Sixth Framework Program, for oil tankers, cruise vessels and ferries. The aim is to show how the principles and tools described above may be applied in practice (Gisnås, Holte, Rialland, & Wergeland, 2008c), (Gisnås, Holte, Rialland, & Wergeland, 2008b) and (Gisnås, Holte, Rialland, & Wergeland, 2008a).

4.2. Case 1: Tanker Shipping This section will basically look at the market for all tankers above 10,000 dwt. Although some separate figures for product tankers will be presented, the main focus will be on the total capacity of all vessels capable of carrying crude oil, since there is a high degree of substitutability. This does not mean that a look at the sub-segments of the industry is not meaningful, but the basic income levels of the industry will be determined by the total capacity available measured against the demand. The historical development can be divided into four distinctive phases, which are well described in sections 5.1 to 5.4: x x x x

Phase 1 (1859 - 1900): Birth of the oil industry Phase 2 (1900 - 1938): Take-off period Phase 3 (1938 - 1979): Growth period Phase 4 (1979 - 2007): Regulatory change, restructuring and renewal

The supply side The tanker fleet consists of many different types of vessels. Crude oil tankers are used for the deepsea transportation of unrefined oil from producing countries to refineries. Shuttle tankers are specially designed for offshore loading and transport to onshore storage facilities and refineries. Product tankers are versatile ships carrying various types of refined oil products. Their coated tanks serve to protect against corrosion, ensure cargo cleanliness, and facilitate tank cleaning. The shuttle tanker has become a separate category in recent years. A summary of the fleet at the beginning of 2008 is given in Table 41. Figure 93 shows the development of the total tanker fleet from 1970, with the size distribution in five categories. One can note that it was not until 2005 that the tanker fleet reached a similar level as the peak level of 1978, some 27 years after. The current high growth levels raises the question of whether the supply development is better aligned with demand expectations this time. In the tanker industry, environmental regulations are forcing shipowners to scrap older vessels and to build new ones. Since 2007, for example, all tankers older than 26 years are forbidden in Europe, and by 2010 only double-hulled tankers will be allowed. It was the US OPA 90 regulation that mainly triggered the introduction of double hulls. Figure 94 illustrates how fast the double hull concept has been adopted by shipowners. Currently, almost 80% of all tankers sail with double hull.

112

Part I - Shipping in the Global Economy 

Alltankers Million No dwt

SizeCategory

Crudeoil Million No dwt

Product Million No dwt

Shuttle No

000dwt

Handysize(10Ͳ50)

1,761

59.1

102

3.2

1,655

55.7

4

157

Panamax(50Ͳ80)

445

29.3

143

9.6

300

19.5

2

146

Aframax(80Ͳ120)

731

75.3

563

58.3

157

15.8

11

1,129

Suezmax(120Ͳ200)

348

52.6

318

48.8

2

0.2

28

3,594

VLCC(200Ͳ320)

490

143.2

490

143.2









4

1.7

4

1.7









3,779

361.2

1,620

264.9

2,114

91.3

45

5,026

ULCC(320+) Total

Table 41: Tanker fleet composition, 1 January 2008

Tankercapacity(milliondwt)

450 400 350 300 250 200 150 100 50 0 1970

1975

VLCC

1980

Suezmax

1985 Aframax

1990

1995

Panamax

2000

2005

Handysize

Figure 93: Tanker development 1970-2008 The average age of crude oil tankers is currently 9 years. The double hull crude tankers average 5.9 years of age, while the average age of single hulls are over 17 years (Fearnleys 2008). The age structure is summarised in Table 42 and the detailed age profiles are illustrated in Figure 95. Product tankers are slightly younger than crude oil tankers, but the single-hull vessels tend to be a little older with an average of 22 years (Fearnleys). As can be seen from Figure 95, the crude oil tanker segment has relatively fewer ships older than 25 years than the products segment, but the products segments have more ships younger than 5 years. Both segments do, however, exhibit very healthy age profiles in the sense that a long tail of old vessels has been eliminated in the last decade.

113

Part I - Shipping in the Global Economy

Sharedoublehull(%)

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 VLCC

Suezmax

Aframax

Panamax

Handysize

Totalfleet

Figure 94: Double-hull shares of fleet 1992-2008

30,000

Fleetsize(1,000dwt)

25,000 20,000 15,000 10,000 5,000 0 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 Crudetankers

9

7

5

3

1

Producttankers

Figure 95: Age profiles of crude and products tankers, 2008

114

Part I - Shipping in the Global Economy  Fleet(thousanddwt) Av.Age(years) 0Ͳ4years 5Ͳ9years 10Ͳ14years 15Ͳ19years 20Ͳ25years 26+years 

Crudetankers 264,353 9.0 26.0% 33.1% 16.0% 17.4% 5.9% 1.6% 100%

Producttankers 91,335 8.6 44.6% 19.3% 10.3% 9.0% 11.5% 5.3% 100%

Table 42: Age profile of tanker fleet, 1 January 2008 The order book is summarised for all tankers in Table 43. The total fleet orders placed account for 40% of existing capacity, i.e. on average the tanker market will get more than 10% fleet increases each year due to new deliveries over the next few years.  Fleet(1.1.08) Orderbook Orderbookas%offleet

VLCC 144.9 53.9 37.2%

Suezmax 52.6 21.2 40.3%

Aframax 75.3 27.9 37.1%

Panamax 29.3 19 64.8%

Handy 59.1 18 30.5%

Total 361.2 140 38.8%

Table 43: Tanker order book by size category, early 2008 (million dwt) The net increases to the fleet will, however, depend on how many ships are being scrapped. The potential scrapping candidates are the oldest ships as indicated in Figure 95. The order of magnitude is summarised in Table 44, together with Fearnleys estimate of expected scrapping, where the assumption is that by 2010, 90% of all ships over 20 years of age will have been removed from the fleet, i.e. more than 30 million dwt of ships not yet 26 years of age. Year  2008 2009 2010

20+candidatesforscrapping 20Ͳ25 26+ Total 30.6 18.7 49.3 34.4 23.9 58.3 42.0 29.2 71.2

Scrapping estimate

Accumulated% ofpotential

13.5 19.7 30.0

27% 57% 89%

Table 44: Tanker fleet scrapping potential (million dwt) Fearnleys estimates for the near future tanker fleet development is given in Table 45. The table indicates that the tanker industry will get 6 and 9 per cent new capacity in 2008 and 2009 respectively, to be matched by the development on the demand side. Tanker shipping is a very fragmented business. In the crude tanker segments Clarkson Research lists 1268 different owning companies or groups. The largest tanker company has less than 5% of the world fleet, so the development towards consolidation seen in most other shipping segments is just in its infancy when it comes to crude tankers. The top 20 tanker companies are listed in Table 46. It is very 115

Part I - Shipping in the Global Economy difficult to avoid that some numbers include orders not delivered, and sometimes the various sources are in conflict, so the numbers should be regarded as indications only. Existingfleetper Deadweight Deliveries Deletions Number Deliveries Deletions

1/1/2007 343,363 29,399 11,522 3,528 365 114

1/1/2008 361,240 35,142 13,481 3,779 453 149

1/1/2009 382,901 55,086 19,710 4,083 521 188

1/1/2010 418,276 41,007 30,021 4,416 379 272

1/1/2011 429,263   4,533  

Table 45: Fearnleys’ estimate of future tanker fleet (thousand dwt) It is not always easy to find out who is actually the owner of a ship, as the industry is using many ways of disguising the real ownership. As a consequence of increasing globalisation of the financial markets, it is also difficult to pinpoint the country of a specific company. A good example is the old Norwegian tanker company Bergesen. This company was sold to the Chinese owned World-Wide shipping, and has now changed its name to BW Shipping or just BW, with a headquarter in Singapore. Another example is Frontline, which is controlled by the Fredriksen Group. The investment company Hemen Holding Ltd, based in Cyprus, is the largest owner of Frontline, and controlled by John Fredriksen, who has changed his citizenship from Norway to Cyprus. Frontline is registered in Bermuda. Table 46 also gives an indication to what extent the main players are engaged in more than one crude tanker segment. Companies like Frontline, Euronav and Vela concentrate on the larger vessels only, while the no 4 company, Teekay, is number one in no less than 3 segments in the mid size range. The Japanese Mitsui OSK and the Greek company Tsakos have a presence in all size categories. If one compares the top 20 list with a similar list a decade older (Wijnolst & Waals 1999) one will find that 12 of the companies in Table 26 were also on the list 10 years ago, 7 under the same name, but 5 with a different name today. 9 companies are new to the top 20 list. This indicates a rather dynamic industry where company structures are constantly changing. A striking change is that the major oil companies have dropped out of the list (Shell, Chevron and Mobil).

Structure of Demand The tanker industry lives from carrying oil from exporting to importing areas. The demand for oil transportation will thus depend on a few key parameters: x x x x x

The resource base - reserves for oil; Total demand for energy; Distribution of demand on energy sources; Developments in producing and exporting areas; Distance implications of trade patterns.

There has been a lot of discussion in recent years about peak oil, i.e. the situation where oil production can no longer increase year by year. In a historical perspective, oil reserves are a dynamic concept. Figure 96 shows reserves and production in the last 25 years. Despite the enormous amount of oil 116

Part I - Shipping in the Global Economy actually produced - almost 80 billion barrels per day on average for 25 years - the R/P ratio (how many years the current proved reserves will last with the current production rate) is actually higher today than 25 years ago. The proved reserves increased by 40% in the 5 years from 1983-1988, no doubt spurred by the second oil price shock in 1979-80. The figure also indicates that oil production has not peaked yet.

17 18 19 20 

Dynacom SCI COSCO NSCSA 

Shuttle

A.PMoller NIOC(IranGovt) Tsakos VELA(SaudiAramco) ChinaShippingCo. BW

Handy

11 12 13 14 15 16

USA Greece Malaysia Singapore/UK /Israel Denmark Iran Greece SaudiArabia China China/ Norway Greece India China SaudiArabia TOP20

Panamax

7 8 9 10

Sovcomflot/ Novorossiysk OSG Angelicoussis MISC TankerPacific/Zodiac

Aframax

6

Suezmax

MitsuiOSKLines NYK Teekay EURONAV

VLCC

2 3 4 5

Cyprus/ Bermuda Japan Japan Canada France/ Belgium Russia

%ofworld fleet

Frontline

Rankinsegmentsofcrudetanker

Dwt

1

Fleet Number

Country 

Ranking

Company 

66

16.8

4.7%

1

3

Ͳ

Ͳ

Ͳ

Ͳ

91 55 85 35

13.5 10.7 9.6 8.3

3.7% 3.0% 2.7% 2.3%

12 3 Ͳ 8

46 Ͳ 1 2

3 24 1 Ͳ

16 Ͳ Ͳ Ͳ

4 Ͳ Ͳ Ͳ

Ͳ Ͳ 1 Ͳ

97

8.2

2.3%

Ͳ

5

2

Ͳ

1

14

73 30 49 54

8.1 7.5 6.8 6.6

2.3% 2.1% 1.9% 1.8%

9 4 12 10

Ͳ Ͳ Ͳ 9

12 39 3 5

1 Ͳ Ͳ Ͳ

6 Ͳ 39 19

Ͳ Ͳ  Ͳ

83 30 53 24 90 26

6.3 6.2 6.2 6.1 6.0 5.4

1.7% 1.7% 1.7% 1.7% 1.7% 1.5%

14 7 23 5 37 6

Ͳ 21 10 Ͳ Ͳ Ͳ

8 46 8 Ͳ 37 Ͳ

Ͳ Ͳ 9 Ͳ 2 15

17 Ͳ 24 Ͳ 3 Ͳ

7 Ͳ Ͳ Ͳ Ͳ Ͳ

29 41 31 11 

4.5 3.7 3.5 3.3 145.6

1.2% 1.0% 1.0% 0.9% 40.3%

19 Ͳ 20 11 

14 16 34 Ͳ 

30 22 Ͳ Ͳ 

11 6 3 Ͳ 

Ͳ 35 46 16 

Ͳ Ͳ Ͳ Ͳ 

Table 46: Top-20 oil tanker owners Figure 97 illustrates that the world has some untapped potential sources of oil way beyond the needs of the next many decades - it is mainly a matter of price and technology. With current oil prices fluctuating US$ 100 a barrel, all of these sources are within economic potential to exploit.

117

50

200

45

190

40

180

35

170

30

160

25

150

20

140

15

130

10

120

5

110

0

100 1983

1988

1993

Provedreserves/currentproduction(years)

1998

Index(1983=100)

Provedreserves(Years)

Part I - Shipping in the Global Economy

2003

Worldproduction(index)

Worldprovedreserves(index)

Figure 96: R/P ratio and reserves and production 1983-2006

The oil price development OPEC has played an active role in changing the oil prices by controlling the output of the organisation’s member’s production. This led to an oil price shock in 1973 and again in 1979-80. After the second shock, non-OPEC production rose quickly and surpassed the OPEC production by more than 500 mill tons in 1985. Gradually, however, OPEC has regained a strong position and in 2005-06, OPEC again produced more than non-OPEC sources (BP, 2008) Figure 98 shows the relationship between OPEC production and the price of oil, measured in 2006 US$. In the 60s and early 70s, OPEC production followed world demand and increased steadily to maintain a price level of US$ 10-12 per barrel. The 1973 oil embargo sent the price up to close to USD 50 per barrel (in 2006 prices). OPEC maintained that price by adjusting output for the next 3 years, then in 1979 OPEC again held back on production, which sent the oil price up to around US$ 90 per barrel. In order to try to maintain this price, OPEC had to cut back 4-5 million barrels every year till 1983, and less in 1984-85. Saudi Arabia acted as the sole swing producer for OPEC in these years, but could not shoulder this burden alone any longer. This led to an output increase in 1986 that sent the oil price down from over US$ 50 to around US$ 25 per barrel. For the next 10 years a similar situation as that as that existed in the 1960s - OPEC increased production to roughly match world demand (the small hike in 1990 was the result of the Iraq invasion of Kuwait) which culminated in 1998 where the oil price was down to the same level as before the first oil price shock in 1973. After that oil prices have started to climb to new highs again, because OPEC’s production does not match world demand, and non-OPEC sources are unable to increase fast enough to keep oil prices down. It is easy to imagine another circle starting. The role of OPEC seems very much the same today as in the mid 70s. 118

Part I - Shipping in the Global Economy

Economicprice2004(USD)

80 Arctic

70 60 50

Oilshales

Deepwater

40 EOR

30 Other conv.oil

20 Already produced

10 0

0

Superdeep

Opec/ME

1000

2000

Heavyoil bitumen

3000

4000

5000

6000

Availableoil(millionbarrels) Figure 97: Production cost as a function of available oil (IEA, 2006)

Figure 98: OPEC production and oil price development 1965-2007 (BP, 2008) 119

Part I - Shipping in the Global Economy

Energy consumption and the distribution of energy types The world is consuming more and more energy. This is illustrated in Figure 99, which shows that Asia is the region where energy demand is growing at a very high rate. Asia is currently a bigger consumer of energy than both Europe and North America. The total European consumption in 2006 was on par with the 1985 level, so Europe has been able to maintain economic growth without using more energy. Figure 100 shows the specific consumption of all energy types converted to oil equivalents per capita for selected countries and the world as a whole.

Milliontonoilequivalents

12,000 10,000 8,000 6,000 4,000 2,000 0 1965

1970

1975

1980

Allothers

Asia

Europe

world

1985

1990

1995

2000

2005

NorthAmerica

Figure 99: World energy consumption 1965-2006 Figure 100 illustrates the great differences between countries in their energy intensities. China is the country with a most marked increase in later years and is approaching the current world average - a level where Japan was 40 years ago. Japan is currently on par with Germany, which is a country where energy use per capita has been showing a declining trend over the last 20 years. USA is in a separate league, consuming the double of Germany and Japan per capita and 6 times as much as China and 20 times as much as India. Table 47 summarises some facts about the distribution of the total energy consumption in the world on the various types of energy. Since 1995 the use of oil has been reduced from 40 to 36 per cent, with smaller changes for the other sources of energy. China and India rely to a great extent on coal for fuel, and although China has reduced the share of coal from 76 to 70 per cent, in absolute terms China has more than doubled the use of coal from some 500 mtoe in 1995 to almost 1200 mtoe in 2006, an increase that is dwarfing all attempts of reducing CO2 emissions in the rest of the world. China is using relatively more oil, but the other countries and regions in Table 47 have reduced their oil dependence; in Europe a reduction of 7% and in Japan as much as 11%. It is interesting to note that in only about a

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Part I - Shipping in the Global Economy decade, China has doubled its importance as energy consumer and is currently larger than the whole of Western Europe.

Tonoilequivalentspercapita

9 8 7 6 5 4 3 2 1 0 1965

1970

1975

1980

India

China

Germany

USA

1985

1990 World

1995

2000

2005

Japan

Figure 100: Energy consumption per capita 1965-2006 (BP, 2008) Area WesternEurope  NorthAmerica  FormerUSSR  Japan  China  India  Worldtotal 

Year 1995 2006 1995 2006 1995 2006 1995 2006 1995 2006 1995 2006 1995 2006

Oil 46 39 41 40 24 18 56 45 19 21 33 28 40 36

Gas 18 23 26 25 48 53 12 15 2 3 7 8 23 24

Coal 18 16 22 22 22 18 17 23 76 70 56 56 27 28

Other 18 22 11 13 6 11 16 17 3 6 4 7 10 12

%ofworldconsumption 18 17 30 26 13 10 5 5 8 16 3 4 100 100

Table 47: Distribution of energy consumption

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Prospects for oil demand and supply Table 48 is summarising the expected development of oil demand and supply as the International Energy Agency (IEA) sees it. It expects the world demand growth to be 1.3% on average for 20052030, with 2.5% growth in developing countries and only 0.6% in the OECD area. China will continue to have high growth rates of energy demand - 3.4%. On the supply side, the main conclusions are: x x x x x

Almost no growth (0.2%) in non-OPEC crude oil supply 2005-30 High growth for non-conventional oil (7.2%), i.e. condensates and new sources of oil 1.8% growth in OPEC crude oil supply, which means OPEC will maintain its current market share of just over 50% Negative growth in US and Chinese supply, which will make both countries more dependent on imports than currently The expected total supply of crude oil is 0.9% p.a., which means that oil will continue to be reduced in importance in the world energy picture relatively speaking.

 Demandforoil OECD USA Dev.Countries China Transitioneconomies Allothers World Supplyofoil NonͲOPECtotaloil NonͲOPECconv.Crude OECD USA Dev.Countries China Transitioneconomies OPECtotaloil OPECconv.crude MiddleEast Others World Worldconv.crude WorldnonͲconv.Oil

1980

2005

 41.9 17.4 11.4 1.9 8.9 2.2 64.4 

 47.7 20.6 28.0 6.6 4.3 3.6 83.6 

35.2 32.2 14.6 8.7 6.0 2.1 11.5 28.0 26.2 17.9 8.3 64.9 58.3 0.4

2015  52.4 23.1 37.9 10.0 5.0 4.0 99.3 

48.1 41.6 15.2 5.1 15.1 3.6 11.4 33.6 29.1 20.7 8.4 83.6 70.8 1.6

 55.1 25.0 51.3 15.3 5.7 4.2 116.3 

55.0 45.4 12.4 5.0 18.5 3.7 14.5 42.0 34.9 25.7 9.2 99.3 80.3 4.5

%p.a. 1980Ͳ2005  0.52% 0.68% 3.66% 5.11% Ͳ2.87% 1.99% 1.05%

2030

 57.6 43.4 9.7 4.0 17.4 2.8 16.4 56.3 45.7 34.5 9.2 116.3 89.1 9.0

%p.a. 2005Ͳ2030  0.58% 0.78% 2.45% 3.42% 1.13% 0.62% 1.33% 

1.26% 1.03% 0.16% Ͳ2.11% 3.76% 2.18% Ͳ0.03% 0.73% 0.42% 0.58% 0.05% 1.02% 0.78% 5.70%

0.72% 0.17% Ͳ1.78% Ͳ0.97% 0.57% Ͳ1.00% 1.47% 2.09% 1.82% 2.06% 0.36% 1.33% 0.92% 7.15%

Table 48: World oil demand and supply 1980-2030 (mbd)

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Seaborne trade in crude oil Some regions are net exporters and other regions are net importers of oil, and this regional imbalance is what creates the international trade flows in oil. For shipping, not only the volumes in tons are important, but also the distances these volumes are carried. Longer distances require more transport capacity, as the transport production is measured in ton-miles. The IEA’s view on future net exports is summarised in Figure 101. The view is that North America, Europe and China will be even more dominant import areas in the future, with Japan and India as followers, all with a very high share of crude imports in their total oil consumption. This oil will increasingly have to come from the Middle East and Russia as the dominating net exporting regions in 2030, according to IEA.

Millionbarrelperday

Ͳ20

Ͳ10

0

10

20

30

40

OECDNorthAmerica OECDEurope China Japan India RestofdevelopingAsia Korea OECDOceania Mexico Brazil OtherTransitioneconomies NorthAfrica OtherLatinAmerica OtherAfrica Russia MiddleEast 2005

2030

Figure 101: Net importing/exporting regions for oil until 2030 (IEA, 2008) Table 49 shows the main trade flows for crude oil, with reference to the years 1972 and 1994 for the sake of comparisons. Table 50 and Table 51 show the distribution of where oil goes to and where oil comes from for the year 2006. Table 52 summarises the main structural changes that have been under way in the crude oil trades since the situation prior to the first oil price shock in 1973.

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Part I - Shipping in the Global Economy From/to M.&NearEast NorthAfrica WestAfrica Caribbean SEAsia Others Total2006 Total1994 Total1972

NWEur. 63 32 13 11 0 117 236 194 422

Medit. 70 53 18 9 0 72 221 218 242

N.Am. 120 39 102 179 6 79 525 282 68

Japan 187 0 9 0 9 5 211 227 214

Others 455 13 79 12 51 50 659 382 233

Tot06 895 136 221 210 66 323 1,851  

Tot94 735 101 141 177 76 173 1,403  

Tot72 786 160 92 58 43 39 1,179  

Table 49: Seaborne crude oil trade flows 2006 From/to M.&NearEast NorthAfrica WestAfrica Caribbean SEAsia Others

NWEur. 27 13 6 5 0 50

Medit. 32 24 8 4 0 33

N.Am. 23 7 19 34 1 15

Japan 89 0 4 0 4 2

Others 69 2 12 2 8 8

Total 48 7 12 11 4 17

Table 50: Crude oil origins 2006 (%) From/to M.&NearEast NorthAfrica WestAfrica Caribbean SEAsia Others Total

NWEur. 7 23 6 5 0 36 13

Medit. 8 39 8 4 0 22 12

N.Am. 13 29 46 85 9 24 28

Japan 21 0 4 0 14 1 11

Others 51 10 36 6 77 15 36

Table 51: Crude oil destinations 2006 (%) Aspectsofcrudeoiltrades Japaneseshareofworldimports N.Am.shareofworldimports Europe'sshareofwordimports ‘Others’shareofworldimports M.&N.EastshareofNWEur.imports MiddleEastshareofN.Amimports

2006 11% 28% 25% 36% 7% 13%

1994 16% 27% 29% 27% 52% 26%

1972 18% 6% 56% 20% 51% 31%

Table 52: Examples of structural changes in crude oil trades since 1972 124

Part I - Shipping in the Global Economy Seen from the point of view of tanker owners, Table 52 contains both good and bad news. On the bad side is the reduction of importance of Japan, which imports 100% of its oil and sources primarily from the Middle East. Similar bad news is the reduction of Middle East as a primary source for both US and North West European imports. On the good news side is the increasing US dependence on oil import and the rapid growth of ‘others’ (to a substantial degree, China). The trade in oil varies a lot more over time than does the consumption of oil. This is illustrated in Figure 102, where indices of oil consumption and oil trade in both tons and ton-miles are shown for a 40 year period. Oil trades in tons show greater variations than does world oil consumption, but oil trades measured as ton-miles show some remarkable variations. These are basically due to changes in transportation distances. 600

Index(1965=100)

500 400 300 200 100 0 1965

1970

1975

1980

Worloilconsumption

1985

1990

1995

2000

2005

Seabornetrade(tonnes)

Seabornetrade(tonͲmiles)

Figure 102: Oil consumption and crude oil seaborne trade 1965-2006

The role of average distances in crude oil trades Historically, average distances have varied a lot in the crude oil trades. This is clearly seen in Figure 103 that also offers one piece of explanation for this, i.e. the role of OPEC. After the second oil price increase, OPEC had to cut back on its production quite substantially to try to keep prices up. One consequence was a fairly dramatic reduction in average transport distances. In this way, tanker shipping was hit in a triple fashion. Firstly, world oil consumption was reduced, then oil trades in tons was reduced even more and on top of that average distances were reduced quite dramatically. The end result was a 60% reduction in ton-miles in just a 5-6 year period.

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Part I - Shipping in the Global Economy In recent years the average distances have been fairly stable on a level just over 5000 nautical miles, but if the Middle East exporters again increase their market shares, average distances will also increase.

7,500

60%

7,000

55%

6,500

50%

6,000

45%

5,500

40%

5,000

35%

4,500

30%

4,000

25%

1965

1970

1975

1980 ALH

1985

1990

1995

2000

Opecshareofoilproduction(%)

Aveargedistanceinnauticalmiles

With the current trade pattern, the average distance generated by exports from the various main export areas, together with an estimate of how many extra VLCCs that would be needed in order to lift another million barrels per day (MBD) out of each exporting region, is summarised in Table 53, where it can be noted that exports out of the Middle East or West Africa will generate more ton-miles because of the longer hauls.

2005

Opecshare

Figure 103: Average distances and OPEC market shares Exportareas Middle&NearEast NorthAfrica WestAfrica Caribbean SouthEastAsia Others

AverageLengthofhaul 6,533 2,925 6,440 2,317 2,938 3,552

NoofVLCCsrequiredtolift+1MBD 37 21 37 19 21 24

Table 53: Average distances in crude trade and extra ships needed to lift 1 mbd new exports

Basic tanker market economics There are two main characteristics of the tanker market: it is highly cyclical in nature and the freight rate variations are in periods extreme. Theses features can be seen as a reflection of the underlying structure of supply and demand in this market, and the fact that freight rates always will reflect the balance of demand and supply forces. The structure of demand and supply may be illustrated as in Figure 104. 126

Freightrate

Part I - Shipping in the Global Economy

Inelasticdemandforoil

Tankersupplycurve Highbunkerprices

Tankersupplycurve Verylowbunkerprices

TonͲmiles Figure 104: The structure of demand and supply in the tanker market The demand for tanker transportation is very inelastic. This is due to the simple fact that the cargo is a strategically important one. If a refinery were to close down because of lack of crude oil input, the willingness to pay for transportation of critical input would be very high, indeed. Transportation costs for oil do not, therefore, affect the volumes of demand, and the result is a very inelastic demand curve, as shown in Figure 104. The supply side is more complicated, because the supply of tankers is affected by oil prices, i.e. the price of bunker oil. The optimum speed of a tanker vessel can be seen as a balancing act of handling two opposite forces: The higher the speed, the faster the ship can finish a contract and start on a new one, so any reduction in speed will have its price in lower income in US$/day. High speed costs more, however, as the bunker cost increases roughly with the cube of the speed. This means it is money to be saved by reducing the speed. The balancing act is, therefore, to find the speed where the cost savings exactly match the alternative income lost with speed reductions. The optimum speed of a tanker vessel will, therefore, be a function of one relative price; the freight rate relative to the bunker price. One would, therefore expect to find that when freight rates are high, all ships are operating at service speed, and no slow-steaming takes place. Then the supply curve will be highly inelastic, reflecting the current productivity of the fleet. As freight rates get lower, there will be intervals where slow-steaming makes sense, and the supply curve will become more elastic. If the bunker prices are very low, slowsteaming will not take place, one will get the grey supply curve in Figure 104. Then the tanker market has only two states of the world x

Either many ships are in lay-up and those that trade will only get low, break-even freight rates (demand intersects supply on the horizontal, flat part of the supply curve)

x

The balance is on the very inelastic demand and supply curve segments with highly fluctuating freight rates as a result 127

Part I - Shipping in the Global Economy With high bunker prices, supply will have an elastic segment of the supply curve on somewhat higher freight rate levels - and if the demand approaches the maximum capacity of the fleet, both demand and supply will be highly inelastic and only small variations in either curve may change the freight quite dramatically. High bunker costs prevents freight rate to drop as low as they would have done for lower oil prices. This is essentially what has been seen in later years in the tanker shipping industry and also what characterises the current situation. The freight rate development in tanker shipping since 1990 is illustrated in Figure 105.

Figure 105: Freight rate development in selected tanker segments 1990-2008 The heavy line in the figure is the weighted average of all tankers. The three sub-segments selected follow the same rate development. This is a clear indication of the high substitutability among tanker types. One can identify no less than 9 cycles in less than 20 years and in recent years the cycles are more frequent - an indication that the supply and demand balance are reflecting very inelastic underlying supply and demand curves. The amplitudes of the freight rates have been spectacular - in June 1992 a VLCC earned an average of less than USD 12,000/day, and in the months of November 2004 and December 2007 the same type of ships earned almost US$ 180,000/day - a factor of more than 15! The development has led to high investments and a rapid renewal of the tanker fleet.

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Supply and demand balance Comparing the recent trend in crude oil trades measured in tons and ton-miles as given in Figure 102 and the fleet trend and forecast, then the picture looks like in Figure 106. 160

Index(2000=100)

150 140 130 120 110 100 90 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Crude(tonnes)

Crude(tonͲmiles)

Fleet

Figure 106: Recent trends in crude trades and tanker fleet forecast The conclusion seems evident: The supply will shift out with some 6-9 per cent per year the next couple of years, while demand only will shift some 2 per cent, maybe 3 per cent if Middle East and West African exports increase more than other exports. The market balance will deteriorate, and freight rates will be pushed downwards. The high bunker prices will prevent the freight rates to go as low as was seen in the early 1990s. There are many factors that influence how efficient a fleet of vessels can be in doing transportation work. The following six factors all have an influence on fleet productivity, measured as ton-miles per dwt: x

Speed (S) - the faster the ships go, the more trips (T) they can make in a year

x

Waiting days in port (W) - including the necessary time for loading and unloading. Increased waiting in ports will reduce the number of trips a ship can make in a year.

x

Load factor, i.e. the no. of cargo tons per dwt. Some of the dwt will have to be used to carry the ships fuel. In addition, part loading or multi-porting may reduce the effective load factor.

x

Off hire (O) are the days the ship is inactive due to maintenance, dry-docking etc.

x

Ballast factor (B), i.e. the loaded leg of a trip divided by the ballast leg. The more efficient a ship can combine loaded trips, the less it goes in ballast and more trips can be made in a year. 129

Part I - Shipping in the Global Economy x

Average length of haul (M), i.e. the number of nautical mile for the loaded part of a trip.

Productivity increases with the trading distance, because the number of days spent in port waiting will be relatively fewer. The formula for the no. of trips per year is: ܶ ൌ ሺ͵͸ͷ െ ܱሻȀሺܹ ൅

ሺͳ ൅ ‫ܤ‬ሻ ‫ܯ כ‬ ሻ ʹͶ ‫ܵ כ‬

Where the numerator is the number of days in a year a ship is actively trading and the denominator is the number of days in port per trip plus the days at sea on the roundtrip, which is the total miles per roundtrip (1+B)*M divided by the miles per day (24*S). The formula for productivity is thus: ܶ‫ܯ‬ ൌ‫ܯכܶכܮ‬ ݀‫ݐݓ‬

50 45 40 35 30 25 20 15 10 5 0

50 45 40 35 30 25 20 15 10 1965

1970

1975

1980

1985

Fleetproductivity

1990

1995

2000

Earnings(1,000US$/day)

Fleetproductivity(1,000tonͲmiles/dwt)

So productivity is a function of S, W, B, M, L and O. Historically, the productivity of the tanker fleet has varied a lot, and typically the productivity has increased with the freight rate. So when markets are good, speed tends to be high, waiting times are cut, part loading is reduced and so is off hire. The ballast factor and the average length of haul are mainly determined from the demand side. Figure 107 shows the development of fleet productivity since 1965.

2005

Avgtankerearnings

Figure 107: Fleet productivity and freight rates 1965-2007 Productivity rose sharply with the increased earnings in the early 70s, and fell to record low levels in the mid 80s as freight rates dropped. The productivity increased with improved markets up until the mid 90s. In the last decade, however, the fleet productivity has been fairly constant, even somewhat declining, despite record high earnings. The productivity of the tanker fleet since 2004 is only about 60% of the productivity level obtained in 1973. This seems like a paradox for which the authors have 130

Part I - Shipping in the Global Economy no complete explanation. This may prove to be one factor that may cause some unexpected effects in the years to come.

Competition and market structure There are two main economic dimensions that determine the economic structure of a shipping segment: On the one hand the potential of exploiting economies of scale and on the other hand the potential of differentiating the service from that of competitors. This was indicated in Figure 89Figure 90, which indicate four distinct different types of shipping. Table 54 gives information about the number of players for the tanker market as a whole and for 9 sub-segments. With the possible exemption of the shuttle tanker market, which is yet to exceed 2 % of the total tanker market, all tanker segments are highly fragmented. Tankertype Alltankers ULCC/VLCC Suezmax Aframax Panamax Shuttle Handy Small5Ͳ10' Specialised1Ͳ5' Bitumen/asphalt

No.of companies 1268 90 97 171 102 17 540 484 452 71

Segment %ofdwt  36.5% 13.4% 18.9% 5.9% 1.8% 20.7% 2.0% 0.6% 0.2%

Shareof top50  90% 81% 67% 81% 100% 45% 39% 41% 84%

Top4 ratio 12% 26% 18% 19% 16% 80% 8% 7% 7% 20%

HHI13* 0.015 0.031 0.021 0.019 0.019 0.255 0.013 0.013 0.013 0.043

Table 54: Tanker segment concentration measures The largest segment is the segment for the largest vessels. If even the top 5 companies were to merge into one big VLCC operator controlling more than 30% of the market, the HHI would still be only 0.10, quite far from a value where concentration should be of any concern to the competition authorities. There is a strong conclusion, therefore, that the tanker shipping industry is a highly competitive industry, where no company can exert any market power. Frontline was heading an initiative in 2000 to form a large tanker pool - Tankers International together with AP Møller and OSG - no doubt with the aim of earning more money by securing better contracts for their ships. The pool still exists and its home page has a couple of interesting formulations (www.tankersinterational.com): x

“The Tankers International Pool is an independent entity created to offer Owners and Customers the advantages of a large scale operation.”

13 TheHerfindahlindexisthesumofthesquaredmarketsharesofallfirms,thusgivingextraweighttoveryhighmarket shares.IntheUS,aHerfindalindexlargerthan0.18isconsideredasignofaveryconcentratedindustrywitholigopolistic tendencies.

131

Part I - Shipping in the Global Economy x

“Working in partnership with its members and customers it delivers crude oil safely and efficiently for the global energy industry.”

It seems like scale economics was the economic motive for the creation of the pool. It is then interesting to observe that both AP Møller as well as the main initiator, Frontline, have left the pool. It is very difficult to find data to test out the actual existence of economies of scale in tanker operations. Some old data (late 1970s) from the members of the Norwegian Shipowners’ Association indicated at the time that there were no signs of reduced costs with the size of the operation, as indicated in Figure 108, where each dot represents one company

160

Operationcosts(index)

140 120 100 80 60 40 20 R²=0.06 0 0

5

10

15

20

25

Numberofvessels

Figure 108: No economies of scale in tanker operations The overall conclusion seems to be that the tanker industry is as close to a pure (perfect) competition model as it is practically possible to come. Attempts of consolidation have been made and will most likely continue to be attempted. The economics of the industry indicate that it will be difficult to make much money out of such attempts

Industry attractiveness Several authors have made contributions to shedding light on the question of what makes an industry attractive. (Bain, Chandler, Porter). Seven factors are normally highlighted in this context: x

Barriers to entry In general one would say that high barriers to entry is good for the incumbents and contribute to high profitability. As stated above, the barriers to entry are very low in tanker shipping as practically anyone could become a tanker owner overnight by simply buying a vessel and then 132

Part I - Shipping in the Global Economy purchasing both technical and commercial management of that vessel with one of the many international service providers. x

Competitors The fewer competitors, the higher the potential of exploiting market power and, normally, the higher is the attractiveness of the industry (in particular for the incumbents). The analysis clearly shows that the number of competitors is very high in all segments of the industry

x

Product similarity In general it is argued that the more differentiated the market is, the higher the attractiveness of the industry. Tanker shipping basically offers the same product - transportation of oil from A to B. There may be safety and environmental considerations made by oil companies when offering contracts, but by the end of the day, if transportation is scarce, one supplier is as good as anybody else.

x

Switching costs High switching costs is associated with high attractiveness. Loyal customers contribute highly to bottom line profits. Some tanker companies have established long term relationships with oil companies, no doubt giving them an advantage when securing particularly TC contracts. In a scarcity situation, however, this will not mean much - the oil companies will accept what they can get.

x

Demand growth High demand growth is clearly associated with high attractiveness of the industry. In this respect, the cruise industry scores highly. The transport work in crude oil shipping has grown on average 4% p.a. for the 45 years from 1962-2007. The current growth trend is around 2.5%, so the industry is not a fast growing one.

x

Fixed costs Low fixed costs are normally associated with high industry attractiveness. Tanker shipping is relatively capital intensive in the sense that the cost of acquiring the asset is high relative to the operations costs. In that context, the fixed costs may be regarded as high. Unlike liner shipping operations, however, an owner can lay up his vessel if the market is too unattractive, so very little of the total operation is truly fixed costs.

x

Barriers to exit Low barriers to exit normally favours profitability. It is easy to get out of the tanker shipping business. Just a phone call to a broker will normally be sufficient to set in motion the necessary steps to get out of the business.

Figure 109 summarises this very brief discussion When using this 7 factor approach to determine industry attractiveness, the tanker shipping industry stands out as a very unattractive business, indeed. There must be some other reason, then, that this industry consistently seems to be able to attract both money and brilliant business people. Figure 110 and Figure 111 may offer an obvious explanation, which has to do with the cyclical nature of the business and the correspondingly high fluctuations in both earnings and values of the assets.

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Part I - Shipping in the Global Economy

Figure 109: Tanker industry attractiveness (indicated with arrows)

45

Value(millionUS$)

40 35 30 25 20 15 10 5 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Figure 110: Second-hand values of a 1975-built VLCC 1982-2001 The building cost of this ship was around US$ 45 million and at the age of 7 (in 1982), it was worth only 4-5 million US$. 7 years later (in 1989), however, the value had soared to almost the newbuilding value at the age of 14. No other industries in the world can show these kinds of variations in assets values for assets that can easily be sold at these prices. Figure 111 shows the development for 5 year old VLCCs over time. Again there are some spectacular variations in values.

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Part I - Shipping in the Global Economy

160

Value(millionUS$)

140 120 100 80 60 40 20 0 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Figure 111: Second-hand values for 5 year old VLCCs 1976-2007

Critical success factors From the characteristics of the tanker market, it follows that there is one, primary critical success factor (see also Figure 92): SUCCESSFUL TIMING OF DECISIONS! This will normally require better market understanding than that of competitors and if this can be combined with a flexible organisational setup and an organisation delivering the service at a competitive cost level, one could become a winner in this industry. The list of CSFs for this industry is in short: x x x x

Active asset management, i.e. successful timing of decisions; Low cost operations; Superior market understanding; Flexible and scalable organisation.

4.3. Case 2: Cruise Shipping The definition of the cruise industry, as adopted in this sector, follows ShipPax and includes “ships regularly used for cruising activities exceeding one day, not in ordinary passenger transport between

135

Part I - Shipping in the Global Economy port A and B, but with passengers normally returning to the port of embarkation.” Only ships with a minimum capacity of 50 lower berths14 are included, while river cruise vessels have been excluded. Three main sources have been used for the analysis: Lloyds Register/Fairplay, ShipPax and Clarksons. These sources differ quite substantially with respect to both the number of vessels as well as aggregated capacity. By cross-referencing the ship databases of Lloyds Register/Fairplay and ShipPax, a new database was composed for the purpose of this analysis15. The result is a database of 358 active vessels, which is much lower than Lloyds/Fairplay 500+ vessels (which includes a number of very small ships). It is also lower than ShipPax (396 active vessels in 2008), mainly because of the exclusion of river cruise vessels, but higher than Clarksons’ 339 vessels. The aim of this industry analysis is to highlight the most salient features of this industry in order to better understand how the industry has been shaped and what makes winning strategies in this special segment of shipping.

Cruise market history The international cruise industry as we know it today, is only about 40 years old, however the concept of cruise vessels dates back to the late 19th century. This 120-year history can be divided into 4 phases:

Phase 1: 1882-1914 The first routes Some claim that the first cruise route was set up by British P&O when they introduced the S/Y Ceylon in 1882 to pleasure cruising. They characterised the ship as the first “ocean-going steam yacht of large tonnage, specially fitted for and adapted to pleasure cruising’. The destination of this ship was the west coastal fjords of Norway up to the North Cape (Martinussen, 1992). This itinerary was well-known to wealthy Brits as a mail route, and soon the Norwegian companies BDS and NFDS set up their own tourist routes on this destination, a service still in operation today. There are several claims as to which is the very first cruise vessel, but the ship Meteor, built by Blohm und Voss in Hamburg 1904, probably deserves this title. After WW1 the ship was handed over to the UK, then sold to Norway in 1921, rebuilt in Norway in 1935 and served the coastal route for BDS up to the end of the 1950s after more than 50 years in service. The early phases of cruising were, however, closely linked to passenger transportation with many services across the Atlantic, linking Europe to the USA. The most famous case here is Titanic, which en route from Southampton to New York on her maiden voyage sank after hitting an ice berg.

Phase 2: 1918-1939 The first Caribbean cruises In the inter-bellum, the expansion of services across the Atlantic was tremendous, but became more and more pure passenger transport and less and less a cruise experience. With increasing overcapacity, shipowners sought other employment for their vessels and during the time of the prohibition law (1920-23), “booze cruises” for thirsty Americans were set up with Caribbean destinations. After the financial crash in 1929, the industry met hard times and many companies closed their operations.

14

Lowerberthisthecruiseindustry’sconventionalwayofmeasuringpassengercapacity

15

Tablesandcalculationsusingthisdatabasearesimplyreferredtoas“Author’sowndata”

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Part I - Shipping in the Global Economy

Phase 3: 1945-1965 Extension of cruise areas After WW2, commercial aircrafts started expanding their geographical coverage and gradually the transportation element of cruises vanished. The operators sought new destinations and cruises to South America and southern Pacific were introduced, but still pure cruise operations remained very small compared to passenger transportation.

Phase 4: 1966- today: Modern cruise industry expansion The modern cruise industry, as we know it today, started in the Caribbean, still the main market for mass cruises. The pioneering company became Norwegian Caribbean Lines (NCL), although another Norwegian company, Bergesen, started cruises in the Caribbean in 1964, but in 1966 lost its ship in a fire and Bergesen left the cruise business. The Kloster family owned NCL and originally Kloster ordered 4 ships to be built as car ferries for a planned service between UK and Gibraltar. Due to exchange rate restrictions introduced by Britain in 1966, this plan had to be abandoned. Kloster had to find other employment for the “white vessels” as they became known, and Sunward started her first cruises in the Caribbean in 1966, soon to be followed by Starward, Skyward and Southward. By 1971 a major cruise operation was established. NCL teamed up with Ted Arison, who later ended the cooperation and bought his own ship becoming the start of Carnival Cruises (1972). Another Norwegian company, Royal Caribbean Cruise Lines (RCCL) started in 1970 with Song of Norway. These three companies have dominated the modern cruise industry in the last 30-35 years and have remained dominating players (mainly Carnival and RCL), a good example of first-mover advantages. With Miami as its main departure port, the Caribbean soon became the main area for cruises. The first mass market operators became NCL, RCCL and Carnival. Providing this kind of leisure service to the consumer, proved to be very successful and the industry experienced a massive growth in the 1970s, continuing through the 1980s and1990s, averaging 8,1% per year since 1980 according to (CLIA, 2008) or 8.5% per year between 1996 and 2006, according to (ShipPax, 2007). The growth has been remarkably stable and not subject to the same extreme cyclicality as other shipping segments. The main reason for this is that a new cruise ship is a new market concept, essentially creating its own demand (aided by substantial marketing efforts). In terms of market size, it is estimated that 16,9 million people undertook a cruise on a global basis in 2006 (ShipPax, 2007). In 1996 the corresponding number was 7.8 million (ShipPax), representing a growth of nearly 117 percent. Among the 16,9 million cruisers, 61% were Americans and 27% were Europeans. Similarly, in terms of destination America accounted for 57%, Europe for 23%, and Asia for 8% of the world total of cruise passengers (ShipPax, 2007). Country USA UK Germany Canada Japan

1992 4.250.000 225.000 190.000 150.000 20.000

1998 5.050.000 650.000 283.000 250.000 225.000

Growth(%) 3 27 7 10 146

Table 55: Passenger growth in selected countries (CLIA, 2008) The industry is recognised as being very dynamic and strongly demand-driven, where the providers of services are quick to adapt to customer needs, through the constant creation of new concepts and destinations. A good example is the recent expansion of adventure cruises with smaller vessels 137

Part I - Shipping in the Global Economy (capacity up to 500 people) travelling to exotic regions as the Amazon, the Arctic and Antarctica region, Alaska and Galapagos. Figure 112 gives a clear indication of the growth experienced by the industry during the last 30 years; an upturn many believe is the result of the development of a greater variety of products and services with unique vessels, appealing to different people (Cartwright & Baird, 1999).

Numberofvesselsconstructed

140 120 100 80 60 40 20 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Figure 112: Cruise market expansion Broadly speaking, the cruise market today is dominated by three main players: Royal Caribbean International, Carnival Corporation and Star Cruises. Their individual market position has to some degree been a result of a series of mergers and acquisitions: x

Founded in 1969, Royal Caribbean Cruise Lines merged with the Greek owned Celebrity Cruises in 1997, changing its name to Royal Caribbean International. In 1998 it further strengthened its market position with the acquisition of Admiral Cruises. The company has a current market share of 21% (ShipPax, 2007)

x

Carnival Corporation, originally established as Carnival Cruise Lines in 1972, purchased the company Holland America Line in 1989, including niche operators such as Windstar Cruises and an Alaskan/Canadian Tour operator. As an extension of its activities into the luxury market Carnival purchased Seaborne Cruise Line in 1992. Further, in 1997 it acquired the Genoa based Costa Cruises as a means to strengthen its position in the European market. In 1998 Carnival acquired the respected luxury cruise operator Cunard Line, and at the beginning of 2003 Carnival merged with P&O Princes Cruises. The latter move from Carnival made it the largest leisure travel company in the world, currently holding a market share of 45%.

x

Incorporated in 1993, Star Cruises is the third largest cruise operator with a market share of approximately 10 %, currently holding the position as the leading operator in the Asia-Pacific

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Part I - Shipping in the Global Economy region. In terms of acquisitions, the company merged with Norwegian Cruise Line (NCL) in 2000. The US market, including North America and the Caribbean, accounts for 62% of all passengers. In 1975 the Cruise Line Industry Association (CLIA) was founded, and its objective was to establish a forum where companies engaged in the cruising industry for North America could come together and discuss matters of common interests. Currently the organisation comprises of the 21 largest cruise lines, accounting for more than 180 vessels and approximately 16.500 travel agencies, see (CLIA, 2008) and (Dowling, 2006). By far, cruising is the fastest-growing segment of the North American tourism market. In 1980, there were 1,431,000 North American cruise passengers, a number that grew to 6,882,000 by 2000. According to a CLIA survey some 69 million individuals are potentially interested in taking a cruise. Europe is the fastest growing cruise market, currently accounting for 24% of all travelling passengers. The European Cruise Council (ECC) is the European counterpart to CLIA, and the first board meeting was held in May 2004. Today it has 21 cruise company members. In 2006 the market’s turnover was approximately US$ 1.55 billion and following the same development in service differentiation as the US market. With a range and variety of cruises it has expanded to suit the tastes of a growing variety of travellers. From short budget cruises to long luxury cruises, it is appealing to the young, the old, the adventurous and the conservative, while maintaining high repeat factors associated with a product with high satisfaction ratings. In terms of travelling passengers there were over 3.4 million in 2006, representing a growth of 9% from 2005. Even though the UK, German, Benelux, Scandinavian, Swiss, and Austrian markets all experienced double-digit growth rates, the UK market still holds stands out as the dominant player with a market share of 35%.

The supply side The cruise fleet has been growing at a steady pace over the last 40 years, and Figure 113 shows the development over the last 12 years. While average growth rate for the whole period 1996-2008 is 8.8%, the average number of ships grew by only 4.6% during the period 2005/08, compared to 10.2% between 1996 and 2005. From the latest development, one can clearly see that the ships are getting bigger and bigger. The top three companies Carnival, RCL and NCL (later Star Cruises) have dominated for more than 30 years. In 2007 MSC (Mediterranean Shipping Co.) continued its rapid expansion, while Apollo Management now owns Oceania Cruises, Regent Seven Seas and 50% of NCL. Carnival and RCL are still by far the largest two, but three companies compete for the third position. This is summarised in Table 56. The top-5 companies control almost 50% of the total number of ships, but more than 80% of total berth capacity. There are, however, more than 100 other companies in the market. 31 companies with between 2 and 9 ships each, control in total 107 ships with a berth capacity of about 42,000 (11%). The remaining 77 ships are single-ship companies with a combined capacity of about 30,000 berths, or about 7%. Table 57 lists companies with a capacity share above 0.5% The average cruise vessel is 19 years old, but the industry is widely different when it comes to tonnage employed. Some companies have ships with an average age of more than 50 years, while the top-3 companies have fleets of well below average age (11-14 years). This indicates that the top players constantly build new vessels, but there is obviously room in the market for very old tonnage as well. This indicates a highly differentiated industry, despite the dominance of the top players. 139

400

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0

0

1996

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Numberofships

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BerthCapacity(*1,000)

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Part I - Shipping in the Global Economy

2008

Berthcapacity

Figure 113: Cruise fleet development 1996-2008 (Clarksons, 2008) Company Carnival RCL Star MSC Apollo Others Total

Numberofships 97 41 14 10 12 184 358

% 27 11 4 3 3 51 100

Lowerberths 175,641 84,319 22,266 19,600 14,915 70,830 387,571

% 45 22 6 5 4 18 100

Table 56: Top cruise shipowners Company LouisHellenic FredOlsenLines DisneyCruiseLines Hurtigruten PhoenixReisen TransoceanTours PeaceBoat CrystalCruises

Numberofships 9 5 2 7 4 4 2 2

Lowerberths 6290 4125 3508 3020 2568 2110 2093 2036

Marketshare 1.6% 1.1% 0.9% 0.8% 0.7% 0.5% 0.5% 0.5%

Table 57: Other large cruise operators

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Builders of cruise vessels Table 58 shows the top-10 yards when it comes to building cruise vessels, measured as the number of ships of the total 339 in the Clarksons database. Rank 1 2 3 4 5 6 7 8 9 10

Yard

City

Numberofships

Chantiersdel'Atlantique AkerYardsOY Fincantieri MeyerWerft AkerYardsOY Fincantieri UnionNaval H.D.W. Visentini ChesapeakeS.B.

St.Nazaire Turku Monfalcone Papenburg Helsinki Marghera Valencia Kiel Donada Salisbury

38 25 22 22 21 15 6 5 5 5

Table 58: Top cruise vessels builders (Clarksons) Three nations dominate the building of cruise vessels: Finland (46 vessels), Italy (42) and France (38) with Germany (27) as a good number 4. These countries account for 42% of the total fleet, but as many as 119 different yards have built the 339 vessels in Clarksons’ register. In recent years, the Norwegian company Aker Yards took over also the French yard in addition to the Finnish yards , so for a period Norway was the leading producer of cruise vessels. This is now changing as the Korean company STX is taking over the control of Aker, so an important part of European shipbuilding is now under Asian control.

Ships on order The current order book amounts to 44 ships with a total berth capacity of 81,590, thus constituting some 12% of the current number of ships, but more than 22% of the current berth capacity. If the new ships manage to generate new business, the order book is easily in line with demand growth expectations. Table 59 shows the order book for the five main players. Carnival has by far the most ships on order, but RCL has a substantial order book in terms of berth capacity. The table indicates that RCL and Star Cruises (including 50 % of NCL) mainly order large vessels. RCL has 2 vessels on order with a 5400 lower berth capacity, more than twice the average size of Carnival’s ship on order. Group Carnival RCL Star MSC Apollo Others Total

Numberofships 18 4 1 2 3 16 44

Berths 41,006 16,500 4,200 5,100 6,720 8,064 81,590

%ofcapacity 50 20 5 6 8 10 100

Averagesize(berths) 2,278 4,125 4,200 2,550 2,240 504 1,854

Table 59: Order book for cruise vessels, 2008 141

Part I - Shipping in the Global Economy

Profitability Figure 114 shows the development revenues and Figure 115 the EBIT margins for the big three. There is an aggregated growth between 2003 and 2005, while the aggregated results for 2006 seem to be slightly lower. Carnival has the highest net income, but Royal Caribbean has a similar growth rate in revenues as Carnival. Star Cruises’ results is only slightly positive in 2004 and 2005, while negative in 2003 and 2006.

Turnover(USD*million)

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2003 CarnivalCruises

2004 RoyalCaribbean

2005

2006 StarCruises

Figure 114: Turnover of top-3 cruise operators (ShipPax, 2007) The EBIT margin is perhaps a better comparison for companies in the same business, and Carnival is the top performer, however in 2006 the difference between Carnival Cruises and Royal Caribbean is smaller than in previous years. The cost structure for cruise companies is fairly similar and approximately 75% is attributed to operating cost. Hence cost differences may be the main explanation of the differences in results on the profit side. Star Cruises stands out with a significant higher degree of non-ticket income which is due to the fact that in the Asian market, passengers pay for extras, unlike the American and European markets where the price is ”all-inclusive”. Figure 116 shows a cost breakdown per passenger per day for Royal Caribbean and Carnival. The total cost is fairly similar for the two companies, but fuel costs are significantly higher for Royal Caribbean, which is mainly due to the fact that RCL has 8 ships with gas turbines operating on marine gas oil. This gives both a more expensive fuel and higher fuel consumption. RCL is under way of installing diesel generators on these vessels, which will reduce the cost differences in the future.

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EBITmargin(USD*million)

35% 30% 25% 20% 15% 10% 5% 0% Ͳ5%

2003

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CarnivalCruises

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RoyalCaribbean

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StarCruises

Figure 115: Profitability of top-3 cruise operators (ShipPax, 2007) 40 35 US$/passenger/day

30 25 20 15

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10

Carnivalcruises

5 Commisisons& other

Other operation

Marketing

Payrolland related

Fuel

Depreciation& amorisation

Onboard& other

Food

0

Figure 116: Cost comparison of RCL and Carnival (ShipPax, 2007)

Structure of demand The Cruise industry is a young industry characterised by a highly diversified demand. Customers’ preferences and interests are widening, which means a constantly increasing potential market. The Cruise industry is capacity-driven and the utilisation is constantly around or over 100% (as % of lower 143

Part I - Shipping in the Global Economy berth capacity). The cruise industry is the most successful and fastest growing tourism sector. It is mostly a North American phenomenon, but has developed strongly in Europe too. The cruise market has grown by 8.1% per annum between 1996 and 2006. 2001 was the first year that experienced a decline in passenger traffic. There are many ways to characterise types of cruises, but the five main categories of cruises summarised in Table 60 are often used, characterised by different customer needs, conjoint-values, and customer demographics. The main characteristics are: x

Contemporary cruises Casual and all-inclusive: Most popular and recognised in the world; offers something for everyone (every generation, income, interest); suitable for singles, couples, kids, family reunions, wedding parties, honeymoons, anniversary celebrations, groups and incentives; various ship sizes, many facilities and a large variety of activities.

x

Budget cruises Similar to contemporary cruises, but often shorter and cheaper cruises: Budget is characterised by older and smaller vessels and offering fewer amenities, often operating in Europe. Together, the contemporary and budget segments form the “mass-market” category of cruises.

x

Premium Cruises Up-scale, space and comfort, semi-formal; rates from US$ 150 to US$ 400 per person per day: Similar to contemporary lines (spas, health clubs, pools, multiple restaurants, children's programs, casinos etc.), but more sophisticated service; offers distinguished destinations and unique itineraries; suitable for experienced passenger; ship size ranges from mid-sized (500900 guests) to large ships over 1500 guests.

x

Luxury Cruises Highest quality, refined service, spaciousness, comfort, luxury, choice: Exotic destinations around the world; itineraries for every lifestyle; rates from US$ 400 to US$ 1,000 per person per day; exclusive yacht-like environment of only 100-400 guests with personalised service.

x

Special Cruises Alternative to traditional ocean cruising, like sail ship or river cruise: Luxurious cruise experience with a "casually elegant" country club atmosphere; few organised activities; many varied destinations, ideal for exploring new places (and for experienced cruisers).

It is important to note that several companies have introduced “Ethnic Cruises”, dedicated to specific language segments/nations (Germany, France, Spain, Japan and Sweden). However, it seems that language is a main point of differentiation and that the ship, the environment and the activities offered do not differ too much among segments. This point is obviously important as it strikes the difference between the American and the Europe market, which shows greater variety in terms of segments, namely due to the variety of languages. The industry is continuously developing new concepts, and some examples of concept diversity are: x x x x x

Cruises for American families; The European Union's senior citizen market; The conferences and incentives segment; Theme cruises; Adventure cruises. 144

Part I - Shipping in the Global Economy Segment Product Contemporary Typical7Ͳdaycruises,butalsoshorter MainlyintheCaribbean Budget

Premium

Luxury

Special

Shortercruises Oftenmuchentertainment Intensivepricecompetition Longercruises Manyandvarieddestinations Moreonerouscruises Veryonerouscruises Oftenonsmallerboats,andsailboats.Europeisthe biggestmarket(beforeAlaska) Manycategories Rivercruisebiggestsegment Othertypes:explorationcruisesandglobeͲtrotting cruises

Customer Mostlynewcruisers Somecruiselineshavereturning customers Muchyoungercustomers Lowermiddleclass Moreexperiencedcruiser Mucholdermiddleclasscustomers Richpeople

Mixofmanyvariedcustomers

Table 60: Market segmentation of the cruise industry Cruises vary also by their length. Table 61 shows the total number of passengers by different durations of the cruise. The average cruise length for the North American Market is currently 7 days (CLIA, 2008), compared to 6.7 days in 1981, and 6.1 days in 1991. NorthAmerica 2Ͳ5days 6Ͳ8day 9Ͳ17days 18+days  Numberofpassengers

1980 24% 59% 15% 1.2%

2005 34% 52% 14% 0.4%  1,431,000 9,909,000

Europe <4days 5Ͳ7days 8Ͳ14days 15Ͳ21days >22days Numberofpassengers

2005 2006 6% 6% 47% 43% 41% 44% 6% 6% 0.7% 1.2% 3,126,000 3,409,000

Table 61: Demand by length of cruise (% of passengers) For the North American market, Luxury cruises and Premium average the longest trips, while contemporary average the shortest. The length of cruises seems rather uniform over time, the most common being one week in North America and one or two weeks in Europe. There is also an increase in short/mini cruises, but it is uncertain how well these are represented in cruise statistics. In addition, the share of cruise length do not seem to have varied too much, therefore segmentation should also take into account other elements, like ship size, number of passengers, deepsea versus shortsea/coastal cruise, and not in least the destination of the cruise. According to CLIA the cruise market (in North America) is targeting adults 25 years or older, with household earnings of US$ 40,000+. It includes cruisers (cruised before), vacationers who have never cruised and also non-vacationers. This target segment has increased considerably over the past two 145

Part I - Shipping in the Global Economy decades given the higher accessibility of cruise in terms of low prices. This segment represents 44% of the total US population. The potential of the cruise market is extremely high, since it still represents only around 3% of the total North American tourism market, and only 1% of the total European tourism market (Clarksons, 2008). Among European countries, the UK has the highest cruise penetration rate: about 2% of the population, with a lot of further expansion possibilities. As indicated in the ShipPax Cruise Market Outlook (ShipPax, 2007), if Europe could attain the same market penetration as UK, it would contribute to a 22% increase in the world cruise market, and if the penetration level was similar to USA (3%), the world cruise market would expand by 52%. The cruise market is constantly expanding, but is still young in terms of market penetration. This means that there are huge opportunities for the cruise industry to expand in terms of number of cruisers, but also in number of destinations offered, as the customer base is widening (in origin, age, interests, etc.).

Geography The main areas of expansion of the cruise industry are North America and Europe as seen in Figure 117. The European market is a more recent phenomenon, but has increased constantly during the last 2 decades. Clarksons estimated year-on-year growth in European passenger traffic at around 10% in 2007.

Numbewrofpassengers(million)

18 16 14 12 10 8 6 4 2 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 NorthAmerica

Europe

Restoftheworld

Figure 117: Evolution of North American and European cruise markets In 2007 Europeans account for 29% of cruise passengers worldwide, compared with 22% ten years earlier (ShipPax, 2007). Passengers from the UK, Germany and Italy account for about two-thirds of these passengers (ECC, 2007), while according to Clarksons, Spain, with a 12% share, is experiencing the most rapid growth rate (30%). 146

Part I - Shipping in the Global Economy According to the ShipPax database there were 12.2 million cruise passengers worldwide in 2000, of which 7.3 million were Americans, and 2.7 million from Europe. In 2006, the total cruise market was 16.9 millions (+39%), with 10.3 million from North America and over 4.5 million European cruisers. Table 62 summarises the world cruise market by nationality and destination, in number of passengers per year. North America is still the dominating market, but the European market is growing faster. The Asian market shows a rather troublesome development. 

1997

2000

2002

2005

2006

Totalcruisepassengers(worldwide)

8,322

12,233

12,907

16,719

16,881

ByNationality(Origin) NorthAmerica Europe



RestofWorld ByDestination America Europe Asia

   

Other











5,326 1,831

7,340 2,691

8,131 3,485

9,864 4,849

10,297 4,558

1,165

2,202

1,291

2,006

2,026









7,095 2,569 2,080

8,131 2,969 1,291

10,199 4,514 836

9,622 3,883 1,350

489

516

1,170

2,026

Table 62: World cruise passengers, by nationality and destination (ShipPax, 2007) ShipPax is as of today considered the most complete database, while CLIA and ECC report only the activities of their members, and MARAD looks only at the US market and US ports. River Cruises are not reported in the table above, mainly because it is considered by ShipPax as a category apart, due to the river vessels not being comparable to oceangoing vessels. From Table 62 it follows that most North American cruisers buy a cruise in North America, and most European cruisers choose Europe as destination. The biggest market segment is North American cruisers in the Caribbean (approximately 38% of passengers worldwide, source: MARAD), the second being Mediterranean attracting mostly European cruisers (59%), then North Americans. Figure 118 shows the distribution of destinations for European cruise passengers. The Mediterranean market has expanded by 11-12% p.a. during the 90s (McCarthy 2003) and is forecasted to continue growing by 10% per annum, until 2010 (META 2008). It offers high diversity (landscape, cultures…) and a significant potential both as destination and source of cruise passengers. Figure 118 shows that most Mediterranean cruisers originate from Mediterranean countries or inland countries like Switzerland and Austria, while Northern Europeans tend to be more attracted by cruises in Northern Europe (Scandinavia, UK, Germany). Similarly, Caribbean attracts more passengers from Northern Europe (Benelux, Scandinavia, UK). Interestingly, Clarkson notes that “With average per diem rates for European cruises on CLIA member ships approximately 40% higher than Caribbean rates, it is no wonder that Europe has become a source of great optimism for the cruise industry”. A main difference between the North American and the European market is that US vacationers tend to book their cruises long time in advance, while Europeans do not consider a cruise as early (ShipPax, 2008). Their booking window is only 3 to 4 months. As a result, Europeans are facing a lack of 147

Part I - Shipping in the Global Economy

Countryoforigin

capacity, either full booking or extremely high prices, because each time they proceed to bookings, American cruisers have already concluded their orders. The potential growth of the European market is therefore not fully exploited due to a strong American market. Table 63 shows the seasonal variations in the deployment of the fleet

Other Germany UK Benelux Scandinavia Switzerland Austria France Portugal Italy Spain Average 0%

20%

MediterraneanandAtlanticIslands

40%

60%

NorthernEurope

80%

100%

Carribeanandother

Figure 118: European cruise passengers by destination (ECC, 2007) Cruiseregions Alaska Caribbean Europe,North FarEast Indianocean/RedSea StLawrence/Bermuda/USEC Med/BlackSea Pacific SouthAmerica/Antarctic MexicanRiviera/PanamaCanal Other

JanͲApril(%) 0 48 2 4 2 0 11 8 7 9 8

MayͲSept(%) 13 19 16 3 0 5 35 4 0 0 4

OctͲDec(%) 0 38 2 5 1 3 29 8 3 8 3

Table 63: Distribution of capacity between cruise regions (ShipPax, 2008) The Caribbean and the Mediterranean are the dominating regions, but with different seasonal structure. Some markets are only exploited October-April (Indian Ocean, Red Sea, South America, Mexico), while others have high season in May-September (Alaska, North Europe) 148

Part I - Shipping in the Global Economy Demographics include aspects like age, gender, income, marital status, employment status, level of education, etc, but the most important characteristics are age and wealth. The mass-market phenomenon (Dickson, 1993) that has affected the cruise market resulted in a significant decrease in average age and wage level. This radical change has taken place thanks to the offer of shorter cruises (3 or 4 days) more suitable for the younger segment of the population, with regard to both available leisure time and disposable income. The cruise demand market has developed from being characterised by 65+ cruisers paying a high price for travelling in comfort, towards younger and less wealthy passengers. This trend has been seen in the North American market, but also now in the European market, and even Asian passengers are becoming younger. Younger customers tend to have diversified tastes and envies, and also to be very satisfied with the holiday, which results in a greater possibility of repeated trips (UNWTO, 2003). In the USA and Canada is, according to (CLIA, 2008), average age of cruisers is 43-45 years (compared to 65 years old in the 1970s), with a household income of US$ 104,000. 57% are college graduates and 23% are post-graduates. 83% are married and 57% work full-time. 79% travel accompanied with husband/wife, 24% with friend(s). Typical North American passenger groups are: x x x x

x x

Restless Baby Boomers: most recent group; 33% of total cruise holidays and 59% are firsttimers. Baby Boomer enthusiasts: tend to travel with their family. They represent 20% of total cruise holidays and 46% are first-timers. Lovers of luxury: 14% of total cruise holidays and 30% are first-timers Demanding buyers: search the best price-quality ratio; mostly faithful customers; appreciate special promotional offers and discounts; 16% of total cruise holidays and 20% are firsttimers. Explorers: well-informed, vast holidaying experience; very interested in the destinations; 11% of total cruise holidays and 20% are first-timers. Ship enthusiasts: oldest segment; already taken several cruises; 6% of total cruise holidays and only13% are first-timers.

The same trends are reflected in all the major source markets: the lowering of the average age of the cruise passenger (although this is still way behind the US market) and the high level of first-timers, are both characteristics of a market in its initial growth phase. x

UK average age is lower (53.5 years old in 2007) because of the younger section of the population that is attracted to short Mediterranean cruises. The level of first-timers in the UK has recently decreased from 62% in 1994 to 37% in 2000 (UNWTO, 2003).

x

Germany: Germany is the second biggest cruise nation in Europe, and increased by no less than 130% in 2005. Average age has notably decreased in Germany over the last two years (down to 48.3 years old in 2007), which indicates a major development within this market.

x

France: The market is beginning to grow considerably; the average French 7-10 day cruise passenger is "a couple with no children, between 40 and 60 years old", representing 40% of the customer base. The family with children segment is also beginning to grow, thanks to promotional offers. The 60+ represent 60% of the total demand and cover the long and luxury cruise market (UNWTO, 2003)

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Part I - Shipping in the Global Economy Asia is very different from the European market, especially with regard to demographic factors. Asian customers pay extra for on-board activities, as opposed to the all-inclusive package preferred by Western customers. However, the younger section of the population imitates the American lifestyle. It should be noted that customer preferences are not completely similar to what is observed in North America and Europe. For example, the total number of vacation days tends to be shorter in Asia, but also gambling in casinos is seen as a very attractive form of leisure, contrary to traditional “sunbathing” vacations in Western countries. x

Japan: Japanese cruise passengers of 70 to 80 years old are very important, and they are fully at ease with their own language and customs. Star Cruises, on the other hand, is attracting young people between the ages of 20 and 30 (UNWTO, 2003).

x

China: China is the fastest growing tourist country and is expected to become the 4th largest country in foreign travellers by 2020. Also as destination, China might expand as a result of the Olympic Games in 2008 (ShipPax, 2007).

In conclusion one can say that North Americans are the most “experienced” travellers. Even if there is still a high growth potential in this market (only 3% penetration), it already has developed a lot. The demand has diversified itself and became more stable, which is the characteristics of a rather secure market, but also more difficult to penetrate due to the dominance of the two majors: Carnival and RCI. Further, even though there are similar trends in North America and Europe, the European demand seems to be more diversified and more changing (in terms of age, destinations), and there are clear, even if not large, differences between European nations. Ethnic cruising (differentiated by language) plays an important role in Europe, and it seems that European cruisers are interested in a larger variety of destinations than North Americans. There are also more and more small cruises purchased in Europe. Regarding Asia, even if Asian cruisers show similar behaviours as Western countries, there is still much to learn about their preferences and needs in terms of vacations, which might represent a new segment for cruises.

Competition and market structure The competitive structure of a market is to a large degree determined by the number of players and their respective market shares. In a market with many companies, each with a small market share, a single player has limited possibilities of influencing the market. At the other extreme, with only one player, there is a monopoly where that player has complete market power. In practise, markets will be in between these extremes. The terms monopolistic competition and oligopoly are used to characterise such markets. With the dominance of the big five players in the cruise market, it is considered an oligopoly, (Martinussen, 1992) and (ShipPax, 2007). The calculation of numerical measurements of industry concentration is normally used to substantiate this. The four-firm concentration ratio in cruise is 45% using the number of ships and 78% using berth capacity. As a rule of thumb, four-firm concentration ratios over 40% indicate oligopolistic tendencies.

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Part I - Shipping in the Global Economy If we calculate the Herfindal Index16, however, it is only 0.094 when using the number of ships, which normally is interpreted as a moderately concentrated industry, but around 0.26 when using berth capacity. In Europe, the competition authorities consider changes in the Herfindal index when i.e. mergers take place and a change in the index of more than 0.025 is considered a serious change in concentration. A few examples: If Carnival Cruises were to buy up RCL, the Herfindal index would jump from 0.26 to 0.46, which would be considered a serious change that would trouble the competition authorities. If Star, MSC and Apollo merged to form a company with 15% of the market, the Herfindal index would only change by 0.014 to 0.275, but if Carnival buys up Star and Apollo, the index will jump to 0.40. The conclusion must be that the cruise industry is an oligopoly with five dominating firms, but with a fairly large competitive fringe. Since each ship can be considered a concept, it is possible for small firms to operate within niches. It is more than likely, however, that if these niche operations are highly successful, the companies will be targets for acquisitions by the larger companies. Throughout the years, by mergers and acquisitions, these three operators have grown to become the main actors, creating strong barriers to entry. Especially for any new operator having the desire to compete in their main market segments, very large investments are necessary. And with an increasing number of post-Panamax vessels both in traffic and on order, the barriers are considerable. In addition, the big three seem to deploy their vessels to other lower market segments when they are being outdated in the original one. i.e. vessels which are outdated in the mass market are often deployed to the budget market, reinforcing the entry barriers. Table 58 indicated that the building of cruise vessels is limited to a few, European ship yards. By placing orders for series of ships with these yards, the big three are effectively blocking newcomers from building large, sophisticated cruise vessels, thus further strengthening the entry barriers to the business.

The consolidation process Cruise shipping has over the years developed from being a special segment to become the prime example of industry shipping, exploiting both economies of scale to an extreme degree as well as tailor-making the products to their customers. The positioning of cruise and other shipping segments in this classification is illustrated above, in Figure 90. The key to continued success in the cruise industry lies with these two dimensions: Constantly finding new ways of exploiting economies of scale and constantly introducing concepts in the market in line with markets needs. The latter can of course to some degree be influenced through marketing and the creation of brand new concepts that creates its own demand. The cruise industry is a model example of how main players have been successful in consolidating competition. The story of mergers and acquisitions for the big three cruise operators is summarised in Figure 119.

16

Thisindexisthesumofthesquaredmarketsharesofallfirms,thusgivingextraweighttoveryhighmarketshares.Inthe US,aHerfindalindexlargerthan0.18isconsideredasignofaveryconcentratedindustry. 

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Figure 119: Consolidation path of the big three

Demand and supply balance Cruise shipping is the only shipping sector where supply creates its own demand. This created growth aspect of cruising requires that cruise lines, both the big three and the ones concentrating on smaller markets, constantly try to stimulate expansion. Unlike other shipping sectors, they are facing a double challenge: they must at the same time seek to converting prospects into actual cruisers and develop the right capacity to host them (in terms of number of ships, destinations, and resources to handle additional fleet). Furthermore, expansion should not just focus on capacity, but also certainly on diversification of ship concepts (including the building of smaller ships) in order to cope with an increasing and steadily varied demand. The current order book as reported by ShipPax constitutes almost 30% of the existing fleet and is to be delivered over the next 4 years as indicated in Figure 120. These figures are somewhat higher than the authors’ figures, but the time development is the same. Figure 121 shows the development of scrapping, conversions and constructive total loss (CTL) in the cruise business in the period 1996-2006. Compared to a fleet of around 400 vessels, the numbers are moderate. This is mainly due to the fact that cruise ships have an economic life much longer than 152

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Orderbook(%)

cargo-carrying vessels. The relative high scrapping in 2003-04 coincides with a drastic surge in steel prices. Exciting

0%

5%

10% 2008

15% 2009

20%

2010

2011

25%

30%

35%

2012

Figure 120: Current order book by year of delivery as percentage of total fleet (ShipPax, 2008)

18 16

12 10 8 6 4 2

CTL

Scrap

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0 1986

Shipsexitingcruisesector(number)

14

Converted

Figure 121: Scrapping, losses (CTL) and conversions 1996-2006 There are some factors that may contribute to higher scrapping in the years to come: x

SOLAS (Safety of Life at Sea) has a deadline in 2010 for implementing modern safety regulations, including the use of non-combustible materials. The new regulations are applicable to all ships in the fleet, and thus for many older ships it can be uneconomical to rebuild or refurbish, which may lead to increased scraping up to 2010. 153

Part I - Shipping in the Global Economy x

Fuel prices have increased five-fold the last few years, and therefore many older, less efficient cruise ships experience very high operating costs. In combination with the increase in scrap steel prices, which have doubled since 2005 (US$ 600/ldt today versus US$ 305/ldt for VLCC scrapped in India in 2005 (Clarkson, 2008)), this may also affect the decision to scrap a ship.

Figure 122 illustrates the development of market balance by showing growth rates of demand and supply. On average, the demand growth rates have been on par with fleet growth, with 2001 and 2006 as exceptions, and the 2001 dip was an immediate effect of the Sept. 11 event. The 2006 figures are mainly caused by the fact that Silja Opera and Birka Princess were taken out of their Baltic Sea operations, so it is not an indication of a drop in demand. If the industry avoids being affected by terrorist actions, all indications are that the growth potential of the industry still is very high and promising.

16%

Growthrate(%)

14% 12% 10% 8% 6% 4% 2% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 Supplycapacity

Demandpassengers

Figure 122: Yearly growth rates of cruise demand and supply The three big players will continue to hold the key to the development of the industry and the current order book is a clear indication that they strive to maintain their market shares. ShipPax made in 2006 a detailed forecast of necessary contracting by the big three in order for them to maintain their market shares. In Figure 123, filled-in dots indicate that forecasts have been met, an asterisk indicates activity exceeding forecast. From this figure in looks like Carnival is headed to maintain its position, while RCL lags a bit behind. The smaller companies will increase their presence in 2009, as already seen with MSC and Apollo Management. Cruise ships in the mass market are getting bigger and bigger. In addition to the challenge of securing a sufficient supply of vessels in a fast growing market, it will increasingly be a challenge to find new destinations and to develop port and terminal facilities with sufficient capacity to accommodate the increasingly big ships. 154

Part I - Shipping in the Global Economy  CarnivalCruises RoyalCaribbean StarCruises Other75

2009 zzzzz zz{ z zzz*

2010 zzzzzz zz{ z zzz

2011 zzz{{{ z{{ { z{{

2012 z{{{{{ {{{{ { z{{

FilledͲindotsindicatethatforecstshavebeenmet

Figure 123: Fulfilment of 2006 forecast regarding new orders (forecast vs real orders)

Industry attractiveness Several authors have made contributions to shedding light on the question of what makes an industry attractive. Seven factors are normally highlighted in this context: x

Barriers to entry In general, one would say that high barriers to entry is good for the incumbents and contribute to high profitability. As argued in previous sections, the barriers to entry in the cruise market are very high - at least if a newcomer is attempting competing in the large mass markets.

x

Competitors The fewer the competitors, the higher is the potential of exploiting market power, and normally the higher the attractiveness of the industry (particularly for the incumbents). The cruise industry has witnessed a consolidation process that has led to a dominance of mainly 3 companies. As argued earlier, the big three players have managed to limit the competition in their mass markets, but there is still a large competitive fringe with potentials in niche markets.

x

Product similarity In general it is argued that the more differentiated the market is, the higher the attractiveness of the industry. Cruise shipping is all about differentiation, and each ship may be regarded as a unique concept. In practise, however, the offers of the main brands in the main markets are very similar, so the effect of differentiation may be limited.

x

Switching costs High switching costs are associated with high attractiveness. Loyal customers contribute highly to bottom-line profits. In cruise shipping the switching costs are fairly low, as it is easy to move to another operator. There are some elements of loyalty, however, as repeat cruisers with the same cruise line is a common trait.

x

Demand growth High demand growth is clearly associated with high attractiveness of the industry. In this respect, the cruise industry scores highly. For more than 40 years, the cruise industry has maintained growth rates of 8-10% per annum.

x

Fixed costs Low fixed costs are normally associated with high industry attractiveness. In this respect, the cruise industry has a low score as the massive investments in ships and large service organisations make the industry a high fixed cost industry.

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Part I - Shipping in the Global Economy x

Barriers to exit Low barriers to exit normally favours profitability. In cruise shipping the exit barriers are different for different players. For a small player with 1 or 2 ships, it is fairly easy to get out of the business. For one of the big three, the exit barriers can be large, as the companies would have to sell out the entire company as one, big deal, and this involves so much money that it is not easily absorbed by the marketplace. In this respect the barriers to exit are high. High exit barriers may also be acting as an entry barrier, so the effect on profitability can go both ways.

Figure 124 summarises this brief discussion.

Figure 124: Cruise industry attractiveness The cruise industry has some factors working in favour of high profitability, but also some working against. The overall impression is, however, of an industry with potential for continued high profitability. It seems clear that the two top players, Carnival and RCL differ in some respect when it comes to their strategies for this market. On the one extreme, Carnival has followed a strategy of growth through diversification, by buying up a number of brands catering to very different cruise segments. The different brands within the Carnival group operate very independently and it seems that, with the exception of bunker oil, where Carnival has a central procurement system, very little is done on group level to exploit economies of scale. Still, as seen from Figure 116, Carnivals cost performance is also superior, which of course gives a win situation in this market and explains the undisputed leadership of Carnival. RCL on the other hand is focussing a lot on economies of scale, particularly in the ships themselves, where RCL currently is ordering record large vessels. It remains to be seen if this strategy will prove profitable.

Critical success factors and future challenges From the characteristics of the cruise industry, it is possible to identify a set of performance areas in which a winner in this industry ought to be a leader; a set of critical success factors: x

Exploitation of economies of scale Economies of scale can be obtained in each ship (bigger vessels), as cost reductions for the total fleet (maintenance program, inventory optimisation, etc.), reduced costs of ‘hotel’ operations (procurement, quantity rebates), etc. 156

Part I - Shipping in the Global Economy x

Differentiation of the cruise product This can be achieved through unique ships, innovative concepts, new destinations, diversity of brands, etc.

x

Developing customer loyalty Increase the share of repeat cruisers through superior (individual) service

x

Managing strategic investments This is primarily timing of contracting of new vessels, both with respect to delivery date for newbuildings as well as the strategic element of blocking yard capacity for competitors.

In addition to the business specific challenges in management and operations, the cruise industry is facing challenges from an increasingly global world economy. The main challenges seem to fall into five main categories: x

Potential industry-wide bottleneck problems Two main areas stand out here: Port and terminal-facilities in new and preferred destinations and the availability of quality seafarers, particularly officers

x

Environmental challenges There is an increased public awareness of environmental issues, ranging from the threat of global warming to more local pollution issues. The industry will be facing the challenges on two fronts: Through international regulations by IMO and, perhaps increasingly important, through the increased awareness of travellers. The airline industry has started offering people to pay an additional price to improve a passenger’s carbon imprint.

x

Threats from terrorism and conflicts A direct bomb attack on a cruise vessel will send demand in free fall and disrupt the industry for many years. Even without such tragic events, terrorism creates uncertainty, and uncertainty regarding safety is not good for the industry. Americans are likely to perceive Middle East problems as a Mediterranean phenomenon, despite geographical distances.

x

Changes in relative prices The business is very much about money. If interest rates go up, people will normally spend less on vacations. The exchange rates of the US$ vs. €, Yen and other currencies can have a dramatic effect. Bunker prices are record high and their development can have dramatic impacts on the operational side of cruise shipping.

x

Adapting the cruise concept to the market demand This is about matching the products to changes in demographics, purchasing power, changes in attitudes, etc. Cruise is a concept business, and the players with the best concepts will capture the market

4.4. Case 3: The ferry market To define the ferry market in a precise way that makes the delineation sharp and the definition simple, is an impossible task. A fairly good description of a ferry is the following: “A specially constructed vessel to bring passengers and property across rivers and other bodies of water from one shoreline to another, making contact with a thoroughfare at each terminus”. Although this sounds pleasingly 157

Part I - Shipping in the Global Economy correct, it is not very operational, as it does not give any indication of how the ferry should be “specially constructed”, nor any indication of size, speed, etc. This definition is thus not very useful. The leading provider of ferry information, ShipPax, uses the following definition: “A ferry is a ship larger than 1000 GT that sails on a regular line and has passenger accommodation and is using ro-ro technology for the transportation of cars and commercial vehicles (if any), having sufficient free height on car deck(s) for this”17.

Passengers only

So ferries can be pure passenger ferries, but mostly ferries carry a mix of cargoes (both passengers and cars or other ro-ro vehicles like buses and trucks). From a market analysis point of view, this turns the ferry into a very complicated vessel, because it will, directly or indirectly, be in competition with vessels from what is regarded as separate markets: the cruise market and the ro-ro market. It is clearly no coincidence that the standard-setting market report on ferries - the yearly “ShipPax Market” is a book with four sections: cruise, ro-ro, high speed and ferries. Figure 125 illustrates some of the problems involved.

Commuter Ferry

HighͲspeed ferryindustry

Carferry

Cruiseferry

FastFerry

Cargo only

Ͳ CargomixͲ

Cruiseindustry Jumboferry Ropax ferry

Ferryindustry

RoͲroliner

RoͲroindustry

Travel Need

Ͳ TravelmotivesͲ

Pure entertainment

Figure 125: Ferry market definition problems From the demand side there are different motives for choosing transportation by ship. Some just wants to get from A to B, so the motive is pure transportation. Some wants to go on a ship just for the fun of it, so the ship itself becomes a destination, and one could have all sorts of combinations in between. If

17

Adaptedfrom(ShipPax,2008)

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Part I - Shipping in the Global Economy passenger transportation is then combined with cargo transportation, the picture quickly becomes too complicated for simple definitions. For the purpose of this analysis, therefore, the ShipPax definition of a ferry will be used, but data for all four markets presented in Figure 125 will be considered to hopefully gain some insights as to the overlaps of the various segments. For this purpose we have been given access to the ShipPax databases, for which we must express our gratitude. The data sets are summarised in Table 64.  Shiptypes Ferries Highspeedferries RoͲrovessels Cruisevessels Alltypes

Ships(No) 1,121 1,719 1,431 419 4,690

Avgpax capacity 986 258 17 1,091 433

Pax 1,105 444 24 457 2,030

Totalcapacity(thousands) Beds Cars LaneͲmetres 306 259 739 n/a 24 8 12 2,137 1,563 n/a na na 318 2420 2,310

Table 64: Ships in the ShipPax databases, including ships on order (ShipPax) The data sets in this table refer to the global market. This book will limit itself to look at those operators most active in Europe, divided into two parts: Northern Europe (North Sea and the Baltic Sea) on the one side, and the Mediterranean on the other. The only geographical breakdown that makes sense, is to look at each individual route as a market in itself. This is because each route is unique in its combination of the many parameters determining the characteristics of the route, and it simply does not make sense to group different routes together for the sake of analysis. Some main grouping of routes can be made on the basis of the length of the route, but by the end of the day, the fact remains that there are so many other parameters of a route that may be different, that aggregation will tend to cloud important route differences. This will be discussed in the following sections.

Brief history of the ferry market One could argue that the ferry market history starts in North America, on the west coast near Vancouver and Seattle. The first wooden side-wheeler to travel between Victoria and New Westminster on the Fraser River was the Enterprise, built in San Francisco in 1861 and operated by the Hudson's Bay Co. from 1862 to 1885. At 143 feet, she carried passengers, mail and freight twice a week in summer and once a week in winter, ice permitting. Originating in the early 1900s, the Puget Sound ferry service was initially provided by a number of companies using small steamers known as the “mosquito fleet”. By 1929, the ferry industry had consolidated into two companies: Puget Sound Navigation Company and Kitsap County Transportation Company. A strike in 1935 forced Kitsap out of business and left the Puget Sound Navigation Company, commonly known as Black Ball line, with primary control of ferry service on Puget Sound. In 1951 this company was transformed into Washington State Ferries (WSF), a company that still is in operation and is one of the largest ferry companies in the world. The first car ferry is regarded as the Motor Princess, which was built in 97 days by Yarrows Ltd. in Esquimalt (1923). She was built for the Canadian Pacific Railway Company's (CP) B.C. Coast Service.

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Part I - Shipping in the Global Economy Nicknamed "galloping dishpan", "jiggle box", and "stinker", the Motor Princess ran from 1929 to 1950 between Steveston and Vancouver Island with stops at Gulf Island ports on Sundays. The Motor Princess had a main car deck as well as space for cars on the front half of the upper deck, connected to the main car deck with a ramp. She was a wooden-hulled vessel and the first diesel powered vessel in CP's fleet. She had a cruising speed of 14.5 knots, was 165 feet long, 43.5 feet wide and 9 feet deep, and she was designed to carry 45 cars. Stubby and squat, not sleek and yacht-like as strictly passenger ferries were, she was considered an uncomfortable misfit in the Princess Line. Despite being noisy, jerky, overpowered, and hard to steer in high seas, she was a convenient and popular method of travel. She was sold in 1956, renovated, and renamed Pender Queen. She became part of the B.C. Ferry fleet in 1965 and retired in 1980 after 57 years of service.18 The mid-war period saw the construction of several car-carrying ferries, but it was in the period after WW2 that the car ferry concept really made a significant step forward. Since the 1950s, different drivers of the economic environment have influenced the direction of the ferry market. Increased length of industry vacations after 1950 together with less tight passport regulations spurred international tourism and this was further enhanced by the introduction of tax free shopping, which made market conditions favourable for the fast growing car ferry industry. The first oil price shock in 1973 sent bunker prices sky-rocketing and the industry response was to start exploiting economies of scale by building larger and larger car ferries with several car decks. This led to the so-called jumbo ferries. In parallel with this, many ferries started to evolve into cruise ferries, where emphasis was on onboard space and onboard experiences for the passengers. This development had a setback after the abolition of tax free sales in the EU in 1999, and some services have been closed, but some routes still pursue this concept. Since the mid 1980s, many operators have embraced the high speed ferries and they have grown in size and seen similar developments as the conventional ferries regarding onboard facilities. The jumboising of the catamaran concept that was caused by the Stena HSS ferries with 1500 passengers on a 40 knot ferry represented a technological shift of great importance to the industry. In later years, more focus has been on developing passenger facilities on primarily cargo services, which has led to the use of the RoPax term. Ropax vessels are showing the same tendency of jumboising as the car ferry and the high speed ferry, indicating interesting future challenges for the industry as well as demanding implications for onshore infrastructure. Referring back to Figure 125, one could say that the historical development of the ferry industry has seen a shift from the pure passenger ferry on the one side and the pure cargo liner on the other and developed into a complex set of very different technologies combining in very different ways the many passenger and cargo transportation combination possibilities and aspects. The result is an industry with a very complex structure.

The demand side The demand side of the ferry market is extremely fragmented, very similar to the aviation industry. Ferry passengers consist of individuals and families buying their tickets through a multitude of different channels, so there are no dominant players one can identify in this market.

18

www.virtualmuseum.caandwww.wsdot.wa.gov

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Part I - Shipping in the Global Economy Similar to the cruise market, where each ship in principle creates its own demand, there is a strong link between demand and supply in the ferry market in the sense that traffic on a particular route can only be established if there is someone supplying a service on this route. It is impossible, therefore, to study the demand for ferry services without looking at actual services offered.

The World traffic volumes The only source available for global statistics on ferry traffic is the data collected by ShipPax. Their information is collected at route level, and the totals will therefore depend on how well all routes are covered. Admittedly, the route network in Asia is incomplete and there are no data for Africa, so world totals are slightly underestimated, see Table 65.  NE&Baltic Mediterranean America SouthEastAsia Allothers World(Millionunits)

Pax 20% 26% 19% 32% 3% 1681.9

Cars 46% 15% 36% 1% 2% 225.2

Buses 78% 12% 7% 1% 2% 0.7

Trailers 55% 23% 7% 13% 2% 36.0

Trips 64% 12% 12% 10% 3% 6.7

Table 65: Traffic volumes and regional distribution in the ferry market 2007 (ShipPax, 2008) The total figures in the table indicate that the ferry industry is a very important one in the world economy carrying close to 2 billion people and over 250 million cars, buses and trucks per year. If all those vehicles were to form one, long row, it would go around the equator almost 45 times, or more than 4.5 times the distance to the moon. The total number of passengers carried are on par with the number carried by all the airlines of the world, which was estimated at 2.1 billion in 2006 according to ShipPax (2008). With 6.7 million trips being carried out, the average no. of passengers per trip is 256, which is about 60 % of the average passenger capacity figure from Table 64. Table 66 indicates the growth rates from 2006 to 2007, based on the ShipPax figures for 2007. Some cells are empty because of lack of data compatibility. Area NorthEuropeandBaltic ͲBaltic ͲNorthSea Mediterranean America SouthEastAsia Allothers

Pax 8.0% 6.9% 10.3% 5.4% 1.5% Ͳ0.5% 3.2%

Cars 7.2% 8.7% 1.5% 6.5%  1.8% 6.9% 5.0%

Buses Ͳ5.1% Ͳ8.8% Ͳ0.2% Ͳ6.2%  0.0%  Ͳ0.8% 

Trailers 5.0% 9.8% 1.6% 9.5%

Trips 0.6% 1.0% Ͳ3.4% 2.3% 0.4% 4.4% 1.2%

Somefiguresarenotreportedbecausethecomparisonbasehaschanged

Table 66: Growth in ferry traffic from 2006 to 2007, (ShipPax, 2007) and (ShipPax, 2008)

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Part I - Shipping in the Global Economy The European growth figures are quite high with around 10% for passengers in the North Sea and trailers in the Baltic and the Mediterranean. This seems to be good news for the ropax market, and the growth rates for passengers in general are also high in Europe, and particularly high in the North Sea.

European ferry routes It is evident that operators try to avoid setting up services on exactly the same routes as competitors. Rather, a number of different ports, on both sides of the body of water in question, are being used. Table 67 indicates the situation for three main ferry regions. None of the 37 routes in these regions have more than 2 operators on the same route. And there seems to be a tendency towards one, dominating player. Route

Pax (million)

NorwayͲDenmark UKͲIreland GreeceͲItaly

4.2 3.2 4.7

Routes (no) 12 8 17

Largestroute (share) 23% 28% 24%

Operators (no) 6 4 12

Largest operator

Shareof traffic

ColorLine StenaLine n/a

55% 56% 

Table 67: Number of routes and competitors in selected ferry regions (ShipPax, 2007) It is actually difficult to find European examples of three or more competitors on the same route. It is important to remember that being alone on a route does not necessarily mean that the route is without competition. There can be many routes connecting two larger regions and then all routes in the geographical area will be in competition with each other. This is the case for all three regions in Table 67 and several other regions as well. A manual check of all the 946 individual routes given for the Baltic, North Sea and Mediterranean routes in ShipPax 2007, and where passenger traffic is available for 2006, reveals only 8 routes with 3 or more operators listed for exactly the same pair of ports. These routes are listed in Table 68. From Helsingør Tallinn Mariehamn Calais Dürres Split Marseilles Tangier

To Helsingborg Helsinki Stockholm Dover Bari Ancona Tunis Algeciras

Distance(nm) 23 48 83 21 121 131 472 33

Competitors(no) 3 6 3 4 9 3 3 8

Table 68: European ferry routes with 3 or more competitors It is interesting to note these eight routes cover both short and longer routes, so distance is not the main explanatory factor. It may be noted that no domestic Greek route is listed the table. There is a good reason for this: The enormous Greek archipelago is ideal for ferry activities and more than 40 million passengers are carried among this myriad of islands every year. It is, however not easy to define a route in the Greek ferry market as ferries can combine islands in lots of different ways, so it is 162

Part I - Shipping in the Global Economy hard to say what constitutes one route. Table 69 summarises some the traffic regions in the Greek market with more than 1 million passengers for the year 2005 as grouped by ShipPax 2007. Routeareas ArgosͲSaronic(Aegina/Poros/HydraͲKithera) Crete NorthCyclades(Evia/Andros/Tinos) NorthCyclades(Mykonos/Tinos)ͲSamos Dodecanese(Patmos/Leros/Kos/Rhodes) EasternCyclades(Paros/Naxos/Antiparos) Allotherrouteareas TotalGreecedomestic

Pax(million) 3.3 2.5 2.2 1.6 1.5 1.1 33.3 45.5

%oftotal 7.2% 5.4% 4.9% 3.5% 3.2% 2.5% 73.3% 100.0%

Table 69: Ferry traffic in the Greek archipelago in 2005 (ShipPax, 2007) The data for the Greek market support clearly the hypothesis of a very fragmented market as the 6 top trade route areas only constitute less than 25% of the total Greek market. All of this seems to support the conclusion that the demand side of the ferry market is indeed very fragmented as far as creation of actual services is concerned, but for each route there is a tendency towards monopoly or at best oligopoly for each route.

Demand side preferences The success of a ferry operation will depend on how well the actual service matches the underlying demand in the area under consideration. As previously mentioned in relation to Figure 126, people can have very different motives for choosing a ferry. For some it is a means of transportation - they want to get from A to B possibly as safely, cheaply and as fast as possible, for others it may be more like an adventure, where the experience of the trip, what they can do while on board and what they may experience at each side of the trip, constitute the essentials. Figure 126 is an attempt of illustrating the complexity of demand motives, inspired by Maslow’s hierarchy of needs in psychology (Maslov, 1943). The basic demands must be met first, i.e. is it safe, will it take me where I want to go in a convenient, timely fashion and will it be comfortable enough? If the service aims at commuters or business people, this will be the essential criterion for designing the ship or the service. If the target groups are holiday travellers, people who would go more for the experience itself, the other part of the hierarchy becomes more important - essentially: will it give me a good experience? In practice, one may want to satisfy several target groups with the same service, and this is where things can get complicated and where some real tradeoffs will have to be considered: x x x

Speed vs. cost, comfort and seaworthiness; Service level vs. cost, space requirement, safety considerations; Should the ferry be equipped for summer season needs or have an all-year-round look.

This multidimensional aspect of ferry demand is one of the most important issues to remember as a main characteristic of the demand side of the ferry market.

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Experience demands

Onboard activities Autonomy/ movement

CanImovearound,stretchmylegs,gooutondeck?

Status/ image

45knotsiscool../Thisshiplooksgreat!

Servicelevel

CanIgetadecentmealorjustahotdog

Travelcomfort

WillIgetseasick?CanIworkonmyPConatable CanIreadmybookinacomfortablechair

Accessibility/ availability

Doestheferryleaveataconvenienttime? Easyaccesstotheterminalwithcar,luggage,etc.?

Transportefficiency

Transport demands

Aretherefunthingsonboard games,movies,shopping?

Securityandsafetyoftrip

Thetriptakeswaytoolong, Iwillcatchaplaneandhireacar Isthisshipreallysafe?

Figure 126: Hierarchy of ferry demands

The supply side The database for this study allows us to study the brand operators for 4 basic types of ships: the conventional ferry, the high speed ferry, the ropax vessels and the cruise vessels. The size of the suppliers must be measured by the capacity of the ships they operate, but this can be done according to different criteria: x x x x x

Size in GT; Passenger capacity ; Car capacity; The lane-meter capacity; Bed capacity.

Passenger capacity of ships is selected as the main measure of size, as moving people across bodies of water is essentially the role of ferries, although in some cases car capacity or lanemeters could clearly be the crucial limiting factor. Including all four ship types from the database, a ranking of all companies according to passenger capacity would give us the following top-5 companies x x x x x

Carnival Cruise Lines; Royal Caribbean; Tirrenia; Princess Cruises; Washington State Ferries (WSF).

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Part I - Shipping in the Global Economy Of these 5, only Tirrenia and WSF would be regarded as ferry companies, the other three are pure cruise ship operators. Similarly, considering total car capacity, the following top-5 companies would result from a global ranking x x x x x

Wallenius Wilhelmsen. EUKOR. NYK Line. Mitsui O S K. K-Line.

All of these companies are specialising in car transportation for the main car manufacturers in large roro vessels and are thus not ferry companies in the context of this analysis. Table 70 presents the ranking of ferry companies, where the criteria are two-fold: x x

The company should primarily operate conventional or fast ferries; The company should have a European business focus.

Rank

Brandoperator

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Tirrenia IstanbulDenizOtobüsleri(IDO) Tallink/SiljaLine StenaLine Jadrolinija HellenicSeaways P&OFerries SuperfastFerries/BlueStar CorsicaFerries MOBYLines VikingLine ANEKLines Scandlines AccionaTrasmediterranea GAFerries SNCMFerryterranee ColorLine Siremar BrittanyFerries GrandiNaviVeloci(GNV)

Ferry 16 10 14 15 23 9 12 12 10 12 8 10 17 11 8 7 7 9 7 8

Numberofshipsindatabase Highspeed Ropax Cruise 4 6  34  1  2  4 13  8   20 3  1 15     2             6  7 10  1 1  1 2     17   1 1    

Total 26 45 16 32 31 32 28 12 12 12 8 10 23 28 10 10 7 26 9 8

Pax capacity. 42,589 29,514 26,891 26,511 20,804 20,117 19,746 19,219 19,173 17,823 17,583 17,445 16,748 16,736 14,985 14,653 14,423 13,256 12,028 11,516

Table 70: Ranking of European ferry operators by passenger capacity of ships (ShipPax, 2008) Table 70 shows that the supply side of the ferry industry consists of very different types of companies. An indication of differences is given by Table 71 showing the average number of passengers per ship for the top 10. 165

Part I - Shipping in the Global Economy Brandoperator Tirrenia IstanbulDenizOtobüsleri(IDO) Tallink/SiljaLine StenaLine Jadrolinija HellenicSeaways P&OFerries SuperfastFerries/BlueStar CorsicaFerries MOBYLines

Avgnopax/ship 1.638 656 1.681 828 671 629 705 1.602 1.598 1.485

Table 71: Average passenger capacity of the fleets of the top 10 operators (ShipPax, 2008) Figure 127 offers another way of looking at the diversity of the main players, here an illustration for the top 5. The various dimensions have been measured as follows (total fleet means all conventional ferries plus all high speed ferries):

Figure 127: The diversity of the top-5 ferry operators (ShipPax, 2008)

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Part I - Shipping in the Global Economy x x x x

Focus on large ferries: Average passenger size of fleet, divided by average passenger size of total fleet; Focus on overnight ferries: Number of total beds divided by total passenger capacity of fleet, divided by the same ratio for the total fleet; Focus on ro-ro: Total lane-meter capacity divided by total car capacity of the fleet, divided by the same ratio for the total fleet; Focus on high speed: Simply the percentage number of high speed ferries in the fleet.

For the three first ratios, any number above 1 indicates above average figures. Figure 127 indicates that two companies are highly specialised: IDO with a focus on high-speed passenger and car ferries (that are smaller than conventional ferries) and Tallink with a clear focus on large overnight ferries with car capacity. The other three are all well diversified, with Stena having the clearest ro-ro focus, Tirrenia having generally larger ferries and Jadrolinjia a slightly higher percentage high speed ferries. Table 72 makes it clear that when looking at total sizes of operators, it shows very fragmented industry, indeed and a very diversified one as well. Sharefortop20companiesin: Numberofallshiptypes Numberofallferries Numberofallhighspeedferries Totalpassengercapacityallships Passengercapacityofallferries

Percent 8.2% 20.1% 5.8% 19.3% 25.3%

Table 72: Market shares of top 20 ferry operators (ShipPax, 2008) The top operator, Tirrenia, has a mere 2.1% of the total passenger capacity of all the ships in all four categories and the top 20 accounts for only 8% of the number of ships and less than 20% of total passenger capacity, or 25% if calculated as the share of the total passenger capacity of all ferries. All these numbers indicate a very fragmented industry. This does not mean, however, that the companies are without influence in the market. As stated above, one could regard each ferry route as a market in itself, and in this context, the companies on the top-20-list will be large and powerful entities. The top20-list contains many different types of companies: x x x

Pure conventional ferry operators - Superfast/Blue Star. MOBY, Viking, ANEK, Scandlines, Color Line and GNV Primarily high speed operators - IDO, Hellenic Seaways and Siremar Well diversified ferry operators (incl. ropax) -Tirrenia, Stena, P&O Ferries and Acciona

The small size of these companies relative to the total number of ships and operators, indicates that a route focus seems potentially more interesting. Table 73 tries to summarise the activities of the top 10 as described above.

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Companyname/ Homecountry  Tirrenia Italy 

Domestic

StenaLine Sweden    Jadrolinjija Croatia 

18 80%

CorsicaFerries Italy  MOBY Italy  VikingLine Finland  

1 20%

0 0% 

12 100%

0 0%

0 0%

4routes 30%

7 56%

2 15%



Albania

 

Sweden Germany 0 0%

  

Denmark Germany Poland



9 46% NorͲDen(1) UKͲCont(3) IrishSea(5)

4 37%

0 0% 

Italy 40 100%

0 0%

0 0%

0 0%

7 100%

0 0%

  

  

France Ireland Spain 4 31%



5 28% France

10 68% 

7 41% FranͲCor(7)

4 32%

0 0% 

France 2 18%

 

LatͲSwe(1) GerͲRus(1) 9 54%

3 63%

HellenicSeaways Greece P&OFerries UK   

Pureinternational

(numberofroutes/%ofpassengercapacity

IstanbulDenizOtobüsleri Turkey TallinkSiljaOy Estonia/Finland  

Internationalfrom homebase

4 82% Sweden Estonia

0 0%  

Table 73: Route basis of top-10 operators with % of passenger capacity (various sources)

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Part I - Shipping in the Global Economy Two of the operators are purely domestic. Istanbul Deniz Otobüsleri with its monopoly on all Bosporus and Marmara Sea traffic (carrying more than 90 million passengers per year and almost 6 million cars) and Hellenic Seaways which operates a multitude of short routes among the Greek islands (the route number of 40 in the table is merely a suggestion, as the possible route combinations are many more) The overall conclusion seems to be that the ferry industry is totally dominated by local, domestic (regional) operators. Stena is the only company with something that resembles an international profile. In this context, the ferry industry is widely different from all other shipping segments. There has been two attempts lately of establishing other international ferry companies: SeaContainers tried both in the Baltic and the US, but has now exited the ferry business altogether. Superfast and Blue Star were also on the way towards getting an international profile, with a ship in the Baltic and two ro-ro vessels operating in France but that changed with the sale to Marfin. Currently they seem to concentrate on the Greece-Italy connection. This may indicate that it is very difficult, indeed, to get established outside of the home base. This probably reflects the importance of local political connections, but this is not easy to substantiate. The fact that most ferry routes are based on concessions, that access to port infrastructure often requires political decisions and the fact that state ownership in the ferry business is common (often through national railway companies), more than hint that political connections are important. In some countries, like in Sweden, domestic car ferries are being operated by the public road administration

The role of shipbuilders and role of technologies There are a number of smaller shipyards that have produced ferries and many of the ferry operators seem to favour local, domestic producers. Again this is probably reflecting the political nature of the business. The situation for the top 20 operators is given in Table 74. Some operators are clearly favouring their home country (Tirrenia, IDO, Tallink, Hellenic, Viking, Acciona T, SNCM, Siremar and GNV), the others are extremely international with Stena having ships from no less than 12 different shipbuilding countries. Relatively few of the ferries are being built by the big cruise shipbuilders, and those are mostly for operators of the same country. This picture seems to reinforce the conclusion above, that there are lots of national interests in the ferry business, and this extends clearly to the newbuilding sector as well. In the building of conventional ferries, a number of different yards are active. Since 2003 Fincantieri and Aker Yards have delivered around 0.5 million GT of ferries each, which gives the two yards the leadership in ferry building, just as for cruise vessels, but the number of smaller yards producing ferries is very high, very unlike the cruise sector. As far as high speed ferries are concerned, the picture is different. In the late 1970s and 80s, the Norwegians dominated the high-speed market with catamarans, particularly from Kvaerner Fjellstrand. By the end of the 80s, Australia started exporting fast ferries, led by InCat International, a company soon to become a dominant producer of high speed crafts, notably with their own wavepiercer design. Often being up against ferry operators with limited knowledge about high speed operations, Incat has several times offered to take equity stakes jointly with the operators in order to get their technology in place. Incat has played a prominent role in the dissemination of high speed technology and is the undisputed leader in high speed hull design and dissemination.

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Part I - Shipping in the Global Economy Rank 1 2 3 4

Brandoperator Tirrenia IstanbulDenizOtobüsleri Tallink/SiljaLine StenaLine

Primarybuildingcountry 100%Italy Turkey Finland Finland(4)

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Jadrolinija HellenicSeaways P&OFerries SuperfastFerries/BlueStar CorsicaFerries MOBYLines VikingLine ANEKLines Scandlines AccionaTrasmediterranea GAFerries SNCMFerryterranee ColorLine Siremar BrittanyFerries GrandiNaviVeloci(GNV)

 Greece Germany Germany   Finland Japan Denmark Spain Japan 100%France Finland 100%Italy Finland Italy

Othercountriesofbuild  Aus Ger/Ita/Den 2:Ger/Nor/Ire/Swe/Pol/Kor 1:Spa/Nl/Den/Ita/Aus Den/Cro/Ita/Ire/UK/Jap Jap/Aus/Nl/Fra Ita/UK/Jap Nl/Jap/Kor Ger/Yug/Ita/Nl/Fin/Kor Ger/Kor/Ita/Den/Swe/Nl Cro/Den/Spa Swe/Pol Nl/Fin/Nor Ita/Aus Ger/Nor/Nl  Ger/Den/Swe  Den/Ger/Nl/Fra Kor(1ship)

Table 74: Countries of build for ferries (Lloyds Fairplay Research, 2008) Just as the demand side is complicated with many different aspects regarding customers’ preferences, the supply side is similarly complicated as there are many different basic designs of ferries, and for each type there are many design variations. The variation is particularly large for fast ferries. The earliest fast ferries were hydrofoils, using winglike foils mounted on struts to give lift. Then the catamaran became the hull of choice and is dominating in number among the fast ferries in existence today. Two parallel hulls give the lift of the ship. The earliest generations were 25-42 metres long, but today much larger catamarans are in operation. Stena developed their High-speed Sea Service design and with the HSS 1500 in 1996, they tripled the length of the most popular model, the FlyingCat 40 m from Kværner Fjellstrand with its 126-metre long hull. The HSS 1500 represented a huge improvement in technology as this much larger ship could handle much rougher seas at speeds around 40 knots. Incat International in Australia developed its wavepiercer, which is a catamaran with hulls that are designed to cut through the waves. The wavepiercers are also getting larger in size, currently around the size of the HSS 1500. The trimaran is another multihull construction that many see as a further development of the catamaran with higher payload for the same speed and greater comfort. The trimaran has also reached the size of the HSS 1500. A special catamaran, the so-called SWAT (Small Waterplane Area Twin Hull) has two torpedo-shaped, bulbous hulls under the water which stays submerged in high speeds, where they are not affected so much by waves, which gives a ship that can handle rough seas in high speed very well. 170

Part I - Shipping in the Global Economy Another type of fast ship is the Surface Effect Ship (SES) that combines the lift of a catamaran with an air cushion to further lift the ship in water and thus reduce resistance. It is essentially a combination of a catamaran and a hovercraft (which hover over the water on an air cushion). SES vessels are widely used as naval vessels. As opposed to all of these multi-hull constructions, the other main category of vessels is a ship with only one hull, the monohull. Table 75 to summarises, in a highly subjective way, the many technologies available to potential ferry operators.    Designtype Displacement monohull Planingmonohull Hydrofoil Catamaran Wavepiercer Trimaran Swath SES

   Speed 8 2 4 5 5 3 7 1

Payloadin med.waves andspeed: Low High 1 8 6 8 3 3 2 3 7

2 3 5 5 4 7 1

Overall costswhen speedis Low High 1 8 6 8 3 3 5 2 7

6 2 3 3 5 7 1

Easeof cargo/ passenger handling 4 4 8 1 7 1 6 3

Wavehandling/comfort dep.onwaterandweather Sheltered Opensea Good Bad Good Bad 3 7 6 3 5 3 7 7 6 1 2

8 3 5 5 3 2 1

6 1 4 4 3 2 8

7 1 5 4 6 1 8

Table 75: Subjective ranking of technologies, adapted from (Wergeland T. , 1993) There is no clear winning technology in this table, as most of the design types score an average around 4. This means that there are some designs that may be superior in some circumstances and not good in others, so again, decisions regarding technology will also be route dependent. A couple of conclusions may, however, be indicated: x x

Displacement monohulls seem best in terms of cost and when used at low speed in up to medium waves with high payload; The SES (surface effective ship) seems best when high speed is required, but only in sheltered waters.

The overall conclusion is, though, that the optimal choices can only be made for a given route and the characteristics of this route. The traditional approach in market analysis of comparing demand growth rates with expected supply increases makes only very limited sense in the ferry market unless it is coupled with information about where new capacities are planned to be employed. The order book indicates that 36 new ferries will be delivered in 2008, which is 8 more than in 2007. The growth in lane-meter capacity is expected to exceed 4%. Table 5.1 indicates the newbuilding activity among the top 10, where Tallink and particularly IDO appear most active. Of other operators in Europe, the Norwegian high speed operator Fjord1 will take delivery of 5 vessels, and the Italian Grimaldi/GNV will have 4, but 1 or 2 of these will be taken over by Superfast (according to rumours in Athens in May 2008). 171

Part I - Shipping in the Global Economy Rank 1 2 3 4 5 6

Operor Tirrenia IstanbulDenizOtobüsleri Tallink/SiljaLine StenaLine Jadrolinija HellenicSeaways

Number 0 6 3 0 2 1

Rank 7 8 9 10  

Operator P&OFerries SuperfastFerries/BlueStar CorsicaFerries MOBYLines OtheroperatorsinEurope Operatorselsewhere

Number 0 0 0 0 29 23

Table 76: Number of new ships delivered in 2007 and 2008 by operator (ShipPax, 2008) Route patterns are not static, and in 2007 the market saw 7 routes closing down, 1 in the Baltic, 2 in the North Sea and 4 in the Mediterranean, but no less than 14 starting up, 11 of which in the Mediterranean, with IDO (domestic), Grimaldi (Italy-Spain) and Moby (domestic) opening one new route each. There is little in the data for new deliveries and new and closed routes that indicate that any of the larger operators are planning something new. The ferry market is a market in growth, and with quite a lot of dynamics on route level. It is far more difficult to draw conclusions on an aggregate level.

Market structure and competition The ferry market is a very fragmented market, but unlike the tanker market, that exhibits all signs of being a pure competitive market, this is not the case for ferries. The second-hand market in the ferry business is quite active and links the various ferry markets on a global basis. Figure 128 illustrates this. The arrows indicate the direction of sales. Although this picture is about 10 years old, it still has a lot of validity. When a ferry is sold from one market to another, they often undergo dramatic changes, e.g.: x x

Slender Japanese ferries sold to Greek operators are completely refurbished; Car ferries sold to Indonesia will often be converted so that car decks are replaced by sleeping bunks.

As pointed out above, each ferry route is a market of its own and there is a clear tendency towards monopolies on each route. One could, therefore, claim that the ferry market is a game where an operator tries to establish itself as a monopoly, and if it is successful, the company will earn money. In that sense the ferry market could be classified as a specialty segment in shipping (Figure 90). With the fragmented structure of the supply side discussed above, one could be led to the conclusion that no economies of scale exist in this market. The suggested placement of the segment indicates, however, that economies of scale must be seen in relation to the size of the market, and if the market is understood as the individual route, there will be some economies of scale effects in each case (ship size, booking systems, etc.). The sector shows no signs of consolidation, however, hence the placement in the specialty shipping box. The market structures for the many ferry routes are dynamically influenced by innovations and competition, and competition can come not only from other ferry operators, but also from competing sectors in the bigger business of moving people, like the airlines. Some of the effects of new technologies, new strategies, governmental infrastructure investments and the influence of substitutability from other transport sectors are illustrated below. 172

Part I - Shipping in the Global Economy

NewbuildingBaltic Sea

NewbuildingJapan Secondhand1: Skagerak/Channel

Secondhand2: Mediterranean

SecondHand4: FarEast

SecondHand3: Africa Scrapping

Figure 128: The typical life of a Baltic ferry (Wergeland & Osmundsvaag, 1997) A classical example of how new technologies can completely change the structure of the market is the ferry route on the Rio de la Plata, introduced by Buquebus in the early 1990s. By cutting travel time between Buenos Aires and Montevideo from 9-12 hours with conventional tonnage down to 2-3 hours with fast ferries, they suddenly could offer a good alternative to airline services. The number of passengers per year went up from 400,000 in 1990 to 1.4 million in 1993. After the initial success, the route has in later years had problems in keeping up with the success of the low price airlines. Another example is the introduction of the HSS by Stena Line in the Irish Sea. The HSS was a unique combination of high speed, reducing crossing time from 3 hours to 90 minutes, thus increasing transport efficiency and at the same a ship offering onboard experiences. This was a new and powerful combination in the market.

Effects of competition - the Dover Strait case In the past 10-15 years, quite dramatic changes have taken place for traffic between UK and France over the Dover Strait. With the introduction of the Eurotunnel in 1994, some saw this 10 billion pounds investment as the end of ferry services across the strait. The tunnel quickly built up a large passenger base, with more than 15 million in 1997 and over 19 million in 1998. After that, however, the development has been one of stagnation and even decline for the tunnel, which fell to 16.3 million in 2003 and in 2007 the volume was 17.8 million The ferry volumes are down from more than 23 million in 1997 to some 14 million in 2007, which is slightly higher than the lowest level of 13.3 mill in 2005. Since total volumes of traffic across the channel have increased from some 116 million passengers in 1997 to almost 157 million in 2007, some other means of transportation must be the winner. The development is the reflection of the great success of low price air transportation. Air transport has increased its market share from about 60% in 1997 to more than 75% in 2007 (ShipPax 173

Part I - Shipping in the Global Economy 2008). This is a good case for realising that ferry transportation is in competition with all other modes of transport. Looking at the internal competition among the ferry companies also tells a story of change. P&O has been the undisputed leader of this route. P&O was then purchased by Stena Line and changed name to P&O Stena before returning to become P&O Ferries. The main competitors on the route used to be SeaFrance and Hoverspeed. Since the turn of the century, two new players have entered the game, Norfolk Line and Speed Ferries. The latter has basically replaced Hoverspeed which has now exited the route. The development of market shares are given in Table 77 Passengers P&O SeaFrance Norfolk Hoverspeed/SpeedFerries Cars P&O SeaFrance Norfolk Hoverspeed/SpeedFerries

2001 68% 17% 2% 13% 2001 60% 20% 2% 18%

2005 58% 24% 6% 12% 2005 47% 24% 7% 22%

2006 58% 26% 11% 5% 2006 47% 25% 16% 12%

2007 55% 26% 14% 5% 2007 43% 26% 20% 11%

Table 77: Development of market shares on the Dover-Calais route (ShipPax, 2008) The development clearly shows that Norfolk is on the offensive, and that the dominance of P&O is on the verge of disintegrating. One explanation for this development is that Norfolk represents a low cost supplier that attracts particularly overseas visitors to UK, which are increasing in relative numbers. P&O must conclude that customer loyalty is limited and in the longer run it will be the right combination of price and availability that will win out. The Dover Strait market will be an interesting one to follow in the years to come.

Industry attractiveness and critical success factors Companies like Tallink, Blue Star and Minoan Line all report operating profit margins between 15 and 27% for the years 2006/07, and particularly Tallink shows high profit, indicating that the purchase of Silja Line in 2006 is clearly paying off. Currently, however, all lines complain about the high bunker costs and report declining profits. The fact that several ferry operators show healthy and fairly stable profits has obviously started to attract the institutional investors. In 2007 Stena Line tried to take over completely Scandlines, but this company ended up being split between Clipper group, which purchased Scandlines Sydfynske and a coalition of the investment funds 3i and Allianz in consortium with Deutsche Seerederei taking over the rest of Scandlines in a 1.56 billion-Euro deal, finally taking the company off the hands of the German railway and the Danish government. In October 2007 Panagopulos sold completely out of Attica to Marfin Investment Group in a 290 million-Euro deal. These deals may indicate that investors see the investment in successful ferry companies as a safe and profitable placement of money. There are several factors that may influence the attractiveness of an industry. The following 7 factors are regarded as the most important ones: 174

Part I - Shipping in the Global Economy x

Barriers to entry In general one would say that high barriers to entry is good for the incumbents and contribute to high profitability. The barriers to entry in the ferry market are very high if a newcomer tries to open a new service in a foreign environment. Obtaining access to ports and terminals is often politically determined, and one needs very good local contacts to obtain the necessary access. This is a decisive point in many cases.

x

Competitors The fewer the competitors, the higher the potential of exploiting market power and normally the higher the attractiveness of the industry (particularly for the incumbents). The ferry industry is a very fragmented one, but on a specific route, the number of competitors are few as discussed above.

x

Product similarity In general it is argued that the more differentiated the market is, the higher the attractiveness of the industry. It has been argued above that each ferry route is essentially unique, and in this respect one could argue that the market is highly differentiated.

x

Switching costs High switching costs are associated with high attractiveness. Loyal customers contribute highly to bottom line profits. In the ferry market, the switching costs are fairly low, as it is easy to move to another operator, if a competitor sets up a competing service on a route.

x

Demand growth High demand growth is clearly associated with high attractiveness of the industry. The ferry market has shown fairly high growth rates - in some regions even 2-digit rates.

x

Fixed costs Low fixed costs are normally associated with high industry attractiveness. A ferry service is a commitment to service a particular route. The initial investment costs in ships need not be very high, as it is possible to buy ships second hand. The marketing costs of developing the market may, however, be substantial.

x

Barriers to exit Low barriers to exit normally favours profitability. It is relatively easy to sell a ferry if one wants to exit a route, so in general the barriers to exit are fairly low. A ferry will normally be tailor made for a specific route, however, so it may not always be easy to find a buyer.

Figure 129 tries to summarise these seven factors. The figure has been made from the perspective of individual routes rather than the industry as a whole, following the arguments put forward several times in this case that it is the routes that constitute the markets places where competition really meets. The conclusion is, therefore, that the ferry market may be seen as quite attractive, given that one is successful in actually establishing a particular service. It may, however, prove to be quite challenging to get a new service established From the structure of the industry as analysed above, it seems that there are two totally dominating success factors in this business: x x

Developing the right local (political) connections; Handling the complex match of demand requirements and the choice of technology. 175

Part I - Shipping in the Global Economy

Figure 129: Ferry industry attractiveness, from a route perspective The former is often a must, and if one does not succeed in establishing the right network of contacts, so that required permits etc. are secured, one simply is not in the game at all. If one succeeds with the right contacts, then the latter is in our opinion the dominating success factor in the ferry business. If an operator can find a good match between the complex relationships of a multidimensional demand picture and all the available technologies, then the service may become a success. This is, however, an extremely complex matter because it involves so many parameters at the same time, as indicated in Figure 130. Very often, it takes time before one understands the underlying demand structure, and then one may discover that the chosen technology does not really match the demand requirements after all. Demand considerations

Experience demands

Status/ image Servicelevel Travelcomfort Accessibility/ availability Transportefficiency

Technology choice •Displacementmonohull •Planing monohull •Hydrofoil •Catamaran •WaveͲpiercer •Trimaran •Swath •SES

Onboard activities Autonomy/ movement

Transport demands

Theparameters anddecisions

• Volumeoftraffic • Compositionoftraffic,passengerneeds andtheirpurchasingpower • Lengthofroute • Weatherandseaconditions • Portandterminal infrastructure • Hinterlandtransportationconnection andattractions • Customer’swillingnesstopayforspeed andtheirutilityintravelling

Route setup

Securityandsafetyoftrip

Figure 130: The complex match of demand and supply for a ferry route

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Part II – Ship Innovation

PART II - SHIP INNOVATION

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Part II – Ship Innovation

5.

OIL TANKERS

In the past all ships were general cargo ships and the cargo was packed in such a way that it could be stowed in the holds of the ship. In other words, the cargo was adapted to the characteristics of the ship. Oil was packed in wooden barrels, but as these barrels could collapse in the heavy seas on the North Atlantic, many ships were lost due to fires. Therefore, the invention of the oil tanker around 1860 broke with that tradition as the shipowner adapted the general cargo ship to the characteristics of the cargo, i.e. he converted the cargo holds into tanks that could hold a vast quantity of oil instead of barrels filled with oil. The oil tanker started a trend whereby general cargo ships lost ground to the dedicated ships. Given the crucial role of the tanker in shipping innovation, the history of this basic ship type innovation is discussed first as it offers many analogies for later innovations. Understanding innovation in oil tankers starts with an understanding of the roots of tanker shipping, i.e., production and export of oil and the development of dedicated oil tankers. In the book Liquid Gold Ships - A history of the tanker 1859-1984 (Ratcliffe, 1985), Mike Ratcliffe paints a fascinating picture of the interaction between the various variables, but above all the people who stood at the basis of this oil shipping business. Ratcliffe's analysis covers three distinct periods of tanker development in time: 1859-1900 birth of the oil industry; 1900-1938 take-off period; 1938-1979 growth period. As the book was published in 1985, a fourth period was added: 1980-2008 restructuring and regulatory change. Intertanko published in 2002 A Century of Tankers - The Tanker story (Newton, 2002), with a detailed overview of the tanker developments. Based on these and other sources, the past triggers for innovations in oil tanker shipping will be discussed.

5.1. 1859-1900 - Birth of the oil industry Oil exploitation at a commercial level started in 1859 on the East Coast of the United States, in Titusville, PA and the dominant unit of transport was the wooden barrel of 42 gallons or 159 litres. The oil in barrels was transported by barge or rail to the coast, as Figure 131 illustrates. The barrels were collected in the ports and rolled onto sailing vessels and stowed into the holds. Europe was still the industrial power of the world, where a need for oil arose. This lead to the first transatlantic shipments of barrels of crude oil. The quantities were still modest: 100,000 tons in the year 1864. The transportation system with wooden sailing ships was very expensive, because of the high cost and low utilisation of the barrels in the ship's holds. It was also dangerous, given the flammable nature of oil. Some shipowners started to experiment with dedicated designs, such as the Atlantic (416 dwt) built of iron in 1863 (Figure 132). She had four tanks and two of her masts served as expansion trunks. Though even by 1885 the oil was shipped in parcels and not in bulk. The trigger for real change came from a different oil producing region: Baku, on the Caspian Sea. Because of the remote location in relation to the consumers of oil, the entrepreneurs had to address the transport problem right from the start. The Swedish brothers Nobel who got involved in the development of the Baku oilfields around 1874, designed and built in 1878 the first tank steamer, called Zoroaster. This ship was designed to carry 250 tons of kerosene in 21 vertical cylindrical tanks within her iron hull. The Zoroaster was not only revolutionary in her cargo containment system, but also by the bunkers she used: heavy fuel oil. In later designs, the cargo tanks were taken out so that the

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Part II – Ship Innovation oil could be carried directly next to her iron hull. By 1882, the Nobels had 12 oil burning steam bulk oil carriers on the Caspian Sea, well ahead of the shipping developments on the Atlantic Ocean.

Figure 131: Oil Creek, Allegheny River 186019

Figure 132: Atlantic

Figure 133: Zoroaster20

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Part II – Ship Innovation The change agent in the USA was Rockefeller's Standard Oil Company. The revolution started with the construction of pipelines from the interior to the east coast, on the basis of which coastal refineries and tank storage farms were built. The integrated oil company was created. The intermediate tank storage facility made it possible to start using bulk ships. This facilitated the oil exports which increased dramatically to 2 million tons by 1889. Sailing ships, many of the modern clipper class, were converted into bulk vessels. The real and lasting solution to deepsea oil transport only came when steam became viable as a means of propulsion to tankers, and when improved metal construction and riveting techniques finally allowed shippers to do away with the wasteful double-containment method. Steam ships existed on the short haul, relatively calm waters of the Caspian Sea, but not on the 6500 nautical miles long hauls across the stormy Atlantic. The engine and coal bunkers took up a totally uneconomic proportion of a vessel's carrying capacity. This situation prevailed until 1865 when the introduction of the compound engine, and particularly fifteen years later (1880) the triple expansion engine, offered so substantial improvements, that for the first time the steam engine became a viable economic means of propulsion for all cargo types, including oil. Seaborne trade flows of oil remained relatively modest since the start of exports from the US in 1860. After 25 years it only amounted to less than 2 million tons, as Figure 134 illustrates.

Figure 134: Crude oil seaborne trade 1885 (Newton, 2002) The first genuine attempt to design a safe oil tanker, using the hull alone as containment system, was the Glückauf, built in 1886 in England, for a German subsidiary of Standard Oil (Figure 135). She could carry 2,975 tons of kerosene and had a deadweight of around 3,500 tons. The engine was at the stern, where it would not interfere with the cargo. The new design was adopted by many shipowners and consequently, the world's deepsea tanker fleet began to grow rapidly, as well as the ship size. By

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Part II – Ship Innovation the end of the 19th century, the 8,000 dwt tankers were the norm. By 1914 this had increased to 12,000 dwt. Size was in fact a major factor in the rapid dominance of steam over sail.

Figure 135: Glückauf All major developments in oil shipping since the mid-1880s had been generated by European traders, either owned or sheltered by Standard Oil, and were directed towards improved bulk transport on the important Atlantic route. The Russians, in spite of the leading role of the Nobels, did not progress because of the local circumstance (landlocked, river/rail routes). Real change in this area was brought about by the French family of the Rothschilds, when they opened up Russian oil production through the Black Sea to the Mediterranean. The small British trader Marcus Samuel, founder of Shell, tried to compete against Standard Oil in the Far East by exporting cheap Russian oil through the Suez Canal. Since its opening in 1869, the authorities had barred tank ships from the Canal, because of its potential danger for the waterway. This induced Samuel to design a tanker which was acceptable for the Canal authorities. In 1892, his new design was accepted for transit in a loaded condition trough the Canal. This design incorporated special water ballast tanks, which could be deballasted in case the tanker went aground in the Canal, two cofferdams (twin bulkheads with an empty space between them) - one at each end of the cargo tanks - and an oil-tight centre bulkhead. Samuel's first tanker through the Suez Canal was the 5,010 dwt Murex loaded with kerosene (Figure 136). It lasted until 1907 before he got permission to transport petrol in tankers, as this was judged a too dangerous cargo in the heat of the Middle East. By 1907 Shell Transport and Trading Company joined forces with the Royal Dutch Company. By 1900 the world deepsea tanker fleet had grown to a total of 109 vessels with a combined deadweight of 500,000 tons, 90% owned by European companies, which were directly or indirectly controlled by oil companies. Because Standard Oil, Shell and the Russian producers all had their tankers tied up into captive trades, there did not exist a tanker (spot) market in the 19th century. The market monopoly of the Standard Group was so great that it deterred independent owners from buying tankers, since it could, if it wanted, ensure that they had no employment.

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Figure 136: Murex

5.2. 1900-1938 - Takeoff period The pioneering period of the second half of the 19th century, smoothly evolved into a fast track take-off period, which lasted until shortly before WW2. The basic change in oil trading and shipping came as a result of the shifting of economic power in the world. Europe lost out to a dynamic USA, which created mass markets, such as for automobiles and trucks, while Europe got lost in dramatic mass destruction (WW1). The Russian revolution of 1917 resulted in a withdrawal of Russia from the international oil-export scene. New entrants could be found in the Middle East (in 1909 oil was found in Persia), as well as Mexico (1901) and Venezuela (1914). Between 1900 and 1938, world oil production leapt from 20 million tons to 273 million tons per year (Figure 137).

Production(milliontonnes/year)

350 300 250 200 150 100 50 0 1900

1910 USA

1920

OthersW.Hemisphere

1930

1940

Others

Figure 137: World oil production 1900-1940

182

Part II – Ship Innovation For nearly the whole of this 40-year period the USA and the Caribbean countries dominated both the oil and tanker scenes. At the advent of WW2, America led the world in oil exploration/production and pipeline technology and had caught up with Western Europe, if not overtaken her, in tanker construction and operation. The massive inter-Western Hemisphere deepsea oil trades (50% of oil tanker loadings) became the backbone of tanker demand, but were very much part of the American, instead of the international, oil and tanker scenes. In the wake of this huge surge in oil and transport demand, the tanker market was restructured. By 1910 Standard Oil controlled 80% of the US market and over 60% of the European market. US antitrust legislation broke the Standard up into 34 companies. Three companies emerged over time from the remnants: Standard Oil of New Jersey (Exxon), Standard Oil of California (Chevron) and Socony Mobil Oil (Mobil).

Fleetsize(milliondwt)

By the end of WW1 (1918), the oil companies wanted to move away from tanker fleet ownership because of the post war surplus of tonnage, causing low freight rates. This was the time for the independent owners, in particular the Norwegians, to step in and buy second-hand British war tonnage. From being a nation of sailing shipowners, almost overnight they became steamship men. The British ships were not efficient and new tonnage was needed. The decisive factor that brought about change was the availability of cheap credit. Norwegian owners found that they could order new ships without any down payment, on the basis of 10-year charters from oil companies. 20 18 16 14 12 10 8 6 4 2 0 1900

1905

USA

1910 UK

1915

Norway

1920

1925

OtherEurope

1930

1935

1940

Others

Figure 138: Tanker fleet size In the 12 years from 1920 to 1932, the Norwegian fleet jumped from 0.2 million dwt to 2.3 million dwt (18% of the world fleet). One of the first and foremost tanker owners was Wilh. Wilhelmsen, who by 1923 owned 40% of the Norwegian tanker tonnage. So the independent sector came into being, backed by guaranteed oil company charters. A huge fleet of new vessels was being built, just in time for the Great Depression of the 1930s. By 1933 15% of the world's tanker fleet was in lay-up. There was a believe that oil companies should continue to own some tankers in order to keep up with 183

Part II – Ship Innovation technology of the industry and to ensure that, in good markets, they could not be held completely to ransom by the independents. At the start of the WW2, independent tanker owners accounted for 39% of world tanker tonnage. This gradual shift in ownership is well illustrated by Table 78.  Oilcompanies Governments Independents

1900 90% 10%

1923 59% 16% 25%

1938 54% 7% 39%

Table 78: Gradual shift in ownership The rise and fall of new and old production areas may have dictated the broad trend in tanker trades, but the nature of these trades was also changing as different types of oil cargoes had to be shipped across the seas. More and more refined products were shipped instead of crude oil. To the traditional main line oil products of kerosene and fuel oil, gas oil and petrol were added. It was in refined products that the real complexities of shipping arose. In the US car and truck ownership rocketed, which led to a surge in demand for petrol and of course to specialised tankers. So the market developed into a crude oil (black or dirty) and oil products (white, or clean) segments. In 1900 the average size of a tanker was 3,500 dwt, while the largest tankers were just under 6,000 dwt. By 1938, the average size had risen to only 9,300 dwt and the largest to around 22,000 dwt. Tanker demand increased nearly 30 times over this period, why did ship size increase so little? There were technical limitations, but why was it possible to build the equivalent of a 70,000 dwt passenger ship, like the 32,000-grt Mauretania and not tankers of any comparable size? The answer lies in the nature of tanker voyages themselves. In 1900, the main deepsea tanker trades were across the Atlantic 3,400 nautical miles each way. The change of export flows from Mexico and Venezuela to the USA shortened the average distance dramatically to 1,700 nautical miles. With shorter voyages, tankers spent on average more time in port and less time at sea, which favoured small tankers. This development could again be witnessed 50 years later in the aftermath of the second oil crisis (1979). In addition, the subdivision of the oil market into many more products required more smaller ships. Of a more technical nature were the stresses and strains inside the tanker, which were initially underestimated and resulted in many ship casualties. The number of transverse bulkheads was too few and hold sizes thus too large. Ships cracked and broke up under the effects of large volumes of liquid cargoes shifting about in heavy seas. Designers and builders were therefore proceeding very cautiously in developing tanker size. A major breakthrough was made by Joseph Isherwood, who patented a revolutionary new hull frame in 1906, based on longitudinal bulkheads in addition to strong transverse bulkheads. The first tanker built on this conceptual innovation was the 6,600 dwt Paul Paix (1908). The new design increased longitudinal strength and thus the weight of the tanker could be reduced. By 1925, Isherwood had improved his design further (Figure 139).

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Wash plate

Wing tank

Centretank

Figure 139: Isherwood design Tankers of over 15,000 dwt could be built safely. An extra advantage of added strength was that it facilitated the relocation of the engine room to the stern of the ship (instead of mid-ships). Cargo tanks were grouped and pumps were combined in one pump room. To avoid contamination and to ensure complete segregation of the different cargoes on a tanker, cofferdams had to be built between two tanks. The ultimate development towards more complex tankers was the general purpose tanker of around 12,000 dwt, specially designed for the needs of the integrated oil company, which had a range of clean and dirty oils to be regularly shipped on the same trades. The final efficiency breakthrough came with the adoption of oil as a bunker fuel on ships. Fuel oil's thermal efficiency was 1.3 times that of coal and thus the bunker weight could be reduced with 25%, and its prices were comparable. Oil could be handled easier, and its volume could be measured more accurately. The reason for the reluctance of shipowners, even tanker owners, to move from coal to oil was its guaranteed availability around the world. Coal bunkers could be bought anywhere, but oil was restricted to some ports. Marcus Samuel was able to convince the British Navy to switch from coal to oil, which was the start and the basis of a worldwide network of oil bunker stations.

5.3. 1938-1979 - Growth period The post-WW2 era can be characterised as an unprecedented growth period. Figure 140 shows the world oil production in the period 1940-1982. The peak in world production occurred in 1979, the year of the second oil crisis, which was caused by a sudden and massive increase in the price of oil. The control of the oil markets during the period 1940-1970 laid in the hands of the seven major oil companies (dubbed “the seven sisters”): Chevron, Esso, Gulf, Mobil, Texaco, Royal Dutch/Shell and BP. The oil remained cheap during this period, around US$ 2 per barrel. The oil exporting countries, organised in OPEC saw their revenues in real terms decrease in spite of the increase in volumes.

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Production(milliontonnes/year)

3500 3000 2500 2000 1500 1000 500 0 1940

1950

WesternHemisphere

1960 MiddleͲEast

1970 Africa

1980 Others

Figure 140: World oil production 1940-1980 During the 20 years from 1950-1970 oil replaced coal as the major source of energy. Seaborne oil transport grew with it: from 129 million tons in 1939 to 1,327 million tons in 1970, an average growth rate of 7.8% for the 31-year period. Countries around the Persian Gulf became the major source of oil, which lead to increased transport distances to the nearest consumer markets from 4,000 to 8,000 nautical miles via the Suez Canal and around 12,000 nautical miles via the Cape of Good Hope. The longer voyages and higher volumes created pressure to increase the size of tankers. The final push for bigger tankers came from two successive closures of the Suez Canal, in 1956/57 and 1967/75.

Figure 141: Suez Canal

186

Part II – Ship Innovation The first closure of the Suez Canal lead the American tanker pioneer Daniel Ludwig to built the first 100,000 dwt tanker in Japan, the Universe Apollo. This ship was the first of the so-called super tankers.

Figure 142: Super tanker Universe Apollo and its designer In the early 1960s they were followed by giants of 130,000 dwt and in the early 1960s by very large crude carriers (VLCC) of 210,000 dwt. The 1970s saw an increase in VLCC size and the birth of the ULCC (ultra large crude carrier) of 350,000 dwt. Figure 143 shows the phenomenal increase in tanker size from the days of the T2 tanker until the ULCC of Daniel Ludwig.

Figure 143: From T2 tanker to ULCC Figure 144 shows the seaborne crude oil trade flows in 1973, which amounted to 1,359 million tons. Most of it came from the Middle East and was transported by VLCCs to Europe and Japan. The ultimate in tanker size development was the 553.000 dwt tanker Batilus built in France for Shell during the second half of the 1970s. The 1,000,000 dwt tankers were on the drawing table, but were never built as the oil market had collapsed in the meantime after the second oil crisis of 1979. After the prolonged second closure of the Suez Canal from 1967-1975, the seaborne oil trade had changed completely. The newbuilding orders for tankers were only VLCCs, which could not cross the Suez Canal fully laden. The authorities had to increase (by dredging) the admissible draught of the Canal in order to win back some of the lost business. Figure 145 shows the consecutive cross sections of the Canal since its opening in the crucial year 1869.

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Figure 144: Seaborne crude oil trade flows 1973 (Newton, 2002) CanalCrossSection

Area Draught (m2) (m)

Dwt

1869

310

6,7t

7,000

1900

460

7.80

10,000

1908

680

8.53

14,000

1912

720

8.53

14,000

1914

870

8.84

16,000

1035

1,050

10.06

28,000

1954

1,200

10.67

32,000

1961

1,600

11.28

45,000

1964

1,800

11.58

65,000

1980

3,700

16.16

150,000 260,000

2010

Figure 145: Suez Canal development On the wave of oil exports during the three decades after the WW2, the tanker industry feasted with a huge capacity expansion. The tanker sector thus became the largest segment in shipping; it accounted for half the world's deadweight capacity of the merchant fleet. The driver behind the phenomenal 188

Part II – Ship Innovation growth of the tanker size and fleet was the demand for oil and the reduction of the unit transport cost of oil. Figure 146 shows the development of the tanker from 1860-1955. The tanker increased over this period of almost a hundred years from 1,500 dwt to 56,000 dwt. The closure of the Suez Canal fundamentally changed the sea time to port time ratio due to the longer voyage around South Africa. This gave a new impulse to the search for economies of scale. The same figure shows the dramatic size of tankers increase over the short twenty year period from 1956-1976: 85,600 dwt to 553,000 dwt. DWT

Economy of scale Oil Tankers 1860 – 1955 44,300dwt

30,000dwt

5,010dtw

38,000dwt 17,000dwt 56,000dwt

3,500dwt

1,216dwt

1860

1886 1892 1910

1940

1948

1952 1953

1955

year

DWT

Batilus

Economy of scale Oil Tankers 1956 - 1976

553,000dwt 1976

327,000dwt 1976 Universe Apollo

104,500 dwt

Universe Ireland

1958

1966 85,600dwt 1956

206,000dwt Idemitsu Maru

year

Figure 146: Development of crude oil tankers 189

Part II – Ship Innovation Tankers had to discharge their oil in ports and the increasing volumes of seaborne trade, triggered a whole sequence of developments in ports around the world. The oil tank farms and jetties as illustrated in Figure 147 created a new port industry of the tank storage company for crude oil and oil products.

Figure 147: Crude oil port facilities The increase in length, breadth and draught from the Panamax tanker to the ULCC is shown in Figure 148. It is self-evident that not all ports in the world can receive all tanker types because of draught and other restrictions. However, the driving force behind port innovation is often shipping innovation. B=68m

draught

ULCC

24.5m

B=60m

21m

B=47m

VLCC

17m

B=44m

14.8m

Suezmax

380m 323m

13.7m B=32.2m

Aframax 274m 250m

Panamax

230m

length

Figure 148: Development in crude oil tanker dimensions After the tanker boom of 1979, the size of the tankers has stabilised around the VLCC size: 300,000 dwt as Figure 149 illustrates. Only very few ULCCs have been built since, notably the Hellespont series of around 440,000 dwt (Figure 150).

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Shipcapacity(DWT)

600000 500000 400000 300000 200000 100000 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 Yearofconstruction

Figure 149: Crude carrier size

Figure 150: Hellespont tanker series

5.4. 1979-2008 - Restructuring and regulatory change The go-go years of the early seventies came abruptly to an end after the second oil crisis of 1978/79. Oil became overnight an expensive commodity and the structure of the world economies had to adjust to this new reality. A massive shift to coal as an energy source occurred, and new oil-producing countries arrived on the world scene. North Sea oil or Alaskan oil required no long distance tanker transportation and the average length of haul (ALH) was almost halved. This sharp decline in overall oil demand and seaborne transport, compounded by the shortening of transport distances came as a major blow to the tanker industry, a real "double whammy" as the Americans so visually put it.

191

Part II – Ship Innovation Just after an unprecedented fleet expansion in the early 1970s, the tanker industry at the end of that decade was dealt a deadly blow. Figure 151 and Figure 152 show the development of seaborne oil transport in tons and ton-miles. Most of the newly built VLCCs went into lay-up and a prolonged period of contraction and agony for the owners and bankers started. Around the Greek islands and in the Norwegian fjords many brand new VLCCs were laid up. 10,000

Transportproduction (milliontonͲmiles)

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1980

1985 Crudeoil

1990

1995

Oilproducts

Figure 151: Transport production in ton-miles

Seaborneoiltransport(milliontons)

1,600 1,400 1,200 1,000 800 600 400 200 0 1960 1965 1970 1975 1980 1985 1990 1995 2000

Figure 152: Seaborne oil transport (million tons) 192

Part II – Ship Innovation It is evident that many shipowners suffered major losses and few were to survive. During the decade of the 1980s, there was no need for innovation in tanker design, or an increase in economies of scale. A new trigger for fundamental change in ship design came as a result of some major oil spills by tankers at the end of the 1980s. In particular the disaster with the Exxon Valdez tipped the balance in the American public opinion, which lead to the unilateral adoption of the Oil Pollution Act 1990 (OPA90). This act had implications for the future vessel design and financial responsibilities in the event of a pollution incident, not only for oil tankers, but for all ship types. The most marked elements of OPA90 is that from 1 January 2010 all single-hull tankers are banned from trading in US waters. Another important regulatory impact on tanker design came from the International Convention for Prevention of Pollution from Ships, known as MARPOL 73/78 Annexes I and II. The aim of these regulations was to limit operational discharges through one of three features: segregated ballast tanks, dedicated clean ballast tanks and crude oil washing. On 6 October 1993 Annexes I and II had been ratified by 80 countries representing around 90% of the tanker fleet.

Figure 153: Double hull versus single hull Figure 154 of the Stena V-Max shows one of the safest oil tankers ever built, due to its double engine rooms and propulsion systems and many other redundancy measures. As a response to OPA90 the IMO, through its Marine Environment Protection Committee, has added two regulations to the MARPOL 73/78 agreement, which intend to achieve similar results as OPA90, but leaving the door open for more design flexibility than is possible under OPA90, like the Japanese mid-deck tanker design (Figure 155), and Intertanko’s rescue tanker design (Figure 156). The double-side structure and the mid-height deck can effectively protect the cargo oil tanks from oil outflow in case of collision and grounding accident. The design uses the principle of hydrostatic balance, as oil is lighter than water, in case of grounding the excess water pressure pushes the oil upwards without the help of a pump. In the rescue tank concept, the oil is lead via a horizontal pipe into the empty ballast tanks in the double hull sides.

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Figure 154: Stena V-max

Figure 155: Mid-deck tanker

Figure 156: Rescue tank Because of the increased policing of ships and the MARPOL and OPA90 requirements, the oil tanker industry was forced to rejuvenate itself. Owners saw opportunities to create a competitive edge by building ships according to the new regulatory framework. As capacity expansion was not really necessary, a process of fleet renewal began and this is still underway. Figure 157 illustrates the age 194

Part II – Ship Innovation profile of the VLCC fleet. The single hull fleet will be phased out by 2010. The replacement of this single hull tonnage has been the first trigger of the revival of the global shipbuilding industry. In total some 700 single hull tankers will have to be scrapped (Figure 158) between 2008 and 2010. 70

Numberofvesselsdelivered

60 50 40 30 20 10 0 1981

1986

Singlehull

1991

Doublebottom

1996 Doublesides

2001 DoubleHull

2006

2011

Orderbook

Figure 157: Number of VLCCs delivered by year

HandyProduct MRproducts Panamax Aframax Suezmax VLCC/ULCC 0

200

400 Numberofships DoubleHull

600

800

1000

Singlehull

Figure 158: Single-hull versus double-hull 2008

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5.5. 2008 - 2030 - Fossil fuels depletion and climate change The first development phases of tanker shipping, which lasted from 1850-1938, were driven by the technology to design safe ships. The basic ship tanker design was established through trial and error and continuous improvement. In the third period which started just after WW2 and lasted until 1979, the developments were driven by a phenomenal increase in the demand for oil transportation and the desire to achieve economies of scale. This triggered a huge increase in the size of tankers and an unprecedented expansion of the world tanker fleet capacity. The collapse of tanker demand just after the second oil crisis sounded the first round for a fundamental restructuring and reduction of the world fleet; in spite of the overcapacity, regulatory changes, such as OPA90 forced owners and yards to develop new designs and built new capacity. This period will come to an end in 2010 when the fleet has been renewed and all single hull tankers will have been phased out. What is next? The new challenges ahead of tanker shipping will be the depletion of oil reserves and climate change issues. Seaborne crude oil trade amounted to 1,608 million ton in 2000, just above the level of 1973, the first oil crisis. The supply of oil had been drastically diversified during these 27 years as Figure 159 illustrates. North and West Africa became important suppliers, as well as S-E Asia, and Venezuela. The impact on the ton-miles production of the tanker fleet as shown in Figure 160 demonstrates the fundamentally weak market that crude oil tanker shipping represents. The ton-miles produced for crude oil transportation were even in 2006 still below the peak of 1979. Only the oil products tonmiles production shows a steady increase which is likely to last into the future due to a restructuring of the refinery industry.

Figure 159: Seaborne crude oil trade flows 2000 (Newton, 2002)

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Seabornoiltrade(milliontonnes)

2,500 2,000 1,500 1,000 500 0 1975

1980

1985

1990

Crude

Products

1995

2000

2005

Figure 160: Seaborne oil trade What will the future bring? Are we heading for a new downturn in crude oil transport in the decades to come? Figure 161 shows the evolution of the crude oil production per region over the period 19602006. The global oil production in 2006 was almost 72 million barrels per day. The IEA projected on that basis the demand for energy in the decades to come as shown in Figure 162. In the scenario, energy use is projected to increase with 55 percent until 2030 and most of it will have to come from oil and gas. Burning of fossil fuels generates a lot of green house gases, such as CO2. The ratio is on average three tons of CO2 for 1 ton of fuel (coal higher, gas lower). This means that the current energy outlook will result in a dramatic increase in the atmosphere’s temperature. A consequence of rising temperatures is the melting of ice in the arctic regions. Figure 163 shows the reduction in ice at the North Pole between 1979 and 2000. Since then, the area covered has even brrnmore reduced. The consequence of this is among others, the opening up of the arctic sea routes, thus creating a shortcut from the Atlantic Ocean to the Northern Pacific Ocean. At the same time, oil exploration has moved to regions with extreme weather conditions, like ice. A whole new range of innovative iceclass tankers has been developed to bring the oil from these arctic regions to the consumers. The double-acting tankers that sail backwards in ice are an example of this trend (Figure 164).

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WorldCrudeoilproduction(1,000bpd)

80,000 70,000 60,000

AsiaandPacific

50,000

Africa MiddleEast

40,000

WesternEurope 30,000 EasternEurope 20,000

LatinAmerica

10,000

NorthAmerica

0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

WorldEngergDemand (Mtoe)

Figure 161: World energy production 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1980 Coal

Oil

Gas

2000 Nuclear

2005 Hydro

2015

Biomassandwaste

2030 Otherrenewables

Figure 162: World Energy demand (million ton oil equivalent)

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Figure 163: Reduction of North Pole Ice between 1979 and 2000

Figure 164: Double-acting tanker

5.6. Examples The following figures present some examples of typical oil tankers.

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Characteristics Length (oa)

380.0m

Length (pp)

366.0m

Breadth

68.0m

Depth

34.0m

Draught

32.0m

Deadweight

442,470tons

Grosstonnage

234,000GT

Power(MCR)

36,445kW

Speed(service)

16.0knots

Figure 165: ULCC - 442,470-dwt Hellespoint Fairfax

Characteristics Length (oa)

333.0m

Length (pp)

324.0m

Breadth

60.0m

Depth

28.8m

Draught

20.9m

Deadweight

311,389tons

Grosstonnage

160,216 GT

Power(MCR)

27,160kW

Speed(service)

15.8knots

Figure 166: VLCC - 310,000-dwt double-hull crude oil carrier Yufusan 200

Part II – Ship Innovation

Characteristics Length (oa)

274.2m

Length (pp)

263.0m

Breadth

48.0m

Depth

22.4m

Draught Deadweight

16.0m 149,997tons

Grosstonnage

78,845GT

Power(MCR)

16,440kW

Speed(service)

16.2knots

Figure 167: Suezmax - 150,000-dwt crude oil carrier Equator

Characteristics Length (oa)

249.0m

Length (pp)

238.0m

Breadth Depth Draught Deadweight

44.0m 21.20m 14.8m 115,482tons

Grosstonnage

61,991GT

Power(MCR)

13,550kW

Speed(service)

14.7knots

Figure 168: Aframax - 115,000-dwt oil tanker Fucsia 201

Part II – Ship Innovation

Characteristics Length (oa)

228.6m

Length (pp)

218.0m

Breadth

32.2m

Depth

10.6m

Draught

12.2/13.7m

Deadweight

71,010tons

Grosstonnage

38,833GT

Power(MCR)

12,240kW

Speed(service)

15.9knots

Figure 169: Panamax - 71,010-dwt crude oil tanker Sanko Commander

Characteristics Length (oa)

240.5m

Length (pp)

230.0m

Breadth

42.0m

Depth

21.2m

Draught Deadweight Grosstonnage

12.2m 106,516tons 57468GT

Power(MCR)

12,240kW

Speed(service)

14.9knots

Figure 170: Post-Panamax - 106,000-dwt product oil carrier Ruby Express 106,000 dwt 202

Part II – Ship Innovation

Characteristics Length (oa)

228.5m

Length (pp)

218.9m

Breadth

32.2m

Depth

20.7m

Draught Deadweight

14.4m 74,999tons

Grosstonnage

41,021GT

Power(MCR)

12,270kW

Speed(service)

16.0knots

Figure 171: Panamax - 74,999-dwt product oil carrier Summit America

Characteristics Length (oa)

182.5m

Length (pp)

172.0m

Breadth Depth

32.2m 18.1m

Draught

11.3/12.5m

Deadweight

46,999tons

Grosstonnage Power(MCR) Speed(service)

26,909GT 8,580kW 15.3knots

Figure 172: 47,000-dwt product tanker Jasmine Express 203

Part II – Ship Innovation

Characteristics Length (oa)

105.0m

Length (pp)

100,0m

Breadth

19.6m

Depth

11.0m

Draught Deadweight

6.7m 7,146tons

Grosstonnage

6,035GT

Power(MCR)

3,883kW

Speed(service)

13.7knots

Figure 173: Oil and Asphalt Carrier - 7,146-dwt Tasco Amata

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6.

BULK CARRIERS

Dry bulk cargo is cargo that can be, but not necessarily is, transported by bulk carriers, as a homogeneous mass, usually without packaging of any kind. The bulk carrier is adapted to the handling of these cargoes. In the past bulk cargo was packaged in bags, or stowed with separations (grain) in the holds of a general cargo ship. This made it very expensive and labour intensive to load and unload a ship. The handling of homogeneous mass cargoes created important economies of scale, which in turn facilitated the increase in size of bulk carriers. The first types of bulk carriers for carrying iron ore and coal were developed in the beginning of the 20th century, but the modern bulk carrier as we know it today was developed in 1955. Since then, many cargoes that were previously packaged and transported in general cargo ships, have become bulk cargoes like cement. Figure 174 shows a grab taking grain from the hold of a bulk carrier.

Figure 174: Grab for unloading bulk cargoes The international seaborne shipment of cargoes in bulk started in the middle of the nineteenth century. The structure and volume of the dry bulk and tramp fleet changed very much from the 1930s to post WW2, mainly due to war-built Liberty type ships. Until the 1950s the ocean-going bulk trades were dominated by small tramps, shelterdeckers, and freighters. Larger ships, over 10,000 dwt, were rare. The period 1945-1955 was dominated by repair and adjustment of the bulk cargo fleet. After WW2 a large number of war-built ships were added to the fleet. The majority were Liberty ships (Figure 175) for dry cargo operation. They were built in the USA between 1942 and 1945 and were mainly engaged in dry bulk and other tramp trades. In total 2,710 of these ships were built. Well into the 1960s, Liberty ships played an important role in dry bulk shipping and still influenced seaborne bulk shipping as late as in 1967, when almost 600 Liberty ships were still more or less active in international trading. However, that was almost the end of the Liberty era. Freight stipulations were dominated by cargo lots and charter party clauses suitable for Liberty ships during most of this period. Many fixtures of grain and coal were for lots of 9,500 tons, which means Liberty size.

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Figure 175: Liberty ship type bulk carriers When in the 1950s the need for more dry bulk tonnage increased, shelterdeck motor ships and other tweendeckers of 10,000-16,000 dwt with better speed and equipment were built. Although more of such ships, as well as new types of multipurpose dry cargo tramps (e.g. SD-14, Freedom), were introduced later, the main trend in the late 1950s appeared to be newbuilding of the single-deck bulk carrier, intended for the transportation of bulk cargoes, not suited for cargo liner trading with general cargo. The modern dry bulk carrier was designed by Ole Skaarup. This New York shipbroker defined the requirements for a good vessel based on his chartering experiences. It seemed to him that the most practical ship should have wide, clear cargo holds. Thus, it would require machinery aft, wide hatch openings to ease cargo handling, and a hold configuration that could eliminate the need for shifting boards. To make the hatches acceptable as grain feeders, they would have to extend several feet above deck. The key to this design was the sloped wing tanks in the upper part of the hold that would carry ballast. He interested the Swedish industrialist Marcus Wallenberg for the design and the first purposebuilt bulk carrier of 19,000 dwt was built at Kockums shipyard in Sweden. It was launched in 1955 as Cassiopeia (Figure 176). The auxiliary navigation bridge midship was against the wish of mr. Skaarup, but the shipyards engineers insisted, as they said that you can’t steer from aft. The design was successful and Kockums built five sister ships (without midship deckhouse). Figure 177 shows the sloped wing tanks which result in a self-trimming hold which means that the cargoes follows more or leass its natural gradient when loaded into the hold and thereby eliminating the need for trimming of the cargo

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Figure 176: Ole Skaarup’s M/S Cassiopeia -

Figure 177: Sloped wing tanks

6.1. Dry bulk carrier ship types Birger Nossum, former research manager at Fearnleys, in his book The Evolution of Dry Bulk Shipping (Nossum, 1996) subdivides bulk carriers into the following eight categories, based on the design and purpose of the ship: x x x x x x

OB Ore carrier built for ore cargoes 12-25 cu.ft/ton; OO Ore/Oil carriers, i.e. OBs also suited for carrying oil cargo; BO Bulk/oil carriers, suited for dry bulk or oil cargo, alternatively in the same holds (including OBO); WB Bulk carriers specially suited for forest products; BB Car/bulk carriers, able to carry full loads of dry bulk or cars; CB Container/bulk carriers, able to carry full loads of dry bulk or cars; 207

Part II – Ship Innovation x x x

TB SB AB

Tankers converted to bulk carriers; Other bulk carriers specially built for one type of cargo; All-round bulk carriers.

In 1960 the bulk carrier fleet consisted of 471 ships of which 43% fell into the category all-round bulk carrier (AB), see Table 79. Figure 178 shows the take-off phase of the bulk carrier. A large part of the fleet consisted at the time of ore carriers. Thirty years later the fleet comprised 5,087 ships of which 74% were ABs.  Bulkertype OB OO BO WB TB BB CB SB AB Total

10Ͳ17,999dwt # Dwt 54 819,000 19 279,000 0 0 3 44,000 47 623,000 1 15,000 0  11 148,000 146 1,962,000 281 3,890,000

>18,000dwt # Dwt 65 2,030,000 41 1,306,000 1 28,000 0 0 18 376,000 1 23,000 0 0 6 153,000 58 1,237,000 190 5,153,000

Total # Dwt 119 2,849.000 60 1,585,000 1 28,000 3 44,000 65 999,000 2 38,000 0 0 17 301,000 204 3,199,000 471 9,043,000

Table 79: Bulk carrier types 1960 10,000 Deadweight(1,000tons)

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1954

1955

1956

1957

Ore(OB+OO)

1958

1959

1960

Other

Figure 178: Bulk carrier fleet 1954-1960

208

Part II – Ship Innovation Figure 179 shows the penetration of the bulk carrier in the market of the five principal dry bulks shipped in bulk carriers of 18,000 dwt and over (iron ore, coal, grain, bauxite and alumina, and phosphate rock). By the early 1970s conventional general vessel had been made redundant. 2000 1800 MilliontonͲmiles

1600 1400 1200 1000 800 600 400 200 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Conventionalvessels

Bulkcarriers

Figure 179: Share of bulk carriers in the principle bulk market

The ore carrier (OB) The original concept of the ore carrier (OB) was introduced around the year 1900 for the transport of iron ore on the Great Lakes and later for Swedish ore destined for the UK/Continent. OBs were designed for ores and other heavy cargoes with a normal stowage factor of 12-25 cu.ft. This stowage factor prohibits the carrying of other bulk cargoes, because of the low hold capacity.

Figure 180: Ore carrier Edmund Fitzgerald

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Part II – Ship Innovation Originally these ships were built to provide shuttle services between exporting and importing countries, thus one leg was almost always made in ballast. Due to the relatively short distances, this was no problem. Though the increase in industrial activity in the 1950s created much demand for ore carriers, half of the seaborne ore in 1960 was shipped by other ship types. Plain bulk carriers, suited also for cargoes other than ores, later took over much of the iron ore trade. Under the impact of longer shipment distances of iron ore exports, also other factors, such as size of ship and flexibility of operation, have changed radically. The decline of the original ore carrier fleet started in the middle of the 1970s with decreased ordering and increased demolition. A considerable part of the iron ore trade was taken over by combination and all-round bulk carriers (OO, BO, and AB carriers). The OB fleet then stagnated and was considerably reduced in the late 1980s. This important shift in favour of the ABs was due to the strengthening of ABs for carrying iron ore, and the introduction and growth of the OBO carrier (BO type). Moreover, the world iron ore trade showed a lower rate of growth than many other bulk cargoes. In 1990 the fleet comprised 98 ships, with a total capacity of 10.3 million dwt, most of them over 100,000 dwt.

The ore/oil carrier (OO) In order to overcome the main disadvantage of the ore carrier, the concept of an ore/oil carrier (OO) was introduced in 1912 to carry iron ore from Cruz Grande to Baltimore with oil in return to the Panama Canal. The original idea was to have iron ore in the middle section holds or alternatively oil in the wing tanks. Later this design was improved to carry oil also in the middle section holds. The ore/oil carrier still had the same disadvantage as the ore carrier, not being able to carry dry bulk cargo other than ores in an economical way. Although the operating concept was to take advantage of the two-cargo possibility, many OOs have in long periods from their introduction been used as one-cargo vessels. The growth of the OO fleet during the 1960s was quite similar to that of ore carriers (OB), although there was some time lag. A relatively large growth rate, however, was achieved in the early 1970s with a tripling of the fleet in five years, thereby the OB fleet in volume. OOs stood for increased competitive power by being suitable for oil cargoes, but still were affected by their insufficient flexibility of operation in the dry bulk trades, and suffered the same fate as OBs, with a reduction of the fleet in the 1980s. Already in the middle of the 1960s started a voluminous building of OBO carriers, a ship type more flexible than the OO/OB. After 1975 very few new OO orders were placed and demolition increased. Together, the specialised ore-carrying fleet (OO plus OB) was reduced from 36 million dwt to 23 million dwt during the 1980s. In the same period, seaborne iron ore shipments increased from 314 million tons to 347 million tons, which indicated that significant structural changes took place. In 1990 the fleet comprised 75 ships, with a total capacity of 12.7 million dwt.

Bulk/oil carrier (BO) In 1959 the first vessel was classified as bulk/oil carrier, a ship type that is suited for a variety of alternative cargoes, oil, as well as bulk. This ship however had serious limitations, due to no less than 24 separate holds. A couple of other designs appeared in the early 1960s, but a sufficiently flexible BO type was not introduced before the Weser type was built. This type, designed by A.G. Weser, was introduced in 1964, and proved to be very successful. The BOs were suited both as tanker and dry bulk carrier, but the main advantage was the possibility of flexible switching between voyages or periods 210

Part II – Ship Innovation with oil or dry bulk, as well as the combination of cargo on a round voyage and thereby shortening the time in ballast. The growth of the BO fleet was nearly exponential in the ten years from 1965, followed by a slowing down rate of growth and ultimately a decline. Their popularity and operational advantages met the same fate as OBs and OOs, albeit a little later, with a reduced fleet at the same time as all-round bulk carriers enjoyed a strong growth. In 1990 the fleet comprised 195 ships, with a total capacity of 18.7 million dwt.

Forest products carrier (WB) In 1960 forest products carriers (WBs) were of little importance, only three bulk carriers were recorded as WB. However, the fleet tonnage soon accelerated and continued to grow during the period, but at a slower pace in the 1980s due to a reduced chip carrier fleet. Many different bulk carrier types have transported forest products: small tramps, general cargo vessels, all-round bulk carriers or specialised carriers. Those classified as WBs are bulk carriers above 10,000 dwt with large hatches, sophisticated cargo handling equipment and large volume capacity, making them suitable for forest cargoes with high stowage factors. These carriers can at least be divided into two major subgroups: the lumber carrier and the wood-chip carrier. Lumber carriers are fitted with large hatches enabling an efficient handling of lumber or packaged forest products. The wood-chip carrier is adapted to cargoes with a stowage factor of about 100 cu.ft per ton, with a very large freeboard. In 1990 the fleet comprised 450 ships, with a total capacity of 11.9 million tons.

Converted tankers (TB) The depressed tanker market towards 1955, together with inefficiency of the oil prewar tankers, as well as the increase in bulk cargo trading and attractive bulk freight rates, resulted in about 30 old tankers being converted to dry bulk carriers in 1954/55. Until then, such conversions had been sporadic or intended for special requirements. Conversion of tankers to bulk carriers can be made in many ways, from a simple removal of the internal structure or cutting hatches in the deck, to jumboising by adding a new midship section. These tankers were regarded as outdated in oil trading. In dry bulk trading converted tankers in many respects had acceptable qualities, i.e. suitable size, no material operational drawback, easy to convert, fast delivery, low capital and conversion costs. As will be understood, conversion was a solution for a limited time period, as these tankers were already 10-15 years old when conversion took place between 1950 and 1970. At its maximum, in 1970, the TB fleet comprised 177 ships, in 1990 the fleet had almost disappeared. Almost all the TBs were below 30,000 dwt and originally built before 1955. A great number were built before the war or earlier. In 1990 there were only five ships left, with a total capacity of 108,000 tons.

Car/bulk carriers (BB) Car/bulk carriers (BB) appeared on the scene just after 1960, when primarily Volkswagen began shipment of cars in large lots to the USA. The BB had hoistable car decks, which allowed full loads of bulk cargo on the return leg. These decks could be stowed up under the main deck when transporting bulk cargo. Until then, usually cars were shipped in cargo liners, shelterdeckers, multi-deckers as part cargo, or by special ship arrangements. BBs rapidly became an accepted ship type. The original 211

Part II – Ship Innovation solution, based on lift on/lift off handling was later improved by the ro/ro concept in many trades. In the second half of the 1960s the Japanese export of cars speeded up, first to the USA. When the export of cars from Japan to Europe, return bulk cargo was seldomly available and resulted in building of pure-car carriers dedicated to car shipments only. In the late 1970s, the conditions were disadvantageous for the BB type, and many BBs stripped the car decks or were scrapped, mainly the older and smaller carriers. Therefore, after 1980 most of the former BBs have been used as dry bulk carriers only. Also for BBs the trend towards larger sizes has been clear, although not nearly to the same extent as for other types. Maximum size has been about 60,000 dwt with the grand majority below 40,000 dwt. In 1990 the fleet comprised 180 ships, with a total capacity of 6.1 million tons.

Container/bulk carriers (CB) In the 1960s the specialised container ship was developed and this ship type became more and more important. In the mid 1970s the shipment of containers and bulk cargo was combined in the container/bulk carrier (CB). The first ships were reconstructed existing bulk carriers, later followed by newbuildings. Real impetus was experienced in the 1980s and the fleet increased from 1.6 million dwt in 1980 to 8.4 million dwt in 1985. However, as for car/bulk carriers, the CBs were operated as bulk carriers to a relatively small degree in most trades, and should be valued as bulk carriers for much less than half of their transportation capacity. In 1990 the fleet comprised 280 ships, with a total capacity of 9.6 million tons.

Specialised bulk carriers (SB) This group is a residual, consisting of a variety of types not explicitly treated elsewhere, mostly built for special niches in the market and having a heterogeneous content. These ships are held as a separate group because they are directly connected to special bulk cargoes, such as bauxite/alumina, gypsum, sugar, salt, cement, and mainly used for one cargo. They are built with a design or equipment suited for that particular trading. The total fleet under this heading has been small, varying between 0.3 million dwt in 1960 to 2.3 million dwt (92 ships) in 1990, which is only 1 % of the total bulk carrier fleet.

All-round bulk carrier (AB) The category all-round bulk carriers (AB) are in this context treated as a residual. It consists of ships varying in type, size, equipment, installations and suitability for the various cargoes. In 1955 the fleet of ABs comprised 27 ships, almost all small ships below 13,000 dwt. During the next couple of years more modern versions of ABs emerged, mostly intended for the increasing coal trade from the USA to Europe. Characteristic features of these ships were: single deck, self-trimming, no midship section for accommodation, often without derricks or winches, large wing tank for ballast and self-trimming purposes, high speed, low bunker consumption, and 14-20,000 dwt. The ships can be divided into two different subcategories: geared and non-geared. Ships with cargo gear are generally relatively small ships, well-suited for minor bulk cargoes and for some major cargo trades, mostly over short distances. In the early 1960s cargo gear equipment was installed on most ABs, later only on part of the vessels below 50,000 dwt. Gearless ABs often have a larger ship size, and are mainly intended for major cargoes such as iron ore and coal.

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Part II – Ship Innovation During the years 1955-1960 the fleet of ABs grew fast and reached 204 ships of 3.2 million dwt, and the average size increased from 12,600 to 15,700. In 1990 the ABs were by far the most important group, representing more than 70% of the entire bulk carrier fleet capacity, or 171 million tons (3,737 ships).

Economies of scale The introduction of the bulk carrier resulted in a dramatic decrease of the unit transport costs. This was specifically important for the economy of Japan, as its heavy industry depends completely on imported iron ore, coal, and other minerals. The Japanese industry stimulated shipowners and shipyards to increase the size of the bulk carriers in order to maintain this competitive disadvantage of the Japanese industry at acceptable levels in relation to countries with abundant domestic resources. The end result of this successful drive for economies of scale is demonstrated in Figure 181. In 1960 all the iron ore was shipped in 40,000 dwt bulk carriers. Shortly thereafter, the Panamax bulk carrier of 40-80,000 dwt took over a large share of the import trade. These ships were in turn replaced by the much larger Capesize bulk carriers, first of up to 150,000 dwt and later on by ships of over 200,000 dwt. The share of the Handysize bulk carriers was reduced to zero by 1980, while the Panamax ships encountered a similar fate. This illustrates the powerful trigger that economies of scale played in the past and still plays today in many shipping markets.

Sharepercategory(%)

100% 90%

>200,000dwt

80%

150Ͳ200,000dwt

70%

100Ͳ150,000dwt

60%

80Ͳ100,000dwt

50%

60Ͳ80,000dwt

40%

50Ͳ60,000dwt

30% 40Ͳ50,000dwt

20%

25Ͳ40,000dwt

10%

18Ͳ25,000dwt

0% 1960

1965

1970

1975

1980

1985

1990

14Ͳ18,000dwt

Figure 181: Iron ore import to Japan, share per ship size category Since the development of the modern bulk carrier in 1955, a number of standard classes have evolved, raging from the Handysize to the ultra-large Capesize of 365,000 dwt as Figure 182 and Table 80 illustrate. Important economies of scale have been achieved and are likely to happen again when the new Panama Canal locks will be operational. The size of the New-Panamax bulk carrier will become a new standard and that will impact the competitive position op many owners of the current Panamax bulk carriers.

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draught

22.8m

Capesize

17.8m

365,000dwt

Capesize

12.2m

172.000dwt

12.6m

343m

Panamax 289m

10m

Handymax 225m

Handysize

190m

169m

length

Figure 182: Development in bulk carrier dimensions  Bulkertype Handysize Handymax Panamax Capesize UltraCape

Dwt 28,500 50,000 76,300 172,000 365,000

Dimensions Length Breadth 169 27.2 190 32.2 225 32.2 289 45.0 343 63.0

Draught 10.0 12.6 12.2 17.8 22.8

Dwt 100 175 268 603 1280

Index Length Breadth 100 100 112 118 133 118 171 165 202 232

Draught 100 126 122 176 228

Table 80: Bulk carrier economies of scales

6.2. Seaborne trade The three major bulk types are: coal, grain and iron ore. Until the mid 1950s coal and grain were dominant, then iron ore took over the lead. In 1951 intercontinental ocean transportation of coal and coke amounted to 37 million tons, grain to 31 million tons and ores to 14 million tons. Already five years later the growing needs of the steel industry had brought the volume of international iron ore shipment to 55 million tons. When the shortsea trades from Sweden and Canada are included the total 214

Part II – Ship Innovation ocean-going iron ore trade in 1956 was 76 million tons. In the same period also ocean transportation of other bulk cargoes increased. Before 1960 most of the dry bulk cargo was shipped by vessels other than bulk carriers. This was due to the very large number of minor commodities eligible for bulk shipment. Most of these commodities, with the exception of iron ore and coal, had to be shipped in small lots and small ships, as general cargo or as part cargo. Though the production of iron ore was only one fourth of the coal production in 1960, seaborne trade of iron ore was twice as large as seaborne coal trade. Ocean going trade in iron ore increased much faster than production due to the exhaustion of mines and location of new mines far away from steel mills. Moreover, as the structure of the trade changed towards longer hauls, the need for more and larger ships accelerated during the 1950s. Ships specialised for ore transport carried about 50% of the seaborne iron ore trade in 1960, other bulk carriers 10% and non-bulkers 40%. Hard coal has two main uses, as coking coal for the steel industry or as energy or steam coal for industrial and home use. After WW2, the world production of coal was much larger than for any other bulk commodity, dry or liquid. It rose from 1,210 million tons in 1938 to 1,995 million tons in 1960. Similar to iron ore, domestic use was typical for coal consumption and international seaborne trade covered only 2-3% of the world production. Until 1951 the seaborne trade was almost exclusively shortsea. The development in the late 1950s towards longer distance created a need for large, efficient bulk carriers. Until 1956, almost all seaborne exports of coal were shipped by Liberty vessels, shelterdeckers, or small single-deck tramp vessels, but in the last few years of the 1950s, bulk carriers up to 20,000 dwt were employed in coal trades, predominantly in long distance trades from the USA to Europe and Japan. Seaborne trade amounted to 46.2 million tons in 1960 (145 billion ton-miles), or only 2% of the production. The great majority of bulk carriers in coal trading in 1960 were ABs, and less than 10% were other types. The term grain includes those seaborne grain commodities which have been shipped in bulk or in volumes suited for bulk carrier transportation, e.g. wheat, maize, barley, oats, rye, sorghum and soybeans. Excluded are various grains and seeds, which are considered as other bulk cargo when shipped in bulk, as well as grain meal and flour, shipped mainly in bags. Before 1960, the great majority of grain was shipped by small tramp ships, by large shelterdeckers up to 15,000 dwt, or as complementary cargo in cargo liners. There was a modest growth in seaborne exports from before WW2 and throughout the post-war period, from 30 million tons in 1938 to 46 million tons in 1960. Notwithstanding these facts, grain has been and still is the dominant cargo in the spot freight market, as most other major bulk cargoes were largely shipped by industrial carriers or by ships on long term time charters. The volume of grain shipped by bulk carriers was small in 1960, in particular in relation to that of iron ore, 4.5 million tons. Type and size of bulk carriers employed in the grain trade in 1960 were dominated by all-round bulk carriers ABs and converted Tankers (TBs) as to types and by small bulk carriers as to size. The development of the total bulk carrier fleet over 10,000 dwt shows a number of important trends. The first one is of course the huge growth of the dry bulk fleet over the period, in deadweight as well as in number of ships, with a 28-doubling and an 11-doubling respectively from 1960 to 1990. This also illustrates the second major trend, the increase in size of vessels from an average 18,000 dwt in 1960 to 47,700 dwt in 1990, as well as a continuous growth of maximum size. A third important point is the steady and almost exponential growth in the first half of the period, followed by periods of slower growth and party stagnation in the second half of the 1980s. Figure 183 shows the seaborne 215

Part II – Ship Innovation trade of the three major bulk cargoes coal, iron ore and grain in tons over the period from 1970-2006, and Figure 184 shows the ton-miles. 9,000 8,000 milliontonͲmiles

7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1975

1980

1985 Grain

1990 Ore

1995

2000

2005

Coal

Figure 183: Seaborne bulk trade production (ton-miles) 1,800 1,600

milliontons

1,400 1,200 1,000 800 600 400 200 0 1975

1980

1985 Grain

1990 Ore

1995

2000

2005

Coal

Figure 184: World dry bulk shipments (tons) The minor bulk cargoes amounted to about 1,000 million tons in 2004. The development of the seaborne trades in sugar, cement, scrap, fertiliser, agribulk, forest products and steel products over the period 1986-2004 is shown Figure 185. 216

Part II – Ship Innovation

225

Million tons

200 175

Steelproducts

150

Forestproducts

125 Agribulk

100 Fertiliser

75

25 0 1986

Scrap

Cement

50 Sugar

1988

1990

1992

1994

1996

1998

2000

2002

2004

Figure 185: World dry bulk shipments of minor bulks (Clarkson) Figure 186 gives a breakdown of the dry bulk trade by major commodity in 2007. This shows that half of the dry bulk seaborne trades are related to the steel industry: iron ore, coking coal, steel products, and bauxite/aluminium. Looking at the future of the dry bulk markets means, therefore, focussing on the developments of steel production, in particular in China. Some 25-30% of the dry bulk trades are currently related to China, and this number is likely to increase further if the trends persist.

Bauxite/ Aluminium 3%

Steelproducts 9% Grain 10%

MinorBulk 19% IronOre 29% ThermalCoal 22% CokingCoal 8%

Figure 186: World dry bulk trade in 2007

217

Part II – Ship Innovation In the past, the dry bulk seaborne trade grew with an average rate of 3% per annum. Since China became the industrial heart of the global economy, a gradual acceleration of the growth rate has taken place. Figure 187 shows this trend for four major bulk commodities, grain, thermal coal, cooking coal, and iron ore. BRS forecasts a growth rate of 5.5 % per annum for the coming years.

Figure 187: Dry bulk demand trend The growth acceleration is mainly driven by the increase in steel production in China, and the increase in imported iron ore, as Figure 188 illustrates. According to BRS, seaborne transport of iron ore to China requires by 2010 some 500 Capesize bulk carriers. China’s growth rate has also effected the dry bulk charter market, in particular the Capesize market where charterers were willing to pay exceptionally high rates for a simple Capesize bulk carrier in 2007 (US$ 180,000 a day). The asset values of the bulk carriers rose with the charter rates and this prompted the shipowners to order new tonnage. At the end of 2007 BRS estimated that there were more than 2,300 bulk carriers on order. A huge number of Capesizes, representing 85% of the current fleet, will come into the market the coming years. Even based on the optimistic growth projection of the Chinese economy, BRS foresees a huge overcapacity of 350 Capesize bulkers in the years to come.

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Figure 188: China’s steel industry

Figure 189: Capesize supply and demand balance to 2016

219

Part II – Ship Innovation Who owns the bulk carriers today? Table 81 shows for each segment, i.e. Capesize, Panamax, Handymax and Handysize, the top-ten owners. The Chinese related shipowners are not surprisingly leader in most of the segments, with the exception of the Capesize market.  Owner Capesize 1 MOL 2 ZodiacMaritime 3 NYKLine 4 KͲLine 5 Cosco 6 Hanjin 7 WorldͲWide 8 TaiChongCheang 9 KoreaLine 10 GeneralOre Panamax 1 Cosco 2 Chinesegvt 3 GoldenUnion 4 MOL 5 ChinaShipping 6 KͲLine 7 Angelicoussis 8 MISC 9 ShoeiKisen 10 EmiratesTrading

No.

Dwt

Age

37 32 35 32 24 16 10 15 13 9

5,757,600 5,191,100 5,177,700 4,592,800 3,825,500 2,729,700 2,592,600 2,513,200 2367,200 2,185,200

9 12 7 6 10 12 13 5 13 14

96 18 17 15 15 13 12 11 11 11

6,697,400 1,197400 1,133,300 1,112,900 1,048,800 954,100 844,400 803,100 792,100 758,400

13 20 17 7 12 4 11 8 4 14

Owner Capesize 1 Cosco 2 NYK 3 MOL 4 Jebsen 5 IRISL 6 Chinesegovt 7 KͲLine 8 IMCShipping 9 WestfalͲLarsen 10 GriegShipping Handysize 1 ChineseGvt 2 Cosco 3 ChinaShipping 4 PreciousShipping 5 PolishSteamship 6 MOL 7 BulgarianGvt 8 EgonOldendorff 9 PacificBasin 10 STXPanOcean

No.

Dwt

Age

101 41 36 31 22 18 16 17 17 17

4,772,200 1,933,000 1,694,600 1,417,700 919,823 824,100 788,400 775,300 758,200 740,300

11 8 8 13 18 19 7 9 13 12

151 102 91 54 50 39 42 38 28 27

3,804,100 3,146,500 2,564,700 1,357,200 1,241,700 1,060,600 990,500 970,000 823,300 790,600

24 25 20 17 17 7 22 7 4 18

Table 81: Bulk carrier owners Bulk carriers need ports and terminals to load, unload and store their cargoes. The type of equipment that is used for these operations depends to a large extent on the characteristics of the cargo. Grain has to be stored in silos or storage sheds so it remains dry, like fertiliser and other agri-bulks. Iron ore and coal can be stored in the open, but these commodities have to be sprayed with water in order to avoid dust to pollute the environment. Most of the dry bulk is discharged with grab unloaders, sometimes with a capacity of 80 tons. Figure 190 shows some of the different terminal concepts. Multi-purpose terminals (export plus import, all cargoes) have a different structure than for example dedicated export terminals of a single commodity. Much innovation has resulted in a continuous reduction of the cargo handling cost at terminals. Cost reduction of cargo handling at terminals is a powerful trigger for innovation in shipping as well. An example is the self-unloading bulk carrier (Figure 191), and the completely enclosed cement carrier (Figure 192). These self-unloaders are a niche market and they are employed in trades where there is not an adequate port or terminal infrastructure, or where the cost of conventional cargo handling are too high given the low value of the cargo, as is the case with aggregates for the construction industry. The cement carrier has of course a different purpose, i.e. protecting the cargo from the weather (rain will solidify the cargo). The innovative cement carrier has been instrumental in creating a new market for seaborne trade, as it made it possible to ship low value export bulk cargoes 220

Part II – Ship Innovation at very low costs of transport and cargo handling. Some shipowners have specialised in this niche market in which some 500 vessels are employed with an aggregate capacity of 3.5 million dwt. However, this market does not experience the growth dynamics as the major bulks.

Figure 190: Dry bulk terminals

Figure 191: Self-unloading bulk carrier

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Part II – Ship Innovation

Figure 192: Self-unloading cement carrier Innovation in shipping is not only triggered by specialisation in certain commodities, but can also be triggered by accidents. During the 1980s and 1990s a large number of bulk carriers were lost due to structural failures (Figure 193). 30

Numnberofcasualties

25 20 15 10 5 0 1980

1982

1984 Losses

1986

1988

1990

1992

1994

1996

Otherseriouscasualties

Figure 193: Known or possible structural failure of <20,000 dwt bulk carriers

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Part II – Ship Innovation

Figure 194: Structural bulk carrier failing This prompted an in-depth investigation into the structural design of the bulk carrier. Some stakeholders proposed the double hull design (Figure 195), as was introduced in oil tanker shipping. After a Formal Safety Assessment study of both the single hull and double hull designs, it was concluded by IMO that there was no need for the introduction of the double hull bulk carrier, but other measures could result in safer designs and operations. Maintenance played an important role in this respect.

Standardbulkcarrier

Optimum2000

Figure 195: Optimum 2000 design The growing demand for dry bulk commodities has resulted in a tremendous growth of the bulk carrier fleet, the development of many types of bulk carriers, an increase in the economies of scale and the corresponding reduction unit transport cost. These developments have reinforced each other, as it made it possible that low-value commodities which could not carry high transport costs became part of world trade. Bulk carrier designs are also influenced by geographical constraints like the Panama Canal or ice conditions. Innovation in cargo handling systems like the self-unloading bulk carrier has 223

Part II – Ship Innovation also contributed to the creation of a competitive advantage of shipowners and shippers. These and other triggers for innovation are constantly at work in the shipping markets. The shipping market analysis and innovation methodology in this text will help the stakeholders to stay on top within this competitive part of the global economy. In all, the bulk carrier fleet in January 2008 consists of 6,697 ships (493 million dwt) while there are 2,643 ships on order (229 million dwt). It seems unlikely that there will be employment for all these newbuildings. Existingfleet Number Dwt(milliont) 2,840 87 1,603 77 1,486 108 768 131 6,697 403

Category 10Ͳ40,000 40Ͳ60,000dwt 60Ͳ100,000dwt >100,000dwt Total

Orderbook Number 634 767 608 634 2,643

cbm 20 43 50 116 229

Orderbook/ existing 23% 56% 46.% 89% 57.%

Table 82: Existing fleet and order book for bulk carriers, January 2008

6.3. Examples The following figures present some examples of typical bulk carriers.

Characteristics Length (oa)

189.0m

Length (pp)

279.0m

Breadth

45.0m

Depth

24.4m

Draught Deadweight

18.0m 76,882tons

Grosstonnage

88,819GT

Power(MCR)

16,860kW

Speed(service)

15.0knots

Figure 196: Capesize bulk carrier - 176,882-dwt NSS Grandeur

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Part II – Ship Innovation

Characteristics Length (oa)

319.6m

Length (pp)

308.0m

Breadth

54.0m

Depth

24.3m

Draught

18.1m

Deadweight

229.045tons

Grosstonnage

113,925GT

Power(MCR)

22,432kW

Speed(service)

15.1knots

Figure 197: Ore Carrier - 229,045-dwt Gaia Celebris

Characteristics Length (oa)

225.0m

Length (pp)

217.0m

Breadth

32.2m

Depth

19.3m

Draught Deadweight Grosstonnage Power(MCR) Speed(service)

14.0m 75,777tons 38,971GT 7,973kW 16.2knots

Figure 198: Panamax bulk carrier - 75,777-dwt Ikan Bayan 225

Part II – Ship Innovation

Characteristics Length (oa)

190.0m

Length (pp)

182.0m

Breadth

32.2m

Depth

17.0 m

Draught

12.0m

Deadweight Grosstonnage Power(MCR) Speed(service)

52,454tons 30,046GT 7,800kW 14.5knots

Figure 199: Handymax bulk carrier - 52,454-dwt JBU Orient

Characteristics Length (oa)

169.3m

Length (pp)

160.4m

Breadth

27.2m

Depth

13.6 m

Draught Deadweight Grosstonnage Power(MCR) Speed(service)

9.8m 28,447tons 16,960GT 3,850kW 14.0knots

Figure 200: Handysize bulk carrier - 28,447-dwt Shimanami Star 226

Part II – Ship Innovation

Characteristics Length (oa)

203.5m

Length (pp)

196.0m

Breadth

37.2m

Depth

21.6m

Draught

10.5m

Deadweight

52,001tons

Grosstonnage

45,001GT

Cargocapacity

3,900,000cu.ft

Power(MCR)

9,120kW

Figure 201: Wood chip carrier - 3,900,000-cu.ft Mimosa Africana

Characteristics Length (oa)

199.0m

Length (pp)

189.0m

Breadth

32.2m

Depth

19.0m

Draught

12.0m

Deadweight

48,661tons

Grosstonnage

36,324GT

Power(MCR)

11,516kW

Speed(service)

16.1knots

Figure 202: Bulk carrier/Open-hatch type - 48,000-dwt Star Osaka 227

Part II – Ship Innovation

Characteristics Length (oa)

187.5m

Length (pp)

180.4m

Breadth

23.2m

Depth

16.1m

Draught

11.4m

Deadweight Grosstonnage Power(MCR) Speed(service)

46,606tons 26,792GT 7,650kW 14.0knots

Figure 203: Self-unloading bulk carrier - Bahama Spirit

Characteristics Length (oa)

94,7m

Length (pp)

88.0m

Breadth

16.0m

Depth Draught Deadweight

7.3m 6.0m 4,576tons

Grosstonnage

2,983GT

Power(MCR)

2,647kW

Speed(service)

12.5knots

Figure 204: Cement carrier - 4,576-dwt Hiraozan Maru 228

Part II – Ship Innovation

7.

CONTAINER SHIPS

The metal boxes we know today as containers can be traced back to the 18th century. The industrial tramways of 18th-century Britain used horse-drawn carts on iron rails to serve the mines. Around 1792, for example, there was one such tramway operating near Coalbrookdale. Between 1795 and 1799 a British entrepreneur built a horse-drawn tram to tow open iron carts full of lime and limestone. His carts were regularly demounted from their frames and loaded complete onto canal barges. With the introduction of steam railways, entrepreneurs in Brittain and the USA adapted the open-cart towing idea to larger and heavier loads of iron and coal. They soon began moving merchandise in closed containers. Boxcars with demountable bodies, transferred by means of roof hooks and gantry cranes, appeared in the 1830s, while ro-ro technology debuted on the passenger platform. Small wheeled containers awaited travellers who could place bags in it. The container would then be rolled onto a flatcar. At the journey's end the containers would be rolled off and unloaded. For many years container transportation remained a small-scale endeavour limited mainly to rail lines in the USA and in Great Britain. The New York Central railroad began a modest container operation in 1921. Its success inspired the Pennsylvania railroad, which by 1929 had 300 containers. By 1932 Great Britain had 6,000 containers on its rails, some of which were refrigerated units carrying fruits and meats. The typical construction of the time was wood reinforced with metal, which resulted in a unit with a heavy tare weight of some three to four tons, which was almost equal to the payload. Between the wars a number of rail/car ferries operated on services in the Baltic, in Japan, on The Great Lakes and in the Caribbean. During WW2 the US military developed a series of landing ships employing ro-ro. This development culminated in the construction of the Comet the first purpose built ro-ro ship. The most important development started in January 1955, when Malcolm McLean, a US trucker, founded McLean Industries and purchased the Waterman Steamship Corporation and its subsidiary Pan Atlantic. In 1956 he modified a T-2 tanker, named Ideal X, by adding a spar deck (Figure 205). He loaded 58 truck trailers onto the spar deck and sent the ship on a four-day voyage from Newark to Houston (below the deck, the ship still carried oil). Pan Atlantic soon moved into full container operations on its coastal services, with converted general cargo ships (C2s) with a capacity of 236 containers. In 1961 Pan Atlantic was renamed Sea-Land Service Inc. In 2006, on the occasion of the 50th anniversary of the introduction of seaborne container transport, two excellent books were published that tell the story of the advent of the container21.

21

MarcLevinsonͲTheBox;Howtheshippingcontainermadetheworldsmallerandtheworldeconomybigger(Levinson, 2006),andArthurDonovanandJosephBonneyͲTheboxthatchangedtheworld(Donovan&Bonney,2006)

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Figure 205: Ideal X Before McLean, several other container pioneers experimented with containerised transport like Seatrain (ro-ro in 1930s) and Alaska Steamship (1953). McLean’s initial plan was to develop a roll-on roll-off ship for the coastal transport of his trucks. Donovan and Bonney quote Mark Rosenstein regarding the role of McLean in the container revolution: “It is probably most accurate to think of McLean as the Robert Fulton of containerisation. Just as Fulton did not invent the steamboat, but instead was the first to make a going concern of steamship business, similarly McLean did not invent containerisation, but was able to raise an industry around this technology.” Another pioneer was the Matson Navigation Co., a shipping company on the US west coast. The company began searching for a new direction, and decided to go into container transport. Matson's first container vessel was the Hawaiian Merchant (Figure 206), a converted C-3 merchant vessel, which carried a maximum of 75 containers on deck. Within a few years, the company converted another C-3 vessel into the first container ship with cell-guides below deck and a capacity of 408 containers. This ship was called Hawaiian Citizen.

Figure 206: Hawaiian Merchant The unique elements of the container system were, apart from the box itself, the four corner fittings, the twist locks that fit into the corner fittings and hook up the spreader to the crane. (Figure 207) 230

Part II – Ship Innovation These three elements form in fact the basic innovation of the container. The conventional general cargo top-cranes were not really suitable to handle the spreaders with the container locked on to it, so a new generation of cranes, the A-frame gantry crane, was developed, first by Paceco for Matson Navigation (Figure 207) and installed at the Encinal Terminal in Alameda in 1959.

Figure 207: A-frame container crane In contrast to Sea-Land, Matson Navigation remained a relatively modest operator in the Pacific trades. By 1964 Sea-Land was contemplating expansion into the deepsea liner trades and in October of that year entered into an agreement with Litton Leasing for the purchase and conversion of six general cargo vessels (C4s). In the mid 1960s Sea-Land completed its preparations for international deepsea routes by switching its operation from ship cranes to shore cranes by ordering eighteen gantries between 1965 an 1967. In 1966 the company began operations on the North Atlantic starting the second generation in container shipping, using the Ms Fairland (266 containers), see Figure 208.

Figure 208: Ms Fairland unloading in Rotterdam, 3 May 1966

7.1. S-curve shift in general cargo shipping Nedlloyd, at that time operating under another name, was one of the liner companies in Europe that had to be transformed at the end of the 1960s from a general cargo liner company into a container shipping line. The shift was not based on a fashionable 'follow the crowd' basis, since at that time, 231

Part II – Ship Innovation nobody was sure whether the container-innovation would become the dominant trend. It was based on rational analysis. Conventional liner companies were facing three major problems: x

The round-trip time of the conventional ships could not be reduced, as the largest part of the trip, the ships were waiting for a berth in port, and being loaded and discharged;

x

In spite of the continuous improvements of the conventional general cargo liner, such as heavy cranes, larger hatches, flush decks, stevedoring equipment and pallets, the port time remained too long, which made it impossible to increase the size of the vessel above 15,000 dwt. This put a cap on the possibility to create economies of scale in the design;

x

The labour cost of the seamen, the large crews on board conventional vessels, and the increasing stevedoring cost in port, resulted in a steep increase in the total transport cost per cubic feet of capacity.

Figure 209 illustrates the cost development of a conventional liner service based on a 12 ships, 6 months round-trip time, and two week sailing frequency. The annual transport capacity by this service is 37 million cubic feet (cu.ft). In 1958, the transport cost per cu.ft were approximately Euro 0.60; by 1968 this had increased to Euro 0.9 and the increase in 1974 was to a staggering Euro 1.50 and by 1979, this cost had increased to Euro 1.95 per cu.ft, a 260 percent increase from 1958 to 1979, in spite of all the creative effort that resulted in a multitude of improvement innovations. In essence, however, the general cargo ship's concept had not changed as from 1900, Many improvements were made in cargo holds, cargo handling equipment and the like, but the basic design remained unchanged. All these improvements were not enough to increase productivity and therefore a S-curve shift had to take place. Early 1970 Nedlloyd decided, together with another shipping line, to fundamentally innovate the container ship. A virtual quantum leap in design was achieved in the span of a few years, towards a 2,600 TEU ship, the well-known Nedlloyd Dejima (Figure 210) and Nedlloyd Delft. The two cellular vessels were able to substitute easily the 12 conventional cargo liners, the carrying capacity increased even from 37 to 48 million cu.ft per year. The cost per cu.ft decreased dramatically from Euro 1.50 in 1974 for the conventional service to Euro 1.05 for the two-ship container service. Economies of scale were indeed obtained. A comparison of the detailed cost structure of transport cost in the two cases reveals that the capital cost, maintenance cost, fuel cost, port cost, and stevedoring cost decreased. The latter cost item cannot be compared realistically in both figures, as the conventional service is based on stevedoring cost from shed to shed, while the container stevedoring cost, include the door-to-door delivery and pickup cost. A correction for this difference would reveal a dramatic reduction in cost for the container service. One of the major reasons for a lower cost figure can be traced to a dramatic reduction in round-trip time of the container service in comparison with the conventional service. Figure 211 shows the roundtrip time of a conventional service of 180 days, of which only 75 days or 42 percent was spent on sailing at sea, the remainder, 58 percent, was spent either waiting or alongside the quay for cargo handling. The figure also shows container service with a round-trip time of 75 days, of which 54 days or 72 percent were spent at sea and the remainder, 28 percent, in port. The difference is explained by the elimination of waiting times and the phenomenal increase in stevedoring productivity through the use of unitised cargo. The effective productivity in tons/hour increased from 30-60 tons for the conventional service, to 223-446 tons for the container service. 232

Part II – Ship Innovation 2.500 Stevedoring 2.000

Commisions

Euro/Cuft

Claims 1.500

Portdues Fuel+lubr.

1.000

C Overhead

0.500

Maintenance Insurance

0.000

Depr.+interest 1958

1968

1974

1979

Figure 209: Cost per cu.ft between Europe and Far East by conventional liner

Figure 210: Nedlloyd Dejima

233

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ContainerͲ Australia Ͳ Europe Sailing Generalcargovessel Ͳ USWestCoastͲ IndianSubContinent

Waiting CargoHandling 0

50

100

150

200

Roundtriptime(Days)

Figure 211: Roundtrip time

7.2. Economies of scale in containership design The first generation container ships were converted cargo ship, sometimes combining a load of containers with other cargoes, e.g. oil. Second generation container ships were purpose-built and often equipped with cell guides to enable fast loading and unloading. The European shipowners quickly developed an answer to Sea-Land’s container ship with ships like the Alster (736 TEU) and Encounter Bay (1530 TEU) (Figure 212). A few years later the third generation of containerships came onto the market with a capacity of 3.000 TEU. This represented a tremendous increase of the general cargo ship in deadweight terms: from 15.000 dwt to 55,000 dwt in the span of six years. The number of containerships increased to 650 since the start of the deepsea services in 1966, and the slot capacity increased to about 300,000 TEU in 1974. In 2008, the containership fleet has a capacity of 12 million TEU, 35 times bigger than in 1974. The take-off phase of the deepsea container revolution is well illustrated in Figure 213. The size of the containership increased in the years thereafter as Figure 214 and Table 83 illustrate. Steadily the containership sizes increased. For quite a long time the Panama Canal formed a barrier, until in 1988 this barrier was broken by the first postPanamax container ship.  Shipsize 1700TEU 3500TEU 4600TEU 6500TEU 8450TEU

Dwt 25,700 51,800 61,500 81,000 94,700

Dimensions Length Breadth 180 27.6 275 32.2 294 32.2 300 40.0 335 42.8

Draught 9.5 12.5 13.5 14.0 14.0

Dwt 100 186 239 315 368

Index Length Breadth 100 100 152 117 163 117 167 145 186 155

Draught 100 128 142 147 147

Table 83: Container ship economies of scales

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1st generationͲ 736TEU“Alster Express”(1968)

2nd generation– 1530TEUEncounterBay(1968/69)

3rd generation– 2950TEUBenavon (1972)

Figure 212: Generations of container ships Containerships can be classified in various ways. The oldest classification is based on the denomination “generation”. The first generation being ships up to 1,000 TEU and the 6th generation ships over 8,000 TEU. Another classification is based on the type of ship, feeder, sub-Panamax, or super-postPanamax. These qualifications are summarised in Table 84. Category Feeder Feedermax Handy SubͲPanamax Panamax PostͲPanamax SuperͲpostPanamax

Sizegroup(TEU) 100Ͳ500 500Ͳ1000 1000Ͳ2000 2000Ͳ3000 Over3,000 Over4,000 Over10,000

Table 84: Classification on ship type 235

700

350

600

300

500

250

400

200

300

150

200

100

100

50

0

0

Totalcontainercapacity(1,000TEU)

Numberofcontainerships

Part II – Ship Innovation

1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Numberofships

TEU

Figure 213: Development of the container fleet b=56m

13,500TEU

draught

16m bͲ=45.6m 400m 14m 9200TEU 14m

8450TEU

13.5m

337m

6500TEU

12.5m

335m

4600TEU 300m 3484TEU

9.5m

294m 1700TEU

275m

180m

length

Figure 214: Evolution of container ship size

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Part II – Ship Innovation

7.3. Post-Panamax container ships Economies of scale have always been an important issue in container shipping. The fast-growing number of containers shipped and the low revenues per container stimulate the shipowners to build ever-larger ships, with lower costs per slot. The first post-Panamax container ship was taken into service in 1988. Because the driving-forces behind economies of scale in container shipping have been more or less the same for all new size developments, this section discusses the development of the post-Panamax container ship. The main restrictions imposed by the Panama Canal are the maximum breadth of 32.25 m. and the limited draught (which depends on the season). The first Panamax container ships, built in the early 1970s, had a capacity of around 2500 TEU. Many of them were built for owners operating in consortia because of the requirement for the vessel to operate at high payloads. A that time it was no easy task to book 2500 TEU per week. The early Panamax containerships were built to very high technical standards. Their hull shape was fine with a low block coefficient to allow them to transit at high speeds. They were powered using twin or even triple screws. They had a large deck capacity, the number of containers on deck was low compared to modern standards. Their steel weight was relatively high. New Panamax container ships have a high carrying capacity compared to the ships from the 1970s. This increase was achieved by the following measures: x Increasing displacement by building longer ships with a high block coefficient; x Decreasing the steel weight, which increases deadweight; x Increasing the volume of the ship and placing more containers on deck. Because the number of containers increased more than the deadweight, the maximum container weight per slot has decreased. The former is illustrated by Table 85, which shows some characteristic Panamax container ships. Vessel/Class LiverpoolBay Maersk"L" Econship Evergreen"G" Maersk"M" EAC/Mitsui JarvisBay HͲLSamsung Evergreen"R"

Built 1972 1981Ͳ85 1984Ͳ85 1986Ͳ88 1988Ͳ91 1990 1992Ͳ93 1990Ͳ94 1993Ͳ95

Dwt(tons) 47,450 53,540 58,850 53,240 60,640 56,000 59,000 56,680 58,910

TEU

Tons/slot 2,500 3,016 3,632 3,428 3,922 4,000 4,038 4,422 4,229

17.1 16.0 14.6 14.0 14.0 12.6 13.1 13.8 12.5

Table 85: Characteristic Panamax container ships Container ships wider than 32.25, are called post-Panamax containerships, because they are not able to transit the Panama Canal locks. In 1986, APL was the first shipowner to place an order for three postPanamax container ships, a few months later followed by an order for another two ships. These ships were delivered in 1988. Other shipowners started ordering post-Panamax ships in the late 1980s and early 1990s. The first ones were CGM (1989), MISC, HMM and Nedlloyd. Nedlloyd was the first one to built a post-Panamax containership according to the open-hatch principle. After the Panamax barrier 237

Part II – Ship Innovation was broken, the developments went very fast. The first 5,000 TEU ship was delivered in 1995, the first 6000 TEU ship in 1996, and the first 6,600 TEU ship in 1997 (8,700 if empty containers on deck are taken into account).

Figure 215: First post-Panamax container ship The advantages of the first post-Panamax container ships were very limited. The TEU capacity was even smaller than the capacity of an optimised Panamax container ship. A comparison between an optimised Panamax container ship, the first post-Panamax container ship and the 6,600-TEU Sovereign Maersk is given in Table 86.  Length Breadth Mouldeddepth Draught Deadweight Speed Power Capacity

OptimisedPanamax 294.1m 32.2m  13.55m 66,478t 25.0kn 45,760kW 5,117TEU

FirstpostͲPanamax 275.2m 39.4m 23.6m 12.5m 54,655t 24.2kn 41,882kW 4,340TEU

Maersk“SͲClass” 347.0m 43.0m  14.5m  25.0kn 55,000kW 6,600TEU

Table 86: Post-Panamax container ships compared The main advantage of the post-Panamax container ship is economies of scale. The overall costs are higher but the costs per container slot are lower for post-Panamax than for smaller ships. Automation has allowed for a minimum crew number, which is the same for Panamax as for post-Panamax container ships. Single-screw propulsion can be maintained and overall operational maintenance does not increase significantly. The fuel cost for larger ships increases, but the fuel consumption per slot decreases, the same goes for lubricating oil and maintenance costs. The economic benefits can only be achieved when the capacity utilisation of the ship is high. The limits of economies of scale will be discussed in the case-study of the Malacca-max containership design of 18,000 TEU . The increase in size of the containership has to be matched by an increase in the size and speed of the gantry cranes. On the largest containership to date, the Emma Maersk, 22 containers are stacked on deck (Figure 216). That means that cranes need an outreach to match that width. Many ports have anticipated already this development and even larger ships with 24 containers abreast (Table 87)

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Figure 216: 22 container-wide gantry crane Europe Bremerhaven Felixstowe Hamburg LeHavre Rotterdam Zeebrugge         

Mediterranean Algeciras GioiaTauro Malaga Malta PortSaid Taranto Valencia        

Asia Busan Dalian Fuzhou Guangzhou HongKong Kwangyang Nagoya Ningbo PortKelang PTPelepas Qingdao Shanghai Shenzhen Singapore Tianjin

MiddleEast Dubai KhorFakkan Salalah            

NorthAmerica Colon LongBeach LosAngeles Oakland Seattle Vancouver         

Table 87: Ports with 22+ wide container cranes Innovation in container crane design is geared to increase the productivity ever further. An interesting example is the crane of ZPMC with three spreaders that can handle three containers simultaneously.

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Figure 217: Three spreaders handling container simultaneously

7.4. Open-top container ships Port-time and (un)loading costs are very important cost items for containerships operations. Containerships are very expensive and all time spend in port, costs money. Often containerships call at several ports on each journey and in every port part cargoes are (un)loaded. This means that it is difficult to plan where to place a specific container in such a way that it can be easily reached, without having to move or unload other containers first. If a specific container has to come from the hold, first all containers on the hatch cover above it have to be unloaded or restowed. On a conventional vessel these restowages may be responsible for about 3% of all container movements. Modern containerships carry half of their containers on deck. Figure 218 shows an open model of such a large post-Panamax containership (8,400 TEU).

Figure 218: Ratio between container under deck and on deck More than 90% of container damage at sea, happens to the deck-stowed containers. Every year there are serious accidents with containerships, like Figure 219 illustrates. Lashing of containers on deck can be a dangerous business, as Figure 220 shows of a worker on top of a stack of container some 35 meters above sea-level.

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Figure 219: Accident with on-deck containers

Figure 220: The lashing of containers One solution to reduce restowage of containers, and thus port-time, is the open-top container ship. These ships do not have hatch covers on their main holds (Figure 221). The cell-guides extend to the upper layer of containers above deck. Therefore no lashing is required and the unloading may commence immediately after the ship has moored. After loading, no lashing is required, so the ship may depart immediately. The first hatchless, or open top containership ever built was the shortsea vessel Bell Pioneer (1990), see Figure 222. Nedlloyd built a series of 4,112 TEU ships, like the Nedlloyd Asia (Figure 223). Although ships proved the concept of faster port turnaround times due to the absence of hatch covers and direct access to each cell, few owners adopted the hatchless concept. 241

Part II – Ship Innovation

Figure 221: Container ships cross sections compared

Figure 222: Bell Pioneer, the first hatchless container ship

Figure 223: Nedlloyd open-top container ship

242

Part II – Ship Innovation Because of open holds the water ingress of open-top container ships is higher. To minimise the water in the holds, open-top container ships have a larger freeboard and a large pumping capacity. Because of the extra depth, the lightship weight will be slightly higher, but this is compensated by the absence of hatch covers and the increase in dynamic stability. In recent years, the concept seems to revive, witnessing the 1,700 TEU open-top that was built for Wagenborg Shipping in 2007 (Figure 224)

Figure 224: Modern open-top container ship

7.5. Dis-economies of scale in container shipping Container shipping statistics show an impressive growth rate of some 8 percent per annum for the past decades. At the end of 2007, the total number of TEU handled in ports reached more than 400 million. However, these figures should be handled with care. First of all, the figure should be halved, as there are double counts from each port which counts its throughput (export plus import). On top of that, the 200 million TEU that remains should be adjusted for feeder and relay movements. For example, the port of Singapore is one of the largest container ports in the world, but it has very little captive cargo so most of the volume is either feeder containers coming from for example Indonesia, to be transhipped on to a deepsea service. Relay containers go from one deepsea service to another, as is the case for example with containers coming from Europe with a destination Australia, which are transhipped in Singapore. Another adjustment should be made for repositioning of empty containers which amount on average to more than 20 percent of all movements. After these corrections, the fully loaded containers amount to 121,500,000 TEU in 2007 (Figure 225). This is the freight base of the container shipping industry. All the container lines compete for this cargo as they have to fill the mega containerships in order to realise the economies of scale effects. This will depress the rates, and the return on investment. The investment in new ships has increased dramatically in order to match the cost structure of the competitors. At the same time, the lines have to invest heavily in container equipment and ICT systems to manage the very complex process of running ships and container logistics. Only the largest container shipping lines can afford to stay ahead of the game in this vicious circle in which they are caught. Figure 226 shows the causal diagram of the drive towards economies of scale of the lines. 243

Part II – Ship Innovation

Fullcontainersshipped(1,000*TEU)

140.000 120.000 100.000 80.000 60.000 40.000 20.000 0.000 198019851990199520002001200220032004200520062007

Figure 225: Full containers shipped worldwide

Increaseseaborne volumetransported

Increaseincompetition

Increaseshipsize (economyofscale)

Pressureonrates

Containerlinecapacity increase

Increaseinoverhead (disͲeconomyofscale)

Increaseinvestment

Returnoninvestment

Figure 226: (Dis)-economies of scale The paradox of the container shipping sector is that the creation of economies of scale in ships can only pay off if it is matched by the creation of economies of scale in the container logistics and ICT infrastructure with the objective to lower management cost and to increase container volumes above the organic growth level of the industry as a whole. If this investment is not made, it will create such dis-economies of scale that the impact of large ships will be eliminated.

244

Part II – Ship Innovation A study of the financial results of ten major shipping lines over the ten year period 1980-1989, revealed that the average return on assets hovered around one percent, not taking into account the inflation during this period. The low return has been fatal for many shipping lines, and they have been sold to more successful ones. That has resulted in an accelerating concentration in the container industry, which ten years ago counted some 500 companies. To date the top twenty companies control some 85 percent of the slot capacity. (Table 88) It is clear that economies of scale in ICT for containership and container logistics management go hand in hand with the creation of economies of scale of large container vessels. Not all the companies can afford this investment drive, which can be compared with the arms race during the Cold War. That is why more take-overs and mergers can be expected in the years to come. Innovation in management of companies is therefore just as important as the technical innovation in large containerships and it should be given high priority. Carrier MaerskLine MSC CMAGCM Evergreen HapagͲLloyd ChinaShipping Cosco APL NYK OOCL

TEU Marketshare 1,863,900 17% 1,214,600 11% 884,400 8% 619,400 5% 492,800 4% 434,700 4% 420,400 4% 400,900 4% 378,000 3% 343,200 3%

Carrier MOL Hanjin/Senator KͲLine ZIM HamburgSud YangMing CSAV Hyundai PIL WanHai Total

TEU 335,000 333,000 305,200 277,900 270,100 268,500 249,800 196,800 165,000 137,700 9,591,200

Marketshare 3% 3% 3% 2% 2% 2% 2% 2% 1% 1% 100%

Table 88: Top-20 container carriers An overview of the existing fleet and the order book for container ships is presented in Table 89. It is clear that the feeder category has become too small for the container trades. Category postͲPanamax Panamax subͲPanamax Handysize Feedermax Feeder

Size >4,000TEU 3,000Ͳ4,000TEU 2,000Ͳ3,000TEU 1,000Ͳ2,000TEU 500Ͳ1,000TEU 100Ͳ500TEU

Existingfleet Number DWT 567 3,800,000 742 1,300,000 678 1,700,000 1,163 1,600,000 793 600,000 438 140,000 4381 9,140,000

Orderbook Orderbook/ Number DWT existing 479 4,200,000 111% 312 1,300,000 100% 157 400,000 24% 311 450,000 28% 147 120,000 20% 2 Ͳ 1,408 6,470,000 71%

Table 89: Existing fleet and order book for container ships, early 2008

7.6. Examples The following figures present some examples of typical container ships. 245

Part II – Ship Innovation

Characteristics Length (oa)

299.9m

Length (pp)

283.8m

Breadth

40.0m

Depth

23.9m

Draught Deadweight Grosstonnage

14.0m 81,171tons 75,510GT

Cargo capacity

6,500TEU

Power(MCR)

61,350kW

Speed(service)

25.0knots

Figure 227: Post-Panamax containership - 6,500-TEU NYK Atlas

Characteristics Length (oa)

294.1m

Length (pp)

282.0m

Breadth

32.2m

Depth

21.9m

Draught Deadweight Grosstonnage

13.5m 63,160tons 53,822GT

Cargo capacity

4,700TEU

Power(MCR)

49,410kW

Speed(service)

24.6knots

Figure 228: Panamax containership - 4,700-TEU MOL Efficiency 246

Part II – Ship Innovation

Characteristics Length (oa)

234.6m

Length (pp)

218.0m

Breadth

32.2m

Depth

18.8m

Draught Deadweight Grosstonnage

12.5m 43,610tons 43,093GT

Cargo capacity

2,800TEU

Power(MCR)

28,880kW

Speed(service)

22.6knots

Figure 229: Container ship - 2,800-TEU OOCL Xiamen

Characteristics Length (oa)

161.9m

Length (pp)

150.0m

Breadth

25.6m

Depth

12.9m

Draught Deadweight Grosstonnage

9.1m 18,067tons 13,267GT

Cargo capacity

1,000TEU

Power(MCR)

11,440kW

Speed(service)

19.0knots

Figure 230: Feeder container ship - 1,000-TEU Hyundai Concord 247

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8.

GAS TANKERS

There are four main categories of gases carried by specialised gas tanker. Each gas has its own specific properties impacting on the design of the gas carrier. All gases carried are liquefied, either by pressure or low temperature. The main gases are: x

x x x

Liquefied natural gas (LNG); LNG consists of natural gas that is liquefied by cooling it down below -161.5 qC. It consists mainly of methane, and small portions of other hydrocarbons, though the latter are, to a large extent, removed during the liquefaction process; Liquefied petroleum gas (LPG); LPG consist of propane, n/i-butane, or a mixture of both; Ammonia; Petrochemical gases; including ethylene, propylene, butadiene and VCM.

The main properties of the gases are shown in Table 90. The two properties that impact most on the design of the gas carrier are the boiling temperature and the specific gravity. The boiling temperature varies from -0.5 qC for butane to -161.5 qC for LNG. Gas carriers that are able to withstand the boiling temperatures of LNG or Ethylene (-104 qC) are more difficult and more expensive to build than a relatively simple LPG carrier. The specific gravity varies from 0.465 ton/m3 for LNG to 0.965 ton/m3 for VCM. This means that a ship loaded with LNG must have a cargo volume that is twice as big as a ship that carries VCM, to achieve the same deadweight.

8.1. LPG carriers The first purpose-built LPG carrier was the Agnita, built in 1934 by a London shipyard for the Saxon Petroleum Company. She was fitted with twelve riveted "bottles", placed vertically in her cargo holds, and was designed to carry butane under pressure. The ship operated successfully until 1941, when she was sunk by an enemy torpedo. Until 1947 little further development took place. In this year a dry cargo ship was converted into the 6,050 cbm Natalie O. Warren, for the American Warren Petroleum Company. She was refitted with 68 vertical, cylindrical pressure vessel tanks in 5 holds and designed to carry propane from Houston to New York. A year later a dry cargo liner ship was converted into the first ocean-going LPG carrier, built for the Norwegian company Øivind Lorentzen. Shortly, two other ships for the same company followed. In the late 1940s, early 1950s the increasing use of butane and propane led to the development of specially designed small gas carriers built for the Danish company Trans Kosan. The ships had a capacity of 1,042 m3 in twelve upright cylindrical tanks. Steadily the number and the size of the ships increased. In 1969 the LPG carrier fleet consisted of 242 vessels, with an average capacity of about 4500 cbm. Figure 231 shows an example of an early LPG carrier, the 1962-built fully-pressurised LPG carrier Petrobas Oeste.

248

Part II – Ship Innovation  Boilingpoint(qC) Freezingpoint(qC) SpecificgravityatBP(ton/cbm) Flashpoint(qC) Flammablelimits(%) AutoͲignitiontemp.(qC) Criticaltemperature(qC) Criticalpressure(kg/sqm) Vapourdensityat0qC Max.allowableconcentration(ppm)  Boilingpoint(qC) Freezingpoint(qC) SpecificgravityatBP(ton/cbm) Flashpoint(qC) Flammablelimits(%) AutoͲignitiontemp.(qC) Criticaltemperature(qC) Criticalpressure(kg/sqm) Vapourdensityat0qC Max.allowableconcentration(ppm)

LNG Ͳ161.5 182.5 0.465 Ͳ175 5Ͳ15 595 Ͳ82.6 162.8 3.7 Ͳ Ethylene Ͳ103.9 Ͳ169.5 0.57 Ͳ 2.7Ͳ28 450.6 9.9 51.5 0.97 5500

LPG/propane Ͳ42.3 187.8 0.583 Ͳ105 2.1Ͳ9.5 468 97 43.4 1.55 Ͳ Propylene Ͳ47.7 185.2 0.614 Ͳ108 2.0Ͳ11.1 458 91.7 45 1.48 Ͳ

LPG/butanen/i Ͳ0.5/Ͳ11.7 Ͳ138.3/159.6 0.602/0.585 Ͳ60/Ͳ81 1.8Ͳ8.5 405/462 152 36.9 2.90/2.07 Ͳ Butadiene Ͳ5 Ͳ108.7 0.647 Ͳ69 2.0Ͳ11.5 418 152 44 1.88 1000

Ammonia Ͳ33.4 Ͳ77.7 0.682 Ͳ57 16Ͳ25 51 132 115.2 0.6 25 VCM Ͳ13.8 Ͳ154 0.965 Ͳ78 4.0Ͳ33.0 472 165.5 53.2 2.15 1Ͳ10

Table 90: Gas properties

Figure 231: Petrobas Oeste

Tank designs Due to its high volume, gas must be liquefied before it can be transported. This way the volume of the gas can be decreased up to a factor of600. To achieve liquefaction there are three principle ways: x x x

Fully-pressurised (FP); Semi-pressurised/semi-refrigerated(SP/SR) or Semi-pressurised/fully-refrigerated (SP/FR); Fully-refrigerated (FR). 249

Part II – Ship Innovation In the FP-condition the cargo is kept liquid using pressure only. The gas is carried in pressure vessels that can withstand the maximum pressure likely to be met in service (usually 18 bar). The temperature of the cargo is ambient; this means that in tropical areas the temperature may go up to 50 qC. FP was the first system used for the transport of gases. The capacity of fully-pressured vessels is low, most ships have a capacity below 10,000 cbm. The main advantage of pressurised tanks is that cargo does not need to be cooled down. This saves energy and means that ordinary materials can be used for the construction of the tanks. Disadvantages are the high weight of the cargo tanks (up to a "cargo weight"/"tank weight" ratio of 2:1 for type C tanks) and the poor utilisation of the cargo hold. Due to the high pressure in the tanks, the size of the tanks is limited. The first purpose-built ship according to the FP-principle was the Descartes, a 921 cbm LPG carrier built in 1959. The ship had 8 tanks designed for a pressure of 9.0 kg/cm2 and a maximum temperature of 15 qC. SP/SR ships carry their cargo pressurised and cooled down simultaneously. SP/SR ships can cool down their cargo to -48qC or even to -104qC (for ethylene). They are able to carry the complete range of LPG and similar chemical cargoes, but cannot be used for LNG. For the low cargo temperatures the tanks and piping must be constructed of special low-temperature, fine-grain carbon steel. The largest SP/SR tankers have a capacity below 40,000 cbm. SP/SR ships normally have cargo tanks that use the available space better than FP-ships. The tanks are lighter (the ratio cargo weight/tank weight is approximately 4:1), but a bit more complicated than the pressure vessels of fully-pressurised ships, thus more expensive. A refrigeration system is required and cargo pumps have to be installed. There are major differences in the building costs of fully-pressurised and semi-pressurised ships, the operational costs differ because of the fuel used by the refrigeration plant. FR ships can liquefy their cargo by cooling down only. The cargo is carried under atmospheric pressure. LNG is one cargo that can only be transported fully-refrigerated, because its low boiling point prohibits fully or semi-pressurised transport. At its critical temperature the pressure of LNG is still 45 bar, too high for pressure tanks. Because fully-refrigerated tanks are not subject to high pressures almost every normal tank form is possible. Therefore the available cargo space is used more efficient than with other tank types. Tanks can be much larger and, for any size, much lighter. The first ship according to the FR-principle was built in 1962. The Bridgestone Maru had a capacity of 28,875 cbm in four prismatic independent type A tanks. The tanks were designed to operate at a temperature of -45qC, insulated with aluminium foil faced glass fibre attached to the inner hull surfaces. Large fully-refrigerated LNG carriers have a size of about 130,000 m3 and deadweight of about 70,000 tons. Figure 232 shows the relationship between temperature and pressure at which the various gasses become liquids.

Tank categories Tanks suitable for the transport of liquid gas can be divided into five categories. Some tank categories require a secondary barrier to protect the ship's hull structure from the devastating effect of the low temperature of the cargo. A tank with a secondary barrier, actually consist of two tanks. x

Integral tanks are formed along the inner hull, the bulkheads and the deck. The tanks form a structural part of the ship's hull and are influenced in the same way and by the same forces that stress the adjacent hull structures. The lowest temperature in any part of the hull structure

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Part II – Ship Innovation should not get below -10 qC. The hull of the ship acts as a secondary barrier. Integral tanks are used for the carriage of liquid gas at or near atmospheric conditions, like butane.

Pressure(lb.sq.inch))

1000

Methane Ethylene Ethane

100

Propylene Propane Ammonia Vinylchloride nͲButane 10 Ͳ200

Ͳ150

Ͳ100

Ͳ50

0

50

Temperature(C)

Figure 232: Boiling points of gases x

Membrane tanks are non-self-supporting tanks that consist of a thin layer supported through insulation by the adjacent hull structure.

x

Semi-membrane tanks are similar to membrane tanks (Figure 233), except that the corners of the inner layer are rounded and not supported by the tank shell or insulation. This means the inner layer can expand or shrink freely under influence of the cargo. Semi-membrane tanks were originally developed for the carriage of LNG but can also be used for LPG. Integral, membrane and semi-membrane tanks are always prismatic of shape.

Figure 233: Semi-membrane tank 251

Part II – Ship Innovation x

Independent tanks are self supporting tanks that do not form part of the ship's hull structure. Independent tanks are divided into 3 subcategories: A, B and C. Type A tanks require a full secondary barrier, type B tanks require a reduced secondary barrier (to catch the cargo that leaks from the tank), and type C tanks do not require a secondary barrier. Most independent tanks are spherical or cylindrical (also bi-lobe, tri-lobe and multi-lobe) of shape. Except for independent type C tanks all tanks can also be prismatic. Type C tanks are often used for pressurised, semi-pressurised/semi-refrigerated or semi-pressurised/fully refrigerated ships. Type A tanks are well suited for fully-refrigerated ships.

Figure 234: Cylindrical cargo tanks

Figure 235: Bi-lobe cargo tank

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Internal insulation tanks are non-self-supporting and consist of thermal insulation materials that contribute to the cargo containment and are supported by the structure of the adjacent inner hull of an independent tank. The insulation is applied to the inside of the tank and exposed to the cargo.

LPG fleet The LPG fleet is segmented into four sub-segments related to the size of the tanker. Table 91 demonstrate clearly that the LPG tanker fleet is significant with 1075 ships and 197 ships on order. Category >60,000cbm 20Ͳ60,000cbm 8Ͳ20,000cbm <8,000

Existingfleet Number cbm 115 9,000,000 100 3,600,000 106 1,200,000 754 2,200,000 1,075 16,000,000

Orderbook Number cbm 50 4,500,000 35 1,100,000 33 350,000 79 350,000 197 6,310,000

Orderbook/ existing 50% 31% 29% 16% 39%

Table 91: Existing fleet and order book for LPG ships, early 2008

8.2. LNG carriers The first time that seaborne LNG transport was seriously considered was in 1951 when William Wood Prince, chairman of the Union Stockyard of Chicago, commissioned an investigation into the transport of LNG from the Louisiana oil and gas fields to Chicago by river. The main objects of investigation were the tank and insulation material, which both had to be able to withstand the low temperatures involved. At that time there was little experience with brittle fractures and the only tank material designers felt secure with was grade 18.8 stainless steel. For the insulation they chose wood. After thorough investigation of several types of woods they selected balsa wood. A prototype barge, called Methane (Figure 236), was constructed at the Ingalls Shipyard in Pascagoula, Mississippi, with five cylindrical tanks and internally insulated with balsa. It had a double hull to protect the tanks in the event of a collision. The project was unsuccessful, due to difficulties with classification approval and because of unsuccessful low temperature tests on the tank insulation. The system was able to contain the LNG for a reasonable period of time before frosting occurred on the outer carbon steel shell. The liquid gas, which had penetrated the insulation to a certain depth before vaporising, was unable to escape from the wood fast enough and destroyed large areas of the internal surface. No solution could be found, so further development of the internal insulation concept was abandoned. Attention was then turned towards building a cargo tank of aluminium that could safely withstand the service temperature. The balsa wood insulation would provide adequate secondary protection for the hull structure in case of a tank leakage. The decision to proceed with the construction of a prototype LNG carrier was finally reached in 1957 when the British Gas Council agreed to participate on a 50/50 basis in such a scheme. Research resulted in two options: the conversion of a T2 tanker and a C1-MAV1 dry cargo ship, both US wartime-built ship types and readily available on the second-hand market. The cargo motor vessel Normarti was selected and converted into a 5,000 cbm LNG carrier.

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Figure 236: Methane Trials with the ship, renamed Methane Pioneer (Figure 237), commenced in October 1958. These were planned first to cover the initial inerting and filling of the tanks with LNG at the Lake Charles site, Louisiana, and then to continue with sea trials in the Gulf of Mexico, concluding with inspection of performance at Lake Charles. The time allocated was 83 days. The tests went smoothly. The Methane Pioneer left Lake Charles with a full cargo of LNG on her first voyage on January 24, 1959, to arrive at Canvay Island on the morning of February 20. During this and her subsequent trips considerable data were collected on such items as her daily boil-off, temperature gradient, cargo behaviour, cool-down and warm up procedures and times-all essential preliminaries to the design of a commercial scale venture. Boil-off is the amount of liquefied gas that evaporates in the tanks during transport. This boil-off gas has to be removed to prevent the building up of pressure and having to cool down the cargo during transport. Because it is expensive to reliquefy the gas, often the boil-off gas is used as fuel for the main engine. In 1965 the Methane Pioneer was sold to Gazocean after a period of LPG service and renamed Aristotle, remaining in LPG trade until 1973.

Figure 237: Methane Pioneer Also outside the USA, there were efforts to develop an LNG carrier. In 1954 Dr. Øivind Lorentzen had developed and obtained Norske Veritas approval for a spherical design of 17,000-tons cargo capacity. In the UK, the Consulting Naval Architects Berness, Kendall & Partners had been commissioned by both Westinform and Wm. Cory to carry out a design study for a methane transport ship of about 14,000 tons, cylindrical tanks favoured. By 1955 the Shell Group had initiated a programme of work in London, The Hague and Amsterdam to consider ways and means by which LNG could be carried onboard ships. Their Marine Department in 254

Part II – Ship Innovation London had responsibility for the overall ship design concept, whilst the Amsterdam laboratories evaluated suitable materials, most particularly insulation. The project was coordinated in London, but no sooner had their efforts begun to make progress then they were abruptly stopped in 1956 as part of a severe cut-back on all ‘non-essential’ R&D work following the outbreak of the Suez War. Throughout this period the gas Council of Great Britain assisted by the senior engineering staff of the North Thames gas Board, had maintained close contact with all current methane ship design developments, sponsoring detailed evaluation studies of European design and visiting the Morrison group in the USA in 1954 to make an on the spot evaluation of the progress there. In France, the stimulus to investigate the marine transportation of gas took a somewhat different form, in that it stemmed not so much from pressures to recover flared associated gas, as from the discoveries of large gas reserves in Algeria. In 1954, Gaz de France commenced an in-house study on the feasibility of importing this gas into France, either by pipeline or by ship. By 1956 they had submitted a complete and detailed report to their government who, after due deliberation, favoured the shipping solution. The commercial arguments were sufficiently forceful for the French government to authorise detail engineering studies, despite Suez, allocating to the Worms Group the responsibility for developing the ship technology. In June 1959 the Chairman of Worms et Cie, M. Labbé, visited the United States to attend the 5th World Petroleum Congress conference in New York. By that time it was clear to him that although considerable progress had been made in France, economies could well be achieved by taking a licence from the US group, which by now had successfully shipped several cargoes of LNG across the Atlantic in the prototype ship Methane Pioneer. The Americans, however, felt so sure about themselves that they refused to grant him a licence. Therefore the French decided to continue with their own study. Methane Transport was formed, comprising a wide spectrum of French industry including Worms, Air Liquide, Gaz de France and Gazocean. During the 1950s intensive fundamental research and development work was being carried out on both sides of the Atlantic, quite independently. To reach a preferred design at the earliest date, it was concluded that a prototype ship, incorporating a variety of containment systems, should be fully tested and evaluated under seagoing conditions. To facilitate this endeavour the French Government made a wartime-built Liberty ship, Beauvais, available at a nominal price. The Beauvais was fitted with 3 different containment Systems: x x x

Atlantique Design; A 400 m3 aluminium tank of self-supporting, prismatic form; Dunkerque and Bordeaux design; A 120 m3 tank of multi-lobe or poly-cylindrical form made of 9% Ni steel; Chantier du Trait; A 120 m3 vertical cylinder constructed of AG-4 aluminium alloy.

The conversion commenced in March 1961 and was completed in February 1962, under the supervision, and to the full approval of Bureau Veritas. The cool down, followed by sea trials, commenced in March 1962 and extended over a period of about six months. The test produced no incident of any importance. The first two commercial LNG carriers were built in 1960 by the Americans, and called Methane Princess and Methane Progress. (Figure 238) They were employed on a 15-year contract with Algeria to ship 100 million cubic feet of gas per day to Great Britain and France. The ships had a capacity of 27,400 m3 and a service speed of 17.25 knots.

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Figure 238: Methane Princess and Methane Progress The high costs of LNG carriers are largely due to the high costs of the containment system. LNG carriers are constructed in such a way that they protect the hull structure maximally from the brittle fracture that would occur if the -161.5qC LNG came into contact with the hull. There are a large number of containment systems, however, only 3 tank systems have been really used, or are being used in newbuilt ships: Kværner-Moss (independent type B), Gaz-transport (membrane type), Technigaz (membrane type).

Table 92: LNG containment systems The Kværner-Moss type of tank was first used on LPG carriers and then evolved for use on LNG carriers. The tank consists of an aluminium or 9% nickel sphere welded to a vertical cylindrical skirt, which is the only connection to the ship's hull. Insulation consists of polyurethane foam applied on the 256

Part II – Ship Innovation entire outer surface of the sphere. The system has a small leak protection system external to the tank, consisting of a drip tray under the tank, along with splash shields at the sides. Spherical tank shapes make poor utilisation of the ship's cargo holds, which means LNG carriers with this tank system are relatively large.

Figure 239: Kværner-Moss The gaz-transport system was first developed in 1967. It uses a membrane system of 36% nickel-iron low expansion alloy (Invar) for both the primary and secondary barrier. Invar has a low coefficient of thermal expansion, which makes corrugation of the tank structure unnecessary. The Invar is only 0.5/0.7 mm thick which greatly reduces tank weight. The insulation consists of large numbers of plywood boxes, filled with perlite. The technigaz system is a stainless steel membrane system with tanks constructed of waffled or corrugated plates in such ways that each plate is free to contract or expand independently of the adjacent plates. The insulation is made of balsa wood. The main disadvantage is the amount of welding necessary during the tank fabrication. New containment systems are under development, like the SPB tank (self-supporting prismatic IMO Type B LNG tank), which has been designed in Japan, see Figure 240. The South Koreans yards which are today the largest builders of LNG gas tankers in the world, are developing their own containment system called KC-1. It claims a number of advanced features, in particular with regards to the production process: x x x x

Simplicity of the containment system No welds on the corrugations of the membrane Very easy and simple to build containment system No thermal shock at the secondary barrier, even in the case of LNG leakage from the primary barrier.

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Figure 240: SPB Tank Yet a completely different concept is offered by the Japanese (Tokyo Gas and Mitsui), who propose the natural gas hydrate transport system. The natural gas is transformed into little ice pellets that can be transported as dry bulk in special vessels and trucks. NGH is found at the bottom of the oceans and in the future this could be mined. The supply chain of NGH has to be created and innovated integrally as is shown in Figure 241). The advantage of NGH is that it can be stored and transported at relatively high temperatures (-20C), which makes its easy for many industrial users.

Figure 241: National gas hydrate transport system In recent years, fully-pressurised LNG tankers have been built (Figure 242) for the coastal distribution of natural gas. This so-called Compressed Natural Gas (CNG) has stimulated innovation in gas tanker transport witnessing the design and approval of the first CNG carrier based on the Coselle containment system. This is large carousel with a thick tubular pipe rolled on it. FPSOs (floating production, storage and offloading) systems have been around for some decades in the oil industry. The first gas application occurred quite recently with the commissioning of an LPG FPSO. Currently the first LNG FPSO/FSRU (floating storage and regasification unit) is under construction (Figure 243).

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Figure 242: CNG carrier

Figure 243: LNG FPSO Innovation still takes place in existing gas tankers, like the Anthony Veder’s tanker that can not only transport LNG, but also ethylene and LPG, while it can use dual fuel (diesel, LNG) and it has two podded propellers that facilitate the operations in small coastal ports (Figure 244). Lastly, the development of many gas fields in arctic regions necessitates the development of ice class LNG tankers, like the Moss-type tanker pictured in Figure 245. For a long time the size of the LNG tankers was limited to approximately 135,000 cbm, as Figure 246 illustrates. This level was reached around 1975. As the market of LNG transport was not very strong since, due to the oil crises and the over supply of tonnage, the drive for economies of scale was not triggered. Technical challenges also played an important role, such as the forces created by partially-loaded tanks on the containment system as a result of the free surface effect. Then Qatar decided to expand its gas exports and coinvested with an oil company in the development of a mega-LNG tanker, the so-called Q-Max of 258,000 cbm. This represents a quantum leap with regards to economies of scale. The paradox of the design is that the ships are not equipped with dual fuel engines, so they cannot use the boil-off, but have to burn expensive heavy fuel oil. 259

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Figure 244: Anthony Veder LNG/LPG/Ethylene carrier

Figure 245: Arctic Discover The world fleet of LNG carriers stands in January 2008 at 258 vessels with a combined capacity of almost 33 million cbm. There are 135 vessels on order which represent almost 70 percent of the current capacity. It will be clear that with this level of fleet expansion, it pays to invest in innovation of the containment system as it may determine the competitive advantage of the future. It is also logical that the three basic designs from the 1960s should be superseded by new more advanced concepts. In this respect, the innovation will be necessary to develop the gas tanker for the future transport of liquid hydrogen (-253 ˚C). That may become a prerequisite for the transition from the fossil fuel economy to the hydrogen economy by 2050. In conclusion, contrary to many other shipping segments, the gas tanker market is still very innovative in many ways. The growing importance of gas as relatively environmental friendly fossil fuel will undoubtedly be an important trigger for further improvement and basic innovations as summarised here. 260

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MaximumLNGcarriersize(cmb)

300,000 250,000 200,000 150,000 100,000 50,000 0 1960

1970

1980

1990

2000

2010

Figure 246: Evolution of LNG carriers

8.3. Examples The following figures present some examples of typical gas tankers.

Characteristics Length (oa)

293,6m

Length (pp)

276.0m

Breadth

46.0m

Depth

25.5m

Draught

11.4m

Deadweight

72,490tons

Grosstonnage

111,553GT

Cargocapacity

135,000m3

Power(MCR)

21,320kW

Speed(service)

19.2knots

Figure 247: LNG tanker (Moss tank type) - 135,000-m3 Pacific Notus

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Characteristics Length (oa)

276.0m

Length (pp)

263.0m

Breadth

43.4m

Depth

25.5m

Draught

11.0m

Deadweight

76,229tons

Grosstonnage

94,446GT

Cargocapacity

137,100m3

Power(MCR)

24,120kW

Speed(service)

19.5knots

Figure 248: LNG Tanker (membrane tank type) - 137,100-m3 Puteri Mituari Satu

Characteristics Length (oa)

86.3m

Length (pp)

80.3m

Breadth

15.1m

Depth

7.0m

Draught

4.2m

Deadweight

1,781tons

Grosstonnage

2,936GT

Cargocapacity

2,500m3

Power(MCR) Speed(service)

1,912kW 12.7knots

Figure 249: LNG tanker (pressure type) - 2,500-m3 Shinju Maru No. 1 262

Part II – Ship Innovation

Characteristics Length (oa)

230.0m

Length (pp)

210.0m

Breadth

36.6m

Depth

20.8m

Draught Deadweight

10.8m 49,999tons

Grosstonnage

46,021GT

Cargocapacity

78,000m3

Power(MCR)

12,360kW

Speed(service)

19.4knots

Figure 250: LPG tanker - 78,000-m3 Leto Providence

Characteristics Length (oa)

204.9m

Length (pp)

200.5m

Breadth

32.2m

Depth

20.2m

Draught

12.0m

Deadweight

44.630tons

Grosstonnage

44,639GT

Cargocapacity

59,000m3

Power(MCR)

11,275kW

Speed(service)

16.6knots

Figure 251: LPG/NH3 (ammonia) tanker - 59,000-m3 Berge Nice 263

Part II – Ship Innovation

Characteristics Length (oa)

156.0m

Length (pp)

148.0m

Breadth

25.0m

Depth

16.5m

Draught Deadweight

9.8m 5,031tons

Grosstonnage

16.770GT

Cargocapacity

22,779m3

Power(MCR) Speed(service)

8,090kW 16.7knots

Figure 252: LPG tanker: - 22,779-m3 Mado

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9.

CHEMICAL TANKERS

The chemical tanker has a relatively short history. It all started some 60 years ago. In the years following WW2 a series of chemical industries sprang up along the US Gulf Coast. These new industries relied upon Texas oil and gas fields and Louisiana sulphur mines to provide the raw chemical feedstock. Initial production volumes were small, thus enabling shipments to be made to consumers on the Atlantic Coast in drums, portable tanks and railroad tank cars. Throughout the 1950s demand for chemicals increased rapidly and more sophisticated means of transport were required. For a while dry cargo ship deep tanks were able to supplement existing methods of transport but the appearance of hazardous new chemicals which had to be shipped in large parcels, made it apparent that a new type of ship was required. The first chemical tankers were converted war-built T2 oil tankers. By realising the significance of cargo segregation, the tank layouts in the earliest of these conversions enabled the simultaneous carriage of several hazardous and incompatible cargoes. The first of the new breed was the 9,073 GT R.E. Wilson, converted for Union Carbide and Carbon Corp. In 1948, this ship was fitted with a double bottom and deepwell pumps, unique for such ships at that time. Her centre tanks enabled the carriage of nine different chemicals while petroleum products of moderate density, such as kerosene, could be carried in the wing tanks. The ship entered service in January 1949 and shuttled regularly from the Gulf Coast ports to New York. She was scrapped in 1971. In the Netherlands, the Broere brothers put their first chemical tanker of only 400 dwt into service in October 1949 delivering US cargoes to North Sea ports. This ship was followed by the 2,880 dwt Elizabeth Broere in 1954. These small ships could not compete against the economies of scale that the much larger converted oil tankers could offer. The chemical parcel tanker trades were created with the introduction of the converted cargo ships and oil tankers (Figure 253). The essence of this trade was that it enabled a variety of shippers of small lots of liquid chemicals - or parcels - to enjoy the economies of scale of larger size tanker operation and regularity of service. Parcels could be anywhere from a few hundred to a few thousand tons each; they could be any of a multitude of products; and they could be loaded and/or discharged at any one of a number of ports along an established route. As the redundant wartime T2 tanker and the C4 cargo vessels had been the trigger for the conversion into chemical tankers, a new impetus came from another regional war that resulted in the closure of the Suez Canal in 1957. The petroleum products tankers of that time were made uncompetitive by larger and newer vessels, which had better economies for sailing around Cape Good Hope. Owners of this redundant tonnage were willing to invest in conversions in order to avoid lay-up and assure employment. The conversion of the tankers usually entailed adding a few bulkheads to provide smaller tanks, coating some of the tanks with zinc silicate, installing additional pumps and pipelines to provide segregation and, if necessary, adding a second pump room. At that time daily running costs were low (between US$ 2,000 and US$ 3,000 for a 12-18,000 dwt parcel tanker) enabling low time charter rates, which resulted in low freight rates. This, in combination with efficient handling of difficult and hazardous products gave the parcel tanker trade its initial boost. In the early 1960s typical rates might have been 8-10 US$/ton US Gulf to Rotterdam and 14-18 US$/ton US Gulf to Japan. There is little

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Part II – Ship Innovation doubt that the artificially low rates provided by the worldwide parcel tanker services have had a catalytic effect on the growth of the chemical industry in the world. When the first purpose-built parcel tankers appeared in the early 1960s, shipbuilding prices were still comparatively low. These ships incorporated all of the characteristics of the early tankers plus a few more. More bulkheads were included to give the ship more than 40 tanks. Apart from coatings, stainless steel tanks were fitted in many ships, enabling them to carry corrosive cargoes or cargoes requiring a high degree of product purity. Other features included heating coils or ducts and sophisticated safety, alarm and inert gas systems. As a consequence, the newbuilding prices of chemical tankers went up fast, as well as their operating costs. The state of the art in design in the early 1970s is described by T.R. Farrell in Chemical Tankers - The quiet evolution (Farrell & Eng, 1974, pp. 147-165) . In a paper twenty years later the same author paints a comprehensive picture of the development of the chemical tanker and the state of the art today. Based on this excellent paper, a number of highlights from the chemical tanker design and operation will be briefly discussed.

Figure 253: Stolt parcel tanker 1959 Figure 254 sums up the complex world of chemical tankers. The design of a chemical tanker is determined by the requirements of the chemical cargo containment. Since chemicals are basically hazardous cargoes, strict international regulations have been developed in order to address the principal hazards: fire hazard, health hazard, water pollution hazard, air pollution hazard, reactivity hazard, marine pollution hazard. The International Code for the Construction and equipment of Ships Carrying Dangerous Chemicals in Bulk Code or IBC Code, which is now part of International Convention for the Safety of Life at Sea (SOLAS 1974), contains the most important regulations with far reaching consequences for the ship design and management. Another important source of regulation is the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78).

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Marinepollution

Product characteristics

Bioaccumulation Cargocategorisation Hazardevaluation

Taint Reductionof amenities

P&AManual Cargorecordbook

Liquidtoxicity

MARPOLAnnexII

Safety

Hazard evaluation

Overflowprotection Overflowprotection Segregationonboard Tanktype

Vapourhazard

Overflowprotection Tanktype Cargotankventing Cargotankgauging Segregationonboard Toxicvapourdetection Respiratoryandeye protection VapourControl

Firehazard

Overflowprotection Tanktype Cargotankventing Cargotankgauging Extinguishingmedia Tankenvironmentalcontr.

Reactivity

Tanktype Tankenvironmentalcontr. Inhibiting/stabilising Cargotankventing Cargotankgauging Segregationonboard

Planappraisal Structuraldesign Globalstrength Localstrength Structuraldetail Watertightintegrity Loadingconditions Welding Tanktesting NDE Fireprotectionsystems Electricalsystems Shipcontrolsystems Pumpingandpiping Temperaturecontrol Inertgassystems Mainmachinery Auxiliarymachinery Controlengineering Icestrengthening Constructionsurveys Materialtesting Componentcertification Implementationof statutoryrequirements QA.

Shipsurvivability Physicalproperties

Shiptype

NLScertificate

Tanktype Materials Scantling Overflowprotection

IBCCode

Classificationrules

C.O.F.

Classification certificate

Figure 254: Effect of chemical cargo characteristics on ship design The IBC Code distinguishes between three basic Ship Types (1, 2 and 3). The most significant characteristic of the three types is the ability to survive specified extents of damage, whilst preventing or limiting resultant release of the cargo. The substances which are required to be carried on a Type 1 ship are those which, if released, would have very severe environmental and safety effects. A substance which possesses similar characteristics, but to a lesser total extent than is appropriate to a Type 1 ship, may be carried on a Type 2 ship. A Type 3 ship is intended for the least hazardous

267

Part II – Ship Innovation substances within the scope of the Code. Each chemical is assigned to one of the three ship types. Figure 255 shows examples of chemical tank arrangements for the three ship types.

Figure 255: Chemical tank arrangements Ship Type 1 containment must be positioned at least B/5 or 11.5 metres, whichever is the lesser, inboard of the side of the ship and the lesser of B/15 or 6 metres above the moulded bottom line at centre. For Ship Type 2 containment, the tank bottom location requirement is the same, but the cargo tank side boundaries are only required to be a minimum of 760 mm from the side of the ship. This limited degree of side protection is intended to prevent cargo loss from minor or low energy collisions. For Ship Type 3 containment, cargo may be carried adjacent to the shell plating. Most chemical tankers have a complete cofferdam in the forward and aft cargo tanks, which is fitted to provide a double physical barrier in the event of a leak developing. In addition to specifying the general layout of a chemical tanker, the IBC Code and the Classification Rules provide guidance on acceptable types of cargo tank. Two basic types of tanks are permitted, namely integral and independent tanks. An integral tank is one which is contiguous with, and contributes directly to the strength of the hull structure. An independent tank is completely separate from the hull structure and does not contribute to the strength of the ship, or share the loads imposed upon the hull by the sea. If an independent tank is designed to withstand an internal pressure in excess of 0.7 bar gauge, it is a pressure tank. Tanks with design pressures not exceeding 0.7 bar gauge are gravity tanks and may be of the integral or independent type. The design and operation of the chemical tanker has been heavily influenced by new regulations, such as the US Oil Pollution Act (OPA) 1990, US Clean Air ACT 1990, US Port and Safety Tankers Act, IMO’s Marine Pollution (MARPOL) convention, and the chemical industry initiative Enhanced Safety through ICE (1993). These stringent regulations have made the barrier to entry for chemical tanker 268

Part II – Ship Innovation owners higher; at the same time it has almost eliminated substandard shipping. Figure 256 shows a modern 37,500 dwt chemical tanker.

Figure 256: Modern chemical tanker Figure 257 shows the inside of a stainless steel tank, the submersed pump, and the heating coils. The chemical parcel tanker hardly ever exceeds 50,000 dwt and around 50 tanks. There are however also chemical product tankers that go beyond those dimensions. The largest chemical product tanker to date is the Millennium Explorer of just over 100,000 dwt (Figure 258).These ships are used to transport easy chemicals in large quantities like methanol. Figure 259 shows the difference between the chemical parcel and product tanker.

Figure 257: Inside of a stainless steel tank

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Figure 258: Millennium Explorer

Chemicalparceltanker

Chemicalproducttanker

Figure 259: Difference between a chemical parcel and a chemical product tanker Chemical tankers are complex and expensive ships and they require special terminals for the (un)loading and storage of the chemicals. Some terminals, like the one in Figure 260 are public user terminals that can handle all sorts of cargoes, and all sorts of ships, (deepsea, shortsea, inland barges), rail tank cars, tank trucks and pipelines. Ships are, like the terminals, designed so that they load and discharge in short periods of time. In spite of the increased technological sophistication of chemical tankers, one major problem seems difficult to solve over the years: the time spent in port (port time) of chemical tankers remains very long in relation to the time spent at sea. Studies conducted in the early 1990s with a major chemical tanker owner and operator, showed that the shipowner faces a port time of its entire fleet of deepsea chemical tankers of around 40 percent. This means that the 30 vessels spent per annum a staggering 4320 days in port. As the charter hire of these vessels was around US$ 20,000 per day at the time, the wastage is evident, as well as the potential for improvement! As a chemical tanker only makes money for its owner while transporting cargoes at sea, this company wanted to understand in more detail the reasons why, in spite of all their professional efforts already allocated to this problem, they did not succeed in a substantial reduction of the port time of their fleet. 270

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Figure 260: Chemical products terminal In a study the port calls of chemical tankers in one of the busiest chemicals ports in the world, Rotterdam, were analysed in detail. Based on a simulation of the port call, a number of areas for operational improvement could be defined. Similar studies, made a decade later, confirmed that the port times had not come down, this in spite of all the measures taken. Innovation is really necessary to address that problem. A basic redesign of the chemical tanker is one of the options. One that reduces the time to clean the tanks of a chemical tanker and to reduce the amount of waste water (slops). The current rectangular tanks with the heating coils inside, are often difficult to clean with washing machines. A fundamental way to solve this problem is to develop a cylinder tank type. A design was made of such a tanker for a major shipowner in the early 1990s. (Figure 261) Yet another challenge for chemical tanker operators is to optimise the loading of a tanker in such a way that it maximises the revenues (each cargo has a different rate structure), under the operational constraints imposed upon the stowage process, such incompatible cargoes (hot and cold) adjacent to each other. A decision support model in which all the constraints are related to optimisation algorithms was developed to help the commercial department in this complex task. Another trigger for innovation comes from the ever changing regulatory regimes. This may have to do with new classifications of chemicals (REACH) at the EU level, or changes in the classification of chemicals transportation within IMO. An example is the change in classification of certain vegetables oils, which were considered low risk chemicals until recently, but have now become a normal chemical that has to be shipped in higher grades tankers. The seaborne trade of cargoes which belong to the category liquid chemicals consists of the following main groups of products: x x x x x

Organics; Inorganics; Vegetable oils; Animal fats; Other cargoes (e.g. lubrication oils). 271

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Figure 261: Cylinder tanker In 1994 the seaborne trade volume of these groups amounted to 89 million tons. Figure 262 shows the development of the seaborne trade over the period 1982-1994 for the most important product groups. It is clear from these diagrams a 66% volume growth will be reflected in the demand for chemical tankers. The growth rates fluctuated from year to year between +10% and -1%. Figure 263 gives an overview of the traded amounts of each product group and product in 1994. The organic chemicals form the largest volume of seaborne trade: 30 million tons in 1994. The six largest chemicals together comprise about 20 million tons. In addition there are 30-40 main organic chemicals which are moved in bulk in reasonable quantities. Beyond this, there are another 3000 organic chemicals transported in bulk by sea, although the quantities are relatively small. The inorganic chemicals are mainly: phosphoric acid, caustic soda and sulphuric acid, a total of 14 million tons in 1994. In the category other chemicals the largest commodity is molasses, which is a by-product of the sugar refining process, while MTBE volume is rapidly expanding as it is progressively used as a component to enhance the octane value of petrol. The vegetable oils and animal fats form the second largest segment within the seaborne chemicals trade: almost 20 million tons in 1994. 33% of the 77 million world production of vegetable oils in 1994, is traded worldwide. The largest commodity in this segment is palm oil. The total seaborne trade was 10.3 million tons in 1994. In 2006 the volume of this group of chemicals had tripled from 20 million to 60 million ton. Figure 264 shows the breakdown by commodity. One of the reasons behind this exceptional growth rate is the increased use of vegetable oil for the production of biofuels. 272

Part II – Ship Innovation 80

Volume(milliontons)

70 60 50 40 30 20 10 0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 Organicmaterials

Inorganicmaterials

Vegetableandanimaloils

Figure 262: Development of seaborne trade in chemicals 1982-1994 35 30

Milliontonnes

25 20 15

Other "named" chemicals

Xylene Ethylene dicloride

Other

Benzene Sulphuric acid

Rapeseed oil Sunflower oil Tallow/grease

Styrene

Caustic soda

Soybean oil

Lube oils

Methanol

Phosphoric acid

Palm oil

Molases

Organics

Inoganics

Vegetableandanimaloils

Others

Ethylene glycol

10

MTBE

5 0

Figure 263: Chemical seaborne trade composition 1994 The broker Braemer Seascope made an analysis of the future impact of the change in regulation for the carriage of vegetable oils in ships as shown in Figure 265. This diagram gives a breakdown of the current trades by type of tanker used. The conclusion is that approximately 70 percent of the fleet 273

Part II – Ship Innovation capacity has to be upgraded to higher standards. This will trigger a host of newbuilding, and of course will create opportunities for innovation.

Coconutoil 3% Tallow 4% Rapeseedoil 5%

Oliveoil Cornoil Other 2% 2% 1%

Sunfloweroil 6% Palm/kernaloil 48%

Molasses 12%

Soybeanoil 17%

Figure 264: Edible oils

ProdIMO3 single 4% ProdIMO2 single 2% ProdIMO2 double 4%

Prod IMO3 double 12%

ChemIMO2 double 13%

ChemIMO1 double 1%

ChemIMO2 single 23% ProdIMO0 36%

Chem IMO3 single 3%

ChemIMO3 double OtherIMO0 single 0% 2%

Figure 265: Vegetable oil trade - Vessel types A niche market within the liquid bulk trades is the transport of fruit juices which have to be chilled. As this is an “easy chemical” some innovative shipowners have converted old bulk carriers into modern juice tankers (Figure 266). The large stainless steel tanks are made in a factory and installed in the 274

Part II – Ship Innovation holds of the ship. This way an old bulk carrier gets a new leash of life and the owner has a large semichemical tanker that can compete with other juice carriers.

Figure 266: Retrofit juice tanker The chemical tanker fleet of tankers between 10,000 dwt and 60,000 dwt consists of 1046 ships with a total capacity of 26 million dwt. There are a staggering 716 tankers on order with a capacity of 16.5 million dwt (64% of the fleet).

Examples The following figures present some examples of typical chemical tankers.

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Characteristics Length (oa)

185.9m

Length (pp)

180.0m

Breadth

32.2m

Depth

19.3m

Draught Deadweight

11.8m 46.383tons

Grosstonnage

30,638GT

Power(MCR)

46,383kW

Speed(service)

15.3knots

Figure 267: Chemical tanker - 46,383-dwt Caribbean Spirit

Characteristics Length (oa)

160.0m

Length (pp)

154.0m

Breadth

26.8m

Depth

14.2m

Draught Deadweight

9.9m 25,452tons

Grosstonnage

16,232GT

Power(MCR)

70,080kW

Speed(service)

15.5knots

Figure 268: Chemical tanker - 25,452-dwt Ginga Tiger 276

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Characteristics Length (oa)

114.0m

Length (pp)

108.5m

Breadth Depth Draught Deadweight

18.2m 9.8m 7.5m 6,626tons

Grosstonnage

5,546GT

Power(MCR)

3,900kW

Speed(service)

14.2knots

Figure 269: Chemical tanker - 8,626-dwt Sunrise Rosa

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10.

OTHER SHIP TYPES

Ships can be grouped into four main categories: commercial vessels, industrial vessels, service vessels, and naval vessels (Table 93). Commercial vessels comprise all ships that transport cargo, either goods or passengers. Industrial vessels comprise all ships that work on the sea, either exploring and extracting minerals, oil or fish from the sea, seabed or beyond. The service vessels assist commercial and industrial vessels in the operations, like tugs that moor the vessel. Finally, naval vessels that are part of navies or coastguards and these ships perform functions as part of a larger defence role. Commercialvessels ͲBargecarrier ͲBulk/OBOcarrier ͲChemicaltanker ͲContainership ͲGeneralcargoship ͲHeavyliftship ͲLPGcarrier ͲPassengership/cruise ͲPurecarandtruckcarrier ͲRollͲon/rollͲofship ͲRoͲroFerry ͲTanker ͲTugbarge

Industrialvessels ͲCranevessel ͲDrillingvessel ͲFishprocessing ͲFishingvessels ͲIncineratorvessels ͲOceanmining ͲPipeͲlayingvessel ͲResearchvessels ͲSeismicexploration Ͳ(Suction)dredger 

Servicevessels ͲCrewboat ͲCranesupportship ͲDivingsupportship ͲFireboat ͲOffshoresupplyvessel ͲPilotboatͲTugboat 

Navalvessels ͲAircraftcarrier ͲFrigates ͲMinesweepers ͲSubmarines 

Table 93: Ship types

10.1. Commercial vessels The main ship types, oil tankers, bulk carriers, containerships, chemical tankers and gas tankers have been discussed in the previous chapters. There are, however, many more ship types that transport cargo or passengers. In this section a short overview is given of these ship types, including the reefer ship, which comprises a fleet size similar to the chemical or gas tanker, but is not discussed in a separate chapter, as the number of vessels is actually declining, as much of their business is being taken over by the reefer container. Reefer newbuildings have therefore dropped to a very low level and growth of the fleet is a prerequisite for innovation.

Heavy-lift vessels It is difficult to define when shipping is heavy-lift shipping. One definition can be: "the transport of pieces of cargo that have a mass of more than 60 tons and are difficult to manage, often vulnerable and/or voluminous". The heavy lift shipping finds its origin in the tug and tug/barge method. The heavy-lift had its own buoyancy and was towed or loaded onto a large barge and then towed to its destination. With the rise of the dredging, chemical and offshore industry came the demand for transportation of heavy cargoes and specialised ships. The first heavy-lift vessels were built for this purpose. Today the chemical and offshore industry (modules and drilling rigs) are still major clients of 278

Part II – Ship Innovation the heavy-lift market, as well as the transporters of container gantries and yachts. The fleet of heavy lift ships can be divided into three segments: x

Conventional heavy-lift ships: The conventional heavy-lift vessel is equipped with at least one heavy crane to take the heavy cargo aboard according to the lift-on lift-off principle. The ships are equipped with enough ballast capacity to ensure safe stability and satisfying seagoing behaviour.

x

Semi-submersibles: This type of ships does not have the crane capacity like the conventional heavy lift ships. They work according to the float-on float-off principle. The ship takes ballast to get the required draught. Then the cargo is positioned above the ship and the ballast tanks are emptied, so the ship rises again.

x

Dock lifts with heavy cranes: This ship is a combination of the two previous types. The ship can load its cargo according to the float-on float-off principle, but also has heavy cranes that are able to handle the cargo.

The heavy-lift market is a niche market with a relatively small number of shipowners. The rapid expansion of the deepsea offshore industry has triggered a move by the heavy lift operators towards the offshore installation market, whereby the limits of transport and installations are blurred and commercial vessels become industrial vessels. The recent yacht carrier newbuilding from Dockwise is yet another innovative milestone that caters to the needs of the mega-yacht owners and charterers.

(Ro-ro) ferries The forerunner of the ro-ro vessel was the innovative Seatrain railcar carrier operating in the early 1930s out of New York to and from Cuba. This ship had many decks with rails and the rail cars were lifted on board. The military landing craft developed by the British in 1940 is the archetype of the roro ships of today. The surplus landing craft after the war were converted into commercial vessels, which transported trucks along the coast and between islands. The modern ro-ro vessel can transport trucks with a total length of more than 4,000 lane-metres. (Figure 273) Out of the ro-ro evolved the passenger - car ferry like the Stena Super Ferries (Figure 274). These ships are a combination of a cruise ship and a cargo ro-ro vessel. Innovative designs and equipment make this sector into a hotbed for cross-overs. Probably the most innovative segment of shipping to date is the category known as “fast ships”. These ships are often, though not exclusively used for ferry services, transporting passengers and in some cases also ro-ro cargo. A fast ship is defined by the technical relationship between speed en displacement as shown in (Figure 275). All ships on or above the curve are by definition fast ships. Ships normally do not go fast as the frictional resistance of water increases exponentially beyond a certain speed (12-13 knots). In order to reduce frictional resistance, naval architects have come up with extremely innovative concepts that seem to defy the laws of physics. There are three basic ways for a ship to move through the water with the help of buoyancy or static lift, dynamic lift and powered lift (Figure 276).

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Figure 270: Conventional heavy-lift ship

Figure 271: Semi-submersible

Figure 272: Dock lift with heavy cranes

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Figure 273: Modern cargo ro-ro vessel

Figure 274: Passenger ro-ro vessel 70 65

Speed (knots)

60 55 50 45 40 35 30 25 20 15 10 5 0 1

10

100

1,000

10,000

100,000

1,000,000

3

Displacement (m )

Figure 275: Frictional resistance

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Figure 276: Lift triangle Examples of buoyancy lift vessels are the (planing) monohull (Figure 277), catamaran (Figure 278), the wave-piercing catamaran (Figure 279) and the trimaran (Figure 280). These ships use tremendous energy to propel the ship, which is shown by the white water generated by its powerful engines. The dynamic lift vessels are hydrofoils (Figure 281) and in between the static lift and the dynamic lift is the SWATH (small waterplane area twin hull), see Figure 282. The hydrofoil lifts the ship with little wings out of the water, while the SWATH vessel achieves buoyancy via submerged, torpedo-like hulls. The ships that use powered lift are hovercrafts (Figure 283) and the SES surface effect ship (Figure 284). These ships make use of a rigid rubber skirt to create a high pressure air cushion that lifts the hull out of the water and this reduces the frictional resistance.

Figure 277: Monohull 282

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Figure 278: Catamaran

Figure 279: Wave-piercing catamaran

Figure 280: Trimaran

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Figure 281: Hydrofoil

Figure 282: SWATH

Figure 283: Hovercraft

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Figure 284: Surface Effect Ship (SES) Another cross-over fast ship/plane is the wing-in-the-ground effect plane, which makes use of the higher density of the air close to the water surface to lift itself just out of the water and reach a high speed. The Russian Ekranoplane (Figure 285) was designed to transport military personnel over sea.

Figure 285: Ekranoplane Every year new concepts are developed, like the hybrid hydrofoil/swath (Figure 286) or the wavepiercing trimaran mega-yacht (Figure 287) and the ropax trimaran (Figure 288). A whole new concept is the M80 Stiletto, a Twin M hull vessel of 24 metres in length with a 20-metre breadth providing a rectangular deck area equivalent to a conventional displacement craft 48 metres in length (Figure 289). The vessel's draught fully loaded is 0.90 metres and is designed for a speed of 5060 knots.

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Figure 286: Hydrofoil/swath

Figure 287: Wave-piercing trimaran

Figure 288: Ropax trimaran

Figure 289: Twin M-Hull

286

Part II – Ship Innovation All of the fast ships use MDO as a fuel and that has become very expensive, forcing some established services, like the one with the HSS between Hook of Holland and Harwich to stop sailings. The Osagawara, a surface effect ship, after ten years of research and construction never started sailing as the fuel had become too expensive in the meantime. High fuel prices have put a (temporary?) brake on the fast ship development.

Pure car and truck carriers The pure car and truck carrier (PCTC) is a floating warehouse (Figure 290) with cars and trucks on some 12 decks, carrying up to 8,000 cars. In 2005 some 60 million cars were sold globally and some 9 million were transported by this specialised shipping segment. The top-ten owners comprise mostly Japanese and Scandinavian companies with in total 330 ships. The seaborne transportation of cars went through a severe downturn in the mid-90s, but it has grown since steadily. Innovation has lead to flexible vessels that are able to transport a mix of small cars, vans and trucks. Increase in ship size has been formidable but it has levelled off in recent years.

Figure 290: Pure car and truck carrier (PCTC)

Reefer ship For many centuries the use of natural ice was the only way of preserving foodstuffs. Fresh food could only be transported over short distances and most food was consumed at the place of production. This prohibited the trade of many products. Refrigeration dates from the early 19th century. The first mechanical refrigerating system was attributed to Jacob Perkins (Britain), who in 1834 patented a system of producing cold by expansion of volatile fluids such as ether. Due to the harmful nature of these fluids, however, the experiments ran into practical difficulties and suffered a premature demise. After this attempt many inventors have engaged in the development of mechanical refrigeration. The first attempt to transport meat under refrigeration was in 1877 when the Frenchman Charles Tellier transported chilled beef from Buenos Aires to Le Havre, by the S.S. Frigorifique. The beef was cooled down to 0qC, but was not frozen. Though not all of the cargo was lost during the transport, it was far from a success. Later attempts to transport chilled meat were more successful. The same year the first attempt was made to transport frozen meat from Buenos Aires to Marseilles, using a machine that was invented by M. Carré in 1860, and based on the principle of ammonia compression. This shipment, by the S.S. Paraguay, was a big success. The cargo turned out to be in perfect condition, even though the ship was delayed several months for repairs. Also attempts were made to transport 287

Part II – Ship Innovation meat using blocks of natural ice. A big problem of this method was the amount of space required for the storage of ice. To bypass this problem, in 1879 the first ice-making machinery was installed into a ship, for the transport of chilled meat. Both freezing and chilling became practice (and still are). In the early days the storage life of chilled meat was very short, between 15 and 20 days. While frozen meat was much easier to market, chilled beef was of superior quality and was able to command much higher prices. Therefore, a lot of efforts were put into improving the techniques for the transport of chilled meat. Until 1901, refrigerated ships were almost exclusively used for the transport of meat and occasionally for butter and bananas. The first refrigerated banana ship was the Port Morant, equipped with a CO2 machine. In 1901 this ship carried 23,000 stems of bananas from Jamaica to England, the trade thereafter being rapidly developed by the Elder & Fyffe Company. Subsequently, first the United States and then France installed refrigeration equipment on vessels for the transport of bananas. Until WW2 the British fleet remained dominant in the refrigerated trade. In 1923 they owned, in volume of cargo, three-quarters of the world fleet, in 1939 this was still two-thirds. In the same period the diversity of products being carried increased, by adding cheese, apples and pears. Statistics from this period are somewhat unreliable, but they show an increase from 2 million cubic metres in 1914 to 4 million cubic metres in 1939. In the 1960s the multi-temperature reefer ship was built and has since become the standard means of transport. This new vessel was capable of transporting every type of cooled merchandise, which greatly increased the flexibility and profitability. Fruit transportation requires different temperatures of refrigeration, but always above freezing point. Meat and fish need a temperature below zero, and deepfrozen goods require temperatures around -25qC. The same period saw the development of a standard sized pallet (1.20 x 1.0 m), which has optimised handling. The internal layouts of multi-temperature refrigerated ships have been designed taking these dimensions into account. Pallet-friendly reefer ships (Figure 291) have a minimum deck height of 2.2 metres, which allows free and efficient handling of palletised cargo, generally 2.1 metres in height. The tweendecks are strengthened, to withstand the extra weight of fork-lift trucks. The pallet-friendly reefer ship has become the standard. In 1975 only 10% of the refrigerated fleet was pallet compatible. From the ships built in the period between 1984 and 1990, 93% were pallet friendly, while most of the non-pallet friendly ships were destined for the former Soviet countries. At the end of the 1960s a new phenomenon appeared: the reefer container. Already in the 1930s there were early attempts to use reefer containers, but they were neither standardised, nor intermodal. In 1958 the first shortsea container transport between the USA and Hawaii and Puerto Rico (Matson Line) had come into operation with converted container ships. In Europe, in 1969, the first purposebuilt reefer container ships were introduced by OCL and ACT, with a capacity of 450 TEU reefer containers. In 1970 this was followed by Hapag-Lloyd with the Sydney Express, which had a capacity of 120 TEU reefer containers, and in 1971 by HSDG with the Columbus New Zealand, which had a capacity of 454 TEU reefer containers. On these ships fixed cooling units were installed, which were able to cool up to 48 porthole reefer containers at the same time. Porthole reefer containers do not have their own refrigeration unit, but are dependent on central refrigeration units onboard the ship. These containers, also called insulated containers, are provided with cold air by either horizontal or vertical air ducts, which blow the cold air 288

Part II – Ship Innovation into the container. To minimise loss of cool air, also holds may be insulated. Onshore or on other places without central refrigeration unit, cold air may be provided by clip-on refrigeration units.

Figure 291: Conventional reefer ship The modern container type is of the integral type. These have their own refrigeration unit built into the container. It does not need an external refrigeration unit, but only a plug for electricity. Presently the far majority of reefer containers are of the integral type. More than two thirds of the world reefer cargo capacity consists of reefer container capacity (Figure 292). Most container ships have at least some reefer capacity and a small number of container ships are completely dedicated to the transport of reefer cargo. Many modern container ships have more reefer capacity than the largest dedicated reefer vessels.

Reefercapacity(millioncu.ft.)

1000 900 800 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Reefer

Container

Figure 292: Development of reefer capacity

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Part II – Ship Innovation Innovation in reefer ships was most evident in the 1990s when side-loading vessels (Figure 293) and automated handling systems were developed. Another trend was to increase the reefer container capacity on deck of the reefer ship (Figure 294), so it could take in smaller parcels. Reefer ships often have one-way cargo, but they are suitable to transport cars on the ballast voyage return leg. As the growth has gone out of the reefer ship business, innovation has become less of an issue.

Figure 293: Side-loading

Figure 294: Reefers ship with deck reefer capacity Since 1990, the growth in seaborne reefer trades has been impressive, but the specialised reefer vessels have not really profited from that opportunity, contrary to the containerships with reefer capacity. Reefer trades grew from 38 million tons in 1990 to over 80 million tons in 2007.

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Livestock carrier Another niche market is that of livestock carriers. Live animals, like cattle, sheep, horses, pigs, ostriches, camels, goats, llamas and buffaloes are transported all over the world, in particular between Australia and New Zealand to the Middle East. These ships are floating stables with 125,000 sheep on board. A lot of innovative mechanical handling systems of fodder for the livestock are installed to reduce the manpower need on board. The changes in regulation regarding animal welfare, also triggers better systems to reduce seasickness and other discomfort (air-conditioning) for the animals.

Figure 295: Livestock carrier

Barge carriers Not all ship innovations are a success. A good example is the barge carrier (Figure 296), developed at the end of the 1960s in the United States. The Lighter Aboard Ship (Lash) and the Seabee were able to carry inland barges and were meant to avoid the transhipment in ports and offered direct transport to the hinterland via the river system in the US (Mississippi), Europe (Rhine) and South America (Parana). In Europe the Barge Aboard Catamaran (Bacat) was a smaller version of a float in and out ship. The barges were in fact gigantic heavy containers, which meant a lot of deadweight capacity of the barge carrier was lost. This reduced the earnings potential of the ship. Apart from that, the barges were not allowed to operate on the Parana River as it was considered by the local barge operators as unfair competition. Only recently the last of the LASH ships have stopped barge operations. At the time of the introduction, the container had just appeared on the scene and it was not yet clear that the containership would win the battle of general cargo shipping. The innovative ship design reminds us again of the obstacles that exist before a new transport concept can be successful.

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Figure 296: Barge carrier

Tug-barge system The tug-barge was innovated in the United States with the objective of reducing crew costs. Coastal transportation is reserved for American shipowners under the Jones Act. That means that American manning regulations are applied, and in the case of a bulk carrier, this could mean a crew of 30 expensive Americans, against a normal crew of 15 cheap international crews. In order to remain competitive, the American shipowners started separating the cargo hold from the engine, by creating a dumb barge, pushed by a small sea-going tug with a crew of say 8 men. (Figure 297) In several countries this concept was copied (Japan, Europe) as it offered not only manning cost reduction, but also logistical advantages. A barge with coal could be delivered to the power plant, while a tug continues with an empty barge for loading at another terminal. The most expensive part of the ship engine, deckhouse and crew - remains busy, while the relatively cheap barge can wait for loading and discharge. Several ingenious systems have been designed for the connection between barge and tug (see: Design Innovation in Shipping), but in spite of all the effort, this ship type has not become a mainstream development.

Figure 297: Tug Barge system

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Cruise ships The cruise market is a growth market as Figure 298 illustrates. Since 1990, the growth rate of 7 percent per annum triggers a huge expansion of the cruise fleet, which in number of ships is rather small (a few hundred ships). The increased consumer demand for cruises triggers first of all a continuous increase in ship size. The ships size doubles every ten years, as Figure 299 illustrates. The 5th generation of ships (2000) is superseded by the 6th generation (2008) called Genesis with a staggering 5,400 passengers and is build in Finland at a cost of € 900 million (Figure 299). The Japanese have developed an even bigger cruise ship with 10,000 passengers (Princess Kaguya, Figure 301), but it remains to be seen if this ship comes further than the drawing board. European yards are the foremost builders of these ships and US companies the foremost operators. Cruise ships exhibit a very high level of innovation and are one of the drivers of the European marine equipment sector. A special class of cruise ships is the mega-yachts. These are ships for the happy few or the rich and famous. Currently there are around 900 of such expensive ships on order in the most important yacht building countries: USA, Italy, Germany, Netherlands and UK. The owners want to distinguish themselves via their innovative yacht and this triggers innovation in the sector. A lot of the megayachts are used as commercial charters in the very high end of the cruise market. The heavy lift yacht carriers bring the yachts for the winter season to the Caribbean and for the summer season to the Mediterranean. 30

Millionpassengers

25 20 15 10 5 0 1990 1993 1996 1999 2002 2005 2008 2011 2014 Supplycapacity

Passengerdemand

Figure 298: Supply and demand for cruise vessel capacity (actual and forecast)

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Figure 299: Ship capacity by time

Figure 300: 5,400-passenger ship Genesis

Figure 301: 10,000-passenger ship Princess Kaguya 294

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10.2. Industrial, service and naval vessels Industrial vessels form a diverse group of ships, from the dredger (Figure 302) to the semisubmersible drill ship (Figure 303), the seismic survey vessel (Figure 304), the deepsea (>2,500m) pipe-laying vessel (Figure 305). An extreme example is the rocket-launch ship (Figure 306), which underlines the thesis that anything that can float can be built. There is such a variety of innovative industrial vessels that one could dedicate an entire book to this class of vessels. As the focus in Shipping Innovation is on commercial vessels, the naval, service and industrial class of vessels have only been mentioned here to remind the reader of the tremendous creativity shipowners, shipyards, ship designer and marine equipment manufacturers demonstrate through the ages.

Figure 302: Suction hopper dredger

Figure 303: Semi-submersible drill ship

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Figure 304: Seismic survey vessel

Figure 305: Pipe-laying vessel

Figure 306: Rocket launcher 296

Part II – Ship Innovation Service vessels, like harbour tugs (Figure 307), offshore supply vessels (Figure 308), anchor handlers, crew boats are indispensable service providers to the maritime industry. Many innovations take place, in particular in those areas related to the offshore industry as deepwater developments require new concepts and operational (safety) procedures. The increase in the size of ships has also triggered new tug concepts like the carousel tug. A special type of service vessel is the icebreaker (Figure 309) which performs an essential service in the winter periods when these ships create passages through ice for commercial vessels.

Figure 307: Harbour tug

Figure 308: Anchor handling tug supply vessel with Ulstein X-Bow

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Figure 309: Ice-breaker Naval vessels constitute a group of about 5,200 ships and are in general high-tech ships, built around an array of advanced weapon systems. A lot of money is spent on innovation in this segment, which often has a lot of spin-off. A study in the Netherlands (Hendrickx, Maes, Meyer, Suetendael, & Peeters, 2003) on the leader firm role of the Navy within the maritime cluster, demonstrated the importance of the high tech ships for the rest of the cluster. Not only for the development of advancement naval vessels, like the Air Defence and Command Frigate (LCF), the Landing Platform Dock (LPD), Coast Guard Cutter, Goalkeeper weaponry, Rudder Roll Stabilisation System, and the exceptional Active Phased Array Radar (APAR), but also as an organisation with leader firm qualities.

Figure 310: Submarine

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Figure 311: Frigate

10.3. Examples The following figures present some examples various other ship types.

Characteristics Length (oa)

172.9m

Length (pp)

164.9m

Breadth

29.4m

Depth

14.0m

Draught Deadweight

9.0m 32,316tons

Grosstonnage

20,283GT

Power(MCR)

6,400kW

Speed(service)

14.2knots

Figure 312: General cargo ship - 32,300-dwt IVS Nightjar

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Characteristics Length (oa)

160.7m

Length (pp)

151.2m

Breadth

25.0m

Depth

12.8m

Draught Deadweight Grosstonnage Power(MCR) Speed(service)

9.2m 17,913tons 17,111GT 9,625kW 18.0knots

Figure 313: Multipurpose cargo ship - 17,913-dwt Coral Islander II

Characteristics Length (oa)

138.0m

Length (pp)

130.0m

Breadth

21.0m

Depth

11.0m

Draught Deadweight

8.0m 12.744tons

Grosstonnage

9,611GT

Speed(service)

15.5knots

Figure 314: Conventional heavy-lift vessel - 12,744-dwt Beluga Efficiency 300

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Characteristics Length (oa)

157.8m

Length (pp)

140.0m

Breadth

29.0m

Depth

12.0m

Draught Deadweight

4.4m 8,727tons

Grosstonnage

17,395GT

Speed(service)

10.0knots

Figure 315: Heavy-lift dock ship - 8,727-dwt Enterprise

Characteristics Length (oa)

173.0m

Length (pp)

162.0m

Depth Draught Deadweight

12.0m 8.8m 35,030tons

Grosstonnage

26,547GT

Speed(service)

14.0knots

Figure 316: Heavy-lift semi-submersible - 35,030-dwt Transshelf 301

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Characteristics Length (oa)

166.0m

Length (pp)

158.0m

Breadth

27.0m

Depth

17.4m

Draught Deadweight

7.0m 6,389tons

Grosstonnage

13,927GT

Power(MCR)

16,920kW

Speed(service)

23.0knots

Figure 317: Ro-ro cargo vessel - 6,389-dwt Musashi Maru

Characteristics Length (oa)

161.2m

Length (pp)

150.0m

Breadth

24.0m

Depth

12.0m

Draught Deadweight Grosstonnage

6.4m 4,000tons 7,323GT

Power(MCR)

16,920kW

Speed(service)

23.0knots

Figure 318: Ro-ro container vessel - 4,000-dwt Himawari 2

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Characteristics Length (oa)

162.7m

Length (pp)

151.2m

Breadth

23.4m

Depth

15.2m

Draught

5.5m

Deadweight

4,428tons

Grosstonnage

21,188GT

Power(MCR) Speed(service)

7,920kW 22.6knots

Figure 319: Ropax - 4,428-dwt European Highlander

Characteristics Length (oa)

200.0m

Length (pp)

192.0m

Breadth

32.2m

Depth

36.0m

Draught Deadweight Grosstonnage

10.5m 19,628tons 19,628GT

Cargo capacity

6,600CEU

Power(MCR)

13,240kW

Speed(service)

20.0knots

Figure 320: Pure car and truck carrier (PCTC) - 6,600-CEU Torrens 303

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Characteristics Length (oa)

165.0m

Length (pp)

157.0m

Breadth

27.62m

Depth Draught

24.2m 6.2m

Deadweight

5,490tons

Grosstonnage

28,200GT

Cargo capacity

2,000CEU

Power(MCR)

11,935kW

Speed(service)

21.0knots

Figure 321: Pure car and truck carrier (PCTC) - 2,000-CEU Toyofujimaru

Figure 322: Reefer vessel - 199,618-cu.ft Antilla 304

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Figure 323: Reefer vessel - 626,011-cu.ft Lombok Strait

Characteristics Length (oa)

176.0m

Length (pp)

165.0m

Breadth

31.1m

Depth

14.5m

Draught Deadweight Cargocapacity

8.7m 13,462tons 14,000cattle

Power(MCR)

11,060kW

Speed(service)

19.8knots

Figure 324: 13,462-dwt livestock carrier 305

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Characteristics Length (oa)

93.9m

Length (pp)

86.3m

Breadth

17.0m

Depth Deadweight

7.5m 3,028tons

Grosstonnage

4,184GT

Power(MCR)

1,400kW

Speed(service)

13.1knots

Figure 325: Suction dredger - 3,028-dwt Hakusan

Characteristics Length (oa)

210.0m

Length (pp)

151.2m

Depth Draught

16.2m 9.2m

Grosstonnage

59,987GT

Power(MCR)

35,000kW

Speed(service)

12.0knots

Figure 326: Drilling vessel - Hikyu 306

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Characteristics Length (oa)

162.0m

Length (pp)

152.6m

Breadth Depth Draught Deadweight Grosstonnage Power(MCR) Speed(service)

38.0m 9.0m 6.4m 21,858tons 15,809GT 6,463kW 13.0knots

Figure 327: Crane vessel - 21,858-dwt Saipem 3000

Characteristics Length (oa)

225.0m

Length (pp)

217.8m

Breadth

32.3m

Depth

19.2m

Draught

14.1m

Deadweight

31,464tons

Grosstonnage

10,200GT

Speed(service)

14.4knots

Figure 328: Pipe layer - 73,800-dwt Audachi 307

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Characteristics Length (oa)

75,1m

Length (pp)

66.6m

Breadth

18.0m

Depth Deadweight

6.0m 3,566tons

Grosstonnage

3,239GT

Power(MCR)

3,000kW

Speed(service)

16.5knots

Figure 329: Towing/salvage tug - Fairmount Alpine

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11.

SHORTSEA SHIPPING

Deepsea shipping comprises all the shipping between continents, while shortsea shipping is the interregional trade within a continent. All types of shipping and all sizes of ships fall under this segmentation. For example a 5,000 TEU containership operates a shortsea service between Northwest Europe and the Mediterranean, but in most cases shortsea ships are smaller. In the first part of this chapter the European shortsea market will be analysed in more detail, based on 2003 shipping data. The second part contains an introduction into a number of examples of innovation in shortsea shipping.

11.1. European shortsea shipping

Performance(billiontonͲkilometres)

Figure 330 shows the EU-25 transport performance by mode of transport for the period 1995-2005 in billion ton-kilometres. Road transport is the largest mode, followed by shortsea shipping and rail. The freight transport sector produced in 2005 3.900 billion ton-kilometres. Airfreight has such a small share, that it is omitted from this graph, as well as pipeline. 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sea

Rail

Inlandwaterways

Road

Figure 330: Transport performance EU-25 by mode The physical networks of road transport and the virtual networks of shortsea shipping are visualised in Figure 331. Since the European Union has become one internal market, transport statistics between countries have become difficult to obtain. Table 94 shows the intra-European trade of containerised cargo (EU-27), but this is of course only a part of the total cargo flows, as bulk commodities are not included. In 2006 this intra-EU trade amounted to 23.8 million TEU. This figure comprises full import and export (including transit) and feeder containers, as well as empty containers discharged and loaded and carried between ports in EU coastal countries. 309

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Figure 331: EU transport network Country Austria Belgium Bulgaria CzechRep. Cyprus Denmark Estonia France Germany Greece Finland Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK EU27

2004 Ͳ 1940 102 Ͳ 233 470 160 1,269 4,236 1,292 1,279 Ͳ 922 4,392 151 174 Ͳ 88 3,026 213 685 154 Ͳ 135 3,183 870 3,408 21,200

2005 Ͳ 2,283 105 Ͳ 128 544 190 1,272 4,686 1,152 1,297 Ͳ 989 4,361 162 214 Ͳ 66 3,527 492 697 212 Ͳ 180 3,875 962 3,027 22,930

2006 2,587 111 Ͳ 89 601 227 1,254 5,407 1,087 1,391 Ͳ 1,097 4,110 192 231 Ͳ 60 3,796 576 796 169 Ͳ 185 3,929 1,027 2,950 23,862

Table 94: Intra-EU container transport (1,000 TEU) 310

Part II – Ship Innovation Based on Lloyd’s Marine Intelligence Unit data for the year 2003 10,000 ships between 500 and 10,000 GT calling in ports from the Baltic Sea to the Black Sea have been identified as constituting the shortsea shipping sector in that year. These ships made in 2003 a total of 457,000 port calls. On a global basis the figures would be 20,000 ships and 1,070,000 port calls. It can be concluded that European shortsea shipping with a share of approximately 45 percent of the world total is important. The study found that 3,825 ships were older than 25 years, and the number of shipowners amounted to 3,460. This indicates a rather fragmented and small scale market structure. Figure 332 and Table 95 show the age profile of the fleet by in 2003. The largest category is general cargo ships, with a 46 percent share of the fleet. 400 350

Numberofships)

300 250 200 150 100 50 0 1950 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999

Figure 332: Number of ships by year of built Analysis of the deadweight of the ships (Figure 333) reveals that most of the ships in the shortsea trades are relatively small, but that a steady increase in the economies of scale can be observed (Figure 334). The 40 year old ships have an average deadweight of 2,000 tons, and the new ships of 6,000 tons, a threefold increase over 35 years, or roughly 10 percent per annum.

311

Part II – Ship Innovation Shiptype Bulkcarrier Cementtanker Chemicalcarrier Chemical/oilcarrier Containership Generalcargoship LPGtanker Passenger/roͲro Producttanker Reefership RoͲrocarrier Other Totalfleet

Total 194 86 305 299 339 4,575 240 165 499 534 359 2,424 10,019

>20years 145 80 134 103 69 2,640 77 108 326 293 254 1,300 5,475

>25years 110 68 86 47 441 1,916 31 93 232 117 170 914 3,825

>30years 33 46 45 28 18 1,067 9 77 133 39 69 546 2,110

>35years 14 18 10 13 2 478 2 34 65 17 26 307 985

Table 95: Age profile by ship type (number of ships) 1800

Othervessels

1600 Ro/ro 1400 Producttanker 1000 Passengerro/ro 800 Lpgcarrier

600

Generalcargo

400

Containercarrier

200

>15000

14000Ͳ15000

13000Ͳ14000

12000Ͳ13000

11000Ͳ12000

10000Ͳ11000

9000Ͳ10000

8000Ͳ9000

7000Ͳ8000

6000Ͳ7000

5000Ͳ6000

4000Ͳ5000

3000Ͳ4000

2000Ͳ3000

1000Ͳ2000

0 0Ͳ1000

Numberofships

Reefer 1200

Chemical/oil carrier Chemicaltanker Cementtanker

Figure 333: Number of ships by deadweight class

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Averagedeadweight(tons)

7000 6000 5000 4000 3000 2000 1000 0 >40

35Ͳ40

31Ͳ35

26Ͳ30

Generalcargo

21Ͳ25

16Ͳ20

11Ͳ15

6Ͳ10

1Ͳ5

Producttankers

Figure 334: Average deadweight per age class, for selected ship types Figure 335 to Figure 340 show the scatter diagrams of the fleet of general cargo ships, product tankers, ro-ro ships, containerships, chemical tankers, and gas (LPG) tankers: x

x

x x x

x

General cargo ships: 42 percent is older than 25 years, which means that there exists a large need for replacement. This creates also opportunities for innovation in ship types and cargo handling systems; Products tankers: 46 percent of the fleet is older than 25 years. In the view of the ban on single hull tankers, a huge replacement programme is underway as the deadline of 2010 is approaching; Ro-Ro ships: 47 percent of the fleet is older than 25 years. Urgent fleet renewal is required; Containerships: 12 percent is older than 25 years, so replacement demand is not the issue, contrary to the expansion of the fleet; Chemical tankers: 26 percent of the fleet is older than 25 years which offers opportunities for replacement, in particular as this class of ship is very sensitive to regulatory change from IMO conventions like MARPOL, which causes shorter economic lifetimes than other ships; LPG tankers: 13 percent of the fleet is older than 25 years, which makes it into a relatively young fleet. Expansion demand is modest as currently 79 ships are on order on a global fleet of 754 vessels with a capacity below 8,000 cubic metres.

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14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

1990

2000

1990

2000

Figure 335: General cargo ships 20,000 18,000

Deadweight(tons)

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

Figure 336: Product tankers

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Deadweight(tons)

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

1990

2000

1990

2000

Figure 337: Ro-ro ships 16,000

Deadweight(tons)

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

Figure 338: Container ships

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Deadweight(tons)

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

1990

2000

1990

2000

Figure 339: Chemical tankers 12,000

Deadweight(tons)

10,000 8,000 6,000 4,000 2,000 0 1950

1960

1970

1980

Figure 340: LPG tankers The 10,000 ships are owned by 3,460 owners, which underlines the fragmentation in the European shortsea markets. More than 70 percent of the ships are owned by shipowners residing in 12 European countries, of which only 38 percent of the ships are registered under the national flags. Germany in particular has only a small percentage registered under its flag (Table 96).

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Part II – Ship Innovation Countryofresidenceshipowner Russia Germany Norway Netherlands Turkey Greece UnitedKingdom Denmark Italy Ukraine Spain Sweden Total

Numberofships 1,265 1,199 930 737 612 601 522 339 333 265 211 192 7,205

Numberofshipsundernationalflag 1,241 192 448 591 447 241 435 222 286 223 47 129 4202(62%)

Table 96: Major ship-owning countries Of all 7,205 ships of these 12 countries, 3,825 were older than 25 years, and 985 even older than 35 years (Table 97). Again this underlines the potential for fleet renewal and innovation to make European shortsea shipping even more competitive. Countryofresidenceshipowner Russia Norway Greece Turkey UnitedKingdom Germany Syria Ukraine Italy Netherlands Denmark Spain Sweden Other Total

>25years 493 383 338 263 181 138 133 130 120 104 97 73 72 1,300 3,285

>35years 89 98 92 68 45 36 39 39 28 22 28 12 17 372 985

Table 97: Number of ships older than 25 and 35 years

11.2. Innovation in shortsea shipping The innovation theory is best understood with the help of concrete design innovation examples. The examples from shortsea shipping have the following themes: x

x x x

Automated cargo-handling systems; Small gas tankers; Sea-river hatchless container ship; Sea-river tug-barge car carrier; 317

Part II – Ship Innovation x

Forest products shipping.

Automated cargo-handling systems Competition between shortsea and road/rail transport is still limited in volumes and types of commodity. Only high-value general or break-bulk cargo packed in unit loads like the maritime container or the swap body competes in shortsea shipping with road and rail transport. In order to understand the reasons why and to find triggers for innovation, the critical success factors have to be understood. Although most of these factors are related, they will be discussed separately: x

Transport time is a crucial element in any discussion about shortsea shipping. Extra transport time in comparison to land transport is hard to avoid, which is unattractive to most shippers. On the other hand, if a considerable cost reduction can be realised in combination with an acceptable and predictable increase in time there could be an opportunity to attract cargo from the transport market. The increasing value of time makes transport time a dominating critical success factor.

x

Transport costs: A low freight rate has to counterbalance the relative increase in transport time. In order to reduce unit costs, the variable costs have to be controlled and reduced. In general, reducing the variable-cost part of a total cost figure requires investments, which will result in higher fixed costs. An optimal balance between fixed and variable costs should give the lowest unit cost.

x

Frequency and flexibility: For a coastal and shortsea shipping system it is a major challenge to offer flexibility at the highest possible level. The flexibility a road hauler can offer is very hard to match. Frequency of sailings is a major critical success factor. Offering a weekly sailing only is sure to fail in attracting the attention of shippers and receivers. A daily departure is a prerequisite for a competitive shortsea shipping system. The added advantage is that ships are allowed to call on the ports in the weekends, while road transport is often prohibited to drive during the weekends.

x

Reliability: From a shipper’s point of view, today's shortsea transport is sometimes the less reliable form of goods transport, when compared to transport by road or railway. A shipping organisation is faced with a bigger number of potential delay factors than the other two modes, causing a low reliability image. There are, however, effective means to get in control of some of the delay factors while others can be prepared for, in the best possible way.

x

Customer satisfaction: Shortsea shipping should offer the same attraction to customers as land transport. This can be achieved by offering a comparable level of convenience, which means taking care of the complete transport from the first moment a customer calls for a transport until the final delivery at the receiver's end.

x

Safety: From a shipper's point of view, safety of transport means the arrival of the goods in proper condition and the avoidance of liability problems. Society interprets the safety of transport in terms of accidents and damage to nature. Safety is a subject with many conflicting interests.

x

Environmental impact: From an energy consumption point of view, ships perform better than Lorries and trains, while, especially on board of ships, modern technology can be used effectively for the cleaning of exhaust emissions. Sea transport already is the most 318

Part II – Ship Innovation environmentally friendly form of transport today and it also has a good potential for further improvement. x

Political acceptability: Increasing transport capacity by expanding roads and railways requires heavy state investments and it is not an environmentally friendly solution and often requires a lead-time of decades rather than years. If shipping can prove to be a competitive alternative in terms of time, costs, reliability, flexibility, and customer friendliness it would be of great interest to both society and the manufacturing industries if politics would express the will to develop a competitive shortsea shipping system.

The evaluation of the critical success factors in shortsea shipping leads to the conclusion that measures that minimise the cost of shore labour (stevedoring) have the largest potential for improving the competitiveness of shortsea shipping. Time independent methods for the ship/shore transfer of cargo are expected to lead to the most significant time and cost saving improvements. Automation of the respective onshore and the onboard cargo-handling processes will contribute to a further reduction of time and costs. New applications of existing technologies in combination with innovative developments are necessary to realise such time and cost saving cargo-handling systems. Once a timeindependent and automated cargo-handling system has been developed the design of an advanced vessel can be initiated, incorporating all other cost, time and environment saving features it should offer. The technical feasibility of such a system is dominating although the total competitive strength very much depends on the restructuring of the goods transport industry as a whole. In conclusion, for a competitive shortsea shipping system the key-critical success factors are: x x x x x

x

Time-independent cargo-handling; Employ shore labour during normal working hours and not during the more expensive night hours and weekends; Fully-automated cargo handling on board and at the terminal; Long-term transport contracts with shippers or receivers; Develop an advanced ICT infrastructure, operational control and management systems (decision support tools); Environmental and social cost increases of other modes.

Shortsea shipping along the Swedish coast line Based on this analysis a number of case-studies were undertaken with the objective to reduce the time spent in port and the cost of cargo handling. The first example is the design of a fully-automated containerised cargo system to be used along the coast of Sweden, dating back from the early 1990s. (Wijnolst, Hoeven, Kleijwegt, & Sjöbris, 1993). The coast line of Sweden is very long, approximately 2000 km. from the top of the Botnic Gulf to the most southern tip at Ystad (Figure 341) It is, therefore, ideal for shortsea shipping. Any great system fails without an adequate cargo base. Therefore, first the potential for such a system is estimated. The shortsea shipping system will operate on the bulk and break bulk cargo market. The cargo potential system consists of parts of the markets of road and rail transport en the coastal shipping market. The cargo share that lies within reach of the system should be enough to justify a daily service along the various ports from Lulea in the far north, to Karlshammer in the far south of Sweden.

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Figure 341: Swedish coast line Figure 342 shows an artist's impression of the ship by the Swedisch consultant MariTerm. It is a fourdeck carrier specially suited for the handling of non stackable cargo units based on the ISO 20' standard on lower corner castings. This means that she is able to carry all types of flats, containers or swapbodies following the lSO, DIN or CEN standard. The maximum size has been set to 8-metre length, the width to 2.6 metres and the height to 3 metres. These dimensions have been chosen to make the ship capable of carrying all load carriers allowed for road transports. Figure 343 shows the ship's general arrangement. The top deck of the vessel is open in the aft giving space for carrying dangerous cargo units. The inside of the ship comprises a steel bar structure on which the units are stacked. The cargo handling is controlled by an onboard based computer. The manual operations should be limited to a general monitoring of the operations. An extensive control desk is situated on the bridge containing all control functions needed for the monitoring and what ever actions needed. The crew is minimised to only four men. All are highly qualified and experienced seamen and technicians. The mooring system is mechanised and can be fully controlled from the bridge. A double engine system provides for the possibility to operate and manoeuvre in case one engine breaks down. The vessel will navigate in close coastal waters and can be routed using electronic sea charts arranged with free corridors for navigation. Bow and stern anchor can be dropped in case of emergency and the ship will be equipped with a helicopter landing platform for manual assistance or evacuation if needed. This loading/discharging system features a fully mechanical and automatic handling of cargo units. The main feature of the handling system is a system that handles non-stackable cargo units horizontally in the ship. For this reason the ship should be equipped with a conveyor that can move the units longitudinally in the ship (Figure 344). 320

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Figure 342: Artist impression

Figure 343: General arrangement

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Figure 344: Ship’s (un)loading system The system will also feature a terminal system allowing the units to be handled directly to and from road vehicles. It must be suitable for intermediate storage of units waiting for the ship's arrival or being discharged by the ship waiting to be transported to the final destination. The operation between road vehicle and terminal can be assisted by the driver of the vehicle.

Fast Ship Atlantic In the framework of the Fast Ship Atlantic project, a 38-knot containership with a deadweight of 10,000 tons was developed in the 1990s to cross the Atlantic Ocean in record time (Figure 345). In order to reach that service speed, the small vessel had main engines with an installed power of 220 MW, comparable to containerships of 10 times this size, and a speed of 25 knots. As part of the innovative ship and hull design, a fully-automated loading and terminal concept was developed by TTS based on a rail system (Figure 346). This system was tested and it worked well with a theoretical loading rate of 400 TEU per hour (unmanned). The increase in fuel prices has forced the developers of the project to shelf this gas-guzzler. The Fast Ship Atlantic project loading concept could be used in shortsea operations as it offers all the advantages that come with time-independent cargo handling and unmanned operations. A shortsea ro-ro carrier has been designed on the basis of this concept using AGVs (automated guided vehicles), but it has not been built yet (Figure 347).

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Figure 345: 38-knot container ship

Figure 346: TTS fully-automated loading and terminal concept

Figure 347: Automated guide vehicle cargo-handling system

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Automated container handling of inland container barges A completely different approach to automated container handling was developed for the inland shipping industry. Inland container vessels exist in all sizes of up to 400 TEU, as Figure 348 illustrates. These are often not more than 4 containers wide, which makes them very sensitive to loading of heavy containers on the outer sides. The listing of the vessel makes it difficult to load containers automatically.

Figure 348: Automated container handling for inland ships For this reason a conventional jetty-like enclosed terminal (Figure 349) was developed in a research project by which an ingenious software programme was developed that could solve this problem of listing. The container is weighed in the fully-automated gantry crane and based on the hydrodynamic characteristics of the inland vessel and on a database of containers indicating the probability of the weight, was assigned an optimal slot on the vessel. So instead of installing active ballast systems on the vessel to compensate for the movement, a less costly solution of a software algorithm should do the job. The system was tested in real life and the report of that can be found in (Wijnolst, Waals, & Vriesendorp, 1995). This concept can be applied as well to small (100-500 TEU) containerships as they face the same trim and listing problems.

Sea-river hatchless containership Seagoing vessels are in general not designed for the navigation on rivers, because of air (bridges) and water draught restrictions. The old small coastal ships of 500 gross tons were able to navigate the sea as well as on most of the rivers. However, the dis-economies of scale eroded their competitive advantage overtime. For this reason a new class of sea-river vessels was developed around 1970, characterised by a larger carrying capacity (deadweight) and a very shallow water and air draught (Figure 350)

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Figure 349: Automated container handling for inland ships

Figure 350: Sea-river ship The 1970s and 1980s saw a rapid growth in the size of these vessels. The Russians developed the seariver ship and were for some years the main driver behind its development, as Figure 351 illustrates. The shallow draught vessels are able to transport cargo via the sea lanes into the river/canals system, without additional transhipment in ports, thus reducing costs substantially and improving the competitive position vis-à-vis other modes. Within Western Europe, the major sea-river routes are related to the River Rhine system; in Eastern Europe, the Russian river system, connecting the Baltic Sea, via the Volga to the Black Sea and Caspian Sea. In 1985, a project called NorthSea-Rhine Express developed the concept of an innovative hatchless ship, with the unique ability to become a push barge on the Rhine, on top of the normal ship's capacity. (Figure 352) It was meant to serve three transport markets of containers: through containers from Germany to the U.K., feeder containers from Felixstowe to Rotterdam and vice versa, and barge containers from Rotterdam to Germany and vice versa (Figure 353).

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Deadweight(milliontons)

3 2.5 2 1.5 1 0.5 0 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 Russian

Other

Figure 351: Sea-river fleet size

Figure 352: NorthSea Rhine Express Ultimately, the project was shelved, as the service level (sailing frequency) was too low in relation to the existing shortsea container services, while an increase in service level created a massive overcapacity, which could not be justified by the container growth rates at that time. The concept of the hatchless shortsea containership thereafter been realised by the Bell Pioneer (1990). The ship design has the following characteristics: x x x

Length over all 109.80 metres; Length perpendiculars 105.54 metres; Breadth 18.20 metres;

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Part II – Ship Innovation x x x x x x x

Depth 10.20 metres; Design draught (river) 3.00 metres; Design draught (sea) 4.80 metres; Air draught above base 12.80 metres; Deadweight (river) 2,650 tons; Deadweight (sea) 5,850 tons; Trial speed 11 knots.

Throughcontainers

WestGermany

Rotterdam

Cologne

UK Felixstowe Feeder

Barge

Rhineterminals

Figure 353: Three transport markets From a design methodological point of view, the project clearly demonstrates the design trigger of maximisation of revenues, through the combination of three different transport markets, those of doorto-door containers, feeder containers, and inland barge containers. The idea of turning a seagoing vessel into a hundred-metre long push barge on the river Rhine, was another basic innovation. In spite of all the creative effort, the major constraint remained the market and its service requirements, which is a stumbling block for most of the innovation projects. Design innovation in shipping should therefore consider in major detail the market prospects and the critical success factors of a new design in an early stage of the project. This is often difficult for the originator of the innovation, as he 'falls in love' with the concept and does not want to be confronted with bad news about the viability in the market place.

Sea-river tug-barge car carrier Tug/barge combinations form a small niche market in shipping, in particular in Japan and North America. The concept has certain advantages which are in this case applied to the car transport market in North Western Europe. The novelty of this case-study is the use of the barge as a shallow draught car carrier on the river Rhine, and a normal (ballasted) tug-barge on the North Sea. The design project was based on the transport requirements of a specific car manufacturer with various production plants in Germany, Belgium and the U.K. The reasons for choosing a tug/barge system instead of a common sea-river ship are: x x x x

The size of the crew depends only on the GT, not of the barge. Because of the light cargo (cars) the GT-value of the ship would be very high; At the Rhine only an inland crew (with lower rank than a seagoing crew) is required; The seagoing tug can take full advantage of the unlimited draught, while the inland tug is especially designed for inland transport. This has a positive effect on the fuel consumption; The maximum length for ships on the Rhine is 110m., for tug/barge combinations this is 185 metres. 327

Part II – Ship Innovation The system should replace the present transport of cars manufactured in Germany and Belgium for the English market via Harwich. The car manufacturer produces its cars in three German factories and one Belgian factory. On average, about 300,000 cars are transported. At the time the cars were transported from the Belian plant to Zeebrugge by truck, from Zeebrugge to Harwich by shortsea car carrier (Figure 354) and ro-ro vessels. From the German plants the cars were transported to Cologne by truck, from Cologne to Flushing by barge, and from Flushing to Harwich by shortsea car carrier.

Figure 354: Shortsea car carrier Figure 355 shows the tug-barge system with (top) the seagoing tug attached to the barge and below the river push tug behind it. Figure 356 shows the midship section of the barge with five car decks and a capacity of 1226 cars.

Figure 355: Tug barge car carrier The tug/barge concept proved to be a feasible alternative in financial and quality terms, but at the same time it implied a long-term transport contract from this manufacturer if it were to be financially attractive from the shipowner's point of view. The dedicated car carrier with its specific design characteristics for sea-river operations made the second-hand value uncertain in case the contract should be cancelled. The car manufacturer did not like to commit itself to one transport system, and wished to play the market, not so much for financial reasons, but from a point of view of flexibility and vulnerability. From a design innovation methodological point of view the tug-barge project proved again very clearly that innovation in the car transport market is not only dependent on financially attractive rates and smart ship designs, but rather on other commercial and strategic issues, which are difficult to 328

Part II – Ship Innovation gauge from the outside. It is therefore imperative to communicate in a very early stage of a design innovation project with the prospective user of the system and seek his guidance on these matters (Wijnolst N. , 1995).

Figure 356: Midship section of tug barge car carrier A recent innovative combination of a river and coastal car carrier was developed to connect the port of Zeebrugge, which lacks a quality canal access, via the sea and estuary of the Scheldt River, to the hinterland (Figure 357). This inland vessel has a high freeboard and is allowed to a certain sea state to use the sea lane.

Figure 357: River and coastal car carrier

Forest products innovation Forest products like pulp and paper are important export products for most European Nordic countries, like Finland. In the early 1990s a ship design project was made in Finland to innovate the transport of paper reels in the hold of ship (Figure 358).

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Figure 358: Transport of paper reels At the time the Finnish forest products industry went through a depression and the reduction of the share of the logistical cost of exports to the European continent seemed the only way to stop a further erosion of the Finnish export position of these forest products. The largest Dutch shipowner and operator on the Baltic Sea, Wagenborg Shipping, supported the project which added to hands-on knowledge of the current shipping practices. The objective of the innovation project was to reduce the logistical costs of paper transportation (Figure 359) substantially in order to improve the competitive position of the Finnish industry. The researcher concentrated his design innovation project on the paper reels transport, and came up with a very creative and attractive new concept, which was dubbed "reels-on-wheels", as shown in Figure 360. From a design innovation methodology point of view, the reels-on-wheels concept represented such a relatively simple solution, which could attain the objectives of a substantial reduction of the logistical cost, but at the same time was so far away from the current thinking that it seemed to most of the industry professionals many bridges too far in comparison with the current systems and technologies. The case-study illustrates and documents clearly the use of creativity techniques in combination with rigorous naval architecture procedures and advanced calculation programmes. Nevertheless, it proves that gradual improvement innovations in the logistical system of forest products shipping are easier to accept and incorporate than a radical basic innovation. The only chances for a radical change exist, when all the industry participants are convinced that the current working practices have reached the limit of the performance S-curve and that a new S-curve should be started. In that case, they should know where to look! (Wijnolst & Lugt, 1993). This innovation case-study is extensively discussed later in this book.

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Figure 359: Logistical costs

Figure 360: “Reels on Wheels”

Optimisation of shortsea gas tankers The design process of small gas tankers is determined by the triangular relationship between the shipowner, the shipbuilder and the gas tank designer/builder. All three parties in this design process 331

Part II – Ship Innovation have different objectives, which are not always in line with one another. This may lead to a suboptimal solution from the point of view of the shipowner. The design innovation of small gas tankers, which is in this case the optimisation of the tank configuration in relation to the ship's hull, is not a natural design goal because of these differing objectives. A study project with a large Norwegian gas tanker owner and operator, on the optimisation of small gas tankers, attempted to improve the ship design of a gas tanker that the owner was about to order at a shipyard for the price of US$ 27.7 million. A specialised computer programme was developed that makes it possible to establish the relationships between tank configurations, tank construction costs, the corresponding ship's hull and machinery cost and the operating cost. Based on this model it became clear that the owner could save a considerable amount of money if he would choose for a different, simpler tank configuration. Figure 361 shows 8 different tank configurations (not drawn to scale.

Figure 361: Alternative tank configurations The calculations demonstrated that the designs with four transverse cylindrical tanks plus a conical bilobe or a longitudinal cylindrical tank (design 5 and 6) are the cheapest. This is not what one would expect because the utilisation of the ships space with cylindrical tanks is not good, in any case worse than for bi-lobe tanks. So, the conclusion is that sometimes it is better to have cheap cargo tanks in a 332

Part II – Ship Innovation large (expensive) ship with a low resistance than a small (and cheaper) ship with expensive cargo tanks and a high resistance (block coefficient). This case-study illustrates the rigorous approach that is necessary in order to optimise and innovate a specific ship type, and to prove that it may be worth the effort. From a methodological point of view, it is interesting to note that at the time of the study (1989), few owners questioned the trend set by tank designers to use complex and expensive bi-lobe tanks, while this part of the vessel represents the single largest investment. Design innovation in small gas tankers should therefore always incorporate this simple, but rather basic investigation, which will not automatically come from the shipbuilder or the tank builder (Wijnolst N. , 1995).

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12.

SHIP COSTS

In this chapter the costs of running a ship will be discussed. It is based on Drewry’s report “Ship operating costs annual review and forecast” (Drewry, 2007/08). There are four main cost categories distinguished in the running of ships. These are: x x x x

Capital costs, which cover the depreciation of the ship over its economic life, as well as the interest payments over the non-equity financing of the ship; Operating costs, which comprise the costs necessary to enable the ship to sail, such as manning costs, stores, etc.; Voyage costs, which comprise the variable costs associated with the actual sailing of the ship, such as bunkers, port charges, canal dues; Cargo handling costs, which are the costs for loading and discharging of the ship's cargo.

Understanding the cost structure of running ships is an important condition for innovation. First, these costs have to be compared with other operators and ship types through a rigorous benchmarking exercise. This will provide the basis for drawing performance S-curves and limits. These curves will in turn lead to the triggers for innovation. In the following chapter, benchmarking and S-curves will be discussed in relation to innovation. Thereafter, triggers for innovation in shipping will be formulated, which will form the basis for a shipping innovation methodology as presented later in this book.

12.1. Capital cost Capital costs depend to a large part on the newbuilding price of the ship, which is related to the type and size of the vessel. When a ship is purchased or built, the price of the ship is the capital value of the ship. This value can be turned into costs per year in several ways. A simple method would be to calculate the yearly payments needed to pay back the cost of the ship at a given interest rate and a given time period. This will reflect the yearly costs of recovering the capital used for the ship. The problem would be to choose the appropriate interest rate to use and to determine the economical life of the investment. The capital costs increase with the interest rate and decrease with the economical life of the vessel. Capital costs are normally divided into two parts, however, the payment for borrowed money (interest payment and repayment of loan) and the capital depreciation of the vessel. One should remember that these are two fundamentally different cost components. The payments for borrowed money are a cash outflow for the company, but depreciation is not a cash item, for accounting purposes only. The idea behind depreciation is to spread the initial capital outlay (which is a cash item) over the time horizon over which the asset is supposed to bring income. The capital cost of a ship will depend on a number of different factors. Some of these factors are: x x

The investment cost, i.e. either the newbuilding or second-hand price of the ship, including broker's commission, costs related to delivery of ship, etc.; The financial structure for the investment, which depends on how much equity (the owner's own cash) is allocated to the project and how much is borrowed;

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Part II – Ship Innovation x x x

The interest rate for borrowed money, which depends on the size of the loan, the solidity of the owner, the security offered and the general level of interest rates; The economic life of the ship and the residual value (demolition price); Tax regulations, which may influence depreciation rates.

Often when calculating capital costs, too little emphasis is given to another capital cost element, the cost of equity. The owner of a ship normally puts quite a lot of own capital into the project. This cash has an implicit cost, which is the alternative cost (or opportunity cost) of placing the money in some other investment project. This cost element is of particular importance for the initial investment calculations for a new project. There are several methods for depreciation. The only way that depreciation can have cash flow consequences, is that it may affect the tax bill. It is, therefore, national tax authorities that normally decide how depreciation will be dealt with. Often the system used is based on book values, rather than market values. Sometimes a residual value of the asset is assumed, sometimes not. Figure 498 shows an example of a common model for ship depreciation, called the straight-line method (equal amounts of depreciation each year). Here a building price of 100 million US$, an economical life of 15 years and a residual value of 25 million US$ is assumed. 100

Bookvalue(MillionUS$)

90

Depreciationperiod: 15years

80 70 60

Depreciation:US$75million orUS$5million/year

50 40 30

Residual value: US$25million

20 10 0 0

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15

Year

Figure 362: Ship depreciation calculation The shipowner will buy the ship partly with his own capital and borrow the remainder from a bank. His own capital is called equity and he only receives a return on this capital after the other creditors, such as the bank, have been paid. The bank loan is characterised by a principal, a loan period, a repayment schedule and an interest rate. As collateral or security for this loan, the bank usually demands a first mortgage on the ship. This gives the power and right to sell the ship in case the shipowner does not honour his obligations towards the bank. The principal does hardly ever exceed 80% of the newbuilding value, and is often lower.

335

Part II – Ship Innovation The loan period is usually between 8 and 15 years, with half-yearly repayments, sometimes with a year grace period during which the repayment does not have to take place, sometimes with a balloon repayment at the end of the loan period. The loan can be in various currencies. As a rule, the shipowner finances the ship in the currency in which his revenues and/or costs are (typically US$). The interest rate can be fixed for the entire period or float from year to year; the interest rate on the ship loan is usually expressed as the Libor (London Interbank Offered Rates) rate plus a margin that will depend on the borrower's solidity and financial reputation, but on average is 1.5%. The interest payments normally decrease over time, as the loan gets repaid. This places a heavy burden on the cash flow of the shipowner during the initial years, as interest payments are at their maximum. However, the shipowner can also opt for an equal amount of loan repayment (redemption) plus interest payment, the so-called annuity. Figure 363 shows the calculation of the interest costs of a bank loan of 75%, repayable over 15 years in equal instalments, with an interest rate of 8%. The capital cost of the hypothetical ship thus becomes the sum of the annual depreciation plus the annual interest payments. On top of this the owner wants a return on his equity, which will depend on the alternative cost of equity. In short, the depreciation, interest payment and return on owner's equity determine the capital cost of the ship.

Interestcosts(millionUS$)

12 10 8 6 4 2 0 0

5

10

15

Year

Figure 363: Calculation of interest costs

Cash flow The cash flow is the actual inflows in the form of freight revenues over the lifetime of the ship minus the cash outflows. The shipowner and banker will estimate the cash flow of the operation of the ship in great detail before buying a ship or commit to the financing. The instrument that both parties use in order to judge whether the owner can repay the loan and pay the interest is the cash flow calculation. From the total revenues one deducts all outgoing cash flows to cover all direct costs, like cargo handling, voyage costs, operating costs, interest payment and repayment of loan. The tax calculation is 336

Part II – Ship Innovation an accounting matter, and after payment of taxes (and perhaps dividend) the nett cash flow is found. This is illustrated in Figure 364. Profitaftertax Taxes

Netcashflow Taxes

Otherdeducables, mainlydepreciation

Repaymentofloan Interestpayments

Grossfreightrevenue inUS$/tonne

Operatingcosts

Taxdeductablecosts Voyagecosts

Cargohandlingcosts

CASHIN

CASHOUT

ACCOUNTING

Figure 364: Cash flow in shipping Figure 365 summarises the three perspectives on capital costs, on an accountancy basis, on an economic investment basis, and on a cash basis. Onanaccountancybasis

Setbydepreciation policy/choices,including • Timeforwritedown • Allowanceforresidual value • Possibilityofrevaluation ofassetandsubsequent reͲworkingofdepreciation

Shipscanbefinanced throughleasing arrangements.Thisremoves the‘capitalcost’fromthe balancesheet

Onaneconomicinvestment basis

Influencedbyindividual choiceson: • Requiredratesonreturn ontheinvestment • Assumedprojectlife • Assumptionsonresidual value • Factorsrelatingtothe timeofvalueofmoney • ‘Hurdlecriteria’– e.g.is thereturnaboveweighted costsofcapitalorII requirements • Opportunitycosts considerations

Onacashbasis

Concernedwith: • Thedepositrequiredat thetimeofcontracting • Depositfrom‘reserves’or aloan • Financeterms– period (tenor)basisofinterest calculation,timingof interestandprincipal payments • Moratoriaandorballoons

Figure 365: Main capital cost treatment options

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Foreign exchange risk The graph in Figure 366 shows the US dollar exchange rate against the Euro over the period 1970 2008. The rollercoaster ride with past peaks of more than 1.5 euro to the dollar (1970 en 1985) en the trough of just over 0.5 euro to the dollar, demonstrates the importance of financial engineering (hedging, multi-currency, mezzanine financing) in ship financing. A similar graph can be drawn for the interest rates, which is often correlated to forex developments. 2.5

Euro/Dollarrartio

2

1.5

1

0.5

0 1970

1980

1990

2000

2010

Year

Figure 366: Value of Euro versus Dollar22

12.2. Operating costs The operating costs of a ship are defined as those cost items that are related to the purely operational aspects of the running of the ship. The operating cost only comprises the fixed costs and not the variable costs, which depend on the actual sailing of the ship. The fixed costs of the ship, which are the costs that the shipowner should incur in order to make the ship ready to sail, constitute the following elements: x x x x x

22

Manning costs; Maintenance and repairs; Stores, supplies and lubricating oils; Insurance costs; Management overhead, including administration.

BeforetheintroductionofEuroin1999conversiononthebasisofDeutschmark

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Manning The manning costs of a ship are determined by a number of factors, such as the type of the vessel, the level of automation, the employment characteristics, the flag of registration, the nationality of the crews and the relieve schedule. The size of the crew and their professional qualifications are determined by different authorities. In the first place, the minimum crew requirements are set by the safety aspects of sailing a ship as defined by the International Maritime Organisation. Apart from that, the individual flag states, i.e. the countries that keep an official register of ships, may stipulate additional requirements. On top of that the shipowner, who operates the ship, may employ additional seamen onboard his ship depending on the operational requirements of the trade. For example, a chemical tanker can be safely sailed by a crew of 12 men, while the shipowner will employ double that number for the cargo handling in port. Under the Dutch regulations, the composition of the crew of a ship was until 1995 related to the size of the vessel, measured in gross tonnage, as well as the power range of the main engine measured in kW. In the new shipping policy that was adopted as from 1996, the concept of safety manning regulations replaced the manning regulation based on GT and kW. The manning costs are made up of direct costs and indirect costs. Direct costs are wage costs, travel costs, onboard victualling, training and union fees. Indirect costs are recruitment/selection and processing, medicals and drug/alcohol tests, welfare/social dues, communication/bank charges, crew accident insurance cover, sick pay, standby pay, port expenses, agency fees. The International Transport Workers’ Federation (ITF) negotiates global wage scales for the various ranks on board ships. These are considered to be minimum wages. Table 98 shows the basic pay, overtime, leave and total wage of the 28 positions that are distinguished on board ships (Drewry, 2007/08). The master earns US$ 4,920 per month, while at the bottom of the pay scale is catering boy which barely make a thousand dollar a months. The ITF wage rates are minimum standards and the actual wages of for example officers vary widely, depending on their country of origin. Table 99 shows the variations in wages for 19 countries. Officers in the United Kingdom are paid twice the wage rate in comparison with most of the other countries. In order to compensate for that difference some countries are giving tax allowances to the shipowner who employs these “expensive” officers in order to create a level playing field with other countries. Each ship type requires a different crew composition. An offshore supply vessel has a crew of 11 (6 officers and 5 ratings), while on an LNG gas carrier the complement is 28 (10 officers and 18 ratings). The average crew compositions of the main ship types is shown in Table 100 There are on both sides of the manning scales of course exceptions, like the Dutch shortsea general cargo vessels that are allowed to sail with a crew of 5, and the cruise ships which may have a crew of more than 1,200. It is estimated that there are approximately 1.2 million seamen to man the world fleet (2005). Table 101 shows the regional division and the breakdown in officers and ratings (Drewry, 2007/08). There are 466,000 officers and 721,000 ratings. Given the age structure of the officer population in particular in OECD countries, and the rapid expansion of the world fleet, a major shortage of officers is in the making which creates already an upward pressure on the wage rates of officers.

339

Part II – Ship Innovation  Master ChiefEngineer Chiefofficer 1stengineer 2ndofficer 2ndengineer RO Electricaleng Chiefsteward 3rdofficer 3rdEngineer Electrician Bosun Carpenter Fitter ChiefCook Donkeyman Pumpman AB Fireman Oiler/Greaser Steward 2ndCook Messroomsteward OS Wiper Deckboy Cateringboy

Basic 2,426 2,205 1,566 1,566 1,254 1,254 1,254 1,254 1,254 1,209 1,209 1,079 804 804 804 804 804 804 720 720 720 720 613 613 536 536 431 431

Overtime 1,802 1,638 1,163 1,163 931 931 931 931 931 898 898 801 597 597 597 597 597 597 535 535 535 535 455 455 398 398 320 320

Overtimerate 17.50 15.90 11.29 11.29 9.04 9.04 9.04 9.04 9.04 8.72 8.72 7.78 5.80 5.80 5.80 5.80 5.80 5.80 5.19 5.19 5.19 5.19 4.42 4.42 3.87 3.87 3.11 3.11

Leave 566 515 365 365 293 293 293 293 293 282 282 252 188 188 188 188 188 188 168 168 168 168 143 143 125 125 101 101

Leavesub 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126 126

Total 4,920 4,483 3,221 3,221 2,604 2,604 2,604 2,604 2,604 2,515 2,515 2,258 1,715 1,715 1,715 1,715 1,715 1,715 1,550 1,550 1,550 1,550 1,337 1,337 1,185 1,185 978 978

Table 98: ITF uniform “TCC Collective Agreement” (US$ per month served) 

Master

Bulgaria China Croatia Egypt India Italy Latvia Mexico Montenegro Myanmar Philippines Poland Romania Russia SouthKorea Spain SriLanka Ukraine UnitedKingdom

5,400Ͳ9,000 5,500Ͳ6,500 9,600Ͳ13,100 5,000Ͳ8,000 8,600Ͳ11,000 8,200Ͳ10,500 7,500Ͳ9,500 5,100Ͳ6,500 8,100Ͳ11,500 3,000Ͳ4,000 4,800Ͳ8,300 8,000Ͳ15,000 7,000Ͳ11,000 7,000Ͳ9,500 6,000Ͳ10,000 8,800Ͳ10,500 6,200Ͳ7,000 6,000Ͳ10,000 14,000Ͳ22,000

Chiefengineer 4,900Ͳ8,600 5,100Ͳ6,000 9,500Ͳ13,000 5,000Ͳ8,000 8,300Ͳ10,500 7,500Ͳ9,800 7,500Ͳ9,000 4,900Ͳ6,000 8,000Ͳ11,400 3,000Ͳ4,000 4,000Ͳ7,000 7,700Ͳ14,500 6,800Ͳ10,500 6,500Ͳ9,000 5,700Ͳ9,500 8,500Ͳ9,900 6,000Ͳ6,600 6,000Ͳ9,500 13,500Ͳ21,000

Chiefofficer/ 2ndengineer 3,400Ͳ7,000 3,700Ͳ4,200 7,500Ͳ11,000 3,000Ͳ6,000 6,800Ͳ8,500 6,700Ͳ8,750 5,500Ͳ7,000 3,800Ͳ5,000 6,500Ͳ8,500 2,200Ͳ3,000 2,700Ͳ6,000 7,000Ͳ12,000 6,00Ͳ8,500 5,500Ͳ7,500 5,000Ͳ6,000 7,050Ͳ8,300 4,500Ͳ5,100 5,000,8000 10,000Ͳ19,000

2ndofficer 3 engineer 2,750Ͳ4000 2,500Ͳ2,800 3,100Ͳ5,500 2,500Ͳ3,500 3,700Ͳ4,400 5,200Ͳ6,700 3,000Ͳ4,000 2,500Ͳ3,500 2,900Ͳ4,400 1,600Ͳ2,000 2,400Ͳ3,200 4,500Ͳ8,500 3,000Ͳ4,100 3,000Ͳ4,200 3,000Ͳ4,000 4,750Ͳ5,500 2,500Ͳ3,000 2,700Ͳ4,200 6,000Ͳ9,000 rd

Daysleaveper monthserved 12 8 18Ͳ28 8Ͳ15 15Ͳ20 18Ͳ25 8Ͳ15 15 15 5 6Ͳ10 15 20Ͳ25 8 8Ͳ15 20 8 8 16Ͳ30

Table 99: Sample tanker wage rates for selected countries (US$ per month served) 340

Part II – Ship Innovation  Producttanker Chemicaltanker LNGcarrier VLCC Panamaxbulker

Officers 9 10 10 9 8

Ratings 13 15 18 15 10

 Containership RoͲro Reefer PCTC Offshoresupply

Officers 9 8 9 8 6

Ratings 8 10 9 13 5

Table 100: Average crew size by ship type Regionalestimates OECDCountries EasternandcentralEurope Africa/LatinAmerica FarEast IndianSubContinent Total

Officers 133,000 95,000 38,000 133,000 68,000 466,000

Ratings 174,000 115,000 110,000 226,000 96,000 721,000

Total 307,000 210,000 148,000 359,000 164,000 1,187,000

Table 101: Seafaring population by region 2005 (Drewry, 2007/08) Table 102 shows the 11 countries that were in 2005 the main suppliers of seafarers (Drewry, 2007/08). If these 2005 figures are compared with the 1990 figures, then the long term dynamics become evident. Only few countries have increased their seafaring population, notably China, India, Turkey and the Ukraine. There is a marked decline in the other countries, a trend which is not likely to be reversed in the short term.  India Phillipones China Ukraine Turkey Russia

Officers 46,500 46,400 42,700 28,900 22,100 21,700

Ratings 32,400 74,000 79,500 36,100 60,300 34,000

 Greece UK Japan Vietnam Croatia 

Officers 17,000 14,000 13,000 10,500 10,300 

Ratings 15,000 4,500 6,900 7,000 9,200 

Table 102: Number of seafarers by country 2005 (Drewry, 2007/08) The Philippines have been one of the major suppliers of seafarers, but their “output” is sharply in decline as Figure 368 shows. Contrasting the Philippine decline is the Chinese rise and investment in education and training of new seafarers to man its own expanding fleet, but also to man the third party fleet. Chinese “output” of seafarers has risen dramatically since 1990. A similar trend can be observed in India, although only in the officers segment The shortage of qualified crews has resulted in a gradual increase in the crew costs, as Figure 369 illustrates for a product tanker. In ten years time (1997-2007) the manning costs have increased from US$ 67,000 per month to US$ 105,600 per month (58%).

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Yugoslavia** Vietnam USA UnitedKingdom Ukraine* Turkey Spain Russia Romania Poland Philippines Norway Myanmar Latvia* SouthKorea Japan Italy Indonesia India Greece Germany Denmark Croatia* China Canada Brazil 0

10,000

20,000

30,000

40,000

50,000

Officernumbers) 2005

1990

Figure 367: Number of officers by country 23 (Drewry, 2007/08)

23 *)

 Countrydidnotexistin1990asanindependententity,**)Countrynolongerexists

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Numberofseafarers(*1,000)

250 200 150 100 50 0 1990

1995

2000

2005

50

Numberofseafarers (*1,000)

Numberofseafarers (*1,000)

Phillipines Officers Ratings

40 30 20 10 0 1990

1995

2000

2005

100 80 60 40 20 0 1990

India

1995

2000

2005

China

Figure 368: Development of seafaring populations by time (Drewry, 2007/08) These figures are averages, but they also depend on the actual crew composition. The crew cost can vary from US$105,600 to US$ 41,880 per month when Chinese crews are employed (Table 103). Crewsize (#) 22 22 18 18 17 17

Officers British Romanian Indian Filipino Latvian Chinese

Nationality Juniorofficers Indian Romanian Indian Filipino Latvian Chinese

Ratings Filipino Romanian Indian Filipino Filipino Chinese

Cost (US$/Month) 105,600 78,650 54,720 51,860 53,900 41,880

Table 103: Manning costs (Drewry, 2007/08) 343

Part II – Ship Innovation 120,000

Manningcost(US$)

100,000 80,000 60,000 40,000 20,000 0 1996

1998

2000

2002

2004

2006

2008

Year

Figure 369: Product tanker manning costs per month (Drewry, 2007/08)

Repairs and maintenance A ship has to be repaired when damage occurs, also preventive maintenance has to take place. Repairs can be necessary when a ship hits a jetty, or break a propeller blade. Maintenance can be divided into routine maintenance of such items as the main engine, cranes, cleaning and painting of the hull, and maintenance that is necessary to stay in class. The design and construction of each merchant ship in the world has been approved by a classification society, such as Lloyds Register, Bureau Veritas, Det Norske Veritas and American Bureau of Shipping. These societies give as a prove of seaworthiness of the ship different certificates valid during a limited period of time. These certificates have to be regularly renewed. This process is called the classification survey. There are various types of surveys: annual surveys, intermediate surveys, renewal surveys, other complete periodical surveys, and dry-docking survey. x

Annual survey. Normally, visual examinations to ascertain the general condition of the ship or relevant item. However, a more thorough annual survey may be required for particular structures or equipment due to consequences of failure or age. Normal window around due date: ± 3 months. Current practice will see many ships meet their annual survey requirements (and some periodic survey requirements) via a process of continuous survey. This removes the need for an annual docking. Annual surveys will be undertaken concurrently with renewal or complete periodical surveys. Typically, these arrangements require approximately 20% of the total periodic survey items to be met each year over a five year period. The annual survey will not be credited and the Certificate of Classification not endorsed unless continuous survey items due or overdue at the time of the Annual Survey have been completed or an extension of time has been granted.

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Intermediate surveys. Due between the second and third annual surveys. They involve visual examination of hull structures, machinery and electrical installations/equipment. Items additional to those of the annual survey may be included.

x

Renewal surveys. Also known as Special Surveys. Due at 5 year intervals. They are major surveys of hull structure, machinery and equipment. They involve visual inspections plus other measurements and tests.

x

Other complete periodical surveys. These relate to additional class notations, boiler surveys, radio equipment surveys, safety equipment, etc. They can be due at 1, 2.5 or 5 year intervals depending on the item in question.

x

Drydocking survey. Due twice within five years - interval not exceeding three years - although an underwater survey plus hull survey might be accepted in lieu of a docking survey.

The main repair and maintenance items are summarised in Figure 370

Scheduledrepairs

Routine/onboard

Unscheduledrepairs

Classificationsurvey regime

Major

Minor

Dockingprogram overapproximately 30Ͳmonthcycle

Repairessential beforeshipcansail

Repaircanbe postponedor temporarymeasure isacceptable

Figure 370: Maintenance and repair M&R work can be done around the world, but shipowners prefer to have it done in the range where the ships operate. A detour costs a lot of money and that is often not compensated by the financial advantage of a cheaper repair yard. It is difficult to get hard figures on M&R work as the job is not standard and not published. The lack of transparency can only result in indicative trends whereby indexes show the differences by region and over time. Figure 371 shows the index in which Singapore prices are the benchmark (=100) for 1997 and 2006. This clearly shows that the price differential between the cheapest (China) and the most expensive region (North Europe) can be as much as 100 percent. Again the dollar exchange to the local currency is also an important factor that may effect the competitive position.

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NorthEurope SouthernEurope EasternEurope BlackSea Singapore MiddleEast SouthEastAsia China 0

20

40

60

80

100 120 140 160 180

Index(Singapore=100) 2006

1997

Figure 371: Trend in price averages 1997 versus 2006 (Drewry, 2007/08)

Stores, spares and supplies Stores and supplies are expenditures that are necessary to maintain the ship such as ropes and wires, paints, grease, but also spares. These costs are usually divided into three categories: Marine stores, engine room stores and steward's stores. (Table 104) An important part of the engine room stores are the lubricating oils. It could be argued that these are in fact variable costs, dependent upon the sailing of the ship, and thus logically part of the voyage costs. However, lubricating oils are very expensive, and the consumption depends on the type and quality of the engine. A charterer of a ship does not wish to be responsible for this unforeseen cost item and, therefore, it is customary to consider it part of the operating costs. Marineanddeckstores Paint Ropes Wires Tools Safetyequipment Specialistclothingitems Freshwater

Engineroomstores Routineitems Greases Gases Chemicals Cleaningequipment Cleaningproducts Washers Gaskets Lubricationoil Msc.Spares

Steward’sstores Cleaningequipmentandmaterials Specialisedclothing Galleysupplies Laundryneeds Office/shipboard Administrationitems Recreationalitems

Table 104: Main stores and supplies budget elements

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Insurance The ship has to be insured against all sorts of risks. Apart from cargo risks, which are variable items dependent upon the specific voyage, the shipowners usually seek protection against two sorts of risk: Physical damage or loss of the hull & machinery (H&M), and liability to third party claims (P&I). In special situations the owner may insure the ship against war risks, or he takes out a loss of hire insurance, which protects him against the interruption of earnings. The H&M insurance is obtained through a broker, which acts on behalf of underwriters. These are consortia of large insurance (and reinsurance) companies, which each take a part of the risk. One ship can thus be insured indirectly via twenty or more companies, all through one broker. The Protection & Indemnity cover is provided by a limited number of clubs, which are in fact mutual funds. They insure the shipowner against liabilities from third parties, in case for example the ship hits a jetty or a crane, or creates an oil spill, or when seamen lose their lifes while on duty. Table 105 shows the various ship types and the insurance costs per annum. Type

Size

Value

H&M

War

P&I

FD&D

COFR

TDI

Total

5,000GT 10,000GT

10.000 18.000

67.5 190.0

4.0 7.2

55 70

12 12

12 14

40 60

190.5 253.2

Reefer

9,000GT

25.000

125.0

10.0

75

12

15

70

307.0

Ro/ro

15,000GT

20.000

135.0

8.0

85

12

14

55

309.0

LPG/LNG 

20,000GT 60,000GT

60.000 200.000

180.0 400.0

24.0 80.0

65 140

12 12

15 15

70 100

366.0 747.0

Bulkcarrier   

Handysize Handymax Panamax Capesize

20.000 35.000 50.000 100.000

120.0 160.0 190.0 240.0

8.0 14.0 20.0 40.0

75 90 110 130

16 16 16 16

12 12 15 16

60 75 85 120

291.0 367.0 436.0 562.0

Container  

2,000TEU 4,000TEU 6,000TEU

30.000 60.000 120.000

140.0 220.0 360.0

12.0 24.0 48.0

80 120 160

12 14 14

12 16 20

70 100 180

326.0 494.0 782.0

Handy Aframax Suezmax VLCC

35.000 60.000 80.000 120.000

150.0 220.0 250.0 340.0

14.0 24.0 32.0 48.0

85 135 160 200

12 14 16 16

15 50 60 80

70 90 100 120

346.0 533.0 618.0 804.0

60,000GT

300.000

1.000.0

120.0

650

25

50

Ͳ

1845.0

Generalcargo 

Tanker    Passenger

Table 105: Representative insurance Costs, US$ 1,000 (Drewry, 2007/08) Insurance premiums vary from year to year depending on the liquidity in the markets. Figure 372 shows the index of relative hull rates over the period 1990-2006 and a forecast to 2011. After the historical high of 1993/94, and the historical low of 2000/2001, the rates have moved in an upward direction which is forecast to continue for the years to come.

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Part II – Ship Innovation 250

Index(1990=100)

200 150 100 50 0 1990

1995 Actual

2000

2005

2010

Forecast

Figure 372: Indexed hull insurance premium and forecast (as from 2007)

Management A shipowner has to manage the commercial exploitation of the ship as well as the operational aspects, such as technical/nautical management, crew management and the various administrative functions ranging from purchasing equipment to arranging insurance. The whole of these management functions is often called administration or overhead. The management cost per ship depends on the size of the shipping company and the number of ships that are managed. The administrative functions and cost areas of running the business are summarised in Figure 373. Figure 374 shows the various management activities.Operating costs trends of bulk carriers is shown in Figure 375. Mandatory areas

Company office

Accountancy /audits

Banking

Taxation

Legaland professional

Dataand information

Optionalareas

Promotion

Outsourcing

R&D

Risk management

Figure 373: Administration functions and cost areas (Drewry, 2007/08) 348

Part II – Ship Innovation

Commercial management

Technical managment

• Securingvessel income • Organisingand managing various operatingand voyagecost streams

• Crew management • Oranistingand managingship operationsͲ functions • Supervisionof R&Mregime • Supervisionof procurement • Compliancewith regulatory requirements

Administration

• Financial,legal accounting • Taxation • Officeoverheads • Policy/planning

• Advertising/ marketing • Training programmes • Relationship withagentsand brokers

Figure 374: Management activities (Drewry, 2007/08)

Operatingcost(US$)/day

11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Products

Aframax

Suezmax

VLCC

Figure 375: Operating costs of bulk carriers, forecast as from 2006 (Drewry, 2007/08)

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12.3. Voyage costs The capital and operating costs are incurred by the shipowner irrespective of the sailing of the ship. The voyage costs come into the picture when the ship actually starts sailing, or in other words, commences a voyage. The elements that constitute this category of costs are: The fuel or bunker costs for the main engine and auxiliary engines, the harbour dues, pilotage, tugs and canal dues.

Bunker costs The fuel consumption of a ship is determined by many variables such as the size of the ship, the ship's hull, the laden condition (full or ballast), the speed, the weather (waves, currents, wind), the type and capacity of the main engine and auxiliaries, the type of fuel, the quality of the fuel. The fuel on board a ship is called bunkers. The bunker costs of a voyage depend on the fuel consumption during the sea voyage and in port, as well as the price of the fuel. The fuel price depends on the world oil price and the location where the bunkers are being taken onboard. The three main fuel types are: MDO (Marine Diesel Oil), IFO (Intermediate Fuel Oil) and HFO (Heavy Fuel Oil). The oil price has fluctuated considerably over the last 25 years. This has had a profound impact on the shipping industry. For example, the fuel inefficient steam burners disappeared almost overnight in the aftermath of the first oil crisis. The bunker costs became the single largest cost item in the running of ships after the second oil crisis in 1979. The quality of the oil is very important and is therefore constantly monitored. The shipowner should not only monitor the quality of the fuel while bunkering, but also the temperature of the fuel. Most of the measurement devices of liquids on board are based on the principle of flow meters that measure the volume. The volume of the oil (or rather the density) varies with the temperature. 600

Price(US$)

500 400 300 200 100 0 Jan/02

Jan/03

Jan/04 Rotterdam

Jan/05

Jan/06

Jan/07

Jan/08

Singapore

Figure 376: Bunker price development (HFO 380 Cst)

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Port costs and canal dues Port charges are another important cost item of the voyage costs, and these include elements such as fees for the captains room, notification of vessel’s Expected Time of Arrival (ETA), the port agency fee (for handling all the activities and paperwork during the port stay), the actual harbour dues (for the use of harbours, quays, mooring posts or buoys), the costs of pilotage (often divided into sea/river and harbour pilotage), tugboats and mooring crew. Harbour dues may depend on the gross tonnage of the vessel and the amount of cargo loaded and/or unloaded. When the ship loads and unloads a significant amount of cargo compared to the gross tonnage of the ship the harbour dues are calculated as a fixed sum per GT. Otherwise, the harbour dues are calculated as a fixed sum per GT and a fixed sum per ton cargo loaded or unloaded. Canal dues have to be paid when ships sail through a toll based canal, such as the Panama Canal, the Suez Canal, the Saint Lawrence Seaway, the Kieler Canal, etc. The user fee charged by the operator of the canal is related to the size of the vessel in GT and the laden condition, as well as the cost of alternative routes for the canals.

12.4. Cargo handling costs The objective of merchant ships is to transport cargo between different ports. To achieve this, cargo has to be transferred from ship to shore or vice versa, or directly from ship to ship or inland barge. The cargo handling costs can be seen in isolation from the total logistical process, but over the last decades a trend has developed in which shipowners look beyond their narrow confines and develop themselves into logistical operators. The cargo handling costs are determined by a number of elements, such as the type of commodity (oil, chemicals, coal, grain, forest products, and containers), the quantity, the ship type, the terminal and port characteristics. The loading and discharging of ships at the terminal is done by an independent stevedoring company or by the exporter or receiver of the cargo. In the special purpose built iron ore export facility of Tubarao in Brazil, the terminal is just a part of the mining company that exploits the mines in the interior. The terminal layout consists solely of ship loaders, which load ore into the bulk carriers at extreme loading rates. The stevedoring costs of iron ore in this case are an integral part of the export price of the mining company. The ore is sold on the condition 'free on board', in short known as FOB. The discharge however may take place in Rotterdam with an independent stevedoring company. The owner of the cargo has to pay in that case an amount in euros per ton. If the ore is sold on the basis of CIF (cost, insurance, freight) , then the stevedoring costs in Rotterdam will be paid by the exporting mining company. In dry bulk trades it depends on the condition in the sales contract whether the shipowner has to pay for the stevedoring/cargo handling costs. Crude oil, transported in tankers, is simply pumped at oil terminals from the tank storage into the ship and vice versa. The cargo handling costs (loading) are of no concern to the shipowner, as these are often part of the sale or purchase contract or taken care of directly by the buyer of the oil in case it stored with independent tank storage companies. The discharging costs associated with the ship are paid by the shipowner.

Bareboat, time and voyage charter A ship can be chartered and under the various forms of chartering, the owner is compensated for a number of these costs. Under a bareboat charter, the charterer has to pay for the all the costs, except 351

Part II – Ship Innovation the capital costs. Under a time charter, the owner has to pay for the capital and operating costs. Under a voyage charter the owner pays all the costs, also the cargo handling costs. (Figure 377) Cost

Maincomponents

Capital

Deposit Repaymentofloan Interest

Operating

Manning Insurance Repairandmaintenance Store,sparesandsupplies Administrationandmanagement

Voyage

Fuel(bunkers) Portdisbursements CanalandSeawaytransit Costforcharterer’saccount

Bareboat

Time

Voyage

Costforowner’saccount

Figure 377: Division between owner’s and charterer’s costs (Drewry, 2007/08)

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13.

BENCHMARKING, S-CURVES AND INNOVATION

Most of the innovative new products and processes require a lot of effort, time and money before they can be brought onto a market. Continued efforts increase the performance until the effect of diminishing returns on investment start to manifest itself. The performance increase slows down after the initial period of rapid growth, and ultimately performance plateaus towards a limit. The relationship between effort and performance takes the shape of the letter “S”. That is why this relationship is referred to as the performance S-curve. In almost any sector, product or process, Scurves can be identified. These curves are very useful for understanding and even predicting innovation. Once the S-curve has reached its limit, eventually a new technology will arrive on the market overtaking the old technology and a new S-curve is borne. The S-curve shift has been proposed by a number of authors over the years, but R.N. Foster in Innovation: The Attacker’s Advantage (Foster, 1986) was one of the first to provide a host of examples of products and even companies that lost, almost overnight, their once dominant market position. Construction of an S-curve of a product is a powerful tool in understanding and measuring the performance limits. At the same time this analysis may result in finding the key triggers for innovation, once limits have been identified. The S-curve analysis leads us to the assessment of the limits of a certain technology. This S-curve represents the absolute measure of the performance of a certain technology. However, in many competitive situations, it is not only relevant to know the absolute limits, but also to know the relative performance, relative to the competition. Measuring the relative performance of ships is a prerequisite in finding and defining triggers for innovation that may ultimately lead to S-curve type shifts in performance. Therefore a different concept is introduced, which measures the relative performance of technologies compared to other technologies. This process involves the continuous search for and application of significantly better practices within the firm. Ultimately this process, called benchmarking, leads to superior competitive performance. The practices that lead to exceptional performance are called enablers.

13.1. Benchmarking In this section, the benchmarking process will be discussed, as it is a powerful tool to understand and create competitive advantage, and it is a strong stimulus for innovation. A part of the benchmarking process is the assessment of the level of technology used by the firm and its competitors. Technology Assessment techniques, like S-curves, are powerful tools for finding triggers for innovation. Looking at individual products and processes that lead to innovation and competitive advantage, it will become clear that these are part of a well-organised environment. Many companies cannot really implement the benchmarking process, because its structure prohibits this. Therefore, management scientists have defined a new concept to restructure or re-engineer the business: business re-engineering or business systems engineering.

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Part II – Ship Innovation

Limit

Effort(Funds)

Sophistication

Figure 378: S-Curve

Fifthgeneration Globalbenchmarking Fourthgeneration Strategic benchmarking Thirdgeneration Processbenchmarking Secondgeneration Competitive benchmarking Firstgeneration Reverseengineering

Timetointroduction

Figure 379: Generations of benchmarking G.E. Watson in Strategic Benchmarking (Watson, 1993) describes benchmarking as a four-step approach that resembles the Deming cycle: plan, do, check and act. In the first step, planning the benchmarking study, it is necessary to select and define the process that is to be studied; identify the measures of process performance; evaluate one's own capability at this process; and determine what 354

Part II – Ship Innovation companies should be studied. According to Watson, benchmarking has evolved to a fourth generation in its development as a business process. As shown in Figure 379, the first generation of the benchmarking technology may be construed as product-oriented reverse engineering or competitive product analysis. In this first generation, comparisons of product characteristics, functionality and performance were made with similar products or services from competitors. Reverse engineering, which tends to be a technical, engineering-based approach to product comparisons, includes tear-down and evaluation of technical product characteristics. This process is typically applied for the improvement of production lines or manufacturing capabilities. Ideally, groupings of parts by system or subsystem produce the best pool of candidates for reverse engineering. Figure 380 illustrates the difference between the traditional design process and the reverse engineering process.

Figure 380: Traditional versus reverse engineering design process If forward engineering is the traditional process of moving from high-level concepts and abstractions to the logical, implementation-independent design needed in a physical system, then reverse engineering is the design analysis of the system components and their interrelationships within the higher-level discrete system. The goal of reverse engineering, then, is increasing the manufacturability and improving documentation by uncovering the underlying design. This design maximisation process is a form of value engineering (which in turn is based on value analysis). In contrast, the second generation, competitive product analysis compares market-oriented features to evaluate the relative capabilities of the competitive product offerings. These methods are in use in most companies, and it has moved beyond product-oriented comparisons to include comparisons of processes with those of competitors. The third generation of benchmarking, process benchmarking, was developed during 1982-1988, as more quality leaders recognised that they could learn more easily from companies outside their industry than from competitive studies. Companies that compete have natural boundaries beyond which they will not share process information. These boundaries and restrictions do not apply for companies that are not direct competitors. This leads to a broadened benchmarking: Instead of 355

Part II – Ship Innovation targeting only competitors, they target companies with recognised strong practices independent of the industry. However, this shift also required more in-depth knowledge of the similarities among businesses that may appear greatly different on the surface, in order to understand how to apply lessons learned across these industry boundaries. Such process benchmarking is based on the development of analogies between the business processes at two or more companies. The fourth generation of benchmarking is strategic benchmarking, which is a systematic process for evaluating alternatives, implementing strategies, and improving performance by understanding and adapting successful strategies from external partners who participate in an ongoing business alliance. Strategic benchmarking differs from process benchmarking in terms of scope and depth of commitment among sharing companies. Watson sees a fifth generation of benchmarking emerging, which lies in the global application where international trade, cultural, and business process distinctions among companies are bridged and their applications for business process improvement are understood. How can these techniques be useful to shipping innovation? A simple example from the oil tanker sector may illustrate this. In 1992 the I.M.O. issued the MARPOL 73/78 Annex I Regulation 13F for newly built ships. The development of new vessels types, such as the double-hull tanker and mid-deck tankers, has to take Regulation 13F into consideration. World-Wide Shipping Agency (S) Pte. Ltd. of Singapore and NKK Corp of Japan cooperated in the development of a double-hull tanker design, called the double-hull void tanker design. Besides oil pollution prevention, they also considered easy maintenance and hull corrosion protection. The following is an outline of the double-hull void concepts. Figure 381 (1) illustrates the conventional double-hull tanker design, which, as required by Regulation 13F of MARPOL Annex I, calls for double-hull construction at the sides and bottom of the vessel. These areas are then used as ballast space. The double-hull design has several disadvantages: x

x

x x

x

Inspection of the double-hull ballast tanks is difficult, because of the boundary areas between cargo oil tanks and the ballast water tanks as well as those between the sea and the water ballast tanks. The humid dark and slippery conditions in the double-hull ballast space add further obstacles to inspection procedure; The configuration of the double-hull ballast space hampers clean-up of oil leaks into the area and dirt accumulated in the double-bottom ballast space; The structural complexity of the double-hull space interferes with gas freeing and ventilation, necessary before inspection and maintenance operations; The mandatory lengthwise and evenly distributed arrangement of cargo oil tanks and ballast water tanks in conventional double-hull tankers causes a higher hull-girder bending moment than that seen for single-hull tankers, in both loaded and ballast conditions; The coated area in conventional double-hull ballast spaces is similar to that of single-hull tankers. Consequently coating maintenance requires twice the effort and cost, and the risk of coating breakdown is greater.

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Figure 381: Double-hull tanker designs The new design concept combines the design merits of single and double-hull tankers, eliminating many of the problems inherent in conventional double-hull tankers. Two alternative features have been proposed in the new design. The first recommendation is that all double-hull spaces have to be dry and void. Ballast water is carried by two pairs of permanent wing ballast tanks as well as a fore peak tank and aft peak tank as shown in Figure 381 (2). The other alternative (3) has a dry and void doublebottom space. The side double-hull spaces are used as ballast spaces in combination with one pair of permanent wing ballast tanks and fore peak and aft peak tanks. The new double-hull design has the following advantages: x

The double-hull space is coated with an appropriate light-coloured paint. Little corrosion is expected here since it is not used for ballast purposes;

x

Since the coating area for ballast spaces in the first alternative is about half that of the conventional double-hull design, coating maintenance costs will be lower;

x

The dry and light conditions of the void, double-hull spaces will permit easier and safer inspection of these areas;

x

The double-hull spaces are dry and equipped with gas detectors. Cargo vapour is more easily detected and readings are therefore more reliable in these dry spaces than obtainable from 357

Part II – Ship Innovation devices in the double-hull ballast spaces of conventional double-hull tankers. Such reliability removes hazard that may be encountered during preliminary inspections, in such cases as oil leaks from cargo tanks, and expedites cleanup and repairs; x

The still water bending moment of the new double-hull design is lower than that of the conventional double-hull design, due to the fitting of ballast tanks to the cargo oil tank space;

x

Since the double-hull spaces are void and not used for ballast purposes, the spaces will be free of sand and dirt.

The new design may solve many of the problems encountered on conventional double-hull tankers. A comparison of the main particulars is given in Table 106. The size of tankers built to double-hull void design specifications increases to accommodate additional void space. The reason for adding void space is to further reduce the risk of oil pollution in the events of a collision and to enhance safety during navigation and inspection. Extra void space should also lower maintenance costs. 

Conventional doubleͲhullVLCC

Length(m) Breadth(m) Depth(m) Draught(m) Grosstonnage(GT) Deadweight(tons) Capacityofcargotanks(m3) Weightofhullsteel(%) Coatedareaofballastwatertank

317.0 58.0 31.4 21.0 161,000 280,000 350,000 100 100

NewVLCC Alternative1 325.0 60.0 34.0 20.0 185.000 280.000 350.000 110 55

NewVLCC Alternative2 317.0 58.0 32.9 21.0 167,000 280,000 350,000 103 75

Table 106: Comparison of conventional double-hull VLCC with alternatives

13.2. Benchmarking Panamax bulk carriers The following example is a benchmark study of the Panamax bulk carrier fleet as a whole. The relative performance of bulk carriers in the charter market is studied and used to identify whether “some bulk carriers are better than others” and to understand the design characteristics that result in a competitive advantage. Panamax bulk carriers constitute the largest homogeneous ship type group in the world fleet. The Clarkson database contained in 1994 834 of these ships in the deadweight range of 50,000-75,000 dwt. The dimensions of Panamax vessels are restricted by the dimensions of the locks in the Panama Canal, especially the breadth (32.2 m). Shipowners and shipyards have put a lot of effort over the last decades into the maximising of the deadweight of the bulk carrier within these restrictions. This continuous process of improvement innovations is driven by the shipowners and shipyards, which try to create a better performance of the vessel, and consequently make a better return on investment. The basic question is whether the shipping market honours their efforts? In other words, does the increase in performance lead to higher charter rates? In order to answer these questions, it is imperative to define the term 'performance'. Which elements of a ship design determine the performance, and how can one measure these parameters? If an owner wants to compare the 358

Part II – Ship Innovation performance of his bulk carriers with the industry as a whole, than he has to start a benchmarking project. In the study "Analysis of the Panamax Bulk Carrier Charter market 1989-1994, in relation to the Design Characteristics" (Wijnolst & Bartelds, 1995), approximately 10,000 published charter fixtures of Panamax bulk carriers covering the period of 1989-1994 have been analysed and the charter rates have been related to the design characteristics of the bulk carriers. This benchmarking project of the Panamax bulk carriers has created important insights in the performances of these vessels. A summary of the period time charter market illustrates the benchmarking approach.

Panamax bulk carrier characteristics The database of Panamax bulk carriers contained a lot of information about the attributes of the ships. Attributes that may influence the charter price are: x

Classification Society; The most used classification societies were Lloyds Register (189), American Bureau of Shipping (165), Nippon Kaji Kyokei (138), Det Norske Veritas (138) and Bureau Veritas (78).

x

Flag State; The vessels were registered all over the world. The countries with the largest number of ships were those with a flag of convenience like Cyprus (93), Liberia (90),Panama (83), Malta (46), Philippines (44), Norway (41, second register). The largest flag state is Greece with 130 vessels.

x

Owner; Most vessel were owned by private companies. Some are owned by governments. Even a large company has a very limited number of vessels. This means that no single company can influence the market by itself.

x

Builder/Yard; The 834 vessels analysed, were built between 1969 and 1994. Although most vessels were built in Japan and South Korea, the yard that built the most was Burmeister & Wain in Copenhagen.

x

Main engine make; There were only eight known producers of engines. The two largest manufacturers were A/S Bürmeister & Wain and Hyunday S.B. & Heavy Industries Ltd. produced 82% of all engines placed in bulk carriers.

x

Age; The age was calculated with 1994 as reference year. All vessels were built in 1965 or later. Nearly half of all vessels were built in the periods 1974-1978 and 1981-1983. The average age of the considered vessels is 12.9 year.

x

Deadweight; The deadweight ranged from 50,000 up to 76,000 tons. The largest group was within the 60,000-70,000 ton range. It comprises 55% of all vessels Figure 382 shows the deadweight as a function of the year of built. Only vessels that are still in operation have been taken into account. As can be seen the deadweight of Panamax vessels has increased significantly since 1984.

x

Service speed; The minimum service speed is about 10.5 knots, the maximum about 17.60 knots. The average speed is 14.6 knots. Nearly 75% of all vessels have a trial speed in the range 13.5-15.5 knots. Figure 383 shows that the average speed of the vessels, built before the second oil-crisis, 1979, was 15 knots. The average speed of the vessels built in the 1980s was about 14 knots. Recently built vessels show that the average trial speed is increasing again to about 15 knots. 359

Part II – Ship Innovation Heavy fuel oil consumption; The fuel consumption determines to a large extent the voyage costs. Figure 8 shows the fuel consumption as a function of the year of built. It shows clearly that newer ships have better main engines, which consume less oil than older ones. 70,000

Deadweight(tonnes)

68,000 66,000 64,000 62,000 60,000 58,000 56,000 1965

1970

1975

1980

1985

1990

1995

Year

Figure 382: Deadweight as a function of the year of built 16.0 15.5 Speed(Knots))

x

15.0 14.5 14.0 13.5 13.0 1970

1975

1980

1985

1990

Year

Figure 383: Speed as a function of the year of built

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Part II – Ship Innovation

HFOconsumption(tonnes)

60.0 50.0 40.0 30.0 20.0 10.0 0.0 1970

1975

1980

1985

1990

Year

Figure 384: Heavy fuel oil consumption as a function of year of built x

Main dimensions; Main dimensions are important, since many canals, locks, harbours and quays, cause restrictions. 90% of the considered vessels had a length less than 225 metres and nearly 65% had a length in the range between 210 and 220 metres. More than 85% of the considered vessels had a width less than 32.2 metres, the restriction of the locks in the Panama Canal. The smaller vessels are usually older. Twenty-four of the vessels are wider than 32.20 metres and are eliminated from further analysis. The draught in the Database was the maximum allowable draught. The distribution shows two peaks, each peak representing about 180 vessels. The first peak was at a draught of approximately 12.25 metres, the second one at approximately 13.00 metres.

x

Cargo capacity/grain capacity; The minimum grain capacity is 2.0 million cu.ft (57,000 m3), the maximum grain capacity is 3.1 million cu.ft (88,000 m3), the average grain capacity was 2.7 million cu.ft (75,000 m3). The largest group was in the range between 2.6 and 2.7 million cu.ft.

The charter market Charters can be divided into three types: x x x

Period time charters; Trip time charters; Single voyage charters.

Each type of charter has its own characteristics and its own rate. The youngest vessels were built in 1994, the oldest ones in 1972 and were 22 years old. The variance in charter rates is wide. The lowest rate is US$ 2,000/day while the highest rate is over US$ 16,000/day. Of course, these rates will be the

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Part II – Ship Innovation same for all following period time charter scatter diagrams. Figure 385 shows the charter rates as a function of age, for period time charters. 18,000

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0

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Age Figure 385: Charter rate as function of age The charter rates of trip time charters show the same behaviour. There is also a wide variance. It is difficult to compare the mutual single voyage charters because charter rates depend on the products transported. So to examine single voyage charters in a proper way, they should be divided by cargo. It is therefore also difficult to compare them with the other types of charters. By plotting charter rates against time, cycles can be observed. Figure 386 shows an example for period time charters. These cycles are caused by the general business cycles in the economy. In order to compare the relative performance of the bulk carriers, these business cycles have to be eliminated. The simplest way to achieve this is to create an index on the basis of a charter rate for every fixture type. For each time interval, each month, the average charter rate is calculated by the following formula: ˜‡”ƒ‰‡ ”‡‹‰Š–ƒ–‡Œൌ

σ Šƒ”–‡”ƒ–‡‹ǡŒ  

Where: i = 1..N fixtures per time interval j = 1..m, time interval N = Total number of fixtures of that time interval The index is composed according to the following formula: Šƒ”–‡”‹†‡šൌ

Šƒ”–‡”ƒ–‡‹ǡŒ ‫ͲͲͳ כ‬ ˜‡”ƒ‰‡Šƒ”–‡”ƒ–‡Œ

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Figure 386: Charter rates: Business cycles The basic assumption is that in this way the relative performance of the ships is obtained, while the unpredictable 'noise' of the world economy is neutralised. The cycle fluctuation will be filtered out. An index level can be set (in this case set to 100) and the fixtures with the highest deviations can be detected. To determine which ships to select for a more detailed analysis, boundary levels are set. These boundary levels may not be too small because too many vessels would be selected, and for a large boundary level, the selected number of ships would be too small. The boundary level has to vary at least 10% from the index level (100), to filter out most of the 'noise' induced by the economic business cycles. The market is self-regulating, regulated by supply and demand for ship's capacity. If demand for ships is high, the charter rates will increase and if demand for ships is low, charter rates will decrease. This is why the shipping market is very efficient. A deviation of 10% is rather high. The average charter rates of all period time fixtures, is about US$ 10,000/day. Suppose a ship outperforms and gets a 10% higher rate. This means that the ship earns about US$ 1,000 per day more or on an annual basis 350 * US$ 1,000 = US$ 350,000. For a first selection the boundary levels will be set at 100 plus Standard Deviation for the upper boundary, and 100 minus Standard Deviation for the lower boundary. Or in formula: ’’‡”‹‹–ൌͳͲͲ൅ɐ ‘™‡”‹‹–ൌͳͲͲǦɐ Which causes can be identified as being important for the deviations of the index figures? Possible major causes are: 363

Part II – Ship Innovation x x x

Differences of contracts per fixture type; Market mechanics; Quality of the ship.

Figure 387 shows the period time charter index from 1989 up to and including 1994. The figure shows a narrow range with almost all index figures in it. The width of this range is about 40% of the index level (100). The Standard Deviation is 10.14. The chosen lower limit is 89.86 and the chosen upper limit is 110.14.

Figure 387: Charter rate index: Business cycle eliminated

Index analysis The ships that under or outperform the market are selected for further analysis. The definitions of under- and Outperformance are: x

Outperformance Ships that occur at least 5 times in the fixture database and with index figures higher than 117.58. The selection is as follows: The percentage of occurrence of the index figures higher than 117.58 has to be at least 75%. This means that if a ship occurs 8 times in the fixture database, the number of times it outperforms is at least 6.

x

Underperformance This selection criterion selects ships with index figures less than 82.42. These ships have to be in the list at least 5 times, and the percentage of occurrence lower than 82.42 has to be at least to 75% of the total occurrence.

This section tries to analyse why the selected ships have a better performance record than the other, not selected ships, the ultimate purpose of this analysis. This is done by examining tables, indicating design or fixture characteristics and several statistical data like the number of occurrences, average 364

Part II – Ship Innovation charter rates, average index figures and average ages. On this basis, scatter diagrams are made in which the index figures are plotted against design characteristics. The selected outperforming ships consist of 32 bulk carriers while the underperforming ships form a group of 19 bulk carriers. This brings the total number of selected ships to 51 bulk carriers which were analysed more closely. These 51 selected ships made, in the years 1989 up to and including 1994, 316 fixtures. Classification Society The largest classification society is Lloyds Register. This goes for both the selected outperforming as well as for the selected underperforming ships. With a total of 19 ships, this is nearly 38% of all selected ships. No conclusions can be drawn on basis of the classification society. Flag State From all selected outperforming ships, a majority is registered in Greece. Of the selected 32 ships, 19 ships are registered in Greece. The average of the index figures is 120.93. Also the majority of the underperforming ship is registered in Greece. The main difference between both categories is average age of the ships. The average age of the outperforming ships is less than 8 years while the average age of the underperforming ships is about 17 years, so twice as old. Owner The 51 selected ships are owned by 41 owners. The difference in average age is obvious again, although not as obvious as for the other items. The average age of the ships of the Livanos Group is 10 years while the average age of the ships of Metrofin Ltd. is 10 years as well. Builder/Shipyard The selected 51 ships are built at 30 different yards. There exists a large gap between the average ages of the outperforming ships and the underperforming ships. No conclusions can be drawn from this. Main engine make From the selected 51 ships, 22 ships are provided with a Sulzer engine and 20 with a B&W engine, together their market share in the Panamax bulk fleet is over 80%. B. & W. has 16 out of the 20 (75%) entries in the table of the outperforming ships, Sulzer only 12 out of the 22 (just over 50%). Age Old ships get a lower index figure, which means that they get a lower charter rate than the average of that month. Of all trip time fixtures the average charter rates and the average index figures have been calculated for each age from 0 to 20 years. New ships get the highest average charter rates. The first 5 years, ships get an average charter rate of about US$ 11,750/day. Ships with an age from 5 to about 14 years get an average charter rate of about US$ 10,500/day. Ships older than 14 years get an even lower charter rate. For every extra year of age, the average charter rate of the ship decreases by approximately US$ 500/day. The difference in charter rate of a new ship (say 2 years old) and an old ship (say 18 years old) is about US$ 3,402/day. On an annual basis this is about US$ 1.2 million. Deadweight Underperforming and outperforming ships are in the same deadweight range. A group is in the range of 50,000 to 55,000 dwt and another group is in the 60,000 to 67,000 dwt range. This indicates that there is no particular deadweight range that gets systematically higher charter rates. 365

Part II – Ship Innovation Speed The speed used here is the speed as mentioned in the fixtures. The speed ranges from 12 up to 14.5 knots, independent of the index figure. Most fixtures have a service speed of 13 knots. These fixtures have an average age of about 12 years. Ships with a speed of 13.5 or 14 knots are newer, which shows in the average charter rates and in the average index as well. Ships with a speed of 13.5 knots earn about US$ 1,000/day more than ships with a speed of 13.0 knots. The average index of the faster ships is about 10 points higher. Heavy fuel oil consumption The HFO consumption determines, to a large extent, the voyage costs. These voyage costs are paid for by the charterer. This means that if a ship has a high HFO consumption, the charterer will try to get another ship. If this is not possible, the charterer will try to get a lower charter rate as compensation for the high consumption. So ships with a high consumption have a low index figure. Main dimensions Most selected ships have the same length as all the other ships in the database. The same goes for the draught. Grain capacity Most Panamax bulk carriers have a grain capacity of around 2.6 million cu.ft with a small peak at 2.8 million cu.ft. Most selected vessels have a grain capacity of around 2.6 million cu.ft. Just as the underperforming vessels, it seems that the ships with a smaller capacity get lower charter rates and vice versa. Other attributes From all considered 51 ships, 28 ships are strengthened for ore (of which 12 ships outperform the market and 16 underperform the market), 2 ships cannot and for the other 21 ships data are not available. From the considered 51 ships, 17 are strengthened to carry heavy cargoes, one ship is not, and for the 33 others it is not known. Of the 17 ships which are strengthened to carry heavy cargo, 15 ships are outperforming the market. The average charter rate is US$ 12,693/day with an average charter index of 122.74. The average age of these 15 ships is 7 years. From the 51 selected ships, only one ship can sail through ice, 4 cannot, while for the remaining 46 ships it is not known whether these ships are able to sail through ice. These are not enough data to draw any conclusions. From the total of 51 ships, 9 vessels (8 outperform the market and 1 underperforms the market) are not geared while only one ship is provided with some kind of loading and/or discharging gear. It is not known whether the other ships are provided with gear to load and/or discharges its cargo. Since only one ship is registered to have gear, it is not possible to speak of a trend that geared ships earn higher charter rates than gearless ships.

Conclusions The extensive benchmarking study created a surprising insight into the relative competitive advantage of the panama bulk carrier at that time. The main conclusions were the following. The fuel consumption affects the charter rate indirectly. If a charterer is able to choose from two ships with as 366

Part II – Ship Innovation the only difference the fuel consumption, he will charter the one with the lowest fuel consumption. But this situation hardly ever occurs. Generally, more differences between the ships occur, like a combination of differences in deadweight, age and fuel consumption. There exists a relation between the fuel consumption and the age of the vessel. Newer ships have, usually lower fuel consumption. Charterers pay a lower charter rate for older vessels to compensate the higher fuel consumption of the chartered vessel. The fuel consumption will determine the total costs of the transport though this differs per fixture type. For a time charter the fuel costs are to be paid by the charterer while the fuel costs for voyage charter are to be paid by the shipowner. The amount of fuel consumed by the engine is determined by the required power. The required power is determined by the required speed. The relation between power and speed is: ‘™‡”ൌ͋ሺ˜͵ሻ Increasing the speed with one knot, an increase of about 8%, can result in an increase of fuel consumption of about 5 tons per day, which is an increase of about 16%. In a firm market shipowners and charterers will increase the ship's speed in order to capitalise on the high charter rates in the hope that the additional costs, incurred in bunker costs will be compensated by the extra trade generated and time saved. In a soft market the owners will decrease the speed again for the opposite result. The age in relation to the fuel consumption of the ships determines the level of the charter rates. This is shown in Figure 388. Another way to state this, is that some operators, who use old ships, pay lower charter rates. Old ships which have been depreciated have low capital cost and no interest costs. This could mean that the owner can decrease the charter rates, since costs are lower. Another reason to pay a lower charter rate is the high fuel consumption of the old ships. According to the figure, which shows the average fuel consumptions plotted against the building year, old ships use more fuel oil than new ships. In the same figure the average charter rate has been plotted against the building year. The graph shows clearly that new ships get higher charter rates than old ships. The total costs of a trip have been calculated the following way: ‘–ƒŽ…‘•–•ൌŠƒ”–‡”ƒ–‡൅ —‡Ž‘•–• —‡Ž…‘•–•ൌ —‡Ž‘•—’–‹‘ȗ —‡Ž”‹…‡ The sailing time of these ships is estimated as 70% of the total time, the other 30% the ship will be in a port, loading or discharging. The total costs (charter plus fuel) are for all ships about US$ 13,000 per day. So it does not matter whether one charters an old ship with high fuel costs or a new ship with low fuel costs. The total of charter rate and fuel costs are about the same. This is due to the total transparency of the bulk carrier charter market. Over 400 shipowners and over 500 charterers are playing a role in this market. And even the large owners or large charterers can hardly influence the charter rates. Although some charterers manage to get lower charter rates than the average, this is mainly due to good timing. The same is valid for some shipowners. Some owners prefer the low charter rates of old ships, in particular when they have to spend a lot of time in port and they use little fuel.

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14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1975

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Yearofbuilt Charterrate

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Figure 388: Cost and fuel consumption versus year of built

13.3. S-Curves and innovation In this section some examples of S-curve shifts are presented as they occur in real life, and of course in shipping as well. It takes often a long time before the performance of the new technology surpasses that of existing technology. The S-curve as depicted in Figure 389 is present in most industries, like aviation. It shows two curves of the development of the speed of airplanes. The first performance curve is that of normal planes which finds its limit in the sonic boom (Mach 1). It took a long time to reach that limit as the theory and the computers took about twenty years to reach maturity. The second S-curve, going beyond the sonic boom, at supersonic speeds, required a whole new approach that took a long time to develop. A similar speed S-curve shift can be witnessed in cycling. The world speed hour-record for cycling with conventional bicycles increased stepwise over time due to the improvement in equipment and the physical condition of the cycler to about 55 km as Figure 390. illustrates. In the meantime a whole new category of aerodynamic cycles have been developed in which the cycler lies horizontally, thus reducing air resistance dramatically. The speed of these man-driven cycles is much higher (84 km/hour). Although this represents a complete S-curve shift which should be welcomed by the cycling organisations, these new machines are banned from official races as they would be unfair competitors.

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Supersonic

Mach1

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Figure 389: S-curve shift in aviation

Kilometrescycledinonehour

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Figure 390: S-curve in cycling

S-Curve 1: Human and Wind power Ships used to be propelled for thousands of years by human power (rowing) and wind power (sails) or a combination thereof. Figure 391 shows a heavy-lift vessel on the Nile transporting an obelisk and propelled by human power. 369

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Figure 391: Egyptian heavy-lift vessel Many centuries later, the Greeks developed their famous trireme, a warship propelled by a combination of human and wind power (Figure 392). Another example is the Viking long ship (Figure 393) with which the Nordic people discovered North America and conquered Europe. Gradually, these sailing vessels became more adapted to the requirements of cargo transportation. The first such vessel was the Hanseatic Cog, a ship that was very suitable to trade between the Hanseatic League of Cities in and around the Baltic and North Sea in the 13th century (Figure 394). Sailing ships played a crucial in the exploration of the world, like Columbus’ Nina (Figure 395) with which he discovered America. China (Zheng He) discovered the world in the beginning of the 15th century, way before Columbus’ journey. The Chinese are said to have developed a 3000 dwt ship and discovered America.

Figure 392: Trireme

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Figure 393: Viking long ship

Figure 394: Hanseatic Cog

Figure 395: Ships of world discoverers Columbus (left) and Zhen He (right)

371

Part II – Ship Innovation The ship and sailing technology and materials used to build sailing vessels, improved with small steps over this period of 5000 years. Evolutionary in nature, until the 19th century when breakthrough designs like the clipper (Figure 396) with many masts and a lot of sails to catch the wind, resulted into extremely fast vessels which were able to “clip off the time” of a journey. The speed of sailing vessels is a function of the number of masts (requires length) and wind force. A 5-mast ship reached its speed limit at around 14 knots which is still amazing for such large vessels. Without wind, the ships would not move and that was an important limiting factor and also a powerful trigger for innovation.

Figure 396: Cutty Sark

Figure 397: Thomas W. Lawson In the meantime, the steam engine had been successfully used in a whole new category of ships that challenged the supremacy of the sailing vessels. Nevertheless, some traditional owners refused to adopt - sometimes for good reasons, for example the lack of coal bunker stations around the world modern technology and continued to push the S-curve limit of the sailing vessel. The last example was the Thomas Lawson (1902), a 7-mast ship which was operated by a crew of only 16 men, as it was equipped with steam-driven winches to handle the sails. The ship was lost in a storm in 1907 and that sounded the final death bell of the sailing era. 372

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S-Curve 2: Steam power Around 1800 a new S-curve took shape because of the development of steam power to propel ships. It took around another 70 years before the new technology could start to displace the sailing vessel. The steam powered ships appeared around 1800 on board ships. The steam engine (Figure 398) itself is driven by steam, which is created by burning coal in a furnace and heating water.

Figure 398: Steam engine The first person to succeed in building a steamship with paddles on the sides, was the Frenchman Jouffrey d’Abbans in 1783 (Figure 399). Many developments took place to improve the technology of the engines: seals and lubricants that could withstand the heat, boilers and condensers, and much more. The paddle steamer was initially used in protected waters (rivers) and later on it dared to venture on the North Atlantic assisted by sails (Figure 400). The paddles on the side of the ship were very vulnerable to the forces of the waves, and therefore an S-curve shift had to be found towards more efficient ways of propulsion. Inventors like Petit Smith found inspiration in the screw pump developed by Archimedes, which still is the basic configuration (Figure 401) as we use it today.

Figure 399: Jouffrey d’Abbans’ steam ship 373

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Figure 400: Sail-assisted paddle steamer

Figure 401: Wooden screw propeller The screw propeller was not the only basic innovation that had to take place before the steam engine could be developed to its full potential. The replacement of wood as a construction material of the ship’s hull by iron was a prerequisite for accommodating the huge steam engines in the ship’s stern. Only iron construction methods were suitable to do that, and at the same time this created the springboard for the resulting drive for economies of scale. The first ship in which all the new technologies came together for the first time is the Great Britain (Figure 402), built in 1843 by the genius engineer Brunel.

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Figure 402: SS Great Britain The steam engines were perfected in the following years to deliver ever more power for propulsion. The 3-cylinder compound engine (Figure 403) was technologically marvellous, and was used in passenger ships like the SS Christopher Columbus, which could give the ship a speed of 20 knots. An important constraint or limit of these was the large crew necessary to shovel the coal under decks in the furnaces. The relatively high costs associated with such an operation, were overcome with the invention of a new type of engine: the internal combustion engine.

Figure 403: 3-cylinder compound engine in SS Christopher Columbus

S-Curve 3: Internal combustion power At the end of the 19th century, the Germans (Daimler) invented the internal combustion engine, which used petrol and could be applied in cars. In1892, another German, Rudolf Diesel invented a new engine, which could be scaled up to deliver the power to propel ships. That was the start of a new Scurve which has revolutionised shipping in the 20th century. The first Diesel engine was made in 1897 (Figure 404) and its diffusion towards the maritime industry was extremely fast.

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Figure 404: Rudolf Diesel’s diesel engine The first installations in ships took place onboard (French) navy vessels, but the Dutch-built oil tanker Vulcanus holds the title of first merchant marine motor ship with a diesel engine (1910), followed on its heels by the Danish built general cargo ship Selandia (1912), both see Figure 405

Figure 405: First diesel engine powered motor ships In the decades thereafter the diesel engine replaced the steam engine, as the steam engine had done before with the sailing ship. What is rather tragic is that while the steam engine development was at it pinnacle, the seeds of obsolescence were sawn. Its consequences were devastating for the regions in Britain that were the absolute world leaders in steam engine and shipbuilding technology. This is an example of how technological change may trigger the decline of a once mighty industry. The diesel engine facilitated the increase in the size of the ships, as the new engines could deliver much more output per man. The economies of scale thus created, made it also possible to develop the two basic ship type of the time, the tanker and general cargo ship, into many new directions. The diesel engine was one of the most important enablers of innovation in shipping. That does not mean that the steam engine did not evolve into more powerful and efficient ways. The steam turbine, using oil to boil the water, was there to stay until the 1970s in order to propel the huge oil tankers, as diesel engine output was not yet sufficient to do that. The closure of the Suez Canal in 1956 triggered the 376

Part II – Ship Innovation phenomenal increase in size of tankers. The first supertanker (100,000 dwt) from the American Ludwig could only be powered by steam turbines. The drawback of steam turbines was the low-fuel efficiency (expressed in grams of fuel per kWhour), but in a period of cheap oil, this did not really influence the economy of the ships equipped with turbines. This lasted until the first oil crisis in 1973, which caused a steep increase in the price of oil and made in one stroke the turbines obsolete. Figure 406 shows the development over time of the number of turbine tankers delivered. The figure resembles almost perfectly the standard product life cycle, which makes a full circle. The history of the development of steam power and screw propeller ships provides many examples of S-curves, as is illustrated by the book "The Advent of Steam; The Merchant Steamship before 1900" (Gardiner, 1993). The S-curve of the motor ship is shown in Figure 407 together with the preceding curves of the steam ship and the sailing ship. The three curves illustrate two shifts in propulsion, which caused a fundamental change in shipping and shipbuilding. New nations were able to pro-actively pursue the opportunities created during the turbulent times that change brings with it. Japan, for example, became in a very short time the largest producer of mega tankers and bulk carriers.

Numberofturbinetankersdelivered

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Figure 406: Development of the number of turbine tankers delivered

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Motorships Steamships ThomasLawson

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Figure 407: S-curves in propulsion technologies

S-curve 4: Alternative energy sources In the 1960s nuclear power became harnessed and applied on a large scale in the power generating industry. Marine applications of nuclear power installations in submarines paved the way for trials in merchant vessels. The American general cargo ship Savannah was the first merchant vessel to be equipped with the nuclear reactor (Figure 408), and the German vessel Otto Hahn, the second and for the time being the last one. A nuclear reactor is in fact an elaborate way of making steam, as the energy that is generated in the reactor is used to heat water into steam. The steam in turn is used to drive a steam turbine. Nuclear power has a number of advantages, such as the limited need for bunkering. The Otto Hahn, which made 126 voyages, before it was scrapped, steamed 642,000 nautical miles and transported 776,000 tons cargo, only used 80 kilograms(!) of uranium fuel, a shipowner’s dream. However, there were some drawbacks too. Most of the ports in the world did not trust nuclear-powered ships and therefore denied these vessels access. Also the decommissioning was very expensive. Finally, uranium is scarce, and therefore expensive. Nuclear power is definitely not the energy of the future in shipping. Are there alternatives on the horizon? Revival of wind power as a co-generator of propulsion is a source of all sorts of innovations, as Skysails demonstrates (Figure 409). Also solar power is a potential source of propulsion energy, although in combination with other sources, see Figure 410.

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Figure 408: Nuclear powered

Figure 409: Sail power

Figure 410: Solar power 379

Part II – Ship Innovation Jeremy Rifkin (Rifkin, 2003) believes that within 50 years the fossil fuel-based economy will be over and replaced by the hydrogen economy. Hydrogen is a clean fuel that is used in fuel cells. The current fuel cell has limited output, but the technology will be developed to power ships in the future. This could be the start of a fundamental shift in propulsion power, and result is a new s-curve shift (Figure 411). Not all new propulsion technologies are of a high tech nature. A company proposes to incinerate household waste on board and use the energy to propel the ship. This way, cities in for example may get rid of their waste and the shipping company earns a substantial fee for the incineration, while at the same time it generates free energy for propulsion. 80%

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Figure 411: Different propulsion technologies compared The Norwegian shipping company Wallenius Wilhelmsen made a design for a revolutionary car carrier, a pentamaran design using a combination of wind, wave, solar, fuel cell, and diesel power (Figure 412). This chapter has demonstrated some of the technological S-curves that have occurred in the way ships are propelled. The basic idea behind the S-curve is summarised in Figure 413. Important questions that the shipowner should ask himself are in this context: x x x x x

Where is my product (ship) on the technology S-curve? What are my company’s opportunities and vulnerabilities? How are we monitoring potentially disruptive competition and the evolving needs of our customers? Is my company’s current strategy consistent with the answers to the above questions? If our products are in the mature phase, what is our strategy for the future? 380

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Figure 412: Revolutionary pentamaran design

Opportunities Maximiseprofitsasthemarketleader. Extendthetechologyforadditionalgrowth

Opportunities Thenewsolutioncanbuildmarket shareNewreleasees canimprove perfomanceandbuildmarketinterest

Opportunities Anewsolutioncoulddisrupt existingtechnologyand differentiatethe company

Threats Complacencymayfollow Succesandleadtobeing replacedbyadisruptive technology

Threats Fastfollowerscanintroducesimilar newsolutionsthatavoidmistakesor misstepsoftheoriginaltechnology Turbulentcompetitionby manyplayerscanupsetstrategy Threats Themarketmaynotpercieve valueinthenewsolution Theinnovatormayhave failedtoexecutewell

Figure 413: The technology S-curve

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14.

TRIGGERS FOR SHIPPING INNOVATION

Ship design has a large technical component, which is the domain of the naval architects, mechanical engineers, and other “experts”. They have the competence to apply the theories of hydrodynamics, construction and operations to make a design for a safe ship that can be built in an economic way by the shipyards, and finally operated by the shipowner. The system-based ship design concept is not a one-directional rational process towards a fixed (technical) goal, but rather an iterative way forward, with lots of feedback loops in between. The objective of all stakeholders is to create a ship that has a competitive advantage over the existing ships. But how can one find the ideas to achieve just that? In this chapter a methodology is proposed that may help structure this rather unstructured and often chaotic search for the “holy grail” of shipping. This shipping innovation methodology is not only accessible for the engineers, but also for the other professionals in the maritime industry. The basic concept behind the methodology is that there are many constraints or limits that the designers are faced with and that the only way to get around these limits is to create a new approach, products, process or whatever. The understanding of the individual that there are constraints and limits, can be turned into something positive: these limits can be used as triggers for change and innovation. The shipping innovation methodology distinguishes six classes of triggers for innovation. Finding the triggers is a matter of drawing up S-curves and defining performance limits.

1. Laws of physics triggers The quest for speed in transportation is of all times. Rail transport was the first mode that achieved relatively high speed, and was later on overtaken by air transport, while road transport speed also increased substantially over the years. Maritime transportation remained pretty slow in comparison with the other three modes. That does not mean that man did not try to go faster with ships at sea. The famous Blue Riband for the fastest Atlantic crossing triggered many shipowners and shipbuilders to innovate in order to become the holder of this coveted distinction. Figure 414 shows some of the holders of the Blue Riband over the period 1880-1960. The speed limit that these ships achieved was approximately 35 knots (65 km/hour), way below the speed of road, rail or air transport. The ships that hold the speed records are without exception passenger vessel, as speed comes at a high price which could only be afforded by high value goods: passengers. Fast cargo ships did not really exist. Therefore it was remarkable when Sea-Land built the SL-7 class of containerships (1972) with a service speed of 33 knots (Figure 415). The 8-vessel order (US$ 435 million) was intended to improve the logistics of the Military Sealift Command (MSC) for the war in Vietnam. In order to achieve that high speed, the engines had to burn 500 tons of fuel per day. This was not a major problem as long as the price of oil was low. But all that changed shortly after the commissioning of the 8 vessels with the first oil crisis in 1973 and the second price hike in 1979, when the price went up from US$ 22 to US$ 70 per ton. The ships fuel bill was too high and they were taken out of service, but they are today still part of the MSC reserve fleet. In Europe a combination passenger-cargo ship, a ferry, was built in Finland in 1979: the Finnjet which had a speed of 30 knots. Again the economics were negatively affected by the rise in the oil price. In more recent years other ships have attempted to beat the Blue Riband record, and some of them succeeded. These ships were not the normal mono-hulls, but fast ships that hover over the water, or use other means to reduce frictional resistance between the ship’s hull and water. 382

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Figure 414: Holders of the Blue Riband Containerships have gradually increased their service speeds since they became bigger, as it is easier to increase speed when the length of the ship increases. The service speed of large containerships has become 25 knots, but that comes at a huge price. Not only for the bigger engine, but most of all for the increase in fuel consumption and fuel cost. Figure 416 shows the installed power (kW) of containerships in the range 2,500 - 12,000 TEU in relation to speed. When an 8,000-TEU ship reduces its speed from 25 knots to 20 knots, it can save 25,000 kW in installed engine power (50%), at approximately 175 grams of fuel per kWh. This is around 4.4 tons per hour, or 105 tons a day. In 1999, the price was US$ 75 per ton, and at the end of 2007, it had increased to US$ 400 per ton. So a containership can save around US$ 40,000 a day when it reduces its speed. The consequence often will be that an extra ship is added to the string to maintain the required service level. Why is it that fuel consumption increases so much with a small increase in speed? The reason is the nature of frictional resistance caused by the viscosity of the water and the ship. Above a certain speed, 14 kn, frictional resistance starts to increase exponentially. So, the physical nature of water on this planet is not favourable for ships to go fast. That is a given fact, but can we fool nature? Or, can we make ships that defy the laws of nature and physics. Can we create a new S-curve of ships that can go faster than 35 kn?

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Figure 415: Sea-Land’s SL-7 class of container ships

Fuel consumption in tons per day

450 12,500 teu

400

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350

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250

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200 150 100 50 0 14 kt

16 kt

18 kt

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22 kt

24 kt

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Service speed (knots)

Figure 416: Fuel consumption as a function of speed In order to surpass the speed limit, it is necessary to adopt a completely new technology. This will create a discontinuity in the S-curve; actually, it will start a whole new S-curve. Foster's book (Foster, 1986) provides many illustrations of S-curve shifts. For example the switch from vacuum tubes to semiconductors, to transistors and chips, the switch from propeller-driven planes to jet propulsion, the switch from natural to synthetic detergents or fibers, the switch from records and tapes to compact discs. These are all technological discontinuities and they altered the pecking order in the various industries. One of the reasons why Foster subtitles his book "Innovation: The Attacker's Advantage" is that defenders of an old technology are faced with increasing R&D cost in order to achieve 384

Part II – Ship Innovation performance improvement: it becomes increasingly expensive to make progress. At the same time, the possibility of new approaches often emerges - new possibilities that frequently depend on skills not well developed in the leader companies. The S-curve is not a new theory, but rather a new way of looking at innovation and technological change. Finding the limits of a specific product, process or technology is a major challenge and in practice quite difficult. Foster spends a chapter in his book on limitry, the limiting mechanism, and their fundamental principles that will ultimately stop progress. Innovation requires therefore first of all research that defines and finds limits. Once these limits are understood, they will give direction to R&D and form the trigger for innovation. How can we create an S-curve shift in the speed of ships? Therefore the lift triangle is introduced. There are three basic ways in which a ship can move through the water. The first is static lift, or buoyancy support. The weight of the vessel displaces the water, and that generates a counter force as the water wants to return to its original position. The specific weight of water is a factor that limits the carrying capacity of ships, based on the law of Archimedes that the upward pressure on a submerged body is equal to the displaced volume times the specific weight of the liquid. Ships have a different deadweight capacity in salt water, or in very cold water, when the density increases. The ships that float on and displace the water, are called displacement type ships. These can be mono-hulls, catamarans, and other multi-hulls. The second category of ships uses dynamic lift of submerged wings, just like an airplane. Forward motion is thus converted into vertical lifting forces that lift the ship out of the water and this way reduces the wetted surface of the ships and consequently its resistance. The third way of ships to move through the water is by powered lift such as the lift of the helicopter. Hoover crafts float on a cushion of air, which is created by huge fans that blow the air in a rigged skirt below the ship. As the frictional resistance between air and water is much lower than between the ship’s hull (paint) and water, the ship can go very fast. There are of course also other ways to reduce frictional resistance. A recent example is the WAIP (winged air induction pipe (Figure 418) - which creates a film of very fine micro bubbles around the ship and that reduces resistance with more than 10 percent. Trying to outsmart nature is a powerful trigger for innovation. This category of innovation triggers is called “Laws of physics triggers”. There are five more trigger categories in shipping and all of them are listed below. x x x x x

Innovation trigger 2 - Geographical conditions Innovation trigger 3 - Economic parameters Innovation trigger 4 - (International) regulations Innovation trigger 5 - Related sectors Innovation trigger 6 - Design concept

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Figure 417: Lift triangle

Figure 418: Winged Air Induction Pipe (WAIP)

2. Geographical conditions triggers Physical limits have been around for thousands of years, as is the case with some of the geographical conditions that are relevant to shipping. Usually, these geographical conditions are constraints, like draught restrictions for access to ports, or passages in straits, but can also be in the form of ice barriers. A number of geographical conditions are manmade, such as the Panama Canal, Suez Canal, or the St. Lawrence Seaway, which give access to the North American Great Lakes.

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Part II – Ship Innovation Besides, many terminals (chemicals, gas and oil) in the world pose limits to ships, as far as length, breadth, and draught are concerned. A good example to overcome some of the geographical constraints is the development of the sea-river ships, which sail many rivers in Europe. They have a limited water and air draught, which makes it possible to navigate rivers and seas. Another important geographical conditions trigger is the significant wave height in a particular area of the world. Some ships are designed only for a modest wave height; they have a restricted sailing certificate. An example of this class of ships is the sea-river ship, which for example in Europe, is not always allowed to sail beyond Brest in France. There are many ship categories designed on the basis of these geographical restrictions, such as the Panamax bulk carriers, the Capesize bulk carriers, the Suezmax tankers, the Aframax tankers, or the VLCCs. Geographical limitations, either natural or manmade, create strong triggers for shipowners and ship designers to innovate. It is important to note that most of the ships in the world fleet are in one way or another influenced for their length, breadth, or draught by geographical restrictions. It is therefore important to identify these restrictions in the design process. The engineers should also bear in mind that conditions may change over time, which may impact fundamentally the economics of ship design. An illustration is the deepening and widening of the Suez Canal to allow for loaded VLCCs to make the transit (Figure 419) or the recent decision in Panama to expand the width, length and draught of the Panama Canal locks (Figure 420). A 21m draught of the Suez Canal would allow VLCCs a short cut from the Arabian Sub-continent to the Mediterranean and avoid sailing around Cape of Good Hope, thereby reducing the journey from Ras Tanura (Persian Gulf) to Rotterdam by some 14 days. The existing Panama Canal allows for 4,500 TEU containerships to pass through the locks, while the planned expansion of the Panama Canal locks would allow for containerships of 13,000 TEU to pass. This will upset the current economies of scale in the trades between the Pacific and the Gulf of Mexico and the Atlantic Ocean.

3. Economic parameter triggers The third category of innovation triggers in shipping are economic in nature and consist of maximisation of revenues, economies of scale, cost reduction of capital investment, running costs, voyage costs and cargo handling costs. These economic parameters will be discussed in more detail.

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SuezCanaldraught(m)

25 20 15 10 5 0 1860

1910

1960

2010

Year

Figure 419: Suez Canal maximum draught

Figure 420: Expansion of the Panama Canal locks Maximisation of revenues can be achieved by design of a flexible, multi-purpose ship that can carry various sorts of cargo, like the OBO carrier. This is a vessel that can trade with Oil, Bulk and Ore cargoes, hence the name. The idea was that it would function as a tanker when the tanker markets were good and a bulk/ore carrier when these markets were good. It would also be able to take "wet" cargo (oil) one way and "dry" cargo (bulk cargoes / ore) the other way, thus reducing the time it had to sail in ballast (i.e. empty). The first OBO carrier was the Naess Norseman (1965). The OBO carrier quickly became popular among shipowners around the world and several hundreds of this type of vessel have been built. The ship type had its glory days in the early 1970s. In the 1980s, it became clear that the type required more maintenance than other vessels. Also, it was expensive to "switch" 388

Part II – Ship Innovation from wet to dry cargoes, and it took valuable time. As the 1970s-built OBO vessels become older, most of them were used either as pure tankers or as pure ore carriers. In recent years no OBOs have been built. The revenue maximisation objective is also used in other shipping segments, like the flexible ships that are being conceived in the shortsea gas carrier trades that can carry a combination of liquefied gases such as, LPG, ethylene and LNG. Economies of scale is a major trigger for innovation. Large ships have significant lower investments per ton, as well as lower running and voyage costs. So indirectly, the search for economies of scale is triggered by cost reduction objectives. The oil tanker sector was the first shipping sector that pursued economies of scale. The supertanker has become an icon and a precursor of mega-tankers like the 550,000 dwt Batilus. However, there are also dis-economies of scale and that is why the economies of scale in oil tankers has come down to the level of the 300,000 dwt VLCC. What is economies of scale and how is it created in shipping? Economies of scale in shipping is the process of increasing the size of the ship and thereby reducing the unit transport cost. This is illustrated in Table 107 for the oil tanker. It shows the deadweight tonnage, length, breath and draught of five ship types in ascending order of size: Panamax, Aframax, Suezmax, VLCC, ULCC. Next, these dimensions are translated into index figures, based on the Panamax tanker as the standard (index = 100). It is clear from this table that the volume or carrying capacity of the tankers increases more dramatic than the increase in length, breadth, or draught. With an increase in length, the outside surface of the ship increase with the second power, while the volume increase with a third power.  Shipsize Panamax Aframax Suezmax VLCC ULCC

  dwt length 70,000 230 115,000 250 155,000 274 300,000 323 440,000 380

 breath 32.2 44 47 60 68

 draught 13.7 14.8 17 21 24.5

dwt 100 164 220 430 630

Index(Panamax=100) length breath draught 100 100 100 109 137 108 119 146 124 140 186 153 165 211 179

Table 107: Oil tanker types compared If one assumes a block coefficient of 1 for both ships, the Panamax tanker has an outside surface of 25,000 m2 and the VLCC of 61,500 m2., while their deadweights are 70,000 ton, and 300,000 ton respectively. The surface to deadweight ratios are thus 0.36 (cbm/dwt ton) for the Panamax and 0.2 for the VLCC. In other words, the VLCC has a 45% lower steel weight per ton cargo, and a much lower wet surface and consequently lower frictional water resistance than the Panamax tanker. The energy consumption per ton deadweight is lower, while crew sizes are identical and thus also results in lower crew costs per ton. This effect can be observed in almost all shipping segments. Capital investment: The reduction of capital cost can be achieved, not only through economies of scale, but also through standardisation. This is for example achieved by several shipyards that have developed a standard design. They can realise important cost savings through smart engineering and production optimisation, as well as the experience gained on the learning curve. Standard vessels are offered in the Panamax class of tankers and bulk carriers, as over the years these ships have been engineered to perfection and deviation from the standard will cost a lot of money. 389

Part II – Ship Innovation Running costs: The major item in the running costs of ships is the crew cost, which is determined by manning regulations. These, in turn, are related to the training level of the crew, the complexity of the engine room and the size of the ship (measurement), besides, the flag of registration and the nationality of the crew. Important efficiency improvements have been achieved through automation of the machine room (unmanned) and the bridge in order to reduce the running cost. An extreme example of what has been achieved is the containership Emma Maersk, of around 14,000 TEU and a crew of only 13 men. Voyage costs: Two major items in this category are: bunkers and port costs. Bunker costs depend on many factors, such as the deadweight of the vessel, block coefficient, speed and type of fuel. Major improvements have been achieved to improve the fuel-economy. However, these cost reductions have been more than offset by the increase in fuel cost per ton: from US$ 200 to almost US$ 500 per ton in 2007. Reducing fuel costs is achieved in container shipping by reducing speed from 25 knots to 20 knots, which is probably the most effective way to improve fuel economy. Port costs are not uniformly calculated in ports around the world. Most of the ports relate these costs to the measurement of the vessel (gross tonnage). Shortsea ships call very frequently in ports and the reduction of port costs through creatively lowering of the measurement of shortsea ships has been, and still is, an important trigger for innovation. This has also led to a situation whereby most of the cargo is carried on deck, and also to a very low freeboard which both impact negatively the safety of the vessel. A major change in port cost calculation principles would become an important trigger for innovation, as the following innovation trigger category (regulations) will illustrate. Cargo handling: Stevedoring costs are a major cost item in shortsea trades, as the sea leg and sea time is usually limited in length. There are two aspects that form triggers for innovation: the increase in labour productivity (tons/man/hour) and making ships independent from the availability of terminal labour. The 'goal-function' of any innovation in cargo-handling is to reduce these costs to zero, as "the best port is no port at all". The first objective, improving labour productivity, is achieved through more efficient cranes, on shore and on the ship, the use of cargo units such as the container, bulk bags and cassettes. The second objective, making the ship independent of terminal labour, is achieved by equipping the ship with selfloading and self-unloading equipment. This technique is mostly developed on bulk carriers and on cement carriers (loading and unloading, closed system). The advantage of such a system is that the ship can enter the port/terminal any time of the day or week, without being penalised by extremely high stevedoring labour costs during the nightshifts, or weekend shifts. This is especially important for small, coastal ports. The self-loading and unloading of unit-load ships is still in its infancy.

4. Regulations triggers The abolishment of cabotage-regulations has been an important trigger for change, not so much in ship innovation, but rather market innovation. The wish to reduce the environmental pollution of transport results in an ever growing list of standards and regulations for emissions, etc. Apart from administrative, political and environmental regulations, there are labour/manning regulations, each with its own impact, such as noise level reduction onboard. An example of an important change in regulations with implications for shipping is the Annex to MARPOL on Air Pollution. The use of CFCs, which are used in refrigerants on reefer ships, fishing vessels and gas tankers, will be eliminated in the future, as well as the fire retardants based on halons. 390

Part II – Ship Innovation These kinds of measures create strong incentives to innovate, although it is often difficult to find adequate replacements (as is for example is the case with the tin-free anti-fouling). The emission of SOx, NOx and CO2 should be dramatically reduced in the future. Major reductions can simply be achieved by using low sulphur fuel oil and using exhaust gas treatment plants on board in case of SOx reduction. NOx emissions are more difficult to reduce, although the use of LNG as a fuel will almost reduce NOx emissions to zero. Figure 421 shows the great improvements in NOx emission reduction since 1995 and the future target of large diesel engines: from 21 to 10 grams per kWh. CO2 emissions are more difficult to reduce when using heavy fuel oil (use of LNG reduces CO2 emissions with 30%, as natural gas - CH4 - only has one C-atom).

Future

Current

1995Ͳ2000

Before1995 0

5

10

15

20

25

NOx(g/kWh)

Figure 421: NOx emissions in g/kWh There are many opportunities for further new regulations, for example in the conversion of waste heat from engine exhaust and cooling water, as the Figure 422 illustrates. Only 32.5% of the energy in fuel is actually used to propel a ship. The Emma Maersk offers an inspiring example of the potential of waste heat recovery, as it generates 10 MW, in addition to the main engine of 80 MW (Figure 423). Another example of innovation triggered by international regulations is double-hull tanker (US Oil Pollution Act 1990) and the more recent Marpol regulation on ballast water. Ships have always carried ballast, in the past stones, and since the 19th century, seawater. An estimated 3 billion tons of ballast water containing all sorts of alien species are annually discharged in eco-systems around the globe, polluting and destroying sensitive sea areas like the Great Barrier Reef, but also the Black Sea and Great Lakes. Cleaning ballast water will become mandatory as off 2009 for certain categories of ships. However, this is easier said than done as so far only a few proposed cleaning systems have received type-approval from IMO. A basic innovation would be to get rid of ballast water all together by the design of a new hull-form. The Japanese are working on such conceptual designs for large tankers, while the Dutch develop a smaller shortsea ship for the trades in the Baltic Sea, which has become an IMO defined PSSA (particularly sensitive sea area). Figure 424 shows the conceptual solution of the Japanese tanker design 391

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Figure 422: Energy efficiency

Figure 423: Power turbine for waste heat recovery The measurement of ships determines in many ports around the world the level of port dues, or in canals, the canal dues. Minimising the measurement (GT) has therefore been a strong trigger for ingenuity in ship design. Ingenuity, not innovation, as the design based on the measurement reduction, often led to strange and even dangerous ships, with little or no freeboard. To take the argument one step further, the measurement of ships has played and still plays a negative role in design innovation in ships. The example of very safe high freeboard, hatchless container ships demonstrates that owners face a penalty in port for safe and sound design of ships. (Figure 425) 392

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Figure 424: Ballast-free ship

International Convention on Tonnage Measurement of ships, 1969

GT as standard measurement

Rules and regulations (SOLAS, STCW, ILO, MARPOL)

Liability conventions

Dues and tariffs (Port, canal, insurance, …)

Impact on capital, running and voyage costs

Impact on ship design Minimum stability recommendations

Æ Drive to maximize cargo space and minimize GT Æ Pressure on reserve buoyancy, freeboard, bow height, manning spaces, …

Impact on seaworthiness, seakindliness, safety and innovation

Figure 425: Ship measurement The IMO 1969 Convention states that open hatch type ships should be measured applying a hypothetical hatch cover over the open hull. This results in a high GT in relation to deadweight (DWT). Open or hatchless containerships have on average a higher gross tonnage of around 11 percent. Without a correction, the port costs would also increase and put this safe ship at a 393

Part II – Ship Innovation disadvantage, which discourages shipowners. Another example is the increased measurement of double hull ships and the penalty in higher port and canal dues, based on this increase, although some ports have corrected these anomalies. Before the tonnage measurement is briefly discussed, an example from the past, the turret ship, will show that owners have only one thing in mind, cost reduction. In "The Golden Age of Shipping" ; The Classic Merchant Ship 1900-1960 (Gardiner, 1994) the development of the so-called turret ships demonstrates that owners were already around 1900 very sensitive to minimising measurement. Figure 426 shows the submarine-like ship. The first ship of this type was built in 1892 and the last in 1911, during which period 170 ships were built. The turret class ships got their name from her hull form and the superstructures on top of it. The hull, which sat low in the water, had very curvaceous sides and a snout shaped bow. Completely flush, even to hatch covers, she carried several tall erections or turrets, the longest of which was built over the machinery space and contained the accommodation and wheelhouse. Besides its inherent strength, helped by a cellular bottom (!), the turret design was the more popular with owners since its net tonnage was low in relation to deadweight; also that Suez Canal dues were based on the breadth of the upper deck and not on the much wider main (or harbour) deck below. Amended regulations eventually rectified this and so, in 1911, the construction of turret steamers came to an end.

Figure 426: Turret ship In shipping terms a ton can be expressed in two forms (Stephen, 1994): x x

A physical weight (1000 kg metric) for deadweight and displacement measurements; A reflection of volume - gross registered and net registered tonnages (grt/nrt) - expressed in hundreds of cubic feet.

The origins of the grt/nrt date back to the mid-19th century when a Royal Commission was set up to seek alternatives to the way ships tonnages were measured. The then Surveyor General for Tonnage, recommended a volumetric system for all enclosed spaces using 100 cubic feet as one gross ton. Deductions were made to the gross tonnage of non-revenue earning spaces to arrive at the net tonnage which represented the earning potential of a ship and upon which charges would be levied. The recommendations were adopted in the UK's 1854 Merchant Shipping Act and since then have formed the basis of many of the world's national tonnage regulations.

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Part II – Ship Innovation The original concept was designed to accommodate the fairly simplistic designs of ships then trading. Changes in the way ships were constructed soon meant that amendments had to be made and in addition, individual countries began applying their own interpretations to the idea. This resulted in twelve major methods worldwide of tonnage measurement. As off July 18, 1994 grt and nrt measurements have been officially replaced by new definitions: gross tonnage (GT) and net tonnage (NT), as laid out in the London 1969 Tonnage Convention. Why was it necessary to adopt a universal tonnage measurement? With a number of differing national tonnage regulations in place, the sale of a ship often meant that she would have to be remeasured before adopting a new flag. Because measurements were conducted on site, these changes could be both time consuming and costly. A peculiar example is the ro-ro vessel. Under some national rules only spaces below the deck which runs from the main opening are counted, while under others it may be the uppermost continuous weather deck (Figure 427). A pair of exact sister ships can therefore differ in tonnage depending on registration.

Openshelterdeck=968GT,478NT

Closedshelterdeck=2802GT

1969tonnageconvention=3794GT,1146NT

Figure 427: Tonnage measurement Under the 1969 Tonnage Convention, the Gross Tonnage (GT) is calculated in cubic meter on the basis of the following formula (Net Tonnage is more complicated and is therefore not presented here):

ൌͳȗ

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=

Total volume of all enclosed spaces of the ship in cubic metres

K1

=

0.2 + 0.02 10log V

Figure 428 shows the relationship between gross volume and gross tonnage in graphical form, whereby gross volume is approx. 3.2 times gross tonnage. 600,000

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Figure 428: Approximate relation between gross volume and gross tonnage

5. Related sectors triggers Many of the basic innovations in shipping are triggered by innovations in other sectors or domains. The example of the Diesel engine has been discussed earlier, a similar impact of shipping propulsion can be expected from the current development of fuel cell technology, which is still in its infancy but rapidly maturing, also in the maritime industry with the application on submarines. Jeremy Rifkin, in his thought-provoking book The Hydrogen Economy (Rifkin, 2003), foresees the end of the fossil fuel economy, due to limits of oil and gas reserves and limits of green house gas emissions production. He advocates the sustainable concept of fuel cell technology for generating power while using hydrogen as a fuel. Hydrogen can be simply produced by electrolyses of water, using solar energy, and there is plenty of that freely available. As fuel cells will probably become the engine of the future, the principle of fuel cells is briefly discussed, as it will trigger a host of innovations in shipping once the power outputs are available in 1000s of kW. The fuel cell was invented over 150 years ago (1839). Sir William Robert Grove (1811-1896) and Christian Friedrich Schoenbein (1799-1868) are regarded as the fathers of fuel cell technology24. Their

24

http://www.hͲtec.com/education/english/technologie_brennstoff.asp?id=314

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Part II – Ship Innovation fuel cells did not achieve widespread use due to problems with the materials, along with the invention of alternative devices like the combustion engine and the electric generator. The technology was rediscovered during the 'Space Race' of the 1960s, when cost and research effort were no obstacle. Currently, there is a great demand for new, environmentally friendly energy sources, due to increasing environmental pollution and our limited reserves of fossil fuels. This demand drives the current wave of fuel cell research and development. The way a fuel cell works is basically the opposite of an electrolysis cell. In a fuel cell, chemical energy from hydrogen and oxygen (or air) is directly converted to electrical energy, i.e. without a combustion process. There are many different types of fuel cells, but they all essentially consist of two electrodes (cathode and anode) and an electrolyte (a medium for transporting ions), which separates the two electrodes from each other. Fuel cells are usually classified by the type of electrolyte used. Other variable traits include operating temperature, efficiency, and field of application. (Table 108) Fuelcell

Electrolyte

Alkalinefuelcell (AFC)

Potassium hydroxide(KOH) solution Protonexchange membrane

Protonexchange membranefuelcell (PEMFC) Directmethanolfuelcell (DMFC) Phosphoricacidfuelcell (PAFC) Moltencarbonatefuelcell (MCFC) Solidoxidefuelcell(SOFC)

Protonexchange membrane Phosphoricacid Moltenmixtureof alkalimetal carbonates Oxidionconducting ceramic

FuelOxidant Operating Electrical temperature efficiency 20Ͳ90˚C 60Ͳ70% H2,O2

20Ͳ80˚C

20Ͳ130˚C 160Ͳ220˚C 620Ͳ660˚C

800Ͳ1000˚C

40Ͳ60% H2,,O2,Air

20Ͳ30% CH3OH,02,Air 55% Naturalgas,biofuel, H2,02,air 65% Naturalgas,biogas, coalsgas,H2,O2,Air 60Ͳ65% Naturalgas,biogas, coalgas,h2,O2,Air

Table 108: Fuel cell types PEM (proton exchange membrane) fuel cells use a thin, proton-conducting polymer membrane as an electrolyte. Both sides of the membrane are coated with a layer of catalyst material, which differs somewhat from the material used in the electrolyser. The catalytic effects of the electrode (e.g. platinum) cause the hydrogen gas at the anode to break down into protons and electrons even at room temperature. The H+ ions (protons) traverse the proton-conducting membrane to get to the cathode side. When the outer circuit is closed, the electrons travel to the cathode, thereby doing electrical work. As a result, water is produced at the cathode (Figure 429).

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Figure 429: Fuel cells Individual fuel cells can be collected into a unit and connected to each other in series, resulting in a "stack" of cells. The output of the stack can be adjusted by changing the number of individual cells. Engine producer Wärtsila anticipates the long-term change from diesel engines to fuel cell engines for ships, and is building up its knowledge base by developing its first series of fuel cell power machines (Figure 430)

Figure 430: Fuel cell machine

6. Design concept triggers The Shipping Innovation Trigger methodology presented later in this book helps the designer to structure the often haphazard search for innovative ideas that can help the shipowner create a competitive advantage. This methodology does not replace the existing ones, but is rather an extension 398

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Performance

of it. It is possible to place all these methodologies on a S-curve (Figure 431) of increasing performance. The strength of a concept is measured in its ability to improve the innovative performance of the design. It is self-evident that using the comparison ship design methodology, the designer remains within the narrow path of past concepts. This can be useful if one looks for improvement innovations.

DIS Seakey CEM Mathematical/coefficient Designbydrawing Handicraft

Effort(Funds)

Figure 431: S-Curves in design methodology The mathematical model methodology and coefficient methodology are actually only extensions of the comparison ship approach. The CEM design methodology forms a minor step in the innovative direction, as only (many) variations of basic design parameters are considered. Basic innovation is sought in the Seakey-design approach. This method seeks to incorporate explicitly the creative search for new concepts. The only limitation is that looking for innovative ship concepts has to start somewhere. But where to start? This depends in the Seakey approach to a large extent on the individual, creative qualities of the designer. The challenge is now to develop a structured design approach in which the innovation framework is explicitly developed as an integral part of the design process. This integrated, structured design innovation method is based on performance indicator analysis, in absolute and relative terms. The basic idea behind the shipping innovatkon methodology is that before the designer (or group of designers) starts out with new ship concepts, they should do first the unglamorous work of performance measuring and drawing S-curves, accompanied by defining limits for each performance indicator. Thus a matrix with performance indicators and limits is constructed, which could look like the one in Table 109.

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Part II – Ship Innovation  1

Constraint/limittrigger Physicallaws

2

Geographicalconditions

3 3A

EconomicParameters Revenuemaximisation

3B

Economiesofscale

3C 3D

Capitalcostreduction Runningcostreduction

3E

Voyagecostreduction

3F

Cargohandlingcostreduction

4

Regulationsandothertriggers

5

Relatedsectorstriggers

Examples Resistanceinwaterandwavescanbereducedviaslenderhulls, dynamiclift,poweredliftandincreasingspeed (Air/water) draught, length, with, ice restrictions can be solved withshallowdraughtships,waterjetpropulsion,splitsships,tug barges,iceclass  Combination carriers, in bulk ship (COB) or passenger/freight units Specialisation (chemicals, gas, reefer) and increase in size, crate economiesofscale Simplerdesigns,lowersteelorlabourcontent Operationautomationofvesselonboardships,atseaorinport (vesseltrafficsystems) Less fuel consumption and reduction of port/canal dues, comparablewithothermodesoftransport Automatedloadingandunloadingequipment,especiallydrybulk andunitloadsystemswillhavealargeimpact Environmentalrulesandregulationswillbemuchmorestrictfor shipping, which will lead to the development of ships as closed systems, reductions of noxious emissions, reduction of slops, design for durability in order to safe scarce resources, improve safetyofships,viaVTSasintheairlineindustry. Fuelcelltechnology

Table 109: Overview of triggers Each performance limit holds a trigger for innovation. Explicitly addressing all these triggers with the help of creativity techniques creates a springboard for innovation. In fact, it is a systematic way to find many starting points for the design spiral. Design innovation in shipping through the use of performance triggers does not throw away the existing design methods, but rather provides a framework for a systematic design approach. Creativity, which is a basic ingredient for innovation, is merged with the traditional engineering approach to design. This allows the designer to loosen up and be more creative and productive. The ship design innovation methodology will be presented later in this book.

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15.

PORTS AND SHIPPING

In the previous chapters the impact of innovation triggers that act upon shipping have been discussed and documented. In this chapter the central question is how shipping triggers innovation in ports (Figure 432).

Physicallaw triggers

Economic triggers

Geographical constraint triggers

Regulations triggers

Ship

Design methodology triggers

Relatedsector triggers

Figure 432: Innovation triggers How does shipping influence the competitive advantage of ports and which triggers are dominant? Ports are not simply transfer points of cargo but are part of networks, linked to a hinterland, industrial activities and limited by geographical constraints like draught. In fact, draught is probably the most important variable in relation to port innovation and shipping. The major driver in shipping is creating economies of scale, which can be translated into ships that are larger, wider and have more draught.

Oil tanker shipping The development of the oil tanker has underlined this point clearly (Figure 433). If ports cannot provide sufficient draught, then their role will be overtaken by other ports that have this ability. Is there empirical evidence for that? Two cases have been looked into, related to the introduction of the VLCC in oil tanker shipping, and the Capesize bulk carrier in iron ore shipping both in the early 1970s. The examples are taken from the port of Rotterdam, which invested in the past heavily in the dredging of the so-called oil access channel in order to accommodate the VLCC with its 21-metre draught. The market share of the port of Rotterdam in liquid bulk, in particular crude oil, has risen sharply since the introduction of the Suezmax , VLCC and ULCC type of vessel at the end of the 1960s and during the 1970s. The draught of these ships made them unfit to enter the ports of Antwerp and Northern Germany (with the exception of Wilhelmshaven). Figure 434 shows the development of the oil imports in Rotterdam over the period 1970-1980, as well as its market share in the Hamburg-Le Havre (HLH) range of ports which is the benchmark. During this 10 year period the volume of oil imports increased from 110 million tons in 1970 to 170 million tons in 1973, to fall back after the second oil crisis in 1979 to 120 million tons. After the introduction of the VLCC in the beginning of that period, 401

Part II – Ship Innovation the market share of Rotterdam in the Le Havre - Hamburg range increased from 52 percent in 1970 to 60 percent in 1980. It is self-evident that without the phenomenal increase in ship size, the market share of the port of Rotterdam would have been much lower. The large tankers caused a fundamental restructuring of the crude oil market during the 1970s, which was consolidated in the 1980s. 700000 Shipcapacity(DWT)

600000 500000 400000 300000 200000 100000 0 1965 1970 1975 1980 1985 1990 1995 2000 2005 Yearofconstruction

Figure 433: Limits to economies of scale of crude carriers

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Figure 434: Rotterdam oil imports - Market share HLH range

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Dry bulk shipping Dry bulk commodities are shipped with four types of bulk carrier: Handysize, Handymax, Panamax and Capesize. These ships range from 35,000 dwt to 200,000 dwt, with a small group of very large Capesizes (over 300,000 dwt). Panamax bulk carriers have a maximum draught between 12 and 14 metres, which allows them to enter most of the ports in the HLH range. The Capesize bulk carriers have draughts between 15 and 21 metres and therefore Rotterdam is one of the few ports in the range where these ships can enter fully laden. For some commodities like iron ore, coal and (sometimes) grain the economies of scale of these large vessels has lead to a concentration of bulk movements through the port of Rotterdam. Figure 435 shows the market share for iron ore of the port of Rotterdam in the HLH range. Iron ore imports rose from 28 million tons in 1970 to 40 million tons in 1980. The market share of Rotterdam increased sharply from 41 percent in 1970 to 50 percent in 1980. It is clear that the impact of the development of the Capesize bulk carriers played an important role in the increase in market share in ores of the port of Rotterdam during this decade. 55

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Figure 435: Rotterdam iron ore imports - Market share HLH range

Container shipping Can this phenomenon also be witnessed in container shipping? The answer is: not yet. The reason is that the draught of containerships has so far been well within the normal range of most ports, as bulk carriers and tankers have much more draught and double the deadweight. Figure 436 summarises the relationship between length and draught of the oil tankers, bulk carriers and containerships in one graph. Length and draught are two critical parameters for port access and competitiveness.

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Figure 436: Relationship between length and draught of three ship types Bulk carriers and oil tankers have more or less the same length/draught relationship. However, containerships have a quite different relationship. There are several reasons for that. First of all bulk carriers and tankers have a much higher deadweight capacity today than containerships. The largest containership has approximately half the deadweight of a VLCC. Bulk carriers and tanker have a much larger breadth (60 metres) and higher block coefficient as these ships have low service speeds of around 15 knots, much lower than the 25 knots of large containerships. There is also the strength issue of the midship section of a containership. Tankers are closed boxes and can therefore be built with relatively little steel in comparison with the containerships with its many holds and high torsion forces. The lightship weight of a containership is almost twice as high as that of a tanker per ton deadweight. That is why the deadweight capacity of a containership is lower than that of a tanker with the same displacement. The maximum length of the containership is limited by the stresses in the midship body to around 400 metres. The plate thickness becomes too high (100 mm in the Emma Maersk). The capacity of containerships can be raised by increasing the breadth to 60 metres and the draught to 21 metres. This raises the question: What are the limits of the containership size? In a 1999 study the 18,000-TEU Malacca-max containership was designed, with a draught of 21 metres when fully loaded with 12-ton containers. The ship’s name is linked to the maximum draught through the Malacca Strait. If 21 metres becomes the norm for ships, than Rotterdam’s market share may exhibit the same stepwise increase in the future as was witnessed in the 1980s for oil and ore. For the time being the market share in containers of Rotterdam in the HLH range of ports decreased from 43 per cent in 1980 to 36 per cent in 1997 and 33 percent in 2007. It may rebounce if the Malacca-max containerships become a reality. Time will tell. In the original study of 1999 it was forecast that this would happen in 2010. As it stands now, this prediction might come true.

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Part II – Ship Innovation Economies of scale of ships also affects ports, in particular container ports. The ports that can offer draughts of over 17 metres may become hub ports (Figure 437). These ports can accommodate Suezmax tankers, Capesize bulk carriers and Malacca-max type containerships. That will change the pecking order of the ports as some ports will be reduced to feeder ports. draught

ULCC

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capesize

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Figure 437: Hub port draught limits The introduction of the Malacca-max container carrier in the container trade between Europe and the Far East, would lead to a change in the logistic system of the routing of the ships and the number of port calls. The current multi-porting call patterns will be modified into hub-feedering systems (hub and spoke). Multi-porting is a distribution concept in which the deepsea container carriers collect the cargo in main ports of one region for one of the main ports in another region. E.g., in Northern Europe the ports of Le Havre, Antwerp, Rotterdam, Bremerhaven, Hamburg and Felixstowe are called at before sailing to the Mediterranean or the Far East to call at ports like Singapore, Hong Kong or Shanghai. The Malacca-max carrier will only call at a limited number of mega hubs: for example Rotterdam in Northern Europe. Upon arrival in one of these mega hubs, containers are transhipped onto other ships for feeder transport to local ports. Rotterdam thus becomes the mega hub for Northern Europe. Figure 438 shows the difference in calling patterns for the multi-porting and hub-feeder systems. One of the reasons for the use of a hub-feeder system instead of multi-porting is the reduction of time required to transport the containers between two regions or continents. There are two timesaving strategies for deepsea container carriers: Minimising the turnaround time in port and the reduction of the number of ports served. When more ports are included in the calling pattern, the operating and voyage costs will increase. Additional time, which is necessary for the entry of the port, the manoeuvring in the port and the nonworking hours of the port personnel, decreases the annual revenues of the ship. So, when the number 405

Part II – Ship Innovation of ports decreases, the additional time will decrease as well. A reduction of the turnaround time is especially important for bigger and more expensive ships. The economies of scale of bigger ships demand a concentration of container handling in several specialised ports at both ends of a trade route.

Figure 438: Multi-porting versus hub-feedering In order to understand the fundamentals of the economy of both systems, a cost model has been developed in order to compare the differences in cost structure of both concepts (Wijnolst, Waals, Bello, Gendronneau, & Kempen, 2000). The hub-feeder calling pattern is in many instances more expensive per TEU than the current multi-porting calling patterns. There are basically two variables that determine the future competitiveness of the hub-feeder alternative: x x

The share of containers that have the hub port as their final destination; The stevedoring cost of the deepsea and transhipment moves of containers. A reduction in cost will be necessary to challenge the multi-porting situation. The big volumes that are handled in the hub-feeder alternative should make it possible to lower these handling costs per TEU.

The value added in a hub port increases substantially. From a macro economic perspective, the port charges in the hub port could be further reduced, as the value added by the more than doubling of container handling volumes and revenues will compensate this loss of revenue easily. Table 110 shows the number of deepsea and feeder calls of a number of ports in Northern Europe and, whereby the inter-regional containership calls are added. This gives a good picture of the pecking order of the container ports, and the trend towards hub - feeder port structures (European Union, 2007). The hub-concept will be further discussed later in this book. Port Aarhus Antwerp Bremerhaven Felixstowe Gothenburg Hamburg LeHavre

Deepsea 2 67 32 41 3 54 41

Shortsea 7 20 43 19 10 47 8.5

Port London/Tilbury Rotterdam Southampton St.Petersburg Thamesport Zeebrugge

Deepsea 16 63 19 0 6 9 

Shortsea 2 31 5 15 0 3

Table 110: Weekly calls by port 406

Part II – Ship Innovation Bigger containerships also have consequences for the terminal design. Extremely large quantities have to be unloaded and loaded within a very short time. This does not only require innovative designs for the deepsea carriers, but also for the hinterland transportation by shortsea, rail, inland shipping and road. In Rotterdam, a major research project was carried out to explore the best integral solution for the design of the terminals at the Maasvlakte 2 port expansion project (Duinkerken, Veeke, & Ottjes, 2001). Figure 439 shows an impression of the various alternative port and terminal lay outs that the research teams developed.

Figure 439: Maasvlakte alternatives

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PART III: INNOVATION THEORY

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16.

INNOVATION AND WEALTH CREATION

In this part, innovation will be considered from different theoretical perspectives. The first basic question that should be answered is: “why is innovation important?”. This seems to be a trivial question, as around the globe so much effort is put into innovation that the answer is obvious: “to create wealth”. So then the question should be rephrased: “What is the origin of wealth?” Eric Beinhocker, in The origin of wealth; evolution, complexity, and the radical remaking of economics, (Beinhocker, 2007) starts with the basic notion of wealth. Adam Smith in Wealth of Nations (Smith, 1776) showed that wealth is not a fixed concept; the value of something depends on what someone else is willing to pay for it at a particular point in time. But where does wealth come from, and more importantly, how can we create more of it? How can the global society increase its wealth, how can governments create wealth for their nation, how can managers create wealth for their company, and how can individuals create wealth for themselves? Beinhocker formulates, three more questions that any theory that seeks to explain wealth and how it is created, must answer: x x x

How can something as complex and highly structured as the economy be created and work in a self-organised and bottom-up way? Why has the complexity and diversity of the economy grown over time? And, why does there appear to be a correlation between the complexity of an economy and its wealth? Why has the growth in wealth and complexity been sudden and explosive rather than smooth?

Although we know the historical narrative of what has happened in the history of the economy, for example, the advent of settled agriculture, the Industrial Revolution, and so on, we still need a theory of how it happened and why it happened. Beinhocker argues that wealth creation is the product of a simple, but profoundly powerful, three-step formula - differentiate, select, and amplify - the formula of evolution. The same process that has driven the growing order and complexity of the biosphere has driven the growing order and complexity of the econosphere”. In the biosphere, the driving forces come from nature itself, but in the econosphere, there are man-made driving forces, of which innovation is the most important one. Innovation should be seen here in the larger context of learning, knowledge accumulation, science, research, and so on. Michael Porter in The competitive advantage of nations (Porter, 1990) developed a schematic model (Figure 440) of the evolutionary process that countries go through on their quest for wealth. Economic prosperity of a country depends on the productivity with which national resources are employed. The level and growth of productivity are a function of the array of industries and industry segments in which a nation's firms can successfully compete, as well as the nature over time of the competitive advantages achieved in them. Economies progress by upgrading their competitive positions, through achieving higher-order competitive advantages in existing industries and developing the capability to compete successfully in new, high-productivity segments and industries. According to Porter, national economies go through a number of stages of competitive development. These reflect the characteristic sources of advantage of the firms of a nation in the international competition. They also reflect the nature and extent of internationally successful industries and clusters. Despite the diversity of most economies, a pattern in the nature of the competitive advantage of a country over time can be identified. Porter distinguishes four stages of national competitive development: factor-driven, investment-driven, innovation-driven, and wealth-driven. The innovation 409

Part III - Innovation Theory driven wealth creation should be preceded by two other stages, factor-driven and investment-driven, before a nation can become a self-generating wealth creator. Contrary to what it may suggest, the wealth-driven stage in Porter’s model is the decline phase of an economy and society, as a nation is more preoccupied by the distribution of wealth rather than the creation of it. The first three stages involve successive upgrading of a nation's competitive advantages and will normally be associated with progressively rising economic prosperity. The fourth stage is one of drift and ultimately decline.

Advance

FactorͲdriven

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Decline InnovationͲ driven

WealthͲdriven

Figure 440: Four stages in national competitive development Porter considers innovation the driving force behind wealth creation as his reasoning is that innovation capacity will lead to increased competitiveness, and that will lead in turn to more prosperity. Increased competitiveness is the decisive factor in the biological evolution process as Beinhocker points out (differentiate, select, and amplify), as well as in the business world (econosphere). Over the years, a host of innovation theories have been put forward, summarised in the following section.

16.1. Models of the innovation process Blackwell and Eilon, in their book "The Global Challenge of Innovation" (Blackwell & Eilon, 1991), present two models of the systematic innovation in a competitive environment, the linear model and the market model. The linear model (Figure 441) shows the set of sequential steps in this concept, starting from pure research and culminating in the production of goods and services to meet market demand. The participants in this process are the universities and industry with the former concentrating their effort on pure and applied research and the latter converting this research base into wealth-generating products. The authors reject this model as simplistic and misleading and propose the market model instead. The higher the technology, the more difficult it is to get the technical champion of a product to address the question of the market for it. Its newness, Blackwell and Eilon, argue, is used to discredit any comparisons with previous products and even to imply that its outstanding technical merits will result in it being bought at any cost. Concorde, the supersonic civil airliner, was launched in almost total disregard of the economics of its purchase and subsequent operation. The difficulty of getting product pricing considered at the earliest possible stage of the innovation cycle, is exceeded by the unwillingness to address the subject of sales volume - and yet it is only through sales volume that the recovery of the launch investment can be made and the all-important selling price constructed. In the market model, the market need (and not technological research) as the genesis of innovation, is seen as the driving force.

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Figure 441: The linear model and the market model The authors add that both models are an oversimplified version of the disorderly reality of a creative activity and continue to state that the process of product design and innovation is even more chaotic: "a veritable spaghetti junction of mutually overlapping and conflicting streams of ideas out of which a hopefully optimum design will emerge". Rothwell and Zegveld describe in Reindustrialisation and Technology (Rothwell & Zegveld, 1985) the linear and market models of Blackwell and Eilon in slightly different terms, as technology push and need (market)-pull (Figure 442). They state that during the past decades, both the pure technologypush and need-pull models of innovation have increasingly been regarded as extreme and untypical examples of a more general process of coupling between science, technology and the marketplace.

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Figure 442: Two extreme models of the innovation process Technology-push does not necessarily mean that more research and development will result in more innovation, while overemphasis on market-pull can result in a regime of technological incrementalism and lack of radical innovation. Moreover, the relative importance of technology push and need pull might vary considerably during the different phases of the industry cycle. Rothwell and Zegveld therefore propose their own interactive model of industrial innovation (Figure 443).

NewNeed

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Figure 443: Interactive model of the innovation process According to this model, innovation is regarded as a logically sequential, though not necessarily continuous process that can be subdivided into a series of functionally separate but interacting and interdependent stages. The overall pattern of the innovation process can be thought of as a complex network of communication paths, both intra-organisational and extra-organisational, linking together the various in-house functions and linking the firm to the broader scientific and technological community and the marketplace. In other words, the process of innovation represents the confluence of technological capabilities and market needs within the framework of the innovating firm. Rothwell and Zegveld discuss various other models of innovation, which are partly variations on the previous models. The model of Schmookler is based on demand-led invention (Figure 444), the model of Hessen on technology and demand-led innovation (Figure 445). These two models resemble in some sort, the linear and market models discussed before.

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Figure 444: Schmookler’s model of demand-led invention

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Figure 445: Hessen’s model of technology and demand-led science However, the models from Schumpeter add a new dimension to the innovation model. Schumpeter's first model (Figure 446) stressed the importance of exogenous science and invention that, via the medium of entrepreneurial activity, led to the growth of new industrial branches and new areas of demand. Schumpeter's second model (Figure 447) emphasised the role of endogenous science and technology, which again led to new patterns of production and new market structures. Exogenousscience andinvention

Entrepreneurial activities

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Figure 446: Diagram of Schumpeter’s model of entrepreneurial innovation (I)

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Figure 447: Diagram of Schumpeter’s model of firm-managed innovation (II) Researchers have tried to validate the innovation models on the basis of actual innovation case-studies from the past. From this empirical work it became clear that the relationships between science, technology and the marketplace are complex, interactive and multidirectional. The dominant driving force varies over time and between one branch of industry and the other. Innovation is a process of coupling. It should be a primary aim of policy to forge the necessary links, to adjust the balance of resources and to match the pattern of requirements for each technology or industry at its particular stage of development. In Industrial Technological Development; a Network Approach (Håkansson, 1987) yet another model of innovation is presented, which is an extension of the second model of Schumpeter. It is the model of technological innovation through network interaction. Instead of creating all the research capabilities in-house, the network model demonstrates how various (smaller) companies act virtually as one in a network fashion (Figure 448). This model consists of four groups of variables: x x x x

The interaction process; The participants in the interaction process; The environment within which interaction takes place; The atmosphere affecting and affected by the interaction.

The network interaction model is a theoretical description of the development of relationships in industrial markets. These relationships are made by the company in order to serve certain functions, such as to increase productivity or technical efficiency, to serve as information channels, to increase control and cohesion within the network, through technical and other bonds.

16.2. Innovation and economic growth The network model is more of an organisational model of innovation than a basic conceptual model of innovation. It underlines much of the work presented by Porter during the same period (mid-1980s) in his diamond-theory of competitive advantage. In the nineteenth century, innovation was driven by the individual inventor and his personal gain from the monopoly that would protect his brainchild, through patents and royalties. Companies at that time were established solely for the purpose of developing, making and selling specific inventions and the failure rate was high. Edison, who created an empire on the basis of his inventions, is a good example of the inventor-entrepreneur.

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ACTORS • Atdifferentlevelsfrom individualgroupsto companies • Aimtoincreasethe controlofthenetwork

Actorscontrolresources: somealoneandother jointly.Actorshaveacertain knowledgeofresources

Activitieslinkresourcesto Actorsperformactivities. Actorshavecertain knowledgeofactivities NETWORK ACTIVITIES • Transformingact • Transactionactivities • Activitycycles • Transactionchains

RESOURCES • Heterogeneous • Humanandphysical • Dependentoneachother

Activitieslinkresourcesto eachother.Activities changeorexchange resourcesthroughuseof otherresources

Figure 448: Network model Organising and managing the innovation was an issue of far less importance in such a world. Gradually companies started to build up their own in-house innovative capabilities, beginning with the improving and commercialising of the inventions of others. By the 1920s, the separate existence of the inventor and manufacturer had become blurred and many inventions were anonymous. With the development of organisations dedicated to research and the steady rise of public and private investment in R&D, however, issues of structure and management became more important. Mowery and Rosenberg in “Technology and the Pursuit of Economic Growth” (Mowery & Rosenberg, 1989) show the very important role of the organisation of research and development for the innovation in the U.S.A. and various other countries. It is clear from this work that innovation is a condition for companies and countries to stay in the marketplace. At the macro economic level, the intuitive beliefe of policy makers that there exists a direct relationship between the investment in R&D and the success in innovation, is supported by research findings. Rothwell and Zegveld show Japanese statistics explaining the relationship between R&D investment and added value ratio for 28 industrial sectors in Japan. If the ratio of R&D to sales is an indicator for the technological intensity, then it is obvious from these statistics that value added and technology are closely related. A more generalised innovation model is described in the report "Innovation Activities and Industrial Structure" by T. Sandven and K. Smith (Sandven & Smith, 1994). In this report it is explained that applying economic indicators like percentage of R&D should be done against the background of the industrial structure of a country. It is clear that some sectors, like pharmaceuticals, require much more R&D in relation to sales volume than for example petroleum refining. If a country has an industrial 415

Part III - Innovation Theory base that is dominated by low R&D intensive sectors, then a low percentage of R&D does not necessarily mean that the sectors are not able to innovate. R&D investments are thus always relative to the research needs of a particular sector. However, comparisons of one sector within various countries can be useful and meaningful. This is done in the study from A. Wyckoff, titled Investment, Innovation and Competitiveness; Sectoral Performance within the Triad (Wyckoff, 1984). R&D intensities try to reflect the technological sophistication of a particular industry. Despite their wide use, R&D intensities have many shortcomings as they account for only one (the need for a strong R&D effort) of the characteristics, usually attributed to industries considered as belonging in the hightechnology category. Other characteristics of high-tech industries are the presence of high risks, large capital investment, very rapid product and process obsolescence, strategic importance for governments and a high degree of international cooperation or competition in R&D. In addition, by focussing exclusively on the R&D expenditures in a particular industry, no consideration is given to the fact that some industries often do little R&D themselves, but acquire embodied technology through the purchase of technologically sophisticated capital goods. In certain industries, like shipping, these alternative methods of acquiring technology may be more important than direct R&D expenditures; the R&D intensity ratios may therefore be a poor indicator for technological intensity of a sector. The words research and development have so far been frequently used, but not really defined. It is necessary to be precise in the definitions used. In the The Economics of Industrial Innovation (Freeman, 1974), the following definitions are given, which are schematically shown in Figure 449. x

Basic research is original investigation undertaken in order to gain new scientific knowledge and understanding. It is not primarily directed towards any specific practical aim or application. Basic research yields new hypothesis, theories and general laws. In pure basic research it is generally the scientific interest of the investigator that determines the subject studied. In oriented basic research the organisation employing the investigator will normally direct his work towards a field of present or potential scientific, economic or social interest.

x

Applied research is also original investigation undertaken in order to gain new scientific or technical knowledge. It is, however, directed primarily towards a specific practical aim or objective. The results of applied research are intended primarily to be valid for a single or limited number of products, operations, methods and systems.

x

Experimental development is the use of scientific knowledge in order to produce new or substantially improved materials, devices, products, processes, systems or services. It is systematic work, drawing on existing knowledge gained from research and/or practical experience.

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Oriented basic research

Purebasic research

Figure 449: Definition of reasearch

16.3. European Innovation Scoreboard In order to overcome the too narrow definition of innovation, the European Union has developed the Innovation Scoreboard. The 2007 version, published in February 2008, contains a concise overview of the relative performance of the 27 Member States on the Union (European Innovation Scoreboard 2007, 2008). Overall innovation performance is calculated on the basis of 25 indicators covering five dimensions of innovation (Table 111): x x x x x

Innovation drivers measure the structural conditions required for innovation potential; Knowledge creation measures the investments in R&D activities; Innovation & entrepreneurship measures the efforts towards innovation at the firm level; Applications measures the performance expressed in terms of labour and business activities and their value added in innovative sectors; Intellectual property measures the achieved results in terms of successful know-how.

Based on performance over a five year period, four main groupings of countries emerge (Figure 450): x

x

x

Sweden, Switzerland, Finland, Israel, Denmark, Japan, Germany, the UK and the US are the innovation leaders, with scores well above that of the EU27 and most other countries. Sweden is the most innovative country, with the highest score of all countries. Luxembourg, Iceland, the Netherlands, Ireland, Austria, France, Belgium and Canada are the innovation followers, with scores below those of the innovation leaders but equal to or above that of the EU27. Australia, Estonia, Slovenia, Norway, Czech Republic, Italy, Cyprus and Spain are the moderate innovators with scores below that of the EU27.

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Part III - Innovation Theory INPUTͲInnovationdrivers 1.1 S&Egraduatesper1000populationaged20Ͳ29 1.2 Populationwithtertiaryeducationper100populationaged25Ͳ64 1.3 Broadbandpenetrationrate(numberofbroadbandlinesper100population) 1.4 ParticipationinlifeͲlonglearningper100populationaged25Ͳ64 1.5 Youtheducationattainmentlevel(%ofpopulationaged20Ͳ24havingcompletedatleastuppersecondary education) INPUTͲKnowledgecreation 2.1 PublicR&Dexpenditures(%ofGDP) 2.2 BusinessR&Dexpenditures(%ofGDP) 2.3 ShareofmediumͲhighͲtechandhighͲtechR&D(%ofmanufacturingR&Dexpenditures) 2.4 Shareofenterprisesreceivingpublicfundingforinnovation INPUTͲInnovation&entrepreneurship 3.1 SMEsinnovatinginͲhouse(%ofallSMEs) 3.2 InnovativeSMEscoͲoperatingwithothers(%ofallSMEs) 3.3 Innovationexpenditures(%oftotalturnover) 3.4 EarlyͲstageventurecapital(%ofGDP) 3.5 ICTexpenditures(%ofGDP) 3.6 SMEsusingorganisationalinnovation(%ofallSMEs) OUTPUTͲApplication 4.1 EmploymentinhighͲtechservices(%oftotalworkforce) 4.2 Exportsofhightechnologyproductsasashareoftotalexports 4.3 SalesofnewͲtoͲmarketproducts(%oftotalturnover) 4.4 SalesofnewͲtoͲfirmnotnewͲtoͲmarketproducts(%oftotalturnover) 4.5 EmploymentinmediumͲhighandhighͲtechmanufacturing(%oftotalworkforce) OUTPUTͲIntellectualproperty 5.1 EPOpatentspermillionpopulation 5.2 USPTOpatentspermillionpopulation 5.3 Triadpatentspermillionpopulation 5.4 Newcommunitytrademarkspermillionpopulation 5.5 Newcommunitydesignspermillionpopulation

Table 111: EIS 2007 Indicators Malta, Lithuania, Hungary, Greece, Slovakia, Poland, Croatia, Bulgaria, Portugal, Latvia and Romania are the catching-up countries. Although their scores are significantly below the EU average, these scores are increasing towards the EU average over time with the exception of Croatia. Turkey is performing below the other countries. As part of the 2007 European Innovation Scoreboard, assessments were made of trends in innovation performance (Figure 451) - and the innovation efficiency with which countries transform innovation inputs into outputs (Figure 452). 418

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Sweden Switserland Finland Israel Denmark Japan Germany UK USA Luxembourg Iceland Ireland Austria Netherlands France Belgium EU Canada Estonia Australia Norway Czech Slovenia Italy Cyprus Spain Malta Latvia Hungary Greece Portugal Slovakia Poland Croatia Bulgaria Latvia Romania Turkey

0.73 0.67 0.64 0.62 0.61 0.6 0.59 0.57 0.55 0.53 0.5 0.49 0.48 0.48 0.47 0.47 0.45 0.44 0.37 0.36 0.36 0.36 0.35 0.33 0.33 0.31 0.29 0.27 0.26 0.26 0.25 0.25 0.24 0.23 0.23 0.19 0.18 0.08 0

0.2

0.4

0.6

0.8

Innovationindex

Figure 450: Overall innovation performance: the EIS Summary Innovation Index 419

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Figure 451: Convergence in Innovation Performance

Figure 452: Innovation efficiencies

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16.4. Forces on innovation

Industrysales

What is the driving force behind innovation? At the company level, it is the pure survival of the firm against the (international) competition. In the absence of competition, there is no basic incentive to innovate for the individual firm. This situation existed in many of the former centrally-planned economies with monopolistic market conditions. In a market economy, companies have to stay ahead of their competitors by increasing product/service quality and lowering product/service cost. This results in a relentless search for new technologies and innovations, as best conceptualised by the socalled product life cycle (Figure 453).

Introduction

Growth

Maturity

Decline

ProductB

ProductA

Time

Figure 453: The product life-cycle - four-phase model This curve shows the variation over time of the volume of sales of a new product or service. The product itself passes through a period of adaptation and improvement. After the initial group of users has diffused the benefits of the products to a wider group of potential users, the sales volume starts to increase rapidly and the product is further enhanced. This is called the growth phase, which is eventually followed by market saturation and a levelling off of demand: the product enters its maturity phase. Ultimately, sales decline as other more competitive products gain market share and this will lead to the end of the product life cycle. Most of the known products and services can be translated into this conceptual model. It is therefore very often used by managers to anticipate change in their markets, and to direct innovation and R&D efforts. Figure 454 shows another conceptual model, which is more technologically specific. According to this model, as a major new class of products emerges, the emphasis of technological development shifts from one of major product innovation to one of process innovation and minor product improvement.

421

Rateofinnovation

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Emergenceof dominantdesign

Processinnovation

Productinnovation

Fluid

Transition

Specific

Stageofdevelopmentofthemanufacturingprocess

Figure 454: Product and process innovation The product life cycle model and the product/process life cycle model have clear implications for the competitive strategies of industrial companies. Both imply that competitiveness is linked, in the first instance, to market-oriented product innovation, and that continued competitiveness and sales are linked to continuous innovations affecting both product performance and manufacturing process efficiency. Eventually all products tend to become obsolete. The product and process life cycle concepts lead us to the issue of fundamental economic changes over longer periods of time, as analysed and documented by the Russian economist N.D. Kondratiev. He based his theory on an analysis of the price and production time-series data and identified three cycles or waves of economic recession, depression, recovery and prosperity with a period of some 55 years. Figure 455 shows a simple schematic representation of the Kondratiev Waves (Rothwell & Zegveld, 1985). The product and process life cycle concepts lead us to the issue of fundamental economic changes. While Kondratiev did not explicitly include technology as a causal factor in long-wave formation, he did suggest that when a major wave of expansion occurred, inventions that had remained dormant, would attract investment and begin to find commercial application (innovation). It was J. Schumpeter who stressed the notion of radical technological innovations as a major factor in the recurrent crisis of structural adjustment. The decline of the role of canals and horses in transportation and the rise of the railways is an obvious case. It is followed by the rise of the internal combustion engine (road transport) and the decline of the railways.

422

Part III - Innovation Theory 1st Kondratiev 1782Ͳ1845 Steampowerand textiles

2nd Kondratiev 3rd Kondratiev 1845Ͳ1892 1892Ͳ1948 Railroads,iron,coal, Electricalpower, construction automobile, chemicalindustry, steelindustry

4th Kondratiev 1948Ͳ1967 AutomobileEurope andJapan,semiͲ conductors, electronics, consumerwhite goods,aerospace, pharmaceuticals, petrochemicals, syntheticmaterials, compositematerials

War 1914/18Ͳ1939/45

War:1802Ͳ1815 Prosperity Recession Recovery Depression

Prosperity Recession Recovery Depression

1800

1850

1900

1950

1782Ͳ1802 1815Ͳ1825 1825Ͳ1836 1836Ͳ1845

1845Ͳ1866 1866Ͳ1873 1873Ͳ1883 1883Ͳ1892

1892Ͳ1913 1920Ͳ1929 1929Ͳ1937 1937Ͳ1948

1848Ͳ1966 1966Ͳ1973

Figure 455: Schematic overview of the Kondratiev waves Innovations that would cause Kondratiev-type waves, had to be dramatic in their economic and social impact. Schumpeter pointed to such major innovations: x x x

Textiles and related innovations, which he associated with the First Wave; Railways, iron, coal and construction, which he associated with the Second Wave; Electrical power, the chemical industry and automobiles, which he associated with the Third Wave.

The Fourth Wave started in 1948, and many researchers have tried to answer the question about the role of technological change and the structural changes that have occurred since then. The most notable feature of the past decades has been the emergence and rapid growth of a bunch of new technology-based industries. These are associated with advances in science and technology of the previous twenty years or more, notably electronics, semiconductors, information and communication technology, synthetic materials, petrochemicals, agrochemicals, composite materials, pharmaceuticals and aerospace.

16.5. Concluding remarks John Kao in Innovation Nation; How America is losing its innovation edge, why it matters, and what we can do to get it back (Kao, 2007) describes how the United States, during the 20th century the centre of leading-edge thinking, is being by-passed by the rise of Asia. The transfer of knowledge and 423

Part III - Innovation Theory the fruits of innovation to this region has resulted in a rise in wealth and power that threatens the future wealth of the United States. Business Week (2007) summarises his claims as follows: x

Talent is now everywhere. The return to greatness of Asia’s older universities and the building of new educational institutions mean that brainpower is more evenly distributed. In addition, a gigantic reverse Diaspora is under way as tens of thousands of Chinese and Indian scientists and engineers, many of them tops in their fields, return to their homelands to teach and work.

x

Capital is now everywhere. Venture capital pools are operating all over Asia and Europe, speeding the generation of start-ups. European and American venture capital firms have offices in most major cities in Asia and Eastern Europe.

x

Silicon valley is now everywhere. The social and economic ecosystem that has been so productive in Northern California is being reproduced all over the world. Bangalore in India, Biopolis in Singapore (life sciences), and the Otaniemi Tech Cluster in Finland have found the magic once mainly centred in U.S. innovation hubs.

x

Military spending is now everywhere. The high tech spin-off benefits that once accrued mostly the US are being spread around. A 2006 Defence dept. survey of 42 leading-edge technologies for future weapons found that 20 came from outside the US.

Business Week comments that Kao devotes little space to an important issue: the role of global corporations in innovation’s changing geography. Such companies, he suggests, “operate with increasing independence from their country of origin. They are shipping manufacturing, design and especially R&D abroad at a ferocious pace” and the value added to the US seems in decline. In the past, economic benefits have gone mostly to the first mover - the innovator, entrepreneur, or creator.

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17.

INNOVATION AND BUSINESS

“Innovation is a means of surviving in the econosphere, like evolution is in the biosphere”, could be a paraphrase of Beinhocker’s views as discussed in the previous chapter. How can innovation in business be better understood, is the subject of the current chapter.

17.1. Innovation and environmental turbulence Innovation can be a goal in itself, but it is usually triggered by the competitive forces in the business environment of firms. The need for innovation can thus be related to the changes in the competitive environment. In the past, the pace of change has been relatively slow and the competitive environment could be characterised as stable. Over the previous century, the pace has increased drastically in many sectors and this resulted not only in the global economy as we know it today, but also in a dramatic change in the turbulence level of the competitive environment. Igor Ansoff, the management scientist, has developed a concise diagram of the change in turbulence level and the consequences for the evolution of management systems within firms (Table 112). This diagram was originally published in his 1965 book Corporate Strategy (Ansoff, 1965), and is now part of his broader vision on strategy, Implanting Strategic Management (Ansoff & McDonnell, 1990). Changeability Unpredictabilityoffuture

Recurring Forecastableby extrapolation

Predictablethreatsand opportunities Partially predictable opporͲ tunities Unpredictablesurprises Turbulencelevel

1900 Familiar

1930 1950 1970 1990 Extrapolatable FamiliardisͲ Novel continuity discontinuity *Systems&proceduresmanuals Management *Financialcontrol bycontrol

*Operationbudgeting Management *Capitalbudgeting byextrapolation *Managementbyobjectives *Longrangeplanning *Periodicstrategicplanning Managementbyanticipationof *Strategicposturemanagement change *Contingencyplanning *Strategicissuemanagement *Weaksignalissuemanag. *Surprisemanagement 2 4 5 Anticipating Exploring Creative

Managementbyflexible/rapid response 1 Stable

2 Reactive

Table 112: Evolution of management systems As shown in the table, the systems can be grouped into four distinctive stages of evolution: x

Management by control (after the fact) of performance, which was adequate when change was slow; 425

Part III - Innovation Theory x x

x

Management by extrapolation, when change accelerated, but the future could be predicted by extrapolation of the past; Management by anticipation, when discontinuities began to appear but change, while rapid, was still slow enough to permit timely anticipation and response; Management trough flexible/rapid response, under conditions in which many significant challenges develop too rapidly to permit timely anticipation.

Strategic success hypothesis Strategic diagnosis is a systematic approach to determine the changes that have to be made to a firm's strategy and its internal capability in order to assure the firm's success in its future environment. The diagnostic procedure is derived from the strategic success hypothesis that Ansoff based and validated on empirical research. This hypothesis states that the performance potential is optimum when the following three conditions are met: x x x

Aggressiveness of the firm's strategic behaviour matches the turbulence of its environment; Responsiveness of the firm's capability matches the aggressiveness of its strategy; The components of the firm's capability must be supportive of one another.

In this context three concepts will be further described: environmental turbulence, strategic aggressiveness and organisational responsiveness. Environmental turbulence is a combined measure of the changeability and predictability of the firm's environment. Its main characteristics are: x x

Changeability; the complexity of the firm's environment and the novelty (familiarity) of the successive challenges that the firm encounters in the environment; Predictability; rapidity of change is the ratio of the speed with which challenges evolve in the environment to the speed of the firm's response and the visibility of the future that assesses the adequacy and the timeliness of information about the future.

A scale of environmental turbulence is shown in Table 113. Turbulence level 1 (a placid environment) is rarely observable in so-called free market economies in which natural forces of competition are at work. The reason is that the key to success in today's competitive environment is continual substitution of new products and services that are superior to the historical products and services. Firms that do not innovate, do not survive. At turbulence level 4 and above, active concern with strategic management becomes vital to the firm's success and even its survival. Environmental turbulence Turbulencelevel Complexity Familiarityofevents Rapidityofchange Visibilityoffuture

Repetitive

Expanding

1 National Economic Familiar

2 +

Changing

3 Regional Technological Extrapolatable 

Slowerthan response Recurring

 Forecastable

Discontinuous

Surprising

4 +

5 GlobalSocioͲ political Discontinuous Discontinuous familiar Novel  Comparableto Fasterthan response response Predictable Partially Unpredictable predicable surprises

Table 113: Turbulence scale 426

Part III - Innovation Theory Strategic aggressiveness is described by two characteristics: x

x

The degree of discontinuity from the past of the firm's products/services, competitive environments, and marketing strategies. The scale of discontinuity ranges from no change to incremental change, to change that is discontinuous for the firm but observable in the environment, to creative change that has not been observed previously. Timeliness of introduction of the firm's new products/services relative to new products/services that have appeared on the market. Timeliness ranges from reactive to anticipatory, to innovative, to creative.

Table 114 describes the appropriate strategic aggressiveness that, according to the strategic success hypothesis, is necessary for the success at each turbulence level. Level 1 is rarely observed in business environment, but is common in the non-profit organisations that do not change their products/services unless forced by a threat to their survival. On level 2, on which the environment changes slowly and incrementally, a firm succeeds if it changes its products only in response to competitors' moves. In the absence of threats from competition, such firms stick to their historical products or services, while minimising costs and under pricing competition. On level 3 the successful firms progressively improve their historical products/services in anticipation of the evolving needs of the customers. Level 4 is observed in firms whose environment is subject to frequent discontinuities and poor predictability. At this level, aggressiveness is more complex than on the other levels, and this is even more so at the level 5. To remain a leader in developing products/services the firm must incorporate the cutting edge of innovation and technology. Turbulencelevel Environmental turbulence

1 Repetitive  Repetitive

Strategic aggressiveness

Stable  Basedon precedents

2 Expanding  Slow incremental Reactive  Incremental basedon experience

3 Changing  Fast incremental Anticipatory  Incremental basedon extrapolation

4 5 Discontinuous Surprising   Discontinuous Discontinuous Predictable Unpredictable Entrepreneurial Creative   Discontinuous Discontinuous basedon Basedon expectedfuture creativity

Table 114: Matching aggressiveness to turbulence In addition to strategic aggressiveness, the responsiveness of the firm's organisational capability must also be matched to the environmental turbulence. Table 115 shows the responsiveness appropriate to different turbulence levels.

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Part III - Innovation Theory Turbulencelevel

1

2

3

4

5

Environmental turbulence

Repetitive  Repetitive

Responsivenessof capability

Custodial  Suppresses change

Expanding  Slow incremental Production  Adaptsto change

Changing  Fast incremental Marketing  Seeksfamiliar change

Discontinuous  Discontinuous Predictable Strategic  Seeksnew change

Surprising  Discontinuous Unpredictable Flexible  Seeksnovel change

Table 115: Matching responsiveness to turbulence On level 1, where the environment is repetitive and the optimal strategic behaviour is change-rejecting, the optimal organisation suppresses strategic change. The organisation is highly structured with hierarchical, centralised authority. On level 2 the efficiency-driven firm permits strategic change to occur, but only after operating management has failed to meet the firm's goals. The organisation is introvert, focussed on internal efficiency and productivity. Little attention is paid to the environment since it is assumed that minimisation of costs will automatically assure success in the marketplace. The power centre is usually in the production function. As a result, efficiency-driven firms are frequently referred to as production-driven. Successful market-driven firms on level 3 are extroverted and future oriented. The focus is on serving the future needs of the firm's historical customers, using the historical strengths of the firm. A distinct characteristic of an environment-driven firm on level 4 is that, unlike the market-driven firm, it has no attachment to history. Future validity of historical success strategies is continually challenged and so is the future attractiveness of historically attractive markets. The environment-creating firms on level 5 have a feature in common with efficiency and marketdriven firms; all three are usually driven by a single function. On level 4 this may be a creative market development function or a creative R&D department. A characteristic that distinguishes an environment-creating firm from production- or market-driven firms is its total commitment to creativity. The past is recognised only as something not to be repeated! The three concepts environmental turbulence, strategic aggressiveness and organisational responsiveness are summarised in Table 116.

Thriving on chaos The book “In search of excellence”, by Thomas Peters and Robert Waterman (Peters & Waterman, 1981) started the debate on the characteristics that made firms excel in the marketplace. Tom Peters published follow-up books, titled “A passion for Excellence” (Peters & Austin, 1985) and “Thriving on Chaos” (Peters, 1987). The latter book is a plea for the acceptance by companies of a continuous high level of turbulence in the business environment and consequently that they adapt themselves to this new reality. In fact, Peters states that the world has become a global marketplace, where one factor is constant, and that is change! This corresponds with the concept of environmental turbulence as defined by Ansoff. The business environment edges towards a level 5 turbulence and firms better accept the consequences and restructure themselves accordingly, is the message. The winners of tomorrow will deal proactively with chaos, not as a problem to be got around. Chaos and uncertainty are market opportunities for the wise, contends Peters. The successful firm in this turbulent environment will be: 428

Part III - Innovation Theory Turbulencelevel

1

2

Environmental turbulence

Repetitive  Repetitive

Strategic aggressiveness

Stable  Basedon precedents

Responsivenessof capability

Custodial  Suppresses change

Expanding  Slow incremental Reactive  Incremental basedon experience Production  Adaptsto change

3

4

5

Changing Discontinuous Surprising    Fast Discontinuous Discontinuous incremental Predictable Unpredictable Anticipatory Entrepreneurial Creative    Incremental Discontinuous Discontinuous basedon basedon Basedon extrapolation expectedfuture creativity Marketing Strategic Flexible    Seeksfamiliar Seeksnew Seeksnovel change change change

Table 116: Matching triplest that optimise a firm’s return on investment x x x x x

Flatter, have fewer layers of organisation structure; Populated by more autonomous units with more decentralised authority; Oriented towards differentiation, producing high value-added goods, services that create niche-markets; Quality conscious, service-conscious and more responsive; Much faster at innovation, and a user of highly trained, flexible people as the principle means of adding value.

Turbulence or volatility is a basic characteristic of the maritime sector. This is clearly illustrated by the development of the freight markets of oil tankers and bulk carriers. The rollercoaster movement of freight rates and the corresponding causes during extreme rate level movement - mostly wars - make it clear that shipping, at least liquid and dry bulk shipping, is constantly exposed to chaos. The shipping companies have consequently structured themselves in such a way that they can easily adapt to volatile developments. The turbulence or chaos has in recent times also spread to traditional stable liner (container) shipping. In the past on Ansoff's scale of 2-3, the sector has moved to a turbulence level of 4-5. This has had a profound impact on the structure of the individual firms and the structure of the industry as a whole. The formation of flexible alliances between the container shipping lines is partly an answer to this need to hedge and proactively deal with a higher level of turbulence in the marketplace, as well as creating economies of scale and scope25. The strong and frequent fluctuations in the freight markets of the mainstream shipping segments do not really facilitate a long term innovation climate. A lot of shipowners are therefore not in the market to innovate, but rather to survive while waiting to play the asset game of buying low and selling high. The long waves (Figure 456) of building up capacity and restructuring of an overcapacity that follows this period, as described by Stopford (Stopford, 1997), does not really stimulate owners to innovate, as most of the years the freight level is insufficient to create a lasting competitive advantage in the

25

 Economy of scope: The situation that arises when the cost of performing multiple business functions simultaneously provesmoreefficientthanperformingeachbusinessfunctionindependently.

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Freightrate

market. The strategies of cost leadership, market differentiation and focus, the generic strategies proposed by Porter in the following sections, are practiced by relatively few owners during these periods.

Stage3 Peak Stage2 Recovery

Stage4 Collapse

Stage1 Trough

Time Figure 456: Stages in a dry market cargo cycle

Demand-technology life cycle The concept of product life cycle was introduced and discussed in the previous chapter. In order to understand the dynamics of change that lay at the foundation of innovation, this concept is further developed by Ansoff (Ansoff & McDonnell, 1990), when he includes explicitly demand-technology cycles (Figure 457). The demand life cycle describes a typical evolution of demand as previously unserved societal need begins to be served by products or services. The demand-technology life cycles that determine the demand for products or services based on a particular technology. The lower part of Figure 457 illustrates that within the demand-technology life cycle, successive product life cycles are based on the technology that originally served demand. As this book discusses innovation in shipping, technology is at the centre of its interest, and the strategic dimensions of technology, as defined by Ansoff, will be discussed in more detail. When the concept of strategy was first developed, the focus was on economic and competitive variables. R&D, like production, was treated as a functional area to which strategic decisions could be assigned for 'implementation'. Since the 1950s it has become increasingly evident that, in certain industries, technology was becoming a driving force that could shape the strategic future of an enterprise. In Figure 457, the importance of technological change in the evolution of the demand life cycle is illustrated. This concept is further developed in Figure 458, in which the upper graph demonstrates a stable, long-lived technology that remains basically unchanged for the duration of the demand life cycle. When product proliferation occurs during the G2 phase, it is based on product features and design cosmetics rather than on technological advances in product performance. 430

Part III - Innovation Theory The middle graph illustrates what is called fertile technologies. The basic technology is long-lived, but products proliferate, offering progressively better performance, and broadening the field of application. In fertile technologies, product development becomes a critical factor in economic success. As product life cycles are short, due to competing products, firms are under constant pressure to innovate. The third graph demonstrates a turbulent field of technology in which, in addition to product proliferation, one or more basic technology substitutions take place within the life span of the demand life cycle. In other words, this is the case of the S-curve shifts. This figure illustrates clearly the link and difference between demand life cycles, product life cycles and demand-technology life cycles.

Demand

Technology

Time

Demand

Technology

Product

Time

Figure 457: Demand-technology-product life cycle

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Demand/Technology Stabletechnology

Product

Time Demand/technology Fertiletechnology

Product

Time Demand

Turbulenttechnology

Technology

Time

Figure 458: Demand-technology-product life cycle

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Corporate capacity for innovation The turbulent marketplace demands that managers make innovation a way of life for everyone. Therefore they must learn - individually and as organisations - to welcome change and innovation. The corporate capacity for continuous change must be dramatically increased. This is often easier said than done. Ansoff in Implanting Strategic Management outlines some of the psychological obstacles for such a positive attitude towards change and innovation. As managers respond to environmental stimuli, they encounter successes and failures. Over time, accumulation of the successes forms a conviction in the manager's mind about 'things that do work', and failures build a conviction about 'things that do not'. Together, the two sets of convictions evolve into a success model of the environment, or what psychologists call a mindset. Very few managers attempt to make their mental models explicit by writing it down, or programming it on a computer, but all experienced managers use such models in their daily decision-making work. These mental models are essential for managing in a complex and changing environment. But it remains valid only so long as the variables and relationships in the environment remain unchanged. Whenever the environment undergoes a discontinuous change, as it did during the transition from the mass production to the mass marketing era and there to the internet era, the manager's historical success model becomes the major obstacle to the firm's adaptation to the new reality. The manager's mental filter will eliminate novel and weak signals, which are not relevant to his historical experience, and thus fail to perceive the shape of the new environment, the newly important variables, new relationships, and new success factors. This leads to a widely observable paradox that is described in the phrase: "success breeds failure" in a turbulent world. Thus the manager's success model becomes a second mental filter that is applied to the incoming environmental signals. Figure 459 shows the schematic representation of this filtering process of management information. The model shows clearly the phase called perception.

Environment

Surveillance filter

Data Power filter

Mentality filter

Perception

Information

Figure 459: Filtering process of management information

433

Part III - Innovation Theory Figure 460 shows the link between the level of environmental turbulence and the managers mentality necessary to stay in the business. It is evident that the more a marketplace is turbulent and surprising, the more creative and flexible a manager should be.

Turbulance level

Repetitive

Expanding

Changing

Discontinuous

Surprising

Mentality

Custodial

Production

Marketing

Strategic

Creative/flexible

1

2

3

4

5

Success function

* Stability

* Growth

* Differentiation

* Strategic positioning

* Creation of technology

Success Mentality

*Repetition

* Economies of scale

* Response to market

* Flexibility

* Markets, products

Figure 460: Mentality and turbulence

Innovation in the value chain Management of innovation is not restricted to a few activities of the firm, like the R&D department, but to all the discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product or service. Each of these activities can contribute to a firm's relative cost position and create a basis for differentiation. A systematic way of examining all the activities a firm performs and how they interact is necessary for analysing the sources of competitive advantage and the potential for innovation. Porter introduces hereto the concept of the value chain as a basic tool for doing so. The value chain disaggregates a firm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of differentiation. A firm's value chain is embedded in a larger stream of activities that Porter calls the value system (Figure 461). Suppliers have value chains that create and deliver the purchased inputs used in the firm's chain; products pass through value chains of channels on their way to the buyer; products eventually becomes part of the buyer's value chain. Gaining and sustaining competitive advantage - through innovation - depends not only on the management of innovation - but foremost on the understanding of the firm's value chain and in particular how the firm fits in the overall value system. Porter's model provides the managers in the firm with an important new mental model for structuring innovation, especially if he looks at the more generic value chain of the firm (Figure 462). The relevant level for constructing a value chain is a firm's activities in a particular industry. Though firms in the same industry may have similar chains, the value chains of competitors often differ. In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. Value is measured in total revenue, a reflection of the price a firm's product commands and the units it can sell. A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy. 434

Part III - Innovation Theory Single-industry firm

Firmvalue chain

Supplier valuechain

Firm value chain

Channel valuechain

Buyervalue chain

Diversified firm

Business unitvalue chain

Business unitvalue chain

Supplier valuechain

Channel valuechain

Business unitvalue chain

Figure 461: The value system

Firm inf rastructure Human resources Technology developement Procurement

Inbound logistics

Operations

Outbound logistics

Marketing & Sales

Service

Primary activities

Figure 462: The generic value chain

435

Part III - Innovation Theory Value activities can be divided into two broad types, primary activities and support activities. Primary activities are involved in the physical creation of the product and its sale and transfer to the buyer as well after sale assistance. Support activities support the primary activities and each other by providing purchased inputs, technology, human resources, and various firm wide functions. One of the support activities, which is of particular interest to the engineer, is technology development. This consists of a range of activities that can broadly be grouped into efforts to improve the product and the process. Porter terms this category of activities technology development instead of research and development because R&D has too narrow a connotation to most managers. Technology development tends to be associated with the engineering department or the development group. Typically, however, it occurs in many parts of the firm, although this is not explicitly recognised. It does not solely apply to technologies directly linked to the end product.

17.2. Innovation management Nolan starts The Innovator's Handbook (Nolan, 1987) with a quote from Machiavelli: "There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things." Many managers would identify with Machiavelli, as they know from experience, that to innovate, to initiate a new order of things, to do something that has not been done before, is difficult and hazardous. It involves change, and change will almost certainly encounter resistance. It involves uncertainty, and with uncertainty comes anxiety. It involves the risk that things will not turn out as expected, the risk of failure. Not surprisingly, such managers tend to be wary of innovation. Nevertheless, and in spite of all the experience to the contrary, Nolan believes that Machiavelli is wrong and that innovation is manageable, provided you know how to; you need the appropriate skills. To be logical, analytical, orderly, decisive, right the first time, and aggressively single-minded are valuable qualities for dealing with one part of a manager's role - the efficient running of today's business. To create the business of tomorrow, i.e. to innovate, and encourage innovation from others, calls for quite different qualities and behaviours, and these are the subject matter of Nolan's book. Probably the most important difference between innovative and routine management lies in the attitudes toward and the handling of risk. The risks of innovation are of two quite different kinds: alongside the risks of something actually going wrong in the real world, is the emotional risk of being criticised or blamed, feeling foolish or embarrassed. The interaction of the two types of risk (labelled objective and subjective) enables Nolan to identify four different categories of risky situations (Figure 463) The well-managed business operates mainly in the lower half of the diagram below, moving between routine and the experimental. It makes money from its routine activities; it innovates and safeguards its future through the results of its experimental work. By contrast the business or individual who never experiments and continues to do things the way they are always done, feels safe and comfortable, but is in fact taking a big risk of being caught out by changing circumstances. Because innovators are constantly learning from their experiments, they are likely to be very good at conservation, as well as innovation. By contrast, when the Ostrich type organisation finally bestirs itself to take the Great Leap Forward, it is likely to take the view "we have been doing it all wrong scrap everything and start afresh", and throw away lots of babies with the bath water. There is no better place, according to Nolan, to start the process of innovation at the behavioural level of the manager. The individual manager can do two things: 436

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Figure 463: Categories of risky situations x

x x x

Managing innovatively, doing his own job in new ways, and Managing for innovation, creating an environment in which creativity and innovative behaviour by others are encouraged and rewarded. The manager must have a personal risk-taking posture, and be equipped with a number of skills, in order to manage innovation successfully: Problem solving; to release the creativity that produces new ideas and new solutions, the raw material of innovation. Communication; to share understanding, knowledge and ideas through the organisation, and to exploit the opportunities created by communication and information technologies. Teamwork; to generate commitment, enthusiasm, tolerance and emotional support that is needed to sustain an innovative project through its vicissitudes.

Nolan outlines the difficult path of innovation management and he concludes that it takes courage to stay with the vision even when things go wrong, to persevere, to maintain enthusiasm and commitment. The role of management is to supply that courage - to EN-COURAGE in the full sense of that word, where the EN prefix means 'to put into'. A landmark study under the auspices of the European Innovation Monitoring System concerned with tools and methodologies used by consultants and advisors working with small and medium-sized enterprises (SMEs) to help them manage innovation (Brown, 1997). The study summarises and appraises 17 management tools used in European countries, provides casestudies illustrating the effective use of selected innovation management tools (IMTs), proposes a 437

Part III - Innovation Theory classification scheme for IMTs and concludes with a process based model to aid understanding of innovation in firms. The process-based model maps out the pattern of business processes related to innovation within a firm and link these to the application of IMTs. The model is based on a three-loop structure: x x x

Primary innovation loop, representing the processes of generating new product ideas, product and process development, production and marketing; Learning loop, representing the learning process within the firm; Strategic loop, concerned with the (re)definition of the goals and strategy of the firm in the long term.

By cycling through these three elements of the model the firm builds its knowledge and capability. Specific IMTs can aid this process and/or address particular steps which are proving difficult, while the model also helps to rationalise and map out how different IMTs impact upon the behaviour of the firm. The three loops are schematically shown in Figure 464. The primary innovation loop consists of the core processes and the enabling processes. The core processes are: x x x x

Concept generation - the identification of new ideas or product concepts; Product development - taking the innovation from concept through development and transfer to production and use; Process innovation - the development of innovations in manufacturing processes; Produce and market - the final test of a new product, including customer feedback.

The core processes are supported by enabling processes, which are: x x x x

Knowledge and technology management; Resources - the deployment of human and financial resources; Systems and tools - the effective use of appropriate systems and tools; Leadership - providing the top management leadership and direction.

The second feedback loop within the process based model is the learning loop. The essence of this loop is not only to learn how to become more effective, but also to question continuously the norms and values or the underlying assumptions to the rules and routines within the firm. This is called double-loop learning. Finally, the strategic loop, which is a double-loop learning cycle which deals with the questions regarding the very existence of the firm: next to defining the strategy of the firm, it is also concerned with the mission and goals of the firm. Changing the culture of a firm can be regarded as an example of an organisational change which is initiated by cycling through the strategic loop. For many SMEs which want to become more successful in innovation, the first level of action is about creating the culture and environment for innovation. Important means in this respect are raising awareness, understanding the implications of trends, opportunities and threats in the external environment (SWOT), and establishing willingness for change within the firm, starting with the unequivocal commitment at the top. The process-based model of innovation brings together the three feedback loops, in which the “harder” processes which make up the primary innovation loop are seen to be linked to the “softer” processes through which the firm learns, equips itself to change, and reappraises its goals and strategy. 438

Part III - Innovation Theory Using this conceptual model of innovation, a wide range of innovation management techniques can be brought to bear on one or more elements of the model variables. The interested reader is referred to the book for more guidance regarding the tools and techniques that have been developed over the years and which are often used by successful firms.

Setting goals

External assessment ͲͲͲ Internal assessment

Learningloop

Quantifying& understanding

Actions

Concept generation

Product designand development

Process development

Produceand market

PrimaryInnovationloop Customerfeedback

Knowledge&TechnologyManagement Resources Systems&Tools Leadership&Culture

Figure 464: Process-based innovation model

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17.3. Diffusion of innovation An invention usually leads twenty years later to a basic innovation, which takes another period to be diffused and replace an existing technology, product or service. Rogers (Rogers, 1962) has studied the way in which innovations spread around the world and displace existing products. He has developed a conceptual model of the diffusion process (Figure 465). Rogers defined diffusion as the process by which an innovation is communicated through certain channels over time among members of a social system. He makes a distinction between innovation and innovativeness, which is the degree to which an individual or other unit of adoption is relatively earlier in adopting new ideas than the other members of the system. Rogers defines four adopter categories: innovators, early adopters, early majority, late majority and laggards. Innovators are active information seekers about new ideas. The diffusion of innovations can also be measured as function of time: the rate of adoption. This is the relative speed with which an innovation is adopted by members of a social system. When the number of individuals adopting a new idea is plotted on a cumulative frequency basis over time, the resulting distribution is an S-shaped curve. Most innovations have an s-shaped rate of adoption, but there is variation in the slope of the “S” from innovation to innovation. Some new ideas diffuse relatively rapidly and the S-curve is quite steep, while other innovations have more sloped S-shapes. In order to understand the mechanics behind the rate of adoption of innovation Rogers identifies five key-variables: x x

x

x x

Perceived attributes of innovations; relative advantage over alternatives, compatibility with values, past experiences and needs, complexity, triability and observability; Type of innovation; innovations requiring an individual optional innovation decision will be adopted more rapidly than when an innovation has to be adopted by an organisation; Communication channels; if interpersonal channels must be used, the rate of adoption will be slowed down provided the innovation is not perceived as complex. In the case, interpersonal channels are more effective; Nature of social system; in particular the degree of interconnectedness, i.e. how effectively the members of a social system are lined by communication networks, is positively related to the rate of adoption; Extent of a change agents' promotion effort; which is most effective at the early stages of the diffusion process, when opinions are forming.

The diffusion process as described by Rogers has an external orientation, and it is not focused on the internal diffusion of knowledge within an organisation. In the second half of the 1980s a new dimension of diffusion was gradually developed, in later years known as knowledge management (). It comprises a range of practices used by organisations to identify, create, represent, and distribute knowledge. It has become an established discipline since 1995 with a body of university courses and both professional and academic journals dedicated to it. Many large companies have resources dedicated to knowledge management, often as a part of Information Technology or Human Resource Management departments. Knowledge management programs are typically tied to organisational objectives such as improved performance, competitive advantage innovation, lessons learnt transfer (for example between projects) and the general development of collaborative practices. It is frequently linked to the idea of the learning organisation although neither practice encompasses the other. Knowledge management may be distinguished from organisational learning by a greater focus on specific knowledge assets and the 440

Part III - Innovation Theory development and cultivation of the channels through which knowledge flows, which is part of the diffusion process as formulated by Rogers in 1962.

Figure 465: Conceptual model of the diffusion process of innovation The diffusion process is an attractive intellectual concept, but it seems hard to measure objectively in reality. However, prof. C. Marchetti of the International Institute for Applied Systems Analysis (IIASA) has developed a scientific basis for the measurement of the diffusion process. The following is based on a number of his papers, (Marchetti, 1991) and (Marchetti, 1980). After studying innumerable cases of innovation diffusion, Marchetti came to the conclusion that searching, inventing, developing, enterprising and selling, all follow the same pattern or mechanism, which can be characterised by the same mathematical function: the mathematics of epidemic diffusion at the various hierarchical levels.

Diffusion process: the logistic A real epidemic can be mathematically defined by the number of individuals (Rሻ in a population that is infectable and the number of individuals (N) that already have been infected. The new entries in the infected area can be represented by the equation: ݀ܰ ൌ ܽܰ൫R െ ܰ൯݀‫ݐ‬ሻ This expression means that these new entries (victims) in time (dt) are proportional (a) to the product of the infected individual (N) spreading the epidemic and the susceptible individuals still around (R N). The solution of the equation is (where (b) is the integration constant): ܰሺ‫ݐ‬ሻ ൌ

R ͳ െ ‡š’ሾെሺƒ– ൅ „ሻሿ

Calling F= RȀܰ the equation can be rewritten as follows: 441

Part III - Innovation Theory ‫ܨ‬ ൰ ൌ ܽ‫ ݐ‬൅ ܾ ͳെ‫ܨ‬ This is a straight line known as the Fisher-Pry transform (as shown in Figure 466). The second graph in the figure is the S-curve, called the logistic. The S-curve is straightened by the Fisher-pry transform, t0 is the time of the maximum rate of diffusion, as shown in the third graph. ‫ ݃݋ܮ‬൬

John Casti in Complexification; Explaining a Paradoxical World Through the Science of Surprise (Casti, 1994), uses an illustration of diffusion that is based on the work of C. Marchetti. This shows the growth of a bacterial colony over time, which seems to follow the same simple pattern, which biologists call the logistic, or S-shaped curve. The question is whether the S-curve diffusion process can also be demonstrated on products instead of deaths and bacterial colonies. Figure 467 shows the diffusion of cars in Europe during a hundred year period. There are two curves, one before the WW2, and one thereafter. The first curve had its maximum rate of diffusion in 1930 and the total number of pre-war cars was 7.5 million; the second post-war curve had its maximum rate of diffusion in 1970, 40 years later, while the total car population increased to 150 million.

Open Business Models The S-shaped logistic function of diffusion is not similar to the S-curve used to plot performance as a function of effort. The latter curve is based on the law of diminishing returns (each additional unit of input yields less and less additional output) as already formulated by Malthus and Ricardo in the 19th century. The importance of understanding diffusion and its rate of adoption has relevance to the business world and in particular to those who wish to protect their innovation via, for example intellectual property rights. In the maritime industry, protecting innovations appears to be very difficult, and therefore those companies that have something to protect, are keen to keep a very low profile in the diffusion process. There are however different views on sharing innovation with others, even in the absence of a clear mechanism for IPR protection. Henry Chesbrough published in 2006 a thought-provoking bestseller on open innovation (Chesbrough, 2006) which was followed by a book on open business models (Chesbrough, 2006a). Chesbrough asserts that the way we innovate new ideas and bring them to the market is undergoing a fundamental change from closed innovation to open innovation. Closed innovation is based on the view that successful innovation requires control. Companies must generate their own ideas and then develop them, build them, market them, distribute them, service them, finance them, and support them on their own. The motto is “If you want something done right, you’ve got to do it yourself.” The logic of closed innovation created a virtuous circle (Figure 468). Companies invested in internal R&D, which led to many breakthrough discoveries. These discoveries enabled those companies to bring new products and services to market, to realise more sales and higher margins because of these products, and then to reinvest in more internal R&D, which led to further breakthroughs. And because the intellectual property (IP) that arises from this internal R&D is closely guarded, others could not exploit these ideas for their own profit. For most of the twentieth century, the closed innovation paradigm worked well. However during the last years of that century, several factors combined to erode the underpinnings of this model. One factor was the growing mobility of highly experienced and skilled people who took with them the hard-won knowledge to a new employer.

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Figure 466: Graphical representation of the diffusion process 443

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Figure 467: Car circulation in Europe

Fundamental technology breakthrough

Increaseinvestment inR&D

Newproductsand features

Increasedsalesand profitsviaexisting businessmodel

Figure 468: The virtuous circle The logic of closed innovation was further challenged by the increasingly fast time to market for many products and services, making the shelf life of a particular technology ever shorter. When fundamental technology breakthroughs occurred, the scientists and engineers who made these breakthroughs were aware of an outside option that they formerly lacked. If the company did not pursue these breakthroughs in timely fashion, they could pursue them on their own - in a new start-up company. These developments lead to lead to a break-up of the virtuous circle as depicted by Figure 469.

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IPOorAcquisition

Outside option

Fundamental technology breakthrough

Thebreak

Increaseinvestment inR&D

Newproductsand features

Keyengineersexitto formnewcompany

Increasedsalesand profits

Venturecapitalhelps teamfocusonnew market,new businessmodel

RIP

Figure 469: The virtuous circle broken Chesbrough proposes a new paradigm based on open innovation. The two concepts are contrasted in Table 117. He concedes that the concepts in his book are not specific to the high-tech portion of the overall economy. Every company has a technology, that is, a means to convert inputs into goods and services that the company sells. And no company can expect its technology to remain fixed for a very long time. It is far wiser to expect technology to change, sometimes in unpredictable ways, than it is to assume that things will remain the same. Companies that do not innovate will die. Closedinnovationprinciples x Thesmartpeopleinourfieldworkforus

x ToprofitfromR&D,wemustdiscoverit,develop itandshipitourselves x If we discover it ourselves, we will get it to marketfirst x The company that gets an innovation to market firstwillwin x If we create the most and the best ideas in the industry,wewillwin x We should control our IP, so that our competitorsdonotprofitfromourideas

Openinnovationprinciples x Not all the smart people work for us. We need to work with smart people inside and outside ourcompany x External R&D can create significant value; internalR&Disneededtoclaimsomeportionof thatvalue x We do not have to originate the research to profitfromit x Building a better business model is better than gettingtomarketfirst x Ifwemakethebestuseofinternetandexternal idea,wewillwin x Weshouldprofitfromothers’useofourIP,and we should buy others’ IP whenever it advances ourownbusinessmodel

Table 117: Contrasting principles of closed and open innovation

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Part III - Innovation Theory In his follow-up book, Chesbrough launches the open business model that taps into the intermediate markets for (outside) ideas and innovations. The rationale being the rising costs of technology development and shorter product life cycles. The economics of innovation are being negatively impacted by rising innovation costs and shorter revenue streams. The open innovation business model attacks the cost side of the problem by leveraging external R&D resources to save time and money in the innovation process. It attacks the revenue side by broadening the number of markets addressable by the innovation. The interplay of leveraged cost and time savings, combined with new revenue opportunities, is shown in Figure 470. The firm no longer restricts itself to the markets it serves directly. Now it participates in other segments through licensing revenues, joint ventures, spin-offs, or other means. Meanwhile, the development costs of innovation are reduced by greater use of external technology in the firm’s own R&D process. The result of the model is that innovation becomes economically attractive again, even in a world of shorter product life cycles.

Sale/divestiture SpinͲoff

Revenues

Newrevenues

License

Ownmarket revenue

Internal development costs

Ownmarket revenue

Internaland external development cost Costandtimesavings fromleveraging externaldevelopment

Costs Closedmodel

Openinnovation businessmodel

Figure 470: The new business model of open innovation An important aspect of the open innovation business models is the protection of innovations via intellectual property rights (IPR). Chesbrough sums up the dilemmas as follows: “Whether working with customers or suppliers in the value chain, though, the issue of IP remains an important source of friction in the exchange. Who will own the resulting product or service if we share ideas on how to innovate more effectively within a certain process? What rights will my supplier have to offer this solution to its other customers, some of whom may be my competitors? What rights do I have to offer this product or service to my other customers, some of whom may compete with this customer? And where do my rights end, and where do my customer’s or supplier’s rights begin?” Chesbrough provides a novel conceptual framework for understanding and structuring these issues, and given its 446

Part III - Innovation Theory importance for the future business model of innovation, the reader is referred to important chapters in the book (Chesbrough, 2006a)

17.4. Bottom-line of innovation In Payback; Reaping the Rewards of Innovation (Andrew & Sirkin, 2006) James Andrew and Harold Sirkin offer a sobering analysis of all highbrow innovation theories and models. The overview that they provide in the introduction to their book is summarised below. For almost every company, the greatest challenge of innovation is not a lack of ideas but rather that it delivers the required return on the managing of innovation, i.e. company's investment of money, time, and people. Most attempts at innovation fail to deliver this return, they do not generate enough payback. Payback means one thing - cash. When a company makes an investment in innovation and creates something new that produces a cash return swiftly and directly, it has created a winning situation, particularly when the return is larger than expected. The company has a "hit" on its hands. And this is true regardless of whether the new thing is a product, service, process change, business model, customer experience, or anything else that is new. But it is the nature of innovation, of all types, that cash is not always produced from it, and rarely is it produced immediately. There can be a lag between the time of investment in innovation and the cash return. This lag can make companies and leaders nervous. Perhaps the cash payback will never come at all? With other types of investments (particularly in tangible assets like factories, machines, or new trucks), companies can often calculate their cash return with much more certainty. But, as with advertising and certain other expenditures, the return on an investment in innovation cannot be so easily predicted or measured. To complicate matters, the innovation process sometimes generates a cash payback, but indirectly, not through the specific product or service being developed but through a benefit that only later impacts the company's ability to generate cash. These indirect benefits are real, although difficult to capture. There are four of them: Knowledge, brand, ecosystems and organisation. For managers, the fundamental challenge of innovation is to achieve the required cash payback, by managing the overall innovation process with the understanding that payback can come quite directly and quickly, but also that it may take longer, be much less certain, or come back to the company only indirectly, via other products and services. To achieve payback, companies must manage the innovation process holistically and with discipline. They must make careful choices about how much and where to invest. They need to be smart about which innovation business model they choose to execute with. And they must deliberately align and lead their organisations toward payback. They must also accept that innovation, more than other business strategies, entails a significant amount of risk. There are three types of risk: technical, operational, and market. Many companies try to remove as much of the risk as possible, installing strict procedures and ironclad approval mechanisms. There is value in control, of course, but for the most part, trying to make innovation risk-free either stifles the process or causes people to lower their sights, so nothing big ever happens. In (Andrew & Sirkin, 2006) Andrew and Sirkin assert that “cash truly is king”. Four factors have a direct impact on cash payback: x

Start-up costs, or pre-launch investment; 447

Part III - Innovation Theory x x x

Speed, or time to market; Scale, or time to volume; Support costs, or post-launch investment, which includes a variety of costs and continuing investments.

These S-factors can be visually expressed in the cash curve, shown in Figure 471. The curve graphically plots cumulative cash flow over time. It makes clear many of the managerial challenges and assumptions that often get hidden when looking at spreadsheets of annual cash flows and projections. Net present values, various option valuations, and multiple scenario analyses are useful (and valuable), but discussing and debating the shape of the cash curve will make these financial projections much more sound. The cash curve is a tool that is extremely helpful in decision making, planning, analysis, and communication. Most important, consistent use of the cash curve can help executives more effectively manage innovations for cash payback.

Cumulativecash

Speed (timetomarket)

0

Scale (timetovolume)

StartͲup (prelanch investment)

Ideageneration

Commercialisation

Support (postlaunch) investment

Time

Realisation

Figure 471: The cash curve

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18.

INNOVATION AND THE INDIVIDUAL

So far the importance of innovation in relation to wealth creation and the business world has been discussed. In this chapter the relationship between innovation and the individual takes centre stage, as human creativity is in fact the basic ingredient of innovation. So let’s explore human creativity and see what models there exist that can help the individual to become more creative and thereby also more innovative.

18.1. On Archimedes and other great thinkers Arthur Koestler in The Act of Creation (Koestler, 1975) tells the story of the discovery by Archimedes of the principle that gave him world fame. Hiero, the tyrant of Syracuse and protector of Archimedes, had been given a beautiful crown, allegedly of pure gold but he suspected that it was adulterated with silver. He asked Archimedes' opinion. Archimedes knew, of course, the specific weight of gold - that is to say, its weight per volume unit. If he could measure the volume of the crown, he would know immediately whether it was pure gold or not, but how on earth is one to determine the volume of a complicated ornament with all its filigree work? Ah, if only he could melt it down and measure the liquid gold by the pint, or hammer it into a brick of honest rectangular shape, and so on. One day, while getting into his bath, Archimedes watched absentmindedly the familiar sight of the water-level rising from one smudge on the basin to the next as a result of the immersion of his body, and it occurred to him in a flash that the volume of water displaced was equal to the volume of the immersed parts of his own body, which therefore could simply be measured by the pint. He had melted his body down, as it were, without harming it, and he could do the same with the crown. To become immortal as a scientist, like Archimedes, seems to be rather trivial process: take a bath and all will be well. Or even less tiring is the story of Newton, who sat under an apple tree and saw apples falling to the ground. Instead of defining it as falling, he had the insight - so the story goes - that the apple does not fall, but is attracted to the earth's surface by gravity. He had single-handedly discovered one of the most important concepts in modern physics. Newton's biography (Hall, 1992) does not confirm this fable. But it is stimulating and encouraging to think that by simply relaxing in bath or under a tree, fundamental breakthroughs in science can take place. Koestler quotes Newton as having said that "If I have been able to see farther than others, it was because I stood on the shoulders of giants." One of these giants was Johannes Kepler (1471-1530) whose three laws of planetary motion provided the foundation on which the Newtonian universe was built. They were the first natural laws in the modern sense; precise, verifiable statement expressed in mathematical terms; at the same time, they represent the first attempt at a synthesis of astronomy and physics which, during two thousand years, had developed on separate lines. Kepler did not start his career as an astronomer, but as a student of theology; he was attracted by Copernicus idea of a suncentred universe for physical or rather metaphysical reasons. He liked the analogy between the stationary objects, namely the sun, the fixed stars, and the space between them, with God the Father, the Son, and the Holy Ghost. By looking at the sky, Kepler hit upon a question that nobody had asked before: "Why do planets closer to sun move faster than those that are far away? What is the mathematical relation between a planet's distance from the sun and the length of its year?" These questions could only occur to someone who believed that the motion of the planet was governed by a 449

Part III - Innovation Theory physical force emanating from the sun. It was this conviction that enabled him to formulate his laws. Physics became the auxiliary matrix that secured his escape from the blocked situation into which astronomy had manoeuvred itself. The blockage was due to the fact that Tycho de Braha had improved instruments and methods of stargazing, and produced observational data of a hitherto unequalled abundance and precision. And the new data did not fit into the traditional schemes. Kepler, who served his apprenticeship under Tycho, was given the task of working out the orbit of Mars. He spent six years on the task and covered nine thousand folio-sheets with calculations in his small handwriting without getting anywhere. When at last he believed he had succeeded, he found to his dismay that certain observed positions of Mars differed from those that his theory demanded by magnitudes up to eight minutes arc. Eight minutes arc is approximately one-quarter of the apparent diameter of the moon. Kepler was convinced that the problem of the orbit of Mars was insoluble so long as he felt bound by the traditional rules of sky-geometry. Implied in those rules was the dogma of uniform motion in perfect circles. Finally, he concluded simply that the planet's path is not a circle but a curve called an oval. The problem of the planetary orbits had been bogged down in its purely geometrical frame of reference, and when Kepler realised that he could not unstuck it, he tore it out of that frame and removed it into the field of physics. In the words of Kuhn (Kuhn, 1962), there was a paradigm shift in science. Although in the previous examples of Archimedes and Newton it seemed to have cost little effort to come up with new science principles, the case of Kepler shows the reverse. Many years of hard labour of data crunching brought him that the current concept of planetary movements was wrong. His scientific method was one of induction, and he was a Baconian 'avant la lettre', in spite of the fact that his paradigm for looking at astronomy was more or less determined by his theological background about the Holy Trinity and the absoluteness of his religious world view. Isaac Newton, the remarkable Englishman, lived from 1642-1727, eighty extremely creative years in various professions, ranging from academic to Master of the Mint. He studied and published about such diverse subjects as monetary policy, astronomy, physics, chemistry, mechanics and mathematics. The biography from A. Rupert Hall (Hall, 1992) gives a breathtaking overview of the immense intellectual and sophisticated work of the genius. His most remarkable, or better, most well-known work was on the differential calculus, or in Newton's language, the calculus of fluxions in the period 1664-1667, 22 years old, at “The prime of my age for invention”. It would lead too far to elaborate on the many inventions in science that Newton produced during his long live. Brilliance in science came to Newton naturally, but also through hard and tireless work. He is the prototype of the creative scientific mind, of which one every century is born. In the Netherlands, one of the best scientific thinkers has been Christiaan Huygens, who was born around the same time as Newton in 1629. His vivid biography by C.D. Andriesse, Titan kan niet slapen (Andriesse, 1993), tells the story of a man who made in many domains of science, important contributions. The biography illustrates again the process of creativity. One other unique creative talent was of course Albert Einstein. There are many books written about his work and live. One of his statements about the process of creative thinking which lead him to the great new theories in physics, was that he always saw new theories as visual images. Like in the case of the relativity theory, he saw gigantic men moving in space, which lead him to the definition of relativity; the perception depends on the point of view of the observer. Again changing perception of the reality is the greatest quality of thinkers. His personal life, as described by A. Pais in Einstein Lived Here (Pais, 1994), shows the development from Einstein's scientific life into a public figure. 450

Part III - Innovation Theory Thomas Edison provides another example of a scientist turned into an entrepreneur. In the biography by N. Baldwin, Edison, Inventing the Century (Baldwin, 1995), the human aspect of his life is told, and that picture is bleaker than the image by the general public based on the scientific breakthroughs he invented. Edison started the phenomena of the industrial firm with an important R&D department. In the book Reinventing the future: Conversations with the world's leading scientists (Bass, 1994) by T.A. Bass, lesser gods are interviewed about their theories and the thinking process behind it. In physics, the book Genius, The life and science of Richard Feynman (Gleick, 1992) by J. Gleick tells a fascinating story about the process of science theory in nuclear physics. In contrast with the physics or mathematics oriented scientists, are the management scientist as Ansoff, Chandler, Taylor, Peters, Sloan, or Porter. Although one should take their efforts very seriously, an amusing view and at the same time overview of these theories is provided by C. Kennedy in Guide to the Management Gurus (Kennedy, 1991). The thirty-three management thinkers illustrate that during the last six decades the management theory paradigm has constantly shifted; a process that is not likely to end, as by the way in all sciences. Individuals are not constantly creative during their lifetime, even exceptional people. Marchetti (Marchetti, 1985) has analysed the creative production of well-known individuals, such as Botticelli (1445-1510), Shakespeare (1564-1616), Bach (1685-1750), and Mozart (1756-1791) with the help of logistic analysis. Botticelli was at the crest of his creative work at the age of 39, while he lived to be 65 years. Shakespeare reached his highest output at the age of 37, while he only became 51 years. Bach reached the 'old' age of 65, and was most productive at 40. Mozart, as we know died very young (35), and reached his highest productivity at the age of 24. This leads Marchetti to the observation that apparently when Mozart died at 35, he had already said and written what he had to do.

18.2. What is creativity: Origins and perspectives After having discussed briefly some great thinkers, it is time to turn to the basic qualities behind their thinking, which is often called creativity. What makes people creative is the big question. I.A. Taylor in Perspectives in Creativity (Taylor & Getzels, 1975) states that definitions of creativity are often misleading. Early definitions of creativity tended to be unitary in nature and they frequently indicated sources or origins of creativity. Some of these origins include: x x x x x x x x x x

Vitalism, in which creativity has an aesthetic or mystical source; Nativism, the belief that the origins are rooted in genetics; Empiricism, the view that creativity is essentially learned; Emergentism, the view that creativity emerges as a synthesis of hereditary and environmental forces; Cognition, creativity resulting from thought process; Serendipity, the notion that creative discoveries are accidental although the person may be prepared for a sudden insight; Romanticism, the belief that creativity originates through unanalysable inspirations and that examining the illusory roots of creativity will destroy it; Physiology, the contention that creativity is rooted in the biology of the human organism; Culture, the determination of creativity by the historic Zeitgeist; Interpersonal relations, the creativity resulting from or being triggered by group interaction as in brainstorming or synectics; 451

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Personality, or the contention that the sources of creativity are understandable by examining the development of personality either psychoanalytically or through self actualisation theory.

Taylor proposes a theory of creativity based on the actualisation theory. This theory involves five essential interacting and interfacing components, which includes the person, the problem, the process, the product and the climate (Figure 472).

Figure 472: Taylor’s theory of creativity based on the actualisation theory The term creativity is a highly multi-ordinal concept, ranging from the spontaneous, expressive drawings of children to the scientific and artistic formulations of Einstein and Picasso. Therefore, conceptually it is necessary to distinguish between different creativity dispositions, levels, states, or life styles. Taylor distinguishes five distinct psycholinguistic clusters of usage of the term 'creativity', each involving different psychological processes. These five are: x x

x

x x

Expressive creativity - the spontaneous drawings of children are examples; originality and quality of the product are unimportant. Technical creativity - is characterised by the proficiency in creating products; the emphasis is on skills at the expense of expressive spontaneity. Stradivarius is an excellent example of technically creative person. Inventive creativity - is characterised by the display of ingenuity with materials. Creativity at the inventive level, does not result in new basic ideas but in new uses of old parts and new ways of seeing old things. Innovative creativity - at this level basic assumptions or principles are understood so that modification through alternate approaches is possible. Emergentive creativity - the most complex form of creativity is considered to be emergentive creativity, involving the most abstract ideational principles or assumptions underlying a body of art or science. In rare instances, an entirely new principle or assumption, around which new schools flourish.

The great thinkers can be classed in the latter category, in which once in a while paradigm shift in science occurs. Most of the creative mortals in the business or university environment are either involved in innovative or inventive creativity. Can an individual improve his creativity and climb the 452

Part III - Innovation Theory ladder of creative success towards emergentive creativity? The techniques described in the following chapter may contribute to this goal. A first step in the direction is to understand the cognitive thinking process as defined by J.P. Guilford in Way beyond the IQ (Guilford, 1977).

18.3. The structure-of-intellect model Guilford has studied the human mental abilities that contribute to the potential for creative production, and the mental functions that go with them as part of human intelligence. Intelligence is a collection of abilities or functions for processing information. Abilities differ with respect to kinds of information, and to kinds of operations we perform with information. Items of information differ in two ways: substantive differences, or content, and regarding form, or product. All items of information are constructed by our brains, and the constructs are products. The content categories are like codes or languages. The individual products are like words within those languages. There are four major kinds of contents recognised. These are: x

x x x

Figural: this is generated rather immediately from input from the sense organs as what we call perception. The most important kinds in this category are visual-figural and auditory-figural. It takes different abilities to process these two kinds of information; Semantic: perceptions lead to thoughts, in particular imageless thoughts; Symbolic: this is composed of signs or labels that commonly stand for items of other kinds of information, such as letters, words, numbers, mathematical expressions; Behavioural: this includes feelings and emotions, such as pleasure, effort, anger and disgust, which are communicated by body language.

Within each of the content areas of information there are six kinds of products or brain-produced constructs - Units - which Guilford has named the Structure-of-Intellect model (Figure 473).

Figure 473: Structure-of-Intellect model

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Part III - Innovation Theory Creative problem solving involves a great many different intellectual functions that are represented in the SI model. Thus, creative abilities are a part of intelligence, not something apart from it. Most critically involved, particularly at the stage of generating ideas, are the divergent-production abilities or functions and those involving transformations of information. The former provide an abundance of alternative ideas; the latter a flexibility in the structuring of information so that alterations and adaptations can occur.

18.4. Improving creative thinking Various procedures for improvement of potential for creative thinking have been tried experimentally and the most successful methods can be closely related to the theoretical basis of the SI model. The basic concepts behind creativity techniques for problem solving and opportunity search, are based on the purposeful manipulation of the transformation processes as defined in the structure-of-intellect model. This model provides the overall paradigm for the creativity techniques which attempt to change the day-to-day perception of the reality.

Brainstorming and the Creative Problem Solving Paradigm A young advertising executive, Alex Osborn, at the start of WW2, believed he could play a part in the war-time effort for his country, if he could release the creative talent of his fellow Americans. He encouraged employees in his firm to suggest ideas for supporting the war effort. He put down his proposals in a booklet on how to dream up ideas. The booklet was an immense success, and was distributed widely. Osborn had begun an interest in releasing 'everyday creativity' that stayed with him all his life. His subsequent experiments convinced him that under normal business conditions most ideas were never suggested. It was his efforts to overcome the social pressures of status that led him to develop the famous brainstorming rules of postpone judgment, freewheel, hitchhike and quantity breeds quality. An enthusiastic and excellent communicator, Osborn spread his ideas widely. His later book Applied Imagination - Principles and procedures of creative problem solving (Osborn, 1953), which described his brainstorming technique, brought him even greater success. Edward De Bono states in his book Teaching Thinking (De Bono, 1976), that the teaching of thinking is not the teaching of logic but the teaching of perception. Logic is tangible and direct. We can make rules and observe mistakes. It seems to be the only definite thing that can be taught. In its proper place, logic is a tool of perception. It is perhaps most important in the metaphysical arguments which involve words and concepts. The role of logic is to show what is implicit in the concepts used and to expose contradictions. Logic is used as a tool to make explicit what is implicit; we use mathematics in order to see clearly what is implicit in a set of relationships. Perception is the processing of information for use. Thinking is the processing of information for use. That is why perception and thinking are the same thing. De Bono provided a rationale for a mechanism of mind which he popularised through easy-to-understand metaphors. Conventional (vertical) thinking proceeds sequentially like digging a hole to get to the solution at the bottom of the hole. Lateral thinking assists the process of finding a more productive hole to dig. He has suggested that the mind is a self-structuring information surface, requiring special procedures if it is to be jolted out of its preferred patterns. He is particularly well known for his invention of lateral thinking techniques. For example, he advocates escaping from vertical thinking by focusing on a randomly selected stimulus concept or word. The subsequent thoughts redirect attention so that less habitual ideas result. In Opportunities (De Bono, 1980) De Bono contrasts problem solving with the search for opportunities in the absence of a trigger 454

Part III - Innovation Theory (=problem) for being creative. De Bono repeatedly conveys the simple message - thinking is a skill that can be developed. In the 1950s Mel Rhodes tried to formulate a definition for creativity. They were described by him as being: understanding the traits, characteristics or attributes of the creative Person; describing the operations or stages of thinking used in the creative Process; identifying outcomes and qualities of creative Products; and examining the nature of situations and its context within the creative Press (or environment), the 4Ps. Rhodes suggested that much conceptual confusion was due to a failure of researchers to recognise in their definitions that each of the four elements has unique identity academically, but only in unity do the 4Ps operate functionally. There are of course many more books written on methodological aspects of creativity, like Paul Torrance with his Test for Creative Thinking, and his book The search for Satori & Creativity (Torrance, 1979), or Sidney Parnes’ The magic of your mind (Parnes, 1981). There are also books written for the more engineering type of creativity, like Henri Christiaans’ Creativity in Design (Christiaans, 1992) or more recently Dhillon’s Creativity for Engineers (Dhillon, 2006). Tudor Rickards (Richards, 1999) from the Manchester Business School states that in the curricula of the MBA programmes very little attention is paid to creativity and innovation. “Why is it so difficult to show managers that creativity is important and can be stimulated in practical ways by concentrating on creative thinking and creative problem solving?” And he also offers the answer: “Creativity is threatening to a deeply grounded belied in rational approaches in a great majority of educated people. This belief is reinforced within education in many technical and professional disciplines, including the most common kinds of training received by managers. Management is about being logical and rational. So it is not enough to deal with managers from the assumption that creativity is a good thing.” And he continues: studying creativity may help. It opens up the possibility that greater attention might be paid to what might be called the humanistic stuff in business studies. The implication is that business orthodoxy has a structure that is too intolerant of the very process that would permit it chances of challenging its own assumptions. Knowing how a dominant view does just that offers prospects for change.”

The ten faces of innovation Most of the creativity paradigms are based on the assumption that almost everybody is intrinsically creative, and only with the right set of tools and stimuli this potential can be developed. There are however many ways in which an individual can be creative and become innovative. In the past most humans were measured by their intelligence expressed in the ratio IQ, until Daniel Goleman launched the popular book Emotional Intelligence (Goleman, 1995). Drawing upon groundbreaking brain and behavioural research, Goleman shows that the factors at work when people of high IQ flounder and those of modest IQ do surprisingly well. These factors, which include self-awareness, self-discipline, and empathy, add up to a different way of being smart - which he terms emotional intelligence. Apart from this important insight, it should be noted that people have different qualities to bring and roles to play in the creative process. Tom Kelly from the design firm IDEO is a leading practitioner of creativity and innovation and he published The art of innovation and The ten faces of innovation (Kelly, 2005). Teams that are normally involved in the innovation process are made up of engineers or marketers or project managers. In a post-disciplinary world where the old descriptors can be constraining, these new roles can empower a new generation of innovators. They give individuals

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Part III - Innovation Theory permission to make their own unique contribution to the social ecology and performance of the team. Here's a brief introduction of the personas:

The Learning Personas Individuals and organisations need to constantly gather new sources of information in order to expand their knowledge and grow, so the first three personas are learning roles. These personas are driven by the idea that no matter how successful a company currently is, no one can afford to be complacent. The world is changing at an accelerated pace, and today's great idea may be tomorrow's anachronism. The learning roles help keep your team from becoming too internally focused and remind the organisation not to be so smug about what you "know." People who adopt the learning roles are humble enough to question their own worldview, and in doing so they remain open to new insights every day. x

The Anthropologist brings new learning and insights into the organisation by observing human behaviour and developing a deep understanding of how people interact physically and emotionally with products, services, and spaces.

x

The Experimenter prototypes new ideas continuously, learning by a process of enlightened trial and error. The Experimenter takes calculated risks to achieve success through a state of "experimentation as implementation.

x

The Cross-Pollinator explores other industries and cultures, then translates those findings and revelations to fit the unique needs of your enterprise.

The Organising Personas The next three personas are organising roles, played by individuals who are savvy about the often counterintuitive process of how organisations move ideas forward. “At IDEO, we used to believe that the ideas should speak for themselves. Now we understand what the Hurdler, the Collaborator, and the Director have known all along: that even the best ideas must continuously compete for time, attention, and resources. Those who adopt these organising roles do not dismiss the process of budget and resource allocation as politics or red tape." They recognise it as a complex game of chess, and they play to win. x

The Hurdler knows the path to innovation is strewn with obstacles and develops a knack for overcoming or outsmarting those roadblocks.

x

The Collaborator helps bring eclectic groups together, and often leads from the middle of the pack to create new combinations and multidisciplinary solutions.

x

The Director not only gathers together a talented cast and crew but also helps to spark their creative talents.

The Building Personas The four remaining personas are building roles that apply insights from the learning roles and channel the empowerment from the organising roles to make innovation happen. When people adopt the building personas, they stamp their mark on your organisation. People in these roles are highly visible, so you'll often find them right at the heart of the action.

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The Experience Architect designs compelling experiences that go beyond mere functionality to connect at a deeper level with customers' latent or expressed needs.

x

The Set Designer creates a stage on which innovation team members can do their best work, transforming physical environments into powerful tools to influence behaviour and attitude.

x

The Caregiver builds on the metaphor of a health care professional to deliver customer care in a manner that goes beyond mere service. Good caregivers anticipate customer needs and are ready to look after them.

x

The Storyteller builds both internal morale and external awareness through compelling narratives that communicate a fundamental human value or reinforce a specific cultural trait.

The Ten Faces of Innovation is designed to help bring the human elements of innovation to the workings of the enterprise. It is about how people and teams put into practice methods and techniques that infuse an enterprise with a continuous spirit of creative evolution. Successful businesses build fresh innovation strategies into the fabric of their operations. They do it year round and in widely differing parts of their enterprises. Innovation requires creative people of all sorts as Kelly has pointed out. Creative people are more than ever becoming individuals that do not lend their identity from the company or organisation they work for. Since the 1960s this group of creative individuals have become an emancipated class of people that many cities, regions and science parks and even countries are after to attract them as they for the engine that drives innovation. Richard Florida has written a very successful book about the Rise of the creative class: And how it's transforming work, leisure, community and everyday life (Florida, 2003), followed by The flight of creative class; The new global competition for talent (Florida, 2005). In the first book Florida analysed the global disparities in long-term prosperity, development and innovation based on the 3 Ts of economic development: Technology, Talent and Tolerance. In the second book he describes the competition for creative talent that may threaten the future position of the United States as a leader in the global economy. The methodological framework that Florida developed for the creation of loci of creative people by cities and regions around the world has led to a growing awareness in the business world that new ways of managing creativity and creative people in organisations is something that goes beyond the limits of the company, as the social and entrepreneurial climate of cities and regions is involved. This underlines the necessity that managers have to internalise the creativity paradigms discussed before if they want to retain the people that bring about innovation and wealth creation.

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19.

INNOVATION AND CREATIVITY

Leonardo da Vinci (1452-1519) is portrayed by Michael White as the “first scientist”, although he was lacking any form of formal (academic) education (White, 2000). Celebrated as a painter and engineer during his lifetime, few people knew the extent of his scientific investigations and experiments. In a vast collection of notebooks (over 5,000 pages), Leonardo meticulously detailed his research on optics, mechanics, astronomy, and anatomy. He kept his findings hidden for fear his ideas would be stolen. Had they been shared, White asserts, then they might have well changed the course of scientific discovery, for they prefigured the work of Newton, Galileo and Kepler. Instead, after Leonardo’s death his papers were lost to the world for nearly 200 years, while some were never recovered. Can other great men claim the title of being the “first scientist”? In order to answer that question, one has to trace the history of modern science. In a fascinating book, Floris Cohen, makes the connection between the development of scientific knowledge over the past 2,500 years in the various civilisations, (Cohen, 2007) and (Cohen, 1994). And yes, there have been other great thinkers and scientists before Leonardo da Vinci, although the number is surprisingly small. The confluence of a number of circumstances provides the spark for the scientific age starting around 1600. Since then, many perceptions of the world have changed, not only about physics, but by a broad range of knowledge domains. The world is flat is now a title of a popular book from Thomas Friedman (Friedman, 2005), but there was a time when this literary world view represented the religious dogma of the church in Europe. Some scientific views took a long time to become accepted, like the scientific theory of evolution, so well analysed by Edward Larson (Larsen, 2006). And still today, there are pockets of orthodox religious people who refuse to accept the scientific evidence of the evolution theory. Jared Diamond, in Guns, Germs and Steel; A short history of everybody for the last 13,000 years (Diamond, 1998) makes an enquiry into the reasons why Europe and the Near East became the cradle of modern societies - eventually giving rise to capitalism and science - and why, until recent times, Africa, Australasia and the Americas lagged behind in technological sophistication and in political and military power. Diamond shows that the origins of this inequality in human fortunes cannot be laid at the door of race or inherent features of the peoples themselves. He argues that the inequality stems instead from differing natural resources available to the people of each continent. Diamond goes one step further in Collapse - How societies choose to fail or succeed (Diamond, 2005). Particularly his analysis of the collapse of ancient societies is instructive; as well the lessons learned for modern societies how to create sustainable wealth. In that respect Norman Davies’ Europe - A history (Davies, 1997), offers an even more complex picture of the way in which nations and civilisations prosper and decline. The development of scientific thinking is intimately linked to those cycles of economic prosperity and religious tolerance, as Floris Cohen demonstrates. There are also other views of the world as John Hobson argues in The Eastern origins of western civilisation (Hobsen, 2004). The cover of this book shows Columbus’ minuscule ship against the background of the 3,000-ton flagship of Zheng He, with which the Chinese discovered the world in 1421, as Gavin Menzies claims in 1421 - The year China discovered the world (Menzies, 2002). Science is the basis on which innovation stands. Scientific theories about the properties and structure of the universe or the material world have changed dramatically over time, and the end to this process is not in sight. This Chapter will therefore discuss the work of Thomas S. Kuhn, The structure of 458

Part III - Innovation Theory Scientific Revolutions (Kuhn, 1962), and the more recent updates on the subject by J.L. Casti, titled "Paradigms Lost" (Casti, 1989). The insight in the historical development of science theories should give the academic not only a sense of perspective, but also of assurance and self-confidence, in order to challenge conventional wisdom. Without this critical attitude, science cannot progress and academics should not be entitled to carry their title.

19.1. Views of knowledge Science is based on views of knowledge26; these in turn contain methodological theories - theories of how knowledge progresses - and epistemological theories - theories about the nature of knowledge. Methodological theories and epistemological theories are related to each other. There can be no complete understanding of how knowledge progresses without a discussion of what is to progress. Theories about the nature of knowledge always entail constraints on how it can be discovered and advanced. Methodological theories help generate knowledge, legitimate ideas, render other ideas suspect and propagate ideas to others. Each of the four functions - generation, legitimation, suspicion, and propagation - is illustrated by contrasting two well-known methodological views: induction and deduction. Induction and deduction are the methodological components of empiricism and rationalism, respectively. The latter two terms refer directly to epistemological theories: knowledge consists of facts and knowledge consists of ideas. The first function of methodological theories is to provide a formula for generating knowledge. The inductivist, as a first step is gaining knowledge, collects facts through observation. Only after exhaustively collecting empirical data will he attempt to induce ideas from the facts, and even then he will be sceptical of his thought processes. His opposite, the deductivist, believes that the first stage in generating knowledge is to think. Knowledge is the jewel of precise and clear thoughts. Treating facts and observations with suspicion, he approaches them reluctantly, using them only to clarify his ideas. If there is conflict between the facts and his ideas, he tends to trust the latter. The second function of methodological theories is to legitimate ideas. The inductivist claims legitimacy for his ideas because they are based on facts, and, therefore, he labels them scientific. The deductivist legitimates his ideas, not on the basis of empirical research, but on the precision of his thinking and the intrinsic clarity of his ideas. He, too, labels his ideas scientific. Each methodological theory accords scientific status to ideas that are legitimated by its own criterion! A consequence of the legitimating function is the third function of methodological theories: suspicion is created of ideas generated by or legimated by other methodological theories. Inductivists quickly attack ideas not thoroughly grounded in observation. Thinking is dangerous and extended contemplation is particularly debilitating. Deductivists, on the other hand, are unimpressed with inductivists claims to scientific status; facts are misleading, and ideas rooted in them are just as suspect. One classic debate between inductivists followers of Newton and deductivist followers of Descartes provides an example of the difference in approach. Newtonians emphasised that there was a measurable force between masses - gravitation - and that the force was a fact. Whether the force acted through empty space or required an ether for its propagation was debated, but the fact that gravitation 26

ThissectionisinspiredbythepaperofJ.A.Bell,J.F.Bell(Bell&Bell,1980).Viewsofknowledgeandsystemdynamics:An historicalperspectiveandcommentary.PaperpresentedattheInternationalSystemDynamicsConference

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Part III - Innovation Theory existed was beyond dispute. Cartesians, on the other hand, deduced that there could be no gravitational force from their thesis that all motion results from pushes. The fact of gravitation, which merited scientific status for the Newtonians, was rendered suspect by the deductions of the Cartesians. Propagation is the fourth function of methodological theories. The inductivist mandate for propagation is quite simple: encourage everyone to observe facts. Books, reports and other presentations by inductivists begin with research findings. Conjectures and speculations are confined to a secondary role and appear, if at all, at the end. Even there, they are introduced by cautionary warnings and even apologies. Deductivists propagate their ideas by invoking one's abilities to think clearly and draw conclusions validly. Like inductivists, they ask that preconceived ideas and prejudices be discarded. Their appeal, however, is to one's intuition and common sense, not to facts. Most deductivist books and reports commence with axioms followed by deductions. As a preamble there is sometimes an attack on other ideas to show them unclear, inconsistent, or in conflict with intuition or common sense. There are many other methodological theories besides inductivism and deductivism. The views of knowledge discussed here - inductivism, probabilism, instrumentalism, paradigmism, and refutationism - each has a methodological theory. Regardless of the particular methodological theory, however, the same four functions are served. The first two functions, generation and legitimation of knowledge, are pre-eminent functions.

Paradigmism: Thomas Kuhn's view of knowledge John Casti in Paradigms Lost recounts the process that led Thomas Kuhn to his formulation of the paradigm view of knowledge. In 1947 Kuhn, a young professor at Harvard, was asked to organise a set of lectures on the origins of seventeenth-century mechanics. As preparation, he began tracing the subject back to its roots in Aristotle's Physics, being struck time and time again by the total and complete wrong-headedness of Aristotle's ideas. Aristotle held that all matter was composed of spirit, form and qualities, the qualities being air, earth, fire and water. Kuhn wondered how such a brilliant and deep thinker, a man who had single-handedly invented the deductive method, could have been so flatly wrong about so many things involving the nature of the physical world. Then as Kuhn recounts it, one hot summer day the answer came to him in a flash while he was poring over ancient texts in the library: Look at the universe through Aristotle's eyes! Instead of trying to squeeze Aristotle's view of things into a modern framework of atoms, molecules, quantum levels and so forth, put yourself in Aristotle's position, give yourself the prevailing world view of Aristotle's time, and all will be light. For instance, if you adopt Aristotle's world view, one of the presuppositions is that every body seeks the location where by its nature it belongs. With this presumption, what could be more natural than to think of material bodies as having spirits, so that 'heavenly' bodies of air like quality rise, while the spirit of 'earthly' bodies causes them to fall? This stroke of inspiration resulted in Kuhn's developing the idea that every scientist works within a distinctive paradigm, a kind of intellectual Gestalt that colours the way nature is perceived. The situation is vaguely analogous to the picture in Figure 474, where one way of looking shows what appears to be two men face to face in profile, while another way shows a flower vase. According to Kuhn's thesis as presented in his enormously influential 1962 book The structure of scientific revolutions, scientists , just like the rest of humanity, carry out their day-to-day affairs within a framework of presuppositions about what constitutes a problem, a solution, and a method. Such a 460

Part III - Innovation Theory background of shared assumptions makes up a paradigm, and at any given time a particular scientific community will have a prevailing paradigm that shapes and directs work in the field. Since people become so attached to their paradigms, Kuhn claims that scientific revolutions involve bloodshed on the same order of magnitude as that commonly seen in political revolutions, the only difference being that the blood is now intellectual rather than liquid - but no less real!

Figure 474: Two visual gestalts or paradigms The concept of paradigms is not very well defined by Kuhn, but Casti illustrates it with the help of the following map-making analogy. Let us imagine scientific knowledge of the world as being the terra incognita of the ancient geographers and map makers. In this context, a paradigm can be thought of as a crude sort of map in which territories are outlined, but not too accurately, with only major landmarks like large rivers, prominent mountains, and the like appearing. From time to time, explorers venture into this ill-defined territory and come back with accounts of native villages, desert regions, minor rivers and so on, which are then dutifully entered on the map. Often such new information is inconsistent with what was reported from earlier expeditions, so it is periodically necessary to redraw the map totally in accordance with the current best estimate of how things stand in the unknown territory. Furthermore, there is not just one map maker but many, each with a different set of sources and data on the lie of the land. As a result there are a number of competing maps of the same region, and the adventurous explorer has to make a choice of which map he will believe before embarking upon an expedition to the New World. Generally, the explorer will choose the old, reliable firm of map makers, at least until gossip and reports from the Explorers Society show too many discrepancies between the standard maps and what has actually been observed. As these discrepancies accumulate, eventually the explorers shift their allegiance to a new firm of map makers whose pictures of the territory seem more in line with the reports of the returning adventurers. 461

Part III - Innovation Theory This exploration fable gives a fair picture of the birth and death of scientific paradigm. Kuhn realised that revolutionary changes in science overturning old theories are not in fact the normal process of science, nor do theories start small and grow more and more general as claimed by Bacon, nor can they ever be axiomatised as asserted by Newton. Rather, for most scientists major paradigms are like a pair of spectacles that they put on in order to solve puzzles. Occasionally a paradigm shift takes place when the spectacles get smashed, and they then put on a new pair that transforms everything into new shapes, sizes, and colours. Once this shift takes place, a new generation of scientists is brought up wearing the new glasses and accepting the new vision of Truth. Through these new glasses, scientists see a whole new set of puzzles to be solved in the process of carrying out what Kuhn called normal science. The paradigms have great practical value for the scientist just as maps have value for the explorer: without them no one would know where to look or how to plan an experiment (expedition) and collect data. This observation brings out the crucial point that there is no such thing as an empirical observation or fact; we always see by interpretation, and the interpretation we use is given by the prevailing paradigm of the moment. In other words, the observations and experiments of science are made on the basis of theories and hypotheses contained within the prevailing paradigm. As Einstein put it, "The theory [read paradigm] tells you what you can observe". According to Kuhn's paradigmatic view of scientific activity, the job of normal science is to fill in the gaps in the map given by the current paradigm, and it is only seldom, and with great difficulty, that the map gets redrawn when the normal scientists (explorers) turn up so much data not fitting into the old map that the map begins to collapse into morass of inconsistencies. Thomas Kuhn's "The Structure of Scientific Revolutions" contains a new, or according to some old views of knowledge, summarised in the concept of paradigm, as discussed above. Most of Kuhn's methodological theses are parallel to those of Whewell: x x x x x

That science grows by imaginative new ideas that are then used to search out facts; That facts are only seen in light of these ideas; research is directed to uncover the facts; That scientists try to collegiate ideas into a unit; That there is a strong tendency to force the world to fit one's ideas; That rough comparisons of the legitimacy of competing ideas can be made by measuring them against nature; the comparison often leads to the separation of mistaken ideas from other ideas in a unit.

The concept of paradigm has achieved a large following in modern science, as it created a platform for scientists to discuss their pre-scientific assumptions about their particular field of expertise explicitly and it facilitated a less biased discussion amongst them. The reasons why Kuhn's view of knowledge achieved such an inroads in the scientific community at the expense of other views, was based on a number of criteria: x

x

Problem-solving power. The types of problem for which a view of knowledge can generate fruitful solutions should be considered. The importance of those problems should be weighed, as well as the range of problems for which a view of knowledge is useful. Theoretical progressivity. Any view of knowledge will render formulas for generating and legitimating knowledge that we know. What is desired, however, are views of knowledge that will generate and legitimate ideas that are likely to lead to new - often unforeseen - insights.

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Paradigm shift Paradigms are the views of the world held by a large group of peers within a certain discipline of science and these are constantly subject to change. This is called the paradigm-shift. This process can be compared and linked to the S-curve theory discussed in previous chapters. The awareness that scientific theory is governed by paradigms and subject to shifts is more or less equivalent at the microlevel to the existence of S-curves and shifts within the disciplines that are covered by the paradigms. How does this S-curve relate to the paradigm discussed before? A paradigm also follows a pattern, a sort of performance and/or life cycle. Paradigms may parish and shift to new paradigms. A paradigm shift is to be expected within a certain scientific field, when phenomena remain unsolved, in spite of the considerable effort put into solving the puzzle. Apparently, the current paradigm is not good enough to achieve the last link discovery. Thomas Kuhn describes in The Structure of Scientific Revolutions many examples of scientific discoveries and what preceded the long journey that led to the discovery of the 'truth'. The process of scientific discovery and the development of theories about the reality goes with leaps and bounds and resembles very closely the process of paradigm-shifts. A good scientific paradigm will stimulate the search for innovative ways to improve the performance of theories, but also of products and processes. John L. Casti 's Paradigms lost - Images of man in the mirror of science contains a number of studies on science themes in which there does not yet exist a shared view of reality (paradigm), and where paradigms will change and be lost. The believe systems (paradigms) that are discussed by Casti range from the origin of life (physical and biochemical processes) on earth, to the believe that digital computers can in principle think. The benefit of his work is that it makes us clear that scientific paradigms are not cast in iron. They are subject to change, and that is the important message of this chapter. The arrogance of scientist about the completeness of their paradigm is nicely illustrated by the case of biologists; this science has identified and classed some 1.6 million species, which seems a phenomenal figure. However, it is estimated that some 100 million more species exist on earth that have not yet been discovered; their discovery may change our perception of the global biodiversity and consequently our mental model and paradigm of the reality. How is the subject of paradigm shift related to the subject of the book Shipping Innovation? That will be illustrated with the help of a design-paradigm shift that has taken place in shipping in the 1990s: the introduction of new methods like the ABS SafeHull System, based on engineering first principles. In the past, ships were designed based on experience only. There were no formal theories, nor scientific methods to design, build and operate ships. Later on in the 19th century, ships were designed based on a set of rules developed over a long period of time. Only in recent times, between 1960 and 1970, led the availability and use of computers to the gradual replacement of empirical approach on which the construction rules had previously been based, by scientifically-based systems of calculation. The technical capabilities later on led to the use of the finite element method, which resulted in revolutionary developments in shipbuilding. The progress in ship design techniques has again experienced a revolution, started by the classification society American Bureau of Shipping (ABS). Their SafeHull System and the implications for naval architectural science will be discussed now. The way ships were built and designed until the 1970s was essentially an evolutionary process without dramatic changes in configuration or size. Most importantly, mild steels were predominant in ship construction through that time. It was therefore relatively easy for classification societies to develop 463

Part III - Innovation Theory their strength criteria. These are based on practical experience gained over the years and have been typically presented in a semi-empirical type format, with easy to use tables and formulas. However, the evolutionary approach to development changed in the 1970s with the introduction of VLCCs, ULCCs, large bulk carriers and big container ships. Apart from a dramatic increase in size, structural configurations have also changed. An example is the introduction of the double hull tankers after the Oil Pollution Act 1990, and the increasing use of high tensile steel. In addition, the requirements of the IMO’s convention like MARPOL 1973, Tanker Safety and Pollution Prevention, 1978 had a significant impact on the design of tankers. One of the results was deeper ships, allowing thinner deck and bottom scantlings. An important ramification of these changes is the effect they have on the failure modes of the hull structure that impact on safety. Many modern design features fell outside the experience base of the existing strength criteria. As a result, the traditional primary structural failure mode of yielding has been augmented by the modes of buckling and fatigue in influencing the design. Buckling and fatigue can no longer be assumed to be accounted for via implied safety margins of the existing criteria. As there was no consistent and rational basis for extending the existing criteria into these new areas, a new basis had to be established. This meant that a new and more scientific approach was required to develop the strength of ship structures, accounting for these failure modes in a comprehensive, realistic way. The major change that ABS applied in its Rules was the calculation based on engineering first principles. The back-to-the-basics approach required first the establishment of the dynamic loads and the combination of these loads, acting on both the global and local structures within the hull girder. The first application of the SafeHull System was on oil tankers, while the application on bulk carriers and container ships followed thereafter. In 1994, the ABS rules for the design of large tankers had been replaced by the SafeHull Software System. This was a rather unique event, which marked the start of a new area in the science of ship design. From a more academic point of view, this development can be placed in the framework of the paradigm shift. The SafeHull approach presents a new, holistic approach to ship design, in which not only structural strength and fatigue during the life of the ship are assessed, but also the wasting of the ship's hull through corrosion and the consequences on its strength. The next big step is the application of reliability-based methods to the design and evaluation of ship structures, which are based on probabilistic methods.

19.2. Creativity and perception Some people believe that creativity is something you are born with and which cannot be learned or stimulated. This believe depends to a large extent on the definition of creativity and the domain in which it is required. In the context of this book it is meant as the creative ability part of the tools for improving problem solving and opportunity search capabilities of the individual. Many books have been written on these techniques and many more workshops have been organised to expose and train people within organisations in the art of creativity techniques. In the framework of this book, the general concepts behind these techniques will be discussed and some will be demonstrated briefly. Those readers who have a wider interest should try to attend the various workshops which are frequently offered in most of the countries in the world.

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Part III - Innovation Theory Why are people limited in their creativity, when confronted with a problem or opportunity? The answer is quite simple: they run out of perspectives to look at the issues. They are used to look at the world with a view and perception based on their paradigms, which have been formed over the years through parental guidance, education, work experience, or religious convictions. The objective of the use of creativity techniques is simply to question the current perception by stimulating purposefully other ways of looking at the problem or opportunity. In short, the techniques, or tricks, manipulate on purpose the perception of the individual. There are four basic ways to classify the perception-manipulation techniques. The two main principles of perception-change triggers are: x x

The use of association/analogy/excursion techniques; The use of confrontation techniques.

The two basic work methods which can be applied to the previous two categories are: x x

Strengthening the intuition; Systematic-analytical approach.

These four approaches to perception change and stimulation of creativity in problem solving and opportunity search are shown in Table 118 with some examples of the techniques (Geschka & Reibnitz, 1983).

Brainstorming This method belongs to the category of strengthening the associative intuition. Brainstorming was the first formal idea-generation technique, developed more than sixty years ago and is by now more or less generally accepted as a useful approach. It works by simply forbidding (deferring) any judgment or evaluation as ideas are being expressed in a small group of people (6-8) under the guidance of a process facilitator. The effect is to produce a substantial flow of ideas in a short space of time. "Quantity breeds quality" is the brainstorming claim and it is true to a point: the more ideas there are, the greater the chance of one or more of them, or a hybrid made up from its parts of several ideas, providing a solution. Brainstorming demonstrated decisively the inhibiting effect of judgment on the production of ideas; remove the risk of criticism and the ideas flow. There is much more to say about this technique, but one remark will suffice. Brainstorming has become such a common word, that every manager claims to 'brainstorm', which is often no more than kicking around a few ideas. There are useful variations on the brainstorming method, such as negative brainstorming, idea-Delphi, collective-notebook method, brainstorming with Post-Its stickers on a large billboard, brainwriting, idea card-brainwriting, etc. The latter technique can be particularly useful in large groups. The method is based on a nonverbal writing technique. Each participant writes one idea on a piece of paper and passes it on to his neighbour, who does the same to his neighbour, etc. Each participant has to associate on the new idea that is written by his neighbour and write it under the previous idea. This way, each participant tries to follow and build upon the previous idea of somebody else.

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Part III - Innovation Theory IdeaͲgeneratingprinciple Strengtheningof intuition             Systematicanalytical approach      

Association/analogy/excursion Methodsofstrengtheningassociative intuition x Brainstorming - Classicalbrainstorming - Discussion66 - 2Ͳlevelbrainstorming - Negativebrainstorming x Brainwriting - Method635 - Brainwritingpool - Ideacardbrainwriting - Gallerymethod - IdeaͲDelphi - Collectivenotebook Methodofsystematicassociationor analogy x MultiͲdimensionalmorphology - Conceptualmorphology - SequentialMorphology - Modifyingmorphology x Progressiveabstraction - Valueanalysis

Confrontation Methodsofintuitive confrontation x Synectics x Visualconfrontation - Picturefolderbrainwriting - Visualconfrontationingroup         Methodsofsystematic confrontation x Morphologicalmatrix x TILMAG    

Table 118: Creativity techniques

Force fit There are also a number of techniques to help you generate ideas that are unusual, original, or high in novelty. These techniques involve forcing yourself to move in new or more unusual directions, or as some put it 'going on excursions'. Force fit is one of these techniques, which is based on trying to associate randomly objects in the room around you to your problem.

Attribute listing This is an analytical technique for identifying possible areas of improvement in a product. It starts from a factual description of each component of the product in physical terms, describes the functions of each component and then considers whether each attribute of each component might be improved. The systematic procedure ensures that no stone is left unturned in the search for opportunities for improvement. After the initial procedure, ideas can be considered for possible ways of improving the attribute. Attribute listing can be used as a tool for value analysis, by relating the cost of each component to the function it performs. Aspects to the product that are disproportionally costly in relation to the value they provide, can be identified and trigger a search for ways to reduce or eliminate the cost and improve the value. Value analysis is the basis for another design methodology called value engineering. 466

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Morphological analysis Like attribute listing, morphological analysis is a systematic search for opportunities for improvement. It starts with a listing of the parameters of the problem, and then each one is subdivided into as many different forms as possible. The subsets are charted in the forms of matrices and all combinations of the features are considered. Quickly the number of combinations becomes very large. They are then screened to identify any which are novel and attractive.

Synectics Reinforcing intuition through confrontation is achieved by using techniques like synectics, ideachecklists, and the like. These two will be briefly discussed. The synectics process involves two main elements: make the unknown known, and make the known unknown. Especially the latter element, making the known unknown, is a useful way of manipulating the current perception. Synectics uses four approaches to achieve this, all based on analogies: personal analogies, direct analogies, symbolic analogies, and fantastic analogies. The principle underlying the personal analogy is coined with the phrase "identify yourself with the object, and try to describe what you feel, see, hear, how you move, etc." An example of direct analogies is bionics. As this is a very useful tool, it will be discussed separately.

Bionics There are many ways to look for direct analogies as a source of inspiration; the users of bionics look in nature as natural phenomena carry an almost infinite creative variety of materials, processes, systems, etc. which can easily be copied to another situation. If a fighter plane manufacturer wants to develop a new landing gear for use on an aircraft carrier, he studies in extreme detail the grasshopper: the insect has an unparalleled capacity to absorb energy in its legs. For the development of energy-efficient lighting, they study the firefly which produces by an enzyme-catalysed chemical reaction cold-light with nearly 100% efficiency; the well-known velcro-fastener has been developed on the basis of the clinging burdock burr; the depth control of fish is done by the inflation and deflation of a bladder, a principle which is used in submarines; the bulbous nose of the dolphin helps to lower the resistance in water, a principle which is copied on ships, etc.

Confrontation idea-checklist Osborn, who laid the foundation for creativity techniques in Applied Imagination (1953), proposed a series of idea-spurring questions, which could be very helpful for stimulation new ideas, within an individual's mind or among the members of a group. They can be remembered by the first letters of each trigger-word, which make the word SCAMPER: Substitute, Combine, Adapt, Modify, Put to other uses, Eliminate, Rearrange, Reverse. There are more systematic-analytical approaches of generation ideas based on confrontation, which are for example a combination of the morphological matrix approach, but used in a 'confrontation' setting. One technique, which does not fit a specific category, is worth mentioning: mind mapping (Svantesson, 1989). It is a new note-making technique, which is shown in Figure 475. It can be useful in a number of situations, such as structuring of a problem, generating direction for brainstorming and other idea-generation techniques, and creating different perspectives to look at a problem.

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Figure 475: Mind mapping

When to use a specific technique? Gryskiewicz distinguishes four categories of idea-generation, ranging from adaptive to innovative, which is schematically shown in Figure 476. These are: x x x x

Direct: ideas generated answer the problem statement directly; Supplementary: ideas generated involve a new use, application or build on the traditional ideas; Modification: ideas generated involve a structural (or more significant) change from the traditional ideas; Tangential: ideas involve entirely different uses or applications than those from other categories, a real shift in perspective.

There are many more aspects that could be discussed, such as the organisation of creative problem solving teams, the selection and evaluation of ideas, the communication, etc. The latter aspect is for example well treated in Nolan's “The innovators handbook” (Nolan, 1987). The objective of this chapter is simply to demonstrate that many tools are available to help stimulate the creativity in the innovation process. It is not a guarantee for better innovations, nor should it be applied on ill-defined problems. Generating ideas is more fun than defining a problem (or opportunity) and therefore many individuals and teams use the creativity techniques in a too early stage of the creative problem solving process, which then only adds to the confusion. This leads to ineffectiveness, which has given creativity techniques in the academic community a non-serious (scientific) status. Idea generation is used in the innovation process at the end of a long journey during which the problem/opportunity is well defined, and through benchmarking the relative performances is established, as well as the potential for technology improvement through the construction of S-curves.

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Adaptive

Innovative

Analytic generation

Brainstorming variations

- Attribute listing - Morphological matrix

- Brainwriting - Brainstorming with post-its

Brainstorming

Idea checklist - SCAMPER - Alex Osborn's questions

Forcing relationships - Forced f it - Sensory search f or relationships

Figure 476: Categories of idea generation

19.3. Creative problem solving and opportunity search The first level of the use of creativity in the idea-generation phase of product design will be discussed under the section of creative problem solving. The second level, the pre-product phase, is defined by Edward De Bono as the Opportunity search (De Bono, 1980). The terminology used in the innovation process is often called problem solving, while in fact opportunity search is meant. What is the difference? Problem solving is reactive; it means that there is something real that has to be solved, that you can do something about. An opportunity is something you do not yet know that you want to do and can. By training, inclination and expectancy managers in firms tend to be problem solvers. Any deficiency in the smooth running of an organisation is a problem and it is the managers business to solve the problem and keep things running smoothly until the next problem arises. De Bono defines three types of problems, as shown in Figure 477. The first type is the block-type of problem. We know the road we want to take, but there is a block in the way. In this situation, it is easy to locate, identify and focus upon the problem. The manager then attacks the problem with his problem-solving kit and either removes the block or finds a way around it. In the second type of problem we 'run out of the road'. In order to proceed we need more information. It may be difficult but in general this kind of problem can be solved by getting the relevant information. The third type of problem is the most difficult to solve because it is the 'problem of no problem'. There is no block, the road is wide and open. There is nothing to react to or focus the problem-solving skills. The manager may proceed down the road and completely miss the opportunity turning. Managers have different styles, as already discussed before. De Bono adds a number stereotypes of management styles, which he calls train-driver (operator), the doctor (problem-solver), the farmer (combination of operator, problem-solver, and opportunity searcher in a limited environment - his farm), the fisherman (opportunity searcher). The process of innovation in industrial design starts often with the problem of no problem, i.e. the firm is doing well with its present product-market strategy, and there does not seem to be a reason to doubt the success of the present activities in the future. When the company is losing market share, or worse losing money with its present product line, there is a clear problem and challenge. Industrial design becomes in that situation a problem-solving exercise. But when the company is successful, what trigger should lead to an often difficult opportunity search process, where to look and what to 469

Part III - Innovation Theory innovate? That question is at the core of many innovation and design methodologies, but hardly ever addressed explicitly. If the organisation is managed by the stereotype managers, who De Bono calls train drivers, than it will be evident that there is no fertile in-company basis for innovation. It requires the adventurous spirit of the fisherman to make change happen, without drama in the firm. The concept behind opportunity search in combination with the S-curve development lead to the idea of looking in a systematic way for innovation triggers, as proposed in this book. The structured and scientific search for opportunities should be better incorporated in the current innovation methodologies. And this book is an attempt to achieve this in the field of shipping.

Figure 477: Three types of problems

Creative Problem Solving Engineers like formulas and therefore R. Noller proposed a function of creativity: ‫ ܥ‬ൌ ݂௔ ሺ‫ܭ‬ǡ ‫ܫ‬ǡ ‫ܧ‬ሻ This function should clarify the concept of creativity to them. Creativity is a function of an interpersonal attitude toward the beneficial and positive use of creativity in combination with three factors: Knowledge, Imagination and Evaluation. This formula underscores the dynamic nature of the creativity concept; it changes through our experience. Another important element is that creativity always occurs in some context or domain of knowledge. Finally, creativity involves a dynamic balance between imagination and evaluation. The concept of creativity can furthermore be understood by the four basic ways in which creativity reveals itself: x x

Understanding the characteristics or attributes of creativity within people. Describing the process, operations or stages of thinking in creative people; 470

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Identifying the qualities of products creative people produce; Examining the nature of the environment, context or situation in which creative people use creativity techniques.

These four approaches to creativity are shown in Figure 478.

PROCESS Operations theyperform

PERSON Characteristics ofpeople

PRODUCT Resultant outcomes CONTEXT Climate,culture, press

Figure 478: Four approaches to creativity In the context of innovation methodologies, the emphasis is on the creative process and the creative product of that process. For many people creativity is equal to innovation. There are however important differences, as Figure 479 shows. The remainder of this section will discuss Creative Problem Solving (CPS) as part of an innovation methodology.

Figure 479: Distinction between creativity and innovation The definition of Noller of the CPS-methodology is as follows: "By creative we mean: having an element of newness and being at least to you, the one who creates the solution. By problem we mean: any situation which represents a challenge, offers an opportunity, or is a concern to you. By solving 471

Part III - Innovation Theory we mean: devising ways to answer or to meet or satisfy the problem, adapting yourself to the situation or adapting the situation to yourself." Creative Problem Solving or CPS is a process, a method, a system for approaching a problem in an imaginative way resulting in effective action. CPS is a broadly applicable process that provides an organising framework for specific tools to help you innovate and develop new and useful outcomes. Through this approach, productive thinking tools can be applied to understanding problems and opportunities; generating many, varied, and unusual ideas; and evaluating, developing and implementing potential solutions. The CPS methodology has been developed in the U.S.A., in particular in and around the Buffalo State College. This description of the CPS-method is based on the handbook “Creative approaches to problem solving", by S.G. Isaksen, K.B. Dorval and D.J. Treffinger (Isaksen, Dorval, & Treffinger, 1994). CPS can be described at several different levels. At the most general levels, CPS is composed of three components. Components are general areas or categories of activity people deal with when they are solving problems or opportunities creatively. The three components are: understanding the problem, generating ideas, and planning for action. Within each component there are specific stages, which is a smaller more specific level of operation within CPS. CPS distinguishes six specific stages within the three components. The stages within understanding the problem are: mess-finding, datafinding and problem-finding. The stage within generating ideas is idea-finding. The planning for action component includes: solution-finding and acceptance-finding. At the next and more specific level, each CPS stage has two phases. Together, these phases emphasise the dynamic balance between divergent and convergent thinking. The first phase is divergent thinking in which you come up with or generate many, varied and unusual options. The second phase is convergent thinking in which you analyse, develop or refine the options you generated. Finally, the most basic level of the CPS framework involves specific tools or techniques. These techniques help to purposefully change the perception of the reality in order to create new insights, and these techniques usually have either a divergent or convergent emphasis. Apart from the methodology, the CPS approach provides the users a common language for an effective problem-solving framework. The three components and the six stages will be briefly discussed.

Component: Understanding the Problem The three stages within this component are mess-finding, data-finding and problem finding. Messfinding deals with the question, "What is the challenge, opportunity or concern on which we are going to be working?" The word 'mess' means that at this stage the situation is fuzzy, broad, general and illdefined. Data-finding focuses on seeking as much and as varied information that may help you state your problem. Problem-finding is the stage in which you develop workable, stimulating and specific problem statements. This is the most crucial part in the CPS method, as the definition of the problem/opportunity determines to a large extent the contents of the following stages. The ambiguity during this phase and foremost the importance of looking at the problem in different ways (different conceptual/mental models) can be illustrated with a simple example, taken from a book on problem definition by D. Gause and J. Weinberg, "Are your lights on? (Gause & Weinberg, 1976) Figure 480 shows an office building where the users complain about the long waiting time before the lifts. Ask an audience of engineering students to propose solutions for this problem, and they invariably come up with technical/operational solutions like: increase the speed of the lift, put in an 472

Part III - Innovation Theory extra lift, or change the working hours (more flexible). The latter solution already points at a whole new category of solutions, which are organisational and less costly. Some solutions are extravagant, such as "burn down the building and cash in on the insurance premiums and relocate the office", but what we are after is the student who asks the simple question "how is the perception of waiting for a lift and how is it actually measured?" This brings us to solutions like manipulating the waiting experience, for example by equipping the front of the lift with floor-numbers, so people know how long it will take before the lift arrives, or putting a mirror next to the lift, or a billboard with company information, or a television. The creative person does not have to be so fluent in the idea-generation phase, but especially in the Problem-definition phase. Great thinkers and scientist have always found a new way of looking at the reality. Changing the perception of the problem is crucial. Keep simply in mind that the reality is there and real, and it is up to us to uncover it, like the alternative definition of the sculptor as somebody who takes away the superfluous pieces of material, as the statue is already in the stone.

Figure 480: The waiting problem In the maritime sector a good, or may be bad example of a problem statement is at the basis of the U.S. Oil Pollution Act 1990. Apart from many noteworthy procedures for increasing the operational safety of ships, in particular oil tankers in American waters, the OPA-regulation prescribes that the oil tankers calling at U.S. ports should in the future be based on a double-hull design. Although 75 percent of all maritime accidents are caused by human failure, the focus has simply been on design technology. The comparison with the previous lift example is evident. If the lawmaker had defined the accident/pollution problem in a different way, focused on avoiding human failures, then the outcome would have been completely different, and possibly less costly and more effective. The important 473

Part III - Innovation Theory Exxon Valdez (1989) spill was caused by a human failure, and caused a spill in spite of the double bottom of the oil tanker.

Component: Generating Ideas Idea-finding takes the various problem statements as a starting point and uses creativity techniques to create new insights, either direct or in stages. Often indirect analogies based on classes of ideas may trigger new ideas; this phase is a merry-go-round and mostly associated by people as the creative phase. Again, problem definition needs even more creativity than this idea-finding phase.

Component: Planning for Action The two stages within this component are solution-finding and acceptance-finding. Solution-finding involves working on promising ideas to analyse, refine and improve them. Acceptance-finding challenges you to look at the solutions/options through the eyes of others and to examine your potential solutions in ways that will lead to effective action, while counteracting potential or actual objections or resistance. This part of the CPS methodology is very much part of innovation management.

Variations on the CPS-theme The CPS methodology has been developed shortly after Guilford's address before the American Psychological Association in 1950, by Alex Osborn and published in his book Applied Imagination (Osborn, 1953). He described a seven-stage version of CPS, which is summarised in Figure 481, which condensed in 1963 in a three stage approach as shown by Figure 482. Sidney Parnes modified Osborn's approach into a five stage model, which he later on presented in a more visually-attractive style, which became a trend in CPS since then. Later on Parnes, Noller and Biondi modified again the CPS five stage model, which was used for a long time. Many individuals and companies (managers) participated in CPS-workshops. In 1985 Isaksen & Treffinger modified the approach as shown by Figure 483, which was consequently restructured in the three components, six stages approach.

Figure 481: Osborn’s 1953 seven-stage CPS process

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Figure 482: Osborn’s 1963 three-stage CPS process Vincent Nolan's The innovator’s handbook distinguishes two broad categories of problem solving techniques, which are used within the CPS framework: x x

Those suitable for problems that lie within, or close to, present levels of knowledge and achievement; Those that lie well outside those levels.

Problems of the first category require predominantly logical analytical skills; problems of the second nature require predominantly inventive, intuitive, creative skills. In short, the Creative Problem Solving methodology is a general approach to structuring and solving in a creative way problems and opportunities; it can be used effectively in a maritime environment.

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DIVERGENT PHASE

PROBLEM SENSITIVITY

CONVERGENT PHASE

Diverge Experiences, roles and situations are searched for messes... openness to experience; exploring opportunities.

Mess finding

Data are gathered; the situation is examind from many different viewpoints; information, impressions, feelinggs, etc. are collected.

Data finding

Many possible statements of problems and sub-problems are generated.

Problem finding

Many alternatives and possibilities for responding the problem statement are developed and listed.

Many possible criteria are formulated for reviewing and evaluating ideas.

Possible sources of assistance and resistance are considered; potential implementation steps are identified

Challenge is accepted and systematic efforts undertaken to respond to it

Converge

Idea finding

Most important data are identified and analysed

A working problem statement is chosen

Ideas that seem most promising or interesting are selected

Solution finding

Several important criteria are selected to evaluate ideas. Criteria are used to evaluate, strengthen and refine ideas

Acceptance finding

Most promising solutions are focused and prepared for action; Specific plans are formulated to implement solution.

NEW CHALLENGES

Figure 483: Isaksen and Treffinger’s six-stage model of CPS

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20.

INNOVATION AND MARITIME CLUSTERS

By Jan Inge Jenssen, as published in (Wijnolst N. , 2006) The questions to be answered in this section are “what is a cluster?” and “why are clusters important for value creation and wealth?”. We will also explore and provide an overview of factors that are assumed to create efficient clusters and the policies that can be applied in order to stimulate the clustering process. This will lay a theoretical base for the discussion of the maritime clusters in Europe as well as the development of conductive public policies in European countries with a strong maritime industrial cluster. We will also briefly discuss in what way the European maritime industry may be viewed from a cluster perspective. Several theoretical perspectives have been applied in the study of clusters. Examples are economic geography, economic theory27. It will draw on all perspectives but our data and our professional background implies that the approach promoted by Porter will be of particular importance. However, the characteristics of the shipping context require a pragmatic adaptation of theory and measurements in order to be useful. Our contribution is to integrate theories, specify the variables and apply the constructs the maritime clusters. The following sections define clusters and provide a categorisation of clusters on different levels of development. Why clusters are important and what can be the expected outcome of a well-functioning cluster. Thereafter the process of emergence, growth and the decline of clusters is discussed. Next the theory is integrated and a tentative model of the causal relationships of clusters and their effects. This model shows how important clusters are to innovation. Since innovation is a key outcome of industrial clusters we explore the meaning of the concept and its effect on value creation, competitiveness and growth. Finally some of the key concepts in the cluster theory are specified. This is necessary in order to analyse the two maritime clusters.

20.1. What is a cluster and why are clusters important? Definition Originally Porter (Porter, Competitive Advantage of Nations, 1990) had a very wide understanding of clusters. He focused on national clusters of vertical and horizontal related firms. Porter (Porter, 1998) limited the definition to geographic concentration of interconnected companies and institutions in a particular field. In the literature the term regional clusters have emerged. This represents a further limitation of the cluster concept (Rosenfeld, 1997). Two countries of different size and with different concentration of the maritime industry require a relatively wide definition of cluster is necessary. For instance, the maritime cluster is viewed as one of the strongest and most complete clusters in Norway28, but the cluster consists of several relatively small sub-clusters located in different regions in

27

 (Krugman, Geography and trade, 1991), (Krugman, 1991a), (Krugman & Venables, Globalisation and the inequality of nations,1995)and(Porter,1990).

28

(Reve&Jakobsen,2001)and(Reve,Lensberg,&Grønhaug,1992b)

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Part III - Innovation Theory Norway. This implies that a cluster can be located in several regions. However, we recognise the fact that some of the cluster advantages might be reduced because of a lack of geographical concentration. The focus on clusters reflects a growing awareness of national and regional resources that stimulate innovation and competitiveness. The development of clusters is by some seen as the only way to overcome the risk of being out competed in the global economy (Lagendijk, 2000).

Levels of clusters In the literature it is distinguished between three level of regional clusters (Isaksen & Hauge, 2002, p. 14) and (Isaksen A. , 2001): x x x x

Regional clusters: A concentration of ‘interdependent’ firms within the same or adjacent industrial sectors in a small geographical area; Regional innovation networks: More organised co-operation (agreements) between firms, stimulated by trust, norms and conventions, which encourage firms’ innovation activity; Regional innovation systems: Co-operation also between firms and different organisations for knowledge development and diffusion; Learning regions: More organised co-operation with a broader set of civil organisations and public authorities that are embedded in social and regional structures.

The three levels represent increased levels of co-operation and interdependence. It is assumed that the positive effects of the cluster on innovation and value creation are increasing as the co-operation and interdependency increases. This hierarchy is of special relevance for public policy aimed at developing and strengthening clusters.

Clusters in international industries In a highly internationalised sector of industry, the degree of clustering will reflect a balance of competitive advantages created by geographical concentration and the costs of international transport and distribution (Norman, 1998). If the trade related costs are high there will be many small clusters located close to the markets. If these costs are low the geographical concentration will be higher. This raises the question in which countries and regions industrial clusters will locate. Based on economic theory Norman (Norman, 1998) argues that the following factors decide in which countries the clusters will develop: historic coincidences, self-fulfilling expectations, comparative advantages (costs of labour, competence of labour, natural resources etc.), and public policy.

Is there a European maritime cluster? There is a large maritime industry in Europe. However, we have little systematic information concerning the degree of interaction and cooperation between European maritime firms versus the interaction and cooperation between Europe and other parts of the world. There are some signs of leader firm integration in Europe but still the industry is mainly made up of relatively small companies. The geographical distance between the agglomerations of maritime firms within Europe is also large. In most of the literature it is assumed that clusters are located within one country or in some cases two countries. However, the distances within the maritime industry in the Norwegian cluster are long. Also, the European maritime industry seems to face the same challenges from low cost countries, mainly in Asia. This has implications for business strategy and public policy. For instance, the question of a more harmonised European policy seems to be more important to discuss now. For the business strategy, competition based on cost leadership will be more and more difficult and the 478

Part III - Innovation Theory necessity of an innovative differentiation strategy is growing. Probably, also a larger scale of production is necessary in several segments. Such strategies have probably strong implications for how the maritime industry organises itself internally and externally. It probably requires more national and international cooperation and in some cases integration on policy level and on the business level, e.g. (Jenssen, 2003). Some large leader companies have already taken the first step in such a direction, but a more proactive way of acting is probably necessary. In spite of the varied geographic proximity, the maritime sector in Europe might benefit from looking at it self as a continent wide cluster. This is a type of cluster not recognised and discussed in previous research. In order to answer the question of why clusters are important for business development and wealth creation it is necessary to understand which factors or variables that are involved in the cluster processes and how they are related. This is the aim of the following section.

Why are clusters important? Companies’ location decision will normally reflect a balancing of costs and market access. Many industrial clusters may easily be explained by these factors. A variety of stores in population concentrations are an example of the importance of market access. However, there has been a growing recognition of the importance of the development of competitive advantages within sectors of industry (endogenous competitive advantages) rather than through natural resources or population distribution (exogenous competitive advantages) (Riis, 2000). The research in this area indicates that the internal dynamic within a particular sector of industry is critical because important positive external economies are created. Relationships between market size and costs create pecuniary external economies. For instance companies may reduce costs by locating in an area with good access to production factors. It is also more lucrative for producers of production factors to be in a location with many buyers. In other words, the establishment of firms reduce the cost for new start-ups. This implies that the profitability of businesses depends on how many other companies are located in the area. Also, start-ups in such areas increase the profitability of existing companies. These cluster mechanisms will not be triggered unless there are economies of scale in the production or that there exists other reasons that make the market size important (Norman, 1998). External economies may not necessarily be connected to market related mechanisms. True external economies are created through direct relationships between companies. When a company buys a production factor of a company there may be a flow of resources between the companies that are not directly related to the trade. This might be information or knowledge resources that are vital for the learning in the related companies. There are several different pecuniary and true externalities that are created in clusters. Different perspectives focus on different factors. Isaksen and Hauge (Isaksen & Hauge, 2002) discuss four different schools of thoughts. In these perspectives factors such as proximity to specialised employees, suppliers, demanding customers, specialised information, a stimulating local rivalry, cooperation/networking, reduced transaction costs learning etc. are promoted. According to Scott (Scot, 1988) extensive division of labour, i.e. vertical disintegration of production chains organised in networks of specialised companies, provides flexibility and efficient specialisation and stimulating agglomeration caused by reduced transaction cost in inter-firm relations. The four factors that Porter (Porter, 1990) (Porter, 1998) believes creating a stimulating business environment 479

Part III - Innovation Theory are: factor conditions, demand conditions, strategy, structure and rivalry (competition conditions) and related/supporting industries (relationships).

Contextforfirm strategyand rivalry

Factor conditions

Demand conditions

Relatedand supporting industries

Figure 484: Factors creating a stimulating business environment (Porter, 1990) The interaction of the four factors may create (Porter & Stern, 1999): x

x x x

Highly qualified human resources such as scientific, technical, and managerial personnel, strong research infrastructure and information structure and a necessary supply of risk capital (factor conditions); A regional environment that stimulate investment in innovation related activities and competition between local rivals (context of firm strategy and rivalry); The presence of advanced local suppliers and the presence of clusters instead of isolated businesses (related and supporting industries); Sophisticated local customers with needs that anticipate those outside the cluster.

The outcome of the process created by proximity of input factors, local rivalry, local customers and networking is (Reve & Jakobsen, 2001): x x x

Complementarities in the use of input resources which creates a critical mass of demand necessary for producing the resource; Diffusion of knowledge through extensive networking; Innovation pressure caused by frequent communication with demanding customers that are not dependent upon one supplier.

The demand conditions can be characterised by size, growth, and knowledge intensiveness. Local rivalry is, as pointed out, believed to drive the creative processes in industrial clusters. This includes both competition and co-operation (Porter, 1990). Companies in a cluster will develop these two processes side by side. They will compete in areas where their products or services substitute each other and co-operate in areas where the companies are complementary (Reve & Jakobsen, 2001). Such a process will create pressure and opportunities for business development through innovation. The 480

Part III - Innovation Theory factor conditions include all kinds of production factors such as machinery, human capital, infrastructure, and funding. The learning capacity of firms in clusters is related to proximity of many companies in the same or adjacent industry (Lundevall & Johnson, 1994). In other words, clusters are assumed to shape the networking in a particular way. Our knowledge of which network characteristics that clusters promote is limited. Usually, networking is described by concepts such as size (number of direct and indirect ties), structure (density, redundancy, bridges etc.), the type of resources that flow through the relations, the degree of material or immaterial investments in the relations, and the governance structure (trust, contracts etc.). All of these factors might be applied when the advantages of the clusters are explored. A high number of firms in the same or adjacent industry located in one area might increase the number of relations which again might increase the number and variety of resources available for the firms. This raises the probability that a specific resource can be reached (Jenssen, 1999), (Reese, 1993). Relationships may for instance be created through competition in the same market, production of complementary goods, co-operative production (alliances), development or use of the same technology/R&D, circulation of human resources (employees, consultants, board members), infrastructure (broad band etc., transportation hubs), and capital (joint ownership, credit institutions) (Reve & Jakobsen, 2001, p. 37). The proximity of firms might influence the governance of networks by increasing the degree of trust which is assumed to reduce the agency cost in co-operations. Based on this line of reasoning the cluster increases the intended resource sharing between companies. However, resources are not always intentionally transferred. For example both contractual or formal knowledge and informal, uncompensated knowledge spillovers or leakages are flowing through ties between businesses29. We may distinguish between know-how and information (Kogut & Zander, 1993). Know-how consists of accumulated skills and include a “tacit or non-codifiable dimension” (Ahuja, 2000, p. 428). Information is primarily facts and can be transferred through ordinary communication without loosing its value. Some researchers distinguish between information and knowledge (Isaksen & Hauge, 2002). As knowhow, knowledge is regarded to be informal and tacit of nature and difficult to codify, articulate and transfer. Therefore, transference of knowledge/know-how requires long-term and trustful relationships. It is socially embedded and, in contrast to codify able information, territorial rooted (Cooke, 1998). Transference of information and knowledge/know-how is a requirement for developing a high degree of learning capacity (Isaksen & Hauge, 2002). These lines of arguments provide important reasons for how territorial specific learning capabilities are created in clusters. The effect of demanding customers accentuated by Porter (Porter, 1990) creates a self reinforcing process because suppliers that meet demanding customers will also have to be tough in their factor markets. In the ‘new’ growth theory (Romer, 1986) (Romer, 1990) diffusion of knowledge is regarded as a by-product of market relations and a prerequisite for innovation and growth. Creating a situation in which these externalities are maximised is a crucial task for society. Therefore, it is important to stimulate the growth of clusters where diffusion of knowledge presumably is high.

29

(Ahuja,2000),(Bernstein&Nadiri,1998),(Jaffe,1986),(Jaffe,Trajtenberg,&Henderson,1993)

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Part III - Innovation Theory In study from the Dutch Maritime Network de Langen and Nijdam (Langen & Nijdam, 2003) argue that the presence of leader firms drives the development of clusters. Leader firms are companies located in a cluster, with a size, market position, knowledge base, and entrepreneurial strength that enable them to contribute to the networks and value chains of the cluster with positive spin-offs for the other companies in the cluster.

20.2. The emergence, growth, and decline of clusters As products and businesses, clusters often go through a history of emergence, growth, and decline (Isaksen & Hauge, 2002). The birth of clusters may often been traced to specific location factors and historical circumstances. The traditional fisheries and the international trade stimulated by the participation in the Hansa city cluster are important factors in the birth of the maritime cluster both in Norway and the Netherlands. Clusters may also arise from special and sophisticated local demand, prior existence of supplier and/or related industries, one or two extremely innovative companies, and coincidences (Porter, 1999). When the cluster begins to take form, self reinforcing processes stimulate its growth. Cluster decline may be caused by cluster internal factors or external factors. As companies, clusters may develop internal rigidity that weakens productivity and innovation. Union inflexibility, over consolidation, mutual understandings, cartels, or other barriers to competition may undermine local rivalry, and groupthink etch may reduce the rate of innovation (Porter, 1998). External factors that may lead to cluster decline are technological discontinuities which may simultaneous make market information, expertise, labour skills inappropriate simultaneous and neutralise cluster advantages. Also change in the need of buyers which creates differences between local needs and needs elsewhere may reduce innovation in clusters (Porter, 1998). Clusters can blossom for decades and in some cases for centuries. The time of vibrancy varies a lot and is difficult to predict. In the EC report Regional Clusters in Europe, Isaksen and Hauge provide a six step model of cluster development (Isaksen & Hauge, 2002, pp. 14-15). The model includes the following steps: x

x x x x

x

Formation of pioneer firms based on historical circumstances, local knowledge, local customers initiate spin-offs and local rivalry which is essential driver of entrepreneurship and innovation (Porter, 1998); Development of specialised suppliers, services and manpower provides increasing external economies and an cumulative process; Formation of organisations such as specialised education, business associations, knowledge organisation etc, serving the cluster firms and supports the learning processes; The growth of external economies and local organisations attract outside firms, skilled workers, and fertile grounds for local firms; Formation of non-market relationships between persons and organisations which includes routines and conventions that require proximity. This stimulate the circulation and stimulation of knowledge/innovation; Clusters might renew themselves for decades or become a part of a new cluster. However, conformity or rigid specialisation will often lead to a period of decline or even the end of the cluster.

482

Part III - Innovation Theory Although individual clusters develop differently, most of them will have a history including the six stages. The discussion above reveals some important cluster-related variables and some possible effects of clusters. What is the nature of the causal relationships involved? It is not a simple task, because the cluster process is of a dynamic nature and the causal relations move in many directions. However, we believe that proximity to suppliers, customers, competitors, and relationships between the companies may be viewed as a starting point. The relationships are partly caused by the proximity and the relationships are partly causing companies to locate in the area. This mixture of companies and relationships has certain effects on the business milieu. The most important examples are: x x

x x x x x

Reduced transaction costs of co-operation which makes it easier for companies to specialise on a narrow part of the value chain; Utilisation of complementarities in the use of input resources which may: o Create scale in production; o The chance of creating a critical mass of demand necessary for producing a particular resource; Utilisation of substitution in the use of input resources which create local rivalry; Better access to skilled labour; Knowledge information diffusion and learning caused by networking; Development of coordinating institutions; Development of leader firms.

In order to develop a high degree of specialisation it is necessary to have a diverse set of related companies in the same sector (suppliers/services and competitors). The boundary of the maritime cluster is difficult to determine. Some of the sectors will be of greater importance to the maritime cluster (core sectors) than other sectors. Which sectors that should be regarded as core sectors will probably depends on several factors, for instance the comparative advantages of the region. The maritime sector might include companies such as shipping companies, shipbuilding, shipping equipment, marine equipment, technical services, financial services, investors, ports, fishing, dredging, inland shipping, yachting, and the navy. The first seven types of companies are often regarded as core sectors and the other as related marine sectors. However, in the Netherlands a sector such as dredging is of vital importance for the maritime industry. Reve and Jakobsen (Reve & Jakobsen, 2001) regard complementarities, knowledge diffusion and innovation pressure as the outcome of the cluster process. We believe that complementarities, knowledge diffusion, local rivalry, specialisation etc. are important mainly because of their effect on innovation and international competitiveness. In other words we view innovation as the primary and most important outcome of clusters in the same or adjacent industrial group. We also believe that the utilisation of these factors attracts new companies to the cluster etc. In other words a selfstrengthening process may occur in clusters. The formation of industrial clusters provides competitive advantages through continual innovations for the firms that operate within the cluster. This is assumed to increase competitiveness in the national and global market. Lagendijk (Lagendijk, 2000) regards specialisation through clusters as the only chance to outrun the risk of being out competed by other nations.

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Part III - Innovation Theory An important question is “How public authorities can and should stimulate the cluster process?” However, policy may for example be aimed at attracting businesses to the cluster, stimulating interaction and establishing co-ordinating institutions. Within clusters leader firms and co-ordinating institutions are created. Leader firms are ‘naturally’ created by the cluster processes but may also be externally stimulated for example by public policy. Also, co-ordinating institutions may be created ‘naturally’ by the cluster process or they may be a result of interventions by the authorities. Public policy is an instrument designed by the authorities in order to stimulate the clustering process. Caused by public policies, clusters often offer better access public goods. The discussion of cluster factors and relationships may be summarised in the following model.

Proximityto: Ͳ Suppliers Ͳ Customers Ͳ Competitiors Relationships

Ͳ Reducedtranactioncosts andspecilialisation Ͳ tilisationof complementarities Ͳ Utilisationof substitution/rivalry Ͳ Learning Ͳ Skilledlabour Ͳ Leaderfirms Ͳ CoͲordinatinginstitutions

Innovationand international competitiveness

Business ͲProfitability ͲGrowthinsizeand variation Internationalisation

Publicpolicy

Figure 485: Clusters and their effect As the discussion reveals we do not focus upon the effect of business performance on wealth. Our research relies on the assumption that business profitability and growth creates wealth in the society. Clusters are especially important in this process because they seem to stimulate growth of knowledge intensive production caused by the learning processes. The contribution on wealth creation for societies is not only related to economic growth but also to how the wealth is distributed to the citizens. However, a discussion of this question lies outside the purpose of this book. An industrial environment needs to have a solid vertical and horizontal structure in order to create the stimulating dynamics, i.e. it has to include a variety of suppliers/services, customers and competing businesses. The industrial milieu also needs to have a critical mass of related actors. It has to include both breadth and depth of organisations. A complete cluster including all kinds of related organisations provides the companies with important complementary resources. Successful clusters of businesses are characterised by self strengthening growth, driven by competition, co-operation, learning and innovation. 484

Part III - Innovation Theory The focus on innovation as the primary driver of economic growth is in line with the ‘new’ or endogenous growth theory (Romer, 1986). Since we believe that the crucial outcome of industrial clusters is innovation it is necessary to have a closer discussion of the concept and significance of innovation for competitiveness.

20.3. Innovation, competitiveness and growth Innovation is about what is new, but it does not have to be new in an absolute sense. It is adequate that it is new to the individual organisation (Zaltman, Duncan, & Holbek, 1973). Adjustments of products and administrative procedures to promote the organisational efficiency are not innovations, but variations (Kanter, 1983). Innovation may be classified along several dimensions. First, it can be in the things that the company offers in the market (product or services innovation), in the way that the products or services are produced (process innovation), and in the market segment where the product is offered (market innovation). The first two types of innovations are usually labelled product and process innovations. Secondly, innovation may be classified by its degree of novelty. A product or process innovation may be a minor, incremental improvement, a change, a radical change, or a transformation, inspired by (Tidd, Bessant, & Pavitt, 1997). An adjustment in the design of a product is an example of a minor, incremental innovation. A radical change usually has an effect on a particular sector of activity (Tidd, Bessant, & Pavitt, 1997). An example of such an innovation is the LCD computer screen. Sometimes the change is fundamental for the society. The personal computer is an example of such an innovative transformation. Closely related to the novelty is the third dimension of innovation, the relative newness of the product or process. Innovation is, as discussed above, about what is new, but it does not have to be new in an absolute sense. It is adequate that it is new to the individual organisation. Therefore, it is relevant to talk about the newness of a product or process compared to other organisations. The newness is low when a company starts offering products or services that other companies are already offering, enters markets that other businesses already are operating within, or starts using production methods that others businesses are already offering. The newness is high when a company develop new products, enters markets that no other companies are in, or starts using production methods that no businesses in the industry are using. It has to be mentioned that it is difficult to think about a radical innovation or a transformation that are not new in an absolute sense. A fourth dimension of an innovation is whether it represents a material or immaterial change. Often innovation is associated with physical or material change, such as a change in a product. However, the change may be immaterial in at least two ways. It may be a change in how a service is conducted or it may be a change in a method or technique such as the development of a management technique (for example balanced score card). Innovation is "an essential condition of economic progress and a critical element in the competitive struggle of enterprises and of nation states" (Freeman & Soete, 1997, pp. 1-2). The ability to innovate is one of the most important factors for survival, competitiveness and economic growth in companies (Drucker, 1985), (Zahra, 1993). Innovation contributes to competitiveness and economic growth in businesses (Geroski & Machin, 1992). Porter (Porter, 1998, p. 245) argues that the “ultimate test of the health or decline of a cluster is its rate of innovation”. There is a clear dependency between the commitment to innovate and profitability in businesses (Zangwill, 1993). A study of all groups of 485

Part III - Innovation Theory industries also shows that innovative businesses are more often doing well than non-innovative businesses (Wheelwright & Clark, 1992). New products constitute a considerable share of the turnover in companies. In a study of innovation in the Norwegian manufacturing industry, Nøs, Sandven, and Smith (Nøs, Sandven, & Smith, 1994) show that 17% of a firm’s turnover comes from products which have changed during the last three years. The importance of product development has grown considerably over the last decades and is now a very important driver of competition in many industries. In certain industries, for instance in car production, biotechnology, consumer and industrial electronics, computer software, and pharmaceuticals, businesses are often dependent on products introduced within the last five years for more than 50 percent of their yearly sales (Schilling & Hill, 1998). Also, the product life cycles in certain parts of the electronic and computer industry can be as low as twelve months. An important challenge for companies is therefore to replace products with new products or better versions of old products faster than the competitors (Stalk & Hout, 1990; Walsh, 1992). This means that companies are increasingly competing about time. Companies do not only need to introduce new products, they also need to do it faster than its competitors (Stalk & Hout, 1990), (Tidd, Bessant, & Pavitt, 1997). The need for efficiency in the innovation process is also related to first mover advantage. Such an advantage may make it possible to build brand loyalty, yield fruits of early experience, gain control over scarce assets, and create switching costs that bind consumers to the company (Lieberman & Montgomery, 1988). In other words, first mover advantages may create a basis of a more sustained competitive advantage (Schilling & Hill, 1998). Research reveals a strong correlation between market performance and new products (Souder & Sherman, 1994; Thomas, 1993). Products that are differentiated in quality or other features generate higher return on investment than average and products differentiated on both of these dimensions produce twice the average profit (Luchs, 1990). In order to keep products differentiated over time a high degree of product innovation is necessary. However, there is also strong evidence that process innovation is as critical for many companies as product innovation. The strength of the Japanese in car production, shipbuilding and consumer electronics is probably strongly related to the quality of the production system (Monden, 1991), (Tidd, Bessant, & Pavitt, 1997). The globalisation of markets is an important reason for the pressure on innovation. Since WW2 there has been a dramatic reduction in trade barriers between nations and the flow of goods, services, and capital has increased concomitant. This process has created increased global competition. The more competitive markets become, the more complicated it is for businesses to differentiate their product or services on the basis of cost and quality. As a result, product development has become critical to gain a meaningful differentiation. Product development is of course a challenging process and failure rates are very high. Many innovation efforts never result in a profitable product. In a study it was shown that between 33 percent and 60 percent of all new products that reach the market place fails to generate profit (Schilling & Hill, 1998). Also, companies that are slow in the innovation process may find that by the time their products reach the market, the demand has shifted to other products. There are many examples of technical innovations in shipping that have not provided sustainable competitive advantages. For instance innovations on vessels have often been quickly imitated. Examples of such imitations are dive/drilling ships, heavy lift ships, and ships that carry sheep (Wergeland T. , 1992). Still technical innovations are important for efficiency of the industry; 486

Part III - Innovation Theory however, it does not seem to create sustainable advantages. The question is, then, what creates sustainable advantage. We believe that sustainable competitiveness is gained by integrating core competencies within and between firms. This requires a high degree of relational skill, and may create capabilities that are hard to imitate. Such a process is more likely to happen within a cluster of related business. The request to develop an innovation scoreboard by the European Council of Ministers meeting in Lisbon in March 2000 indicates that the challenge of increasing innovation in Europe is a public priority. The goal formulated in Lisbon is that the EU shall become the most competitive and dynamic knowledge-based economy in the world within the next decade. The Innovation Scoreboard is an annual assessment of innovation performance in the individual member states of the European Union and in associated states.

20.4. Coordinating institutions and public policy Clusters often include organisations that perform joint or co-ordinating activities. In the Observatory of European SME’s an overview of services provided through such organisations is given. The same study found that the most important of these activities is lobbying government, coordinating public-private investments and education/training. In the theory of industrial and regional clusters it is assumed that that competition, co-operation, learning and innovation creates continually growth. This is a result of positive externalities, which may be defined as unintended by-products of business activity. In other words external economies are an expression of market failure (imperfection). The individual firms underestimate the value of its own activity by not considering the fact that their behaviour influences other companies. The market failure (imperfection) externalities makes the rationale for public intervention aimed at stimulating the agglomeration process. According to ‘new’ growth theory (Romer, 1986), the crucial economic policy is to establish an institutional environment that supports innovation. Therefore a key issue for the public sector is to identify the important mechanisms that upgrade clusters (upgrading mechanisms). Using the four types or levels of clusters defined above, the aim is to support the transformation of incipient industrial networks to regional clusters, innovation networks, innovation systems and finally learning regions. The learning regions are assumed to produce the highest level of positive externalities and thereof the highest level of innovation. During the recent years a variety of public means aimed at stimulating cluster processes has been identified and applied. The Observatory of European SMEs, provides an overview of governmental policies and organisations aimed at stimulating the cluster processes. In this report the governmental policies are divided into six categories. In a survey of 34 regional clusters financial support of firms’ projects, support of physical and knowledge infrastructure, support of education, training and research, and networking programmes were found to be the most important policies (Isaksen & Hauge, 2002). Through the effort of designing policies aimed at stimulating the evolution of clustering, policy makers might be tempted to apply instruments that have been successfully used in other areas (other regions or other industries). However, industries and regions may have different levels of co-operation and interdependencies. Therefore, public policy aimed at stimulating the cluster development has to be tailored to the situation of the particular region or country. 487

Part III - Innovation Theory Area R&D  Production  Inputs  Training   Marketingandsales   Logistics  Governmentrelations 

Service Basicresearch Appliedresearch Production Bundlingofproductsandservicesfromseveralfirms Jointpurchaseofrawmaterial,components Jointpurchase/carryingoutofserviceofservicefunctions Managementtraining Othereducationortraining technologicalsurvey Marketresearch Jointbranding Jointsellingactivities Jointwarehousing Jointtransportation Lobbyinggovernment CoͲordinatingpublicͲprivateinvestments

Table 119: Examples of areas for co-ordinating institution (Isaksen & Hauge, 2002, p. 40) Isaksen (Isaksen A. , 2001) exemplifies how dissimilar situations call for different policies by providing examples of policy tools aimed at dealing with different cluster situations. In peripheral regions there is often no innovation system due to a lack of relevant local actors. There will not be a dynamic promoting cluster development and the collective learning will be low. In such a situation, possible policy instruments are to link firms to relevant knowledge outside the region and attract companies and skilled labours to the area. In other regions there might be relevant companies, but they operate independently. In such a situation relevant policy instruments are to invite the firms to develop regional strategy and create nodes for regional co-operation. It may also be relevant to create a collective vision of the future. An example is the Leadership 2015 agenda of the leader firms within CESA (European Shipbuilders), which is a powerful tool to create focus and enthusiasm and to obtain resources. In a situation where there is a regional innovation system but the system is closed to the outside and the technology is specialised and outdated, it will be necessary to mobilise the community toward reorientation and to open up the networks to the outside. These examples of situations and possible innovation tools are illustrated in Table 121.

488

Part III - Innovation Theory Category Firmorientedsupport   Attraction Supportinfrastructure    Provideinformation   Support training, research, recruiting   Supportcollaboration 

Policy Financialsupportoffirms’projects Adviceandconsultingforindividualfirms Stimulationofleaderfirmdevelopment Policiestoattractoutsidefirmstothecluster Physicalinfrastructure Knowledgeinfrastructure(educationinstitutions) Specificserviceortechnologycentres Otherclusterorganisations Ontechnology Ongeneralbusinessfields Onmarket/exportfields Educationandtrainingprogrammes

Researchprogrammes mobilityschemes Networkingandcollaborationprogrammes Fostersocialinteraction

Table 120: Possible cluster policy instruments, adapted from (Isaksen & Hauge, 2002, p. 45) Typeofproblem Lackofrelevantlocalactors Lack of regional coͲoperation and mutualtrust

Possiblepolicytools Linkfirmstoexternalresources+acquisition Developregional"clubgoods"andstimulatecollaborativeefforts Creatingacollectivevisionofthefuture Regional industry specialised in Openupnetworkstowardsexternalactors+localmobilisation outdatedtechnology

Table 121: Typical innovation system barriers and possible policy instruments (Isaksen A. , 2001)

The impact of maritime leader firms In the study from the Dutch Maritime Network it is shown that the presence of leader firms may create externalities that are important for other companies and the growth of the cluster (Langen & Nijdam, 2003). The positive external effects are trade-offs from the behaviour or investments that the leader firms cannot charge a price for. Investments by leader firms with positive effects for other companies or institutions within a cluster can be financially in nature, as well as in the form of time and effort and the use of political effort. In the report from the Dutch Maritime Network a distinction is be made between network-related external effects and cluster-related external effects. The most important external effects from leader firm behaviour within the cluster are situated in the areas: innovation, internationalisation and labour market. The diagram shows this mechanism schematically.

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Part III - Innovation Theory

Networkrelatedexternalities: Ͳ Innovation Ͳ Internationalisation

Leaderfirm behaviour

Increasedcompetitive strengthofthecluster

Clusterorproximityrelated externalities Ͳ Training/education Ͳ Knowledgeinfrastructure Ͳ Organisationalinfrastructure

Figure 486: Leader firm impact on a cluster, adapted from (Langen & Nijdam, 2003) External effects through leader firm behaviour can be classified into two categories (Langen & Nijdam, 2003). The first category is unintended by-products of profitable investments of the leader firm. The second category is a purposeful strategy of the leader firm with the objective to improve not only the competitive position of the leader firm itself, but the suppliers as well. The general improvement of the quality of the supplier base facilitates the leader firms to stay ahead in the international arena. The referred study points out that leader firms have several positive effects on the Dutch maritime cluster (Langen & Nijdam, 2003): x x x x x x x x

Encourage and enable internationalisation; Improving the transfer of knowledge; Coordinate production networks; Expressing the most sophisticated demands; Creating standards/benchmark/strategic guidance; Creating and maintaining the organisational infrastructure; Improving the skills in the labour market; Creating reputation.

For instance, there is a danger that successful regional clusters get over-embedded in their cluster. By too much focused on their direct environment they may lose sight of the international competition. The comprehensive experience in the international market of the leader firms through their export position or through the production abroad may help local firms out on foreign markets. In other words, leader firms may assist SME’s to become more international companies. Also, leader firms may help assure and diffuse knowledge of technologies, markets and competitors from abroad to local firms. The risk of over-embeddedness of local firms can thus be mitigated.

490

Part III - Innovation Theory The leader firm has a very dense network and interaction with customers and suppliers. Therefore they can play an important role in the diffusion process within the cluster. The key competitive factor for almost any cluster is the efficient creation and transfer of knowledge on which innovation is based. Leader firms can play an important role in the translation of new knowledge into improvement or basic innovations of products or processes. The critical mass of leader firms makes them an ideal integrator of knowledge and networks of specialised suppliers. The leader firm also operates as a coordinator of production networks which stimulate the competitiveness of the whole network. Leader firms often place very high demands (specifications) on suppliers to develop new products or services. Through the leader firm’s role as lead user the supplier is enabled to invest in new technologies which may trigger innovations in the entire value chain. Leader firms are also very well positioned to benchmark the performance of the cluster companies with those in the rest of the world. This may help the cluster companies to focus on external competition and at the same time maintain a healthy level of internal competition. The quality of the labour market is vital for the development of clusters. The leader firms seem to be important in the process of upgrading the labour market through their investment in their own employees and through the standards they show and communicate through their networks. Also, leader firms often have a high level of outsourcing which means sharing critical knowledge with suppliers. This helps the suppliers with continues upgrading of their strategic choices; another element of this strategic guidance is the development of knowledge and operational expertise and the diffusion of best practices abroad. In case the total investment for the leader firm is too large, while a large part of the benefits arise with companies within the cluster, then a collective action might be necessary. A well-known example is specialised training and schooling institutions. The leader firm is able to create and maintain the organisational infrastructure for example by taking the initiative and help organise smaller companies. Often leader firms are involved in sophisticated activities in the national or global forefront. This may well create a positive reputation, which other companies in the cluster can benefit from.

Summary Industrial clusters are very important for regional and national competitiveness and public policy can have an important impact on the development of clusters. The research on cluster development seems to distinguish between five or six externalities of the cluster process: x

x x x x x

Reduced transaction costs of co-operation/specialisation (which for instance may create vertical disintegration of production, specialisation and create inter-organisational cooperation); Utilisation of complementarities in the use of input resources (which may creating scale of production and critical mass of demand necessary for producing a particular resource); Utilisation of substitution/local rivalry; Better access to skilled, specialised and experienced labour; Knowledge diffusion and learning caused by networking; Location specific social and cultural factors such as “industrial atmosphere”, conventions, informal rules and habits also stimulate the development of clusters (these factors may or may not be externalities of clusters). 491

Part III - Innovation Theory In order to be effective, public policy has to be based on appropriate knowledge. Otherwise the public initiative can be inefficient. The maritime clusters in Europe have very different structure and size and the distances between the national clusters are large. Although it is problematic to consider Europe as a maritime cluster, the maritime industry within the continent probably faces the same challenges and the question of a stronger integration of business strategy and public policy should be considered. It is difficult to apply policy instruments aimed at stimulating cluster processes. However, it is possible to provide some guidelines for how the problem can be reduced (Norman, 1998) Our study will increase and systemise the available information of maritime clusters. However, it is naïve to assume that all the necessary information will be provided trough research. There will always be uncertainties and information gaps which may lead the authorities in to the hands of special interests. In order to avoid this problem the authorities should chose instruments that are robust towards lack of information. This can be done by designing instruments targeted towards the sources of the market failure. Such a policy is important to implement regardless of the cluster. Another possibility is to design instruments that reveal how strongly private actors believe in the cluster effects. As argued, it is appropriate for public sector to do something in order to stimulate the cluster processes. However, according to the theory of asymmetric information it should be less than one would have done with the necessary information available.

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21.

EUROPEAN MARITIME CLUSTERS

In the previous chapter, the importance of clusters has been discussed from various theoretical angles. In this chapter, two cases are presented of Norway and Denmark that illustrate the various forms maritime clusters can take and also the many ways in which they can be organised. For example, in Norway, offshore and fisheries are not considered to be an integral part of its maritime cluster, while in the Dutch case these are. This chapter is based on two earlier publications, notably (Wijnolst, Jenssen, & Sødal, 2003) and (Wijnolst N. , 2006). These books contain other relevant cases from European countries30. The European Union, including Norway, if considered one country, is the foremost maritime power in the world in almost every sector of the maritime industry. For example, European shipowners control 40 percent of the world fleet and order on average 40 percent of the newbuildings. A quarter of all seaborne trade passes through European ports, while European shipbuilders have one of the highest turnovers in the world. European offshore companies are global technology leaders, supported by a world class research infrastructure. The European dredging sector is second to none. The importance of the European maritime cluster has recently been underpinned by the European Commission which adopted a comprehensive action plan (European Commission, 2007) as part of a revision of existing maritime policies, in which the strengthening of maritime clusters is one of the proposed actions: “Clustering works particularly well for many maritime businesses, as their activities (e.g. shipping, shipbuilding and ports) are often closely inter-related. The benefits are numerous, ranging from increased awareness of market developments via connections between research and technology development to the strengthening of employment through targeted training and better mobility. That is why the development of an integrated maritime policy that creates the right framework conditions for integrated maritime clusters can help them become engines of value creation and prosperity.” In the following sections, the Norwegian and Danish maritime clusters will be described. In the last section the enablers of dynamic maritime clusters are proposed.

21.1. The Norwegian maritime cluster By Erik W. Jakobsen31, as published in (Wijnolst N. , 2006)

Introduction The Norwegian coastline stretches more than 85,000 km, a distance more than two times around the world. Inland, the country is rocky and cut by deep fjords, making communication difficult. In ancient times, going places meant travelling by boat. Rich fisheries drew settlers to the coastal areas. The harsh environment and dependency of the sea made Norwegians good sailors. From the 9th century Norwegians made voyages to as distant places as America and Istanbul. The sea has always been a

30

 Information on European maritime clusters can be found on the website http://www.europeanͲnetworkͲofͲmaritimeͲ clusters.eu/ 31

MenonAS,Oslo

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Part III - Innovation Theory foundation for economic activity in Norway. Exports of natural resources, for example fish or wood, have been central to the Norwegian economy for centuries, creating a demand for ships to carry traded goods. This demand led to the building of one of the world’s largest fleets and a thriving national maritime industry. Its origin stems from the fact that the sea was an everyday part of life and demanded skills and technology development. Today, there are other ways of travelling than by sea and the industry that grew from the sea is now internationally oriented and less dependent on its origins. Still, however, the maritime industry is one of the largest in Norway. Norwegian shipping companies are among the world leaders in their market segments. Yards and equipment makers are competing on international markets. Service providers from financial to engineering services have established and developed alongside the industry. Common to them all is that competence is the core of their activities. An example is Det Norske Veritas (DNV), founded in 1864 and now a world leader in classification and one of the leading competence-based export companies in Norway.

The structure of the Norwegian maritime cluster The maritime industry in Norway constitutes a complete cluster, composed of three main groups; shipping, maritime services and ship industry. The cluster is illustrated in Figure 487, with the three main groups surrounded by facilitating associations, educational & research institutions and political bodies. Facilitating associations

Political bodies

¾ Ship building & repair ¾ Ship equipment ¾ Ship vehicles ¾ Retailers & wholesalers ¾ Naval architects

¾ Tankers, bulk etc ¾ Rigs and offshore ¾ Cruise & ferry ¾ Ship management

Maritime services ¾ Ship broking ¾ Ship finance ¾ Ship insurance ¾ Classification ¾ Legal services

Educational institutions

Shipping

Ship industry

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Figure 487: Structure of Norwegian maritime cluster, based on (Benito, 2000) Shipping The shipping segment is constituted by owners and operators of all kinds of vessels, e.g. oil tankers, bulk carriers, container ships, gas carriers, cruise ships and ferries. Drilling rigs and offshore vessels are also included in this segment. Norway is the location of several companies that are among the top three in their markets. Wallenius Wilhelmsen is the world’s largest transporter of cars, Teekay Navion Shuttle Tankers is the leading operator of shuttle tankers, SeaDrill is one of the largest drilling companies, and Farstad is the leading offshore supply company. 494

Part III - Innovation Theory Shipping is the core of the maritime cluster in Norway. This is not just because shipping it is the largest group, but also because shipping companies are the most international and instrumental in the internationalisation of the cluster. They are large and demanding customers, hence stimulating continuous innovation in the entire cluster. Maritime services A wide variety of more or less specialised service providers has developed alongside the sea transportation business. Shipping companies are frequent users of service providers in all parts of their value chain, as well as yards, ports and equipment makers. Shipping is a capital intensive industry with a cyclical nature and high financial risk involved. Hence, ship financing becomes a vital and knowledge-intensive activity. Norway is one of the largest ship financers of the world. DnB NOR and Nordea are among the leading ship financers, and both have increased their market shares in recent years. Nordea’s shipping division is the largest broker of syndicated loans to the shipping, offshore and oil services industries globally. From offices in Ålesund, Bergen, Oslo, Copenhagen, Gothenburg, Helsinki, London, New York and Singapore, they provide a diversified range of banking services to their worldwide group of clients. Nordea’s shipping portfolio is diversified into practically all market segments, like bulkers, gas tankers, cruise ships, ferries, rigs and offshore service ships. At the end of 2003 the bank had total commitments of US$ 9.5 billion, making them the 4th largest lender to the industry. Since July 2003 a global syndication unit is established “in house” in Oslo P&I clubs of global reputation The market for ship insurance is relatively concentrated with a few players operating on a global scale. One of the leading insurance companies (P&I clubs) of the world, Skuld, is operating globally from it’s headquarter in Oslo. In addition to its head office in Oslo, Skuld has offices in Copenhagen, Bergen, Piraeus and Hong Kong. As a mutual association, the club is owned and controlled directly by its members. Established in 1897 in Oslo, some 40% of the tonnage entered continues to be Scandinavian-controlled, reflecting the club’s traditional balance between Scandinavian and nonScandinavian business. Other big markets are Western European countries, Russia, Singapore, China including Hong Kong and the United States. Greece and Asia are perceived as key growth areas. World class ship brokers Shipbrokers are the intermediaries in four markets - freight, sale and purchase, newbuilding and demolition - and link sellers and buyers of ships, as well as shipowners to charterers and yards. The broker’s task is to have a full overview of which cargoes or ships are available, value them, and keep up with market trends. Norway hosts a large number of shipbrokers. In Oslo alone, there are approximately 180 companies registered, though a vast majority of these are small firms. The two largest Norwegian-based players are Fearnleys and R.S Platou. Fearnleys, a fully-integrated globally oriented company, is the second largest shipbroker in the world after Clarksons. The company is represented by offices in both Asia and South-America. Their customer portfolio embraces both large Norwegian and international shipowners. The company is divided in several areas of activities, offering a wide spectrum of services. Chartering is the traditional broker’s role and is a central part of the company. The area is divided along the main trade areas; gas, tank and bulk. Fearnley also advises on acquisitions and sale of new and second-hand ships. In addition, Fearnley operates a consulting firm and a research 495

Part III - Innovation Theory department. Having sales and acquisitions competence, financial competence, chartering and research in-house, Fearnleys is a fully-integrated service provider of brokerage services. Legal services Legal services in the maritime sector are routinely required for a wide range of matters including charter parties, shipbuilding, finance, commodities, energy, insurance, cargo, collision, salvage, general average and pollution. To fulfil these purposes requires specialised legal competence. Hence, the presence of the Department of Maritime Law at The University of Oslo, one of the leading academic environments in the world within maritime legal issues, is an important strength of the cluster. Other vital actors are Wikborg-Rein and Nordic Defence Club. DNV - 17 percent share of the world ship classification market DNV (Det Norske veritas) is one of the oldest and most important actors in Oslo’s maritime cluster. The company is one of four large ship classification companies in the world, and its’ market share has grown significantly in recent years. Ship classification is a system for protecting life, property and the environment. It entails verification against a set of requirements during design, construction and operation of ships and offshore units. DNV also offers several other services for managing risk; certification, consulting, software solutions and asset operations. The company is extremely knowledge and R&D intensive and is one of the cornerstones of the maritime cluster, both in terms of competence and size. Shipbuilding industry Norway has long traditions in shipbuilding, and still there is substantial shipbuilding activity located along the Norwegian coast line. The yards have, however, become fewer and more specialised. The largest number of ship building yards is concentrated in the Aker Yards company, while rigs and other offshore constructions are built by another Aker company, Aker Kværner. Other important yards are Ulstein, Kleven Maritime, Grenland Group and Fjellstrand located in different parts of the country. Equipment assembled in newbuilding ships are usually designed and produced by specialised suppliers. In Norway equipment producers are available in a variety of areas; like vehicles, propulsion, pumping systems, navigation systems, paint, heating systems, furniture and positioning systems. Rolls Royce Marine, with more than 2000 employees in Norway, is the largest maritime equipment producer in Norway. Frank Mohn and Kongsberg Maritime are other prominent actors, all of them have a global focus and substantial international market shares.

The economic importance of the maritime industry in Norway The importance of an industry may be assessed in several ways, like employment, profitability, productivity and knowledge externalities. There are several characteristics of the maritime industry that make it one of most important industries in Norway: It is large, it is geographically dispersed, it is advanced and internationally competitive. To draw the boundaries around an industry and measure its’ size is not an exact science. Official statistical nomenclatures seldom fit with industrial realities. Through a number of research projects the population of the maritime industry of Norway is built bottom-up by key informants in nine different regions (Jakobsen & Goldeng, 2005). Through this method the boundaries of the industry reflects the variation in structure and dynamics of each region. While Rogaland Sør (with Stavanger as the core) is

496

Part III - Innovation Theory highly offshore dominated, BTV (the south-east region) is more ICT oriented, and Oslo covers most of the maritime services providers. Value creation The value creation of an industry measures the industry’s contribution to the GDP of its host country. Value creation is the sum of value added by the entire industry. It covers the payment to all stakeholders of the companies; wages to the staff; interests to the creditors; tax to the government and residual profits to the owners. Value creation of the maritime industry in 2004 amounted to 63 billion NOK32, a modest increase of 8 percent from the year before. Figure 488 reveals the development of value creation between 1994 and 2004. Value creation showed a steady growth between 1994 and 2001, with a severe setback in 2002. In this year international markets were down and macroeconomic conditions in Norway deteriorated due to a strong currency, high interest rates and unrestrained wage increases. In 2003 the tide changed, though until 2004 value creation had not fully recovered. Furthermore, growth may not be as strong as the boom in international markets indicates, as a substantial part of the growth took place outside Norway, because of the unfavourable political conditions and uncertainty on their improvement (Bakka Jr., 2006).

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Figure 488: Value creation in the maritime industry of Norway Despite substantial growth in value creation, the maritime industry has not kept up with growth in Norwegian industries in general, as illustrated in Figure 489. Actually, the maritime share of total value creation in the Norwegian business sector, reached a peak in 1998 with 12 percent. In 2004 the share had fallen to 7 percent. This is due to three factors: strong growth in oil and gas prices and in other export commodities; high domestic demand for services; and finally lack of attractiveness for Norway as a host for maritime activities.

32

TheconversionrateoftheNorskeKronetotheEuroisNOK=€0,125

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Figure 489: Share of value creation Shipowners constitute the largest group of companies in the maritime industry in Norway, with 45 percent of maritime value creation, see Figure 490. In the last 10 years, the shipowners’ share has increased from 30 percent, primarily at the expense of ship building yards. Their share has dropped from 22 to 16 percent. Equipment producers, however, have been able to keep their share, while maritime service providers have suffered a modest loss. Shipowners are the most capital intensive part of the industry, with gross profits constituting one third of their value creation. Employment The maritime industry in Norway is a substantial employer, with around 90.000 workers onshore in 2004. However, the numbers were even higher some years ago, with a peak in 2000 of 107,000 people employed. Figure 491 shows how the 90.000 people of the industry are divided over the nine maritime regions. Rogaland South (the Stavanger area) and Oslo are the two largest maritime regions in Norway. However, the importance of maritime activities differs dramatically by region (Figure 492). In Haugaland/Sunnhordland wages paid to employees in the maritime industry make up 37 percent of all wages paid in the region. Also in Møre and Romsdal, an important ship manufacturing region, maritime firms pay out more than one fourth of all wages. Summarising, the maritime industry is a large and important industry in Norway. In some regions, maritime activities are the cornerstone of industrial activities. The industry has been continuously adapting to new demands, technologies and environmental conditions. Today a substantial share of maritime activities, shipping, as well as manufacturing and service providing, are oriented towards the oil and gas industry. The ability to transform to new challenges is one of the vital strengths of the maritime industry in Norway.

498

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25000 20000 15000 10000 5000 0 Ͳ5000 Shipowners

Yards Wages

Equipment

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Figure 490: Value creations by sector, average 2002-2004

Trøndelag BTV Agder NorthernNorway Haugeland/Sunnhordland MøreandRomsdal Hordaland Osloregions RogalandSouth 0

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Figure 491: Number of employees by region, Average 2002-2004

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Figure 492: Maritime share of total wage costs

Key competitive factors of the industry The maritime industry is the only industry in Norway that is both global and competence based. Phrased differently, the maritime cluster in Norway consists of global firms, which means that they operate in a global market place, but from a local footing. Companies are located in Norway to be part of the dynamic and innovative environment of shipping companies, financial service firms, brokers, ship consultants, legal firms and underwriters. Maritime linkages Of the internationalised industries in Norway, maritime is the most decentralised geographically. While oil & gas is concentrated around Stavanger and ICT around Oslo, maritime business is spread along the entire coast line from the south east to the north. There are, however, important differences in the maritime structure in each region, and it seems like the variation has increased in recent years (Hervik & Jakobsen, 2001). This geographical specialisation, combined with strong national and international linkages, is an important competitive strength of the maritime industry in Norway. The research project European Maritime Benchmark (Jakobsen & Mortensen, 2003) included a comprehensive study of the cluster linkages in five maritime countries. Figure 493 shows the percentage of companies with no or weak maritime linkages. In Norway 30 percent of the manufacturing companies, and less than 20 percent of service companies, have no or weak links with other maritime companies. In comparison, for Danish manufacturing companies this is more than 75 percent. The difference illustrates that the maritime companies in Norway are tightly linked, particularly on a regional level, but also on a national level. In addition, an increasing number of Norwegian companies have branches, alliances and other relationships with companies in a large number of countries, see also (Jakobsen & Mortensen, 2003). The completeness and the cluster linkages are probably the strongest asset of the Norwegian maritime industry.

500

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UK Norway Netherlands Germany Denmark 0%

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Figure 493: Share of maritime firms with no or weak linkages to other maritime firms Innovativeness (not referring to R&D) The Norwegian maritime industry is the source of many important innovations, for example in ship design, navigation, and advanced equipment. Norway seems also to be quite attractive as a location for R&D (Jakobsen & Mortensen, 2003). Thus, it seems reasonable to expect maritime companies in Norway to be quite R&D oriented. However, compared with Dutch, German, Danish and British firms, Norwegians are the least R&D intensive, as revealed in Figure 494. The innovation level is, however, quite high. This seems to imply that Norwegian companies get higher returns from their R&D investments than companies in the other countries do. A possible explanation for this is that the national innovation pressure in Norway is higher, particularly from the offshore sector, but also from the fishery fleet. Another explanation may be that innovation activities in the Norwegian cluster are different from the other countries; more specialised R&D suppliers, stronger national cluster linkages and better communication is leading to a more rapid diffusion of the innovations. Actually, half of the Norwegian companies cooperate with other firms on R&D, and the supplier/buyer cooperation is on innovation activities, a substantially higher share than the other countries. This, combined with the fact that Norwegian firms to a larger extent participate in external R&D projects and to a lesser extent conduct R&D in-house, again indicates that the primary strength of the maritime industry is not in the single companies but in the cluster as a whole. A last factor to contribute to this conclusion is that Norwegian companies are more satisfied with the quality of maritime research institutions than companies in all four other countries. Hence, strong cluster linkages seem to improve the innovation effects of R&D. Preparing for a competence based future Although the innovation level in the maritime industry in Norway is still high, there is a growing understanding among the companies that they have to become more knowledge-intensive by placing more emphasis on R&D and competence development. Figure 495 shows how investments in human resources have been neglected. Almost half of the Norwegian firms invests less than 1 percent of their 501

Part III - Innovation Theory revenues in competence development. The corresponding share among German yards and equipment producers is 0 - zero. 30%

8% 7% 20%

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Figure 494: R&D invents and level of innovativeness

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Figure 495: Percentage of companies investing <1% of revenues on competence building Recently, several initiatives have been taken to catch up with the R&D and knowledge investments in other leading maritime countries. For example, NSA (Norwegian Shipowers Association) has launched a cluster-based maritime trainee program. Twenty-one maritime firms, covering shipping, 502

Part III - Innovation Theory drilling, finance, broking, law, shipbuilding, classification and equipment, participate in this program. The program has been an enormous success, with 4,000 applications from recently-graduated masters in business, technology and law. Twenty-five trainees who passed the selection have to go through the first of two years, and a new round of the programs will start after the first series is completed. The trainee program is particularly interesting because it is a cluster initiative, both building on and strengthening the linkages of the industry - without any kind of governmental involvement. Maritime Cluster policy in Norway Also, Norwegian politicians have taken initiatives to improve the competitiveness of the maritime industry in Norway. Marut, established by the cluster organisations in cooperation with several governmental bodies, is the umbrella name of a number of actions aiming at stimulating competence, R&D and innovation in the industry. Marut covers seven different areas, including coastal gas, seafood and maritime ICT. Inspired by insights from cluster theory it aims to stimulate innovation by building arenas for cooperation and communication. However fruitful these initiatives are, the long-term competitiveness of the maritime industry in Norway depends on the attractiveness of Norway as a host for maritime businesses. The attractiveness is a function of several factors, like the availability of competence and specialised and goods and services, but also on the policy conditions of the country compared with alternative locations. This is illustrated in Figure 496, which shows a strong relationship between companies’ perception of public policy and their location preferences. In 2003 Norwegian companies were less satisfied with their domestic head quarter location, and together with Germany, they were least satisfied with the public policy of their country. 115

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Figure 496: Share of national firms versus policy index (Jakobsen & Mortensen, 2003) In the spring of 2004 the government presented a white paper on the future of the maritime industry. The white paper concluded with an ambition to sustain and hopefully improve the competitiveness of the maritime industry in Norway. The most controversial political issues, subsidies for Norwegian 503

Part III - Innovation Theory seafarers and the company tax for shipowners were left unresolved. The first of these issues reached a solution in the Parliament, while the latter was evaluated by an expert group working on mandate from the Ministry of Finance. The group concluded that the special treatment of shipping companies lacks roots in economic theory and suggested that shipping companies should be subject to ordinary company taxation. Their main argument is that cluster characteristics or international capital mobility is not a sound argument for tax subsidies. While writing this, the jury is still out, and the future of shipping and maritime activities in Norway is uncertain. Hopefully, Norway will continue its’ role as one of the most innovative, environmental friendly and leading maritime countries of the world.

21.2. The Danish maritime cluster By Mogens Schröder Bech33, as published in (Wijnolst N. , 2006)

Introduction Denmark has for centuries been a shipping nation and almost from the start it sailed the European as well as overseas waters. Traditionally there has been broad political consensus on supportive framework conditions for shipping in Denmark and the framework has been built in a close partnership with the industry. For the globalisation process, shipping is a prerequisite. This counts for outsourcing of production, more global consumer demands, and transport of energy and raw materials. As shipping has become an international area of growth, the Danish government has put more and more emphasis on development of the framework conditions, trying to keep a balance between stability and adjustment. The big oil spill accidents at sea and the vulnerable Danish Straits have created a growing public concern on shipping and safety. The Danish response has been twofold: with a more intensive use of pilots, development of surveillance systems and navigational aid on the one hand, and putting more emphasis on the development of quality shipping through IMO and EU on the other hand. Remarkable has been the development of cluster thinking, which started in the nineties and resulted in the restructuring of the Danish maritime education system (Danish Maritime Authority, 2003). In thrive for the development of the framework conditions for the maritime cluster, in 2005 a comparison between Denmark and Germany, The Netherlands, UK, Isle of Man, Greece, Cyprus, Singapore and China was made. The analysis is based on desk research and interviews with governmental agencies, private companies, and other organisations in the respective countries. The results have been summarised in a SWOT analysis showing strengths, weaknesses, opportunities and threats. The analysis has been the starting point of an action plan, launched in the beginning of 2006 by the Danish minister for Economic and Business Affairs (Ministry of Economic and Business Affairs, June 2006), aiming to support growth in the Danish maritime cluster. The action plan has three objectives: x

33

Denmark should aim to become the most attractive location in Europe to operate international quality shipping;

DanishMaritimeAuthority

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Conditions for growth, dynamics and competitiveness across the Danish Maritime cluster should be enhanced; Health, safety and environment measures onboard of ships should be maintained and improved, so that Denmark will develop as a leading maritime nation with an international focus and quality shipping.

This paper is divided into five sections: The Danish maritime cluster; shipping; SWOT analysis; health safety and environment; and the action plan. The Danish Maritime Cluster The cluster basically comprises the industries related to transport by sea and exploitation of resources on the seabed. In addition, the Danish maritime cluster is concentrated around common user groups of transport purchasers, trade between enterprises, exploitation of common technologies, and the use of the same workforce. The various industries that make up the cluster are illustrated in Figure 497, and include core industries, related and secondary industries, and supporting institutions.

Users

Secondaryindustries Ͳ Suppliers Ͳ Subcontractors

Coreindustries Ͳ Shipping Ͳ Maritimeservices Ͳ Shipbuilding Ͳ Equipment Ͳ Offshoreextraction Relatedindustries Ͳ Navy Ͳ Fishing Ͳ Leisure

Supportinginstitutions Ͳ Government Ͳ Internationalorganisations Ͳ Businessorganisations Ͳ Education Ͳ Universities/research/ knowledgesharing

Figure 497: Danish maritime cluster The analysis of the maritime cluster limits to core industries and supporting institutions. Related industries such as fishing, the navy and leisure boating have not been considered, neither industries that work with renewable energy at sea. Statistical data are only available for shipping and shipbuilding, and it has not been possible to carry out specific statistical surveys. It was therefore necessary to select representative industries (proxy industries) for other industries in the cluster. The key economic figures for the maritime cluster are shown in Table 122. The maritime cluster accounts for just over six percent of the total value added in Denmark. Offshore industry has a large value added but uses a very small labour force. If one excludes this industry, shipping accounts for 34 per cent of value added and 20 per cent of the labour force, while the other industries turn out to be quite labour intensive. This reflects the highly capital-intensive nature of shipping. 505

1,955 2,369 244 1,170 3,841 9,579 152,918 6.3

14,815 32,460 6,524 20,626 1,287 75,712 2,782,306 2.7

Exportshare(%)Ͳ directandindirect

1,944 2,363 244 1,167 3,836 9,553 152,833 6.3

Directexports (MillionEuros)

11,664 4,391 986 2,520 4,400 25,130 302,307 8.3

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GDPatfactorcost (MillionEuros)

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GrossValueAdded (MillionEuros)

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11,26934 n/a. 115 2,020 2,362 n/a 83,899 17.6

96.3 n/a 54.8 83.6 79.6 n/a 36.9 n/a

Table 122: Key figures for the maritime cluster 2002 The maritime cluster is far more export-oriented than other Danish industries. In order to assess the complete significance of the maritime cluster for Denmark, the impact on other industries must be calculated. Table 123 shows that the maritime cluster has a significant indirect impact on the Danish economy. The strongest interdependency in the Danish Maritime Cluster is the socio-economic element, education and a common labour market in particular. The fact that maritime officers return to land after serving a certain period at sea and start working in the shipping companies’ land-based organisations and in the other maritime industries, is seen as an important driver for growth. Innovation is also seen as an important driver for greater interaction. For many maritime enterprises, user-driven innovation is the dominant element. Here, it is the dialogue between suppliers and the customer that contributes to the development of processes and products. In other areas, emphasis is on research-driven innovation - where research is the focal point. Cluster enterprises increasingly highlight the need to develop the right skills, if they are to continue operating from Denmark. This is necessary in order to manage the innovation processes. A broad range of enterprises is encompassed by the cluster industries. This applies in terms both of size and representation within the various industry segments, and an export focus is an important factor. With regard to the medium and large enterprises, in addition to sales and production abroad establishment of global service schemes are often a prerequisite for market participation. Several Danish maritime enterprises are seen as leaders within their area.

34

Approximated,assourcesarenotidentical.

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Shipping Maritimeservices Shipbuilding Equipmentindustry Offshoreextraction Totalformaritimecluster

%ofDanisheconomy

Direct Directandindirect Direct Directandindirect Direct Directandindirect Direct Directandindirect Direct Directandindirect Direct Directandindirect Direct Directandindirect

Production(Million Euros) 11,664 12,210 4,391 6,083 986 1,541 2,520 3,562 4,400 4,704 23,961 28,099 7.9 9.3

Employment (‘000) 14,815 18,896 32,460 44,765 6,524 10,932 20,626 28,800 1,287 3,521 75,712 106,914 2.8 3.9

Table 123: Direct and indirect production and employment 2002 In 2005, the Danish Government established the Danish Maritime Trust Fund, which is intended to provide financial support for initiatives and measures that develop the maritime cluster. Research, development and innovation are key focus areas for the Trust Fund. The Trust Fund owns a number of shares in Danish Ship Finance, a private shipping finance company, and the dividends from these finance the Foundation's grants. Denmark does not have a unified maritime cluster organisation. The work is divided between the Maritime Development Centre of Europe (MDCE), the Association for Promotion of Danish Shipping and the Danish Society for Naval Architecture and Marine Engineering. The strength of this structure is the voluntary commitment in each association, through coordination via a common secretariat. The Danish Maritime Authority also works closely with the three associations and the secretariat. Activities revolve around professional and interdisciplinary network building, conferences, seminars, knowledge-sharing, innovation and information activities. Financing derives from membership contributions and foundations, etc. The boards of these associations are made up of leading figures and directors within the maritime industries, the transport sector and trade associations. Danish Shipping Danish shipping is one of the strongest players on the global market, and forecast gross earnings for 2005 are 18.2 billion Euros. The net foreign currency earnings from Danish shipping in 2004 were 2.6 billion Euros, making it a vital contributor to the Danish balance of payments surplus. Compared with OECD countries Denmark had the second largest export earning from shipping, only surpassed by Japan.

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Figure 498: Gross earnings from Danish shipping in the balance of payments

The merchant fleet Trends in the owner-controlled fleet between 2001 and 2005 are shown in Table 124. There has been a global increase in tonnage of 17 percent, while Danish tonnage has only risen by 14 percent. At the end of 2005, almost 9.5 million dwt was registered (Table 124). Despite a slight decline in the ownercontrolled fleet between 2001 and 2004, there was an increase of more than 7 percent in the Danish registers in this period. In 2005 there were increases in both the registered and owner-controlled fleets. Denmark was the world’s 17th largest flag State at the end of 2005, but the 11th largest based on vessel ownership.   Controlled Registered

2001 Number DWT 608 16,524 461 8,131

2004 Number 525 466

DWT 16,274 8,774

2005 Number 643 388

DWT 18,990 9,443

Table 124: The Danish Fleet (thousand dwt)35 The difference between earnings and tonnage is due to the fact that Danish shipping companies largely use chartered ships. At the end of 2005, the total Danish chartered tonnage is estimated at 30 million DWT. Given that much of Danish shipping operates in high-value markets, it is estimated that up to 10 per cent of the total turnover from global maritime goods transport is linked to Danish-owned or controlled ships.

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Shipsover1000DWT,includesfiguresforDIS(DanishInternationalShipregister)andDAS(DanishShipregister)

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Part III - Innovation Theory The most popular foreign register for Danish shipping companies is Singapore, accounting for 14 percent of tonnage. Denmark, Singapore, Norway and the UK account for 79 percent of Danish registrations. Hardly any foreign shipping companies use the Danish International Ship Register (DIS). The Danish new construction programme of 14 million DWT, as of 1 January 2006, is the fourth largest in the world. This corresponds to 74 percent of the Danish owner-controlled fleet at the end of 2005. The three largest new construction programmes are in Japan (39 million DWT), Greece (20 million DWT), and Germany (16 million DWT).

Economic framework conditions Taxation systems for seafarers and shipping companies are vital factors in shipping operations. This means there is international competition in this area. The latest major change in the Danish economic framework conditions was the tonnage tax system in 2002. Margins on the purchase and sale of ships and pool fees are liable to ordinary company taxation in Denmark. In most of the analysed countries these incomes are under the tonnage tax system or exempted for tax. Danish taxation for seafarers is fully competitive with the other countries.

Recruitment and education There have been problems recruiting staff for the Danish merchant fleet for a number of years, while at the same time initiatives have been implemented to promote recruitment. As mentioned in the introduction the Growth Strategy for Shipping - Competences and Growth meant a restructuring of the Danish maritime education system. As a result the maritime education institutions were consolidated in fewer units and a bachelor degree for maritime officers and a business-oriented master education for maritime officers were established. Furthermore, the Institute for Maritime Research and Innovation at the University of Southern Denmark was founded and paved the way for commercial and scientific maritime research.

Maritime administration The Danish Maritime Authority is part of the Danish Ministry of Economic and Business Affairs. The Authority works to create competitive conditions for the Danish merchant fleet in open and extended markets, with a high level of safety, security, health and environmental consideration. It also focuses on close cooperation with the maritime industries. Exploitation of the benefits of IT technology is a major focus area, in order to make this cooperation and working procedures as efficient as possible. An important activity of the Danish Maritime Authority is the prevention of industrial injuries, including occupational accidents, work-related diseases and over-exertion among employees of the Danish merchant fleet. The activities of the authority aim to prevent crews from being exposed to unnecessary risks and health impacts. The responsibilities of the Danish Maritime Authority include both compliance and policy formulation, and active participation to protect Danish interests in international forums such as the EU, IMO, ILO and WTO. Analysis results - SWOT The SWOT analysis in Table 125 is a summary of the results from the analysis in which Denmark was compared with several other countries, and should be seen from a Danish perspective. The review of strengths (S) and weaknesses (W) in the Danish Maritime Cluster summarises the internal conditions 509

Part III - Innovation Theory that form the basis of Denmark’s current position. The exposition of opportunities (O) and threats (T) focuses on new factors that could have vital significance for future growth and employment. The analysis covers both internal conditions in the maritime cluster and external conditions relating to international competition and market trends. The basic conclusion is that Denmark is already a leading maritime nation. But a number of initiatives can be set in motion to counter the threats and weaknesses the maritime cluster in Denmark is facing, and to exploit the opportunities the future holds. SWOTͲstrengths - Stableframeworkconditionswithregular adjustmentsandoptimisations - Veryhighgrossearningsfromshipping - Theaverageageofthefleetissignificantlyless thantheworldaverage - Danishshippingenjoysagoodinternational reputation - Anumberofleadinginternationalcompaniesin shippingandequipmentproduction - AwellͲqualifiedworkforce - Agoodeducationtradition - Asmoothlyoperatingmaritimeauthoritythat servesasasectorauthority - Acompetitivetaxationsystemforshipping - Goodcooperationbetweenshippingcompanies andthemaritimeadministration  SWOTͲopportunities - Attractmoreshippingcompaniesandother maritimeactivitiestoDenmark - IncreaseaccesstogrowthmarketsinChina,India andSouthAmerica - Increasesalestoshipbuildingindustrygrowth markets - Increasedstrategicresearchanddevelopment activity - Furtherstructuraldevelopmentinthesmall enterprisesintheDanishMaritimeCluster - GreatergovernmenteffortstopromoteDanish maritimeinterests - Greaterinternationalfocusonqualityshipping 

SWOTͲweaknesses - Denmark’sdecliningrankingininternationalPort StateControllists - GrowthintonnageintheDanishͲownedfleetis lowerthanintheothercountries - LimitedcooperationwithintheDanishMaritime Clusterwithregardtorecruitment,education, careerpaths,andresearch,developmentand innovation - Theeducationlevelforcharterersistoolow - Lackofpublicawarenessofthegoodeducationand careeropportunitiesintheDanishMaritime Cluster,leadingtorecruitmentproblems - Danishnationalrequirementsforshipping

SWOTͲthreats - Insufficientflowofnavalarchitectsandother skilledlabourintothesector - Competitionfromcountrieswithlowerwages - CrewexpensesonDanishshipsforDanesand foreignersarehigherthanforcomparableregisters - Lackofawarenessofthesignificanceofshipping forgrowthandemploymentinEurope

Table 125: Summary SWOT analysis Health, safety and the environment Health, safety and the environment are central in the Danish work with quality shipping, both nationally and internationally. Having a level-playing field for all parties is vital to the development of competitive international shipping. Given that international conventions and EU regulations are 510

Part III - Innovation Theory increasingly supporting Danish viewpoints in relation to quality shipping, the Danish Maritime Authority’s primary line has become to abolish national requirements, or to seek to incorporate these into the international conventions so that they apply to all vessels. The Danish Maritime Authority, in cooperation with the industries, is in the process of completing a major review of the Danish regulations in the areas of health, safety and the environment. International cooperation in relation to Port State Control is important for the work of the Danish Maritime Authority. The detentions under the various control regimes provide an important indication of whether individual flag States are fulfilling their responsibilities in relation to health, safety and the environment in a responsible manner. Denmark performs significantly better in relation to the Tokyo MoU than the Paris MoU. In relation to the Paris MoU, there has been an improvement compared to previous years, but the position is not satisfactory. Out of the eight study countries and Denmark, only China was on the US Coast Guard’s list of quality shipping nations at the beginning of 2006. Denmark lost its place on the list in 2005. Primarily smaller, older dry-cargo vessels are detained. The problems can be attributed to two causes. Firstly, some shipowners have difficulty, technically and operationally, honouring the international requirements placed on shipping today. Secondly, shipowners fail to appreciate that detentions represent not only a temporary problem for the shipping company in question (i.e. that the vessel is tied up), but also a problem for all Danish registered vessels and their ability to operate internationally with the greatest administrative ease. The detentions have been receiving increased attention from the Danish Maritime Authority, in part through consistent follow-up and an increased focus on information and experience exchange. Action plan The basic aim of the action plan is to help ensure that conditions for growth in the Danish maritime cluster remain attractive. This growth will not happen automatically. Globalisation and international competition are placing greater demands on shipping companies and the other enterprises in the Danish maritime cluster. It is essential that the framework conditions for the industry always remain attractive and are regularly adapted. It is also essential to have a maritime administration that can match the regulatory needs of the industry, both nationally and internationally. This is the only way that Denmark can retain and improve its position as an international maritime nation with quality shipping and commercial efficiency. This is necessary in order to create growth in the Danish Maritime Cluster. As mentioned in the introduction, there are three central objectives for Danish initiatives: 1. Denmark should strive to become the most attractive place in Europe to operate international quality shipping; 2. Conditions for growth, dynamics and competitiveness across the entire Danish Maritime Cluster should be enhanced; 3. Health, safety and environment on ships should be maintained and improved, so that Denmark develops as a leading maritime nation with an international focus and quality shipping. Based on these objectives, and the analysis of the framework conditions in Denmark compared with a number of other leading seafaring nations, the Danish Government has prepared an action plan that aims to improve the framework conditions for the Danish Maritime Cluster. The action plan will realise the objectives through seven focus areas: 511

Part III - Innovation Theory 1. 2. 3. 4. 5. 6. 7.

Better education and greater flow of skilled labour into the cluster; Research, development and innovation in the Danish Maritime Cluster; Taxation and development financing; Reduced administrative burden and fewer Danish national requirements; Promotion of Danish influence and market access; Greater focus on quality shipping; An efficient, service-oriented and modern administration.

Better education and greater flow of skilled labour into the cluster The Danish Government will continually monitor the skills needed by the maritime industries, to ensure educational courses are up-to-date and correctly targeted. To increase the flow of qualified young people into the maritime industries, greater recruitment and information initiatives will be implemented regarding career opportunities and patterns in these industries. Efforts will be made to increase the inflow of qualified maritime officers into the merchant fleet via a retraining program for navigators in the fishing fleet. As from 2006, the Danish Government also permits qualified maritime officers from EU and EEA countries to become masters on Danish ships. Continuing training courses available to masters from smaller vessels will be reviewed and modified. The Danish Government will initiate an analysis of the skills required by the shipping companies’ onshore organisations. It will also consider the need for bachelor and diploma level courses in the area of shipping and chartering, and a technical master's degree in addition to the maritime officer courses.

Research, development and innovation in the Danish Maritime Cluster Work will be initiated to establish an overall strategic, business-oriented platform for research, development and innovation in the technological area of the maritime cluster. This will take place in close cooperation with the cluster and research, pro-active knowledge-sharing and educational institutions. As part of this process, a national research and development programme has been initiated in the area of maritime technology. The programme has been developed in cooperation with the Technical University of Denmark (DTU) and Force Technologies. The programme aims to ensure that Denmark continues to maintain advanced research in the area of maritime technology. An entrepreneur project will be established which aims to make it easier to start and survive as a new entrepreneur in the Danish Maritime Cluster.

Taxation and development financing Analyses will be initiated into the opportunities for expanding tonnage taxation to include taxation of pool fees paid to the shipping company that manages a given pool, tax on profits from the sale of tonnage-taxed vessels, and taxation on cable-laying ships. These analyses will be carried out during 2006. The Danish Government, in cooperation with the shipping industry, will also investigate the options for development financing based on private capital for smaller vessels. The intention is to create a better foundation for renewing the fleet of smaller vessels.

Reduced administrative burdens and fewer Danish national requirements In order to support the international competitiveness of Danish shipping, a task force has been appointed by the Danish Maritime Authority, involving participation from the maritime industries. The purpose has been to review Danish national requirements and assess whether there continues to be a 512

Part III - Innovation Theory need for these. It has already been decided that a number of national requirements can be abolished. In the case of some national requirements, submissions will be made to international organisations proposing that these be incorporated into international conventions. As part of the Danish Government’s process of reducing administrative burdens, the Minister for Economic and Business Affairs has appointed a committee focusing on maritime administration. The committee comprises representatives from the Danish Maritime Authority, other government authorities and the maritime industries. The goal is to achieve a significant reduction in administrative burden.

Promote Danish influence and market access Greater efforts are needed in international organisations such as IMO, ILO, WTO and the EU to promote quality shipping and open new markets. There is also a need for greater Danish focus on the largest foreign markets, such as North America and China, and the new growth markets in Asia and South America. In collaboration with the maritime industries and the Danish Export Council under the Royal Danish Ministry of Foreign Affairs, greater efforts will be made to promote export and investment opportunities for maritime industries and attract investment to Denmark. The Danish Maritime Authority will offer shipping companies that are not familiar with the procedures of the Danish authorities a key account manager. A “start-up kit” will be prepared for foreign shipping companies. The kit will provide rapid insight into the most important issues relating to registration in the DIS, and hence support foreign shipping companies in choosing a register.

Greater focus on quality shipping Efforts to improve Denmark’s position on certain Port State Control lists must be increased, as a detention is not only a problem for the shipping company in question, but for Danish shipping in general. Broad initiatives will be introduced, including extraordinary audits for shipping companies after a detention or accident, as well as seminars and conferences, etc. Master meetings will also be arranged for smaller vessels, involving participation by several shipping companies and the Danish Maritime Authority. The aim of these will be to widely disseminate information on experiences and initiatives to achieve safe shipping operations. To ensure greater safety in Danish territorial waters, proposals will be made to the IMO regarding bridge watch alarms and blood alcohol limits at sea.

An efficient, service-oriented and modern administration The Danish Maritime Authority must be further developed as an efficient, service-oriented and modern administration with one-stop-shopping that makes it easy for shipping companies to run a business in Denmark. There must be the option for self-service facilities and electronic solutions. During 2007, it should be possible for almost all vessel ownership registrations to be processed electronically, without using paper. The aim is to eliminate the waiting time for Danish shipowners, banks, and lawyers, who should be able to report electronically a change of ownership or a new mortgage deed, etc. A number of further digitalisation projects will be initiated, and clients will have the choice of verbal or written information in Danish or English.

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Part III - Innovation Theory The terms of reference for the Danish Maritime Authority will be extended to cover Danish-operated ships, to support the activities of the shipping companies in this area. Assistance will cover whatever problems they might have in connection with navigation, etc., on a user pays basis. Assistance must be rendered in a way that appropriately divides the tasks with the ship’s flag State and the port states.

Regular monitoring In order to achieve the growth objectives set for the Danish Maritime Cluster, maritime activities in Denmark must increase at a faster rate than in the other European countries. The following indicators have been put forward to measure this: x x x x x x x x x x

Value Added; Export earnings; Employment; Nationally registered fleet - total and by segments; Average age for the Danish registered fleet - total and by segments; Owner and operator controlled fleet - in total and by segments; Average age for the owner-controlled fleet - in total and by segments; Changes in gross earnings from chartered ships; Danish shipowners’ new construction orders; Quality shipping - few detentions.

The aim of the indicators is that they should together provide a picture of the changes in the sector. Priority has been given to analytical clarity, and to finding indicators that should be measurable and easy to use. Denmark must have the highest percentage increase in the largest possible number of the above 10 indicators in order to achieve the goal of growth in the maritime cluster. The measurements will be carried out annually. It has not been possible to identify equivalent indicators for other industries in the maritime cluster.

21.3. Performance indicators and cluster enablers In this section cluster enablers are identified with an important impact on the dynamics and strength of the sector. The dynamics of maritime clusters also depend on a number of structural, economic and social performance indicators. Clusters with a weak structure may find it difficult to remain competitive on a global scale.

Structural indicators The fundamentals of a cluster are determined by the type and number of its maritime sectors. The broader the cluster in terms of sectors, the greater is its potential synergy and strength. A non-linear relationship exists between the cluster “completeness” and the cluster strength to adapt to change and generate synergies. Not all sectors have the same importance within a cluster. Sectors within the cluster that order new capital equipment are the cluster demand drivers, such as shipping, offshore, inland shipping, dredging, fishing, and the naval sector. These sectors have a stronger impact on cluster dynamics than the supply sectors like shipbuilding, marine equipment, yachting, maritime services and ports as they depend too a large extent on the demand drivers. A distinction is thus made in demand pull and supply push sectors. For example, a strong shipping sector or the extreme demands of naval vessels are very 514

Part III - Innovation Theory important drivers of the long term cluster dynamics. The cluster is strongest when all the demand pull and supply push sectors are present. Another important structural indicator is geographical concentration or dispersion of the various sectors and the companies within a cluster. This is clearly demonstrated by the difference between Norway and the Netherlands. Norway consists of six regional clusters, some of them more than 1,000 kilometres apart, while the entire Dutch cluster is concentrated within a circle with a radius of 150 kilometres. The closer the distance, the higher the chances are of interaction between sectors and companies.

Economic indicators The standard economic performance indicators are used, such as the value creation of the cluster, expressed in direct and indirect value added, share in GNP, employment, backflow to the government, (foreign direct) investment, export quote and balance of payments contribution, growth over time. Important performance indicators are the demand-supply relationship between the (maritime) sectors as these express the inter-relatedness, and the multiplier of each sector in relation to the other sectors and the economy as a whole. “The higher, the stronger the cluster” counts for all these indicators: x x x x x x x x x

Direct value added; Indirect value added; Share in GNP; Growth rate; Multiplier (within cluster and national); Employment; Export and balance of payments; Domestic investment; Foreign direct investment.

Internationalisation The ability to export is a clear indication and empirical evidence that sectors and companies are able to compete in the global market place and are thus by definition competitive. A good measure is the export quote, which is the percentage of the total production that is exported. The higher the export quote, the stronger are the sector and the cluster. Maintaining this export position - in the absence of subsidies - can only be achieved if the companies remain innovative and market leaders. This requires that the strong export position is gradually transformed by the firms in the cluster into a high level of internationalisation. These international companies have a high level of foreign direct investment and production and sell their products and services on a global basis. In the long term, a strong export position cannot be maintained as (new) competition will always catch up. The level of internationalisation is thus an important indicator for the long term dynamics of the cluster. Not only outward investments are relevant, but also incoming investments from foreign companies into the cluster. The strongest cluster has, ideally, a high export quote and a high level of internationalisation. Most clusters follow the route from strong exports towards a strong international position. Policies should be directed towards strengthening a “shortcut” route, which means that in an early stage, entrepreneurs should be stimulated to become international (trans-national or better, multi-national) companies. 515

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Critical mass and leader firms The larger the maritime sectors and maritime cluster as a whole in terms of a country’s production value and value added, the more chances that companies become market leaders, have the drive and funds to invest in innovation and are able to upgrade the cluster as a whole. The companies reach critical mass to sustain growth, and the companies which achieve this status are called the leader firms (Langen & Nijdam, 2003). Critical mass has a number of important aspects which will be briefly discussed as these aspects determine to a large extent the dynamics within clusters. Critical mass is the size at which a business or market undergoes a fundamental change with regard to operations. An example of such a change is a company's achievement of increasing returns to scale. Economies of scale is the reduction in cost per unit resulting from increased production, realised through operational efficiencies. Another example of critical mass is economy of scope, an economic theory stating that the average total cost decreases as a result of increasing the number of different goods produced. Yet another example of critical mass is economy of time; being first to market brings huge advantages in an information economy. There are various ways for firms to gain critical mass, or to realise economies of scale, for example through integration. This occurs when two firms join together to form one new company. Integration can be voluntary (a merger) or forced (a takeover). Figure 499 shows the three main types of integration.

Verticalforwards integration

Horizontal integration

Company

Conglomerate integration

Vertical backward integration

Horizontal integration

Figure 499: Main types of company integration There are a number of reasons why companies wish to merge. Integration increases the size of the firm, and larger firms can achieve more internal economies of scale. Large domestic firms are then more able to compete against large foreign multinationals. Integration allows firms to increase the range of products they manufacture (diversification). Diversified firms no longer have 'all their eggs in one basket'. Another important driver behind the increase in size of firms is the market structure, domestically and internationally. Market structure refers to the number of firms in an industry. In perfect competition 516

Part III - Innovation Theory there are a large number of small firms in the industry, each producing identical products. The larger the size of the companies in a certain international sector, the more important it is for firms to increase their own size in order to create comparable economies of scale. The perfect example in the maritime sector is container shipping. Since the creation of this new segmentation in the mid-1950s, the top-tier of container lines controls the vast majority of the capacity. Size has become crucial in this market. The concept of leader firms is intimately linked to this development. Maritime leader firms are able to initiate innovation processes on a large scale, thereby integrating many smaller suppliers and stimulating them to innovate and export as well; the presence, the number and market share of maritime leader firms in a cluster is a clear indication of the ability of a maritime cluster to export, innovate and upgrade itself. The cluster strength is enhanced by the presence of strong sectors and strong leader firms.

Level-playing field Unfortunately, in many maritime markets there exists no level-playing field. These markets are distorted by regulations that prohibit access, protect industries by subsidies, or more in general, induce companies to seek fiscally sunnier climates. Countries, or better governments, that are able to create a level-playing field for their maritime clusters have a better chance to have leader firms, innovation, export, value added, critical mass and upgrading mechanisms. A good example of a policy which created a level-playing field is the shipping policy introduced in the Netherlands in 1996. This policy has successfully been copied in other countries of Europe and has de facto become the European standard. An example of a collective European initiative to improve market conditions and upgrade a sector is the scrap-and-build policy of inland vessels which was introduced in 1990 until 1998 (European Commission-DG Transport, 1999). Under this programme more than 4,000 obsolete vessels were scrapped and replaced by a modern fleet, with little intervention from the national and European authorities but a large commitment from the shipowners. The distortion in the global shipbuilding market is another example. The lack of a real level-playingfield in and outside Europe poses a real threat to the long term viability of this sector. If the EU and the national governments are not able or willing to safeguard a level-playing-field, than the sector is likely to perish and disappear. This will have important negative impacts on the entire cluster, because of the high level of inter-relations between the sectors. Maintaining a level playing field is thus probably one of the most important conditions and performance indicators for the dynamics and growth of a cluster and its long term strength.

Innovation The presence of a strong maritime services sector (R&D) and marine equipment sector is a good indicator for the innovative strength of the cluster and the pace of diffusion of innovation within the cluster. The marine equipment sector is an important intermediary to adapt innovations from one sector to another and to translate national and foreign demand into new products and processes. There exists an important relationship between innovation and exports. Exports stimulate innovation and innovation drives exports. The more innovative the individual sectors are, the stronger the cluster becomes as a whole. Leader firms often drive the innovation cycles within sectors as they can articulate future demand and align the smaller SMEs strategic focus. Therefore they should be a prime mover of government induced innovation and research & development policies. 517

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Institutional framework and business networks The quantity and quality of the companies, their trade associations, the quality of the cluster networks, the level of interaction with policymakers and politicians all determine the strength of the cluster. The stronger these multi-faceted networks are, the greater the chance of positive cluster dynamics and upgrading. A well-informed government will do its best to support a level-playing-field, or stimulate innovation and R&D expenditures, promote exports and will help attract foreign direct investment. The conditions and relationships between the business networks and the institutional framework is extensively described in Michael Porter’s model. A strong commitment from the government to an industrial policy which supports the sectors at a pre-competitive cluster level, is a prime condition for the long term cluster strength.

Labour market and education A cluster requires a well educated workforce, a broad set of expertise and a high level of education. Many maritime sectors require the same basic education or training. A large and diversified cluster offers therefore many employment opportunities and increases the attractiveness to choose for a maritime career, which in turn will attract the best talent. A broad and specialised educational infrastructure will help to maintain the innovativeness of the individual sectors. A well functioning labour market is of paramount importance to the cluster strength.

Image and communication A positive image and a continuous two-way communication effort between the companies, the trade associations, the cluster network, the policymakers at local, provincial and national levels, as well as the general public is of the essence if the cluster wishes to attract the best people and maintain a highlevel of dynamics. The status of the maritime profession varies widely in different countries. After examining a number of performance indicators of cluster strength, we now turn to the formulation of seven cluster enablers that are of paramount importance for the long term growth and renewal of the cluster competitiveness in a globalised economy.

Cluster enablers A performance indicator of the cluster is not necessarily an enabler of excellent performance. The objective of this section is to translate the performance indicators into concrete enablers which can be used as policy instruments by the stakeholders in the cluster to improve the performance collectively. On a company-level the definition and measurement of performance criteria is usually part of a Strength-Weakness-Opportunities-Threats analysis. The SWOT analysis is useful to identify possible company strategies, such as build on strengths, resolve weaknesses, exploit opportunities, and avoid threats. Strengths and weaknesses are essentially internal to the organisation and relate to matters concerning the company’s resources, programs and organisation in key areas. These include sales, management, operations, products, finances, R&D, costs, and systems. The external threats and opportunities confronting a company, can exist or develop in the company’s own industry where structural changes may occur, or in the marketplace which may change due to economic or social factors, while competition may create new threats or opportunities using new technologies resulting in fundamental changes in products, processes, etc. The SWOT analysis provides ultimately the company’s enablers which fit the aforementioned business strategy options. 518

Part III - Innovation Theory Cluster enablers are to a large extent identical to the company’s enablers. It is the responsibility of the company’s themselves to make their SWOT analysis, define the performance indicators and gaps, and devise strategies to close these gaps based on a set of enablers. So the question is, which enablers are the sole domain of the company’s management and which enablers are the collective responsibilities of the entrepreneurs and the national government or even the European Union? Seven cluster enablers have been defined which are deemed crucial for the upgrading of maritime clusters. These will be discussed below. Enabler 1: Cluster definition, economic significance and visibility There are a number of obvious general conditions that have to be met when a cluster policy and cluster enablers are to be developed. If a country has for example a business climate in which entrepreneurial behaviour is not appreciated and stimulated, than it will be hard to involve a government in a process of consultation leading to an industrial policy, or if the value added by cluster is very small then it is difficult to attract government attention. A major hurdle in getting focus on the importance of clusters in the economy is often the simple fact that a cluster does not exist statistically in most economies, as individual sectors of a cluster are often part of different statistical entities. The picture gets even more complicated when companies produce for maritime and non-maritime markets. The first step should therefore be to define the sectors within a cluster and establish the key economic performance indicators and communicate these data. This is an important enabler at the conceptual level in the minds of the politicians, government, labour force, educational institutions, the general public, and last but not least the entrepreneurs themselves. Without the right mindset, based on an accurate perception of reality, cluster policymaking is not possible. Also at the European level, as the EU R&D policy demonstrates. The maritime cluster is in terms of value added larger than many industrial sectors, such as aeronautics in Europe. Most R&D in the maritime sectors is however, part of a one-off project and therefore not reported separately under the R&D heading by the companies. In the minds of the policymakers, the maritime industries are therefore not part of the high-tech industry and therefore do not deserve a substantial R&D budget within the R&D Framework Programmes. Although, the current EU LeaderSHIP 201536 initiative with the involvement of seven EU Commissioners may mean a turning point in this perception. The active involvement of leader firms in the initiative underscores the important role of these firms for the cluster dynamics. Enabler 2: Economic policy Once the (maritime) cluster has been made visible, it is important to understand its internal dynamics and the many relations between the sectors and sub-sectors of the cluster. The government should acknowledge these clusters as important building blocks of the economy. Sectors are always subject to changes in their competitive environment, and it is up to the government to create the right conditions for these sectors to adapt continuously, without distorting the level playing field, if it exists of course in the first place. Some countries have well-defined industrial policies, like France in aerospace, aeronautics, nuclear energy, fast trains, etc. Based on these long term views on industrial development, long term policies are devised on which a cluster of industries, sectors and companies may base its own policies. Porter has demonstrated the importance of such a shared belief among all the

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Part III - Innovation Theory stakeholders in a cluster37. The existence of an overall economic (industrial) policy formulated by the government, is an important enabler for any cluster. In absence of such a vision, entrepreneurs are left to themselves and will be less effective in adapting to change, which is, as we know, the only constant in the global economy. Enabler 3: Demand pull sectors Maritime sectors can be categorised into two groups: demand pull and supply push sectors. The demand pull sectors use the capital equipment and services of the other sectors. Demand pull sectors, like shipping, can order capital equipment within the domestic cluster or outside. Supply push sectors, like shipbuilding, in Europe are more and more exposed to foreign competition from South Korea, Japan and China. In the longer term also the marine equipment and maritime services sectors will experience this fierce competition. In the long term, the supply push sectors are more vulnerable to foreign competition than the demand pull sectors. These sectors will buy their capital equipment and services from the lowest cost supplier wherever located. Strong and viable maritime clusters depend therefore on strong and internationally oriented demand pull sectors, such as shipping, offshore, fishing, navy, dredging and inland shipping. In particular the shipping sector offers opportunities for growth as the market is huge and the opportunities are many. Cluster policy has been defined as an important enabler, but within a maritime cluster policy, demand pull sectors are the key-enablers of the cluster and should therefore be the focal point of government policies. The Norwegian and Dutch governments have implicitly understood this important function witnessing their shipping policies. Enabler 4: Level Playing Field Companies and whole sectors are confronted with unfair international competition. Denying market access as is the case for many foreign maritime sectors in the United States because of the protective Jones Act, is clear evidence that it is not enough to be excellent as a company, if there does not exist a level playing field. Assuring “equal opportunity” for the maritime sectors in Europe and around the globe is an important enabler for a sector and the cluster as a whole. Sometimes the level playing field can be created by the national administrations, as was for example the case with the new Dutch shipping policy of 1996. Sometimes, the hurdles are such that the EU has to step in as is currently the case in the shipbuilding sector. Continuously monitoring competition is an important aspect of any cluster policy. This should be done in close co-operation with the trade associations and its members. Cluster growth is only enabled and assured if companies are not faced with unfair competition. Enabler 5: Export and Internationalisation Some countries have sizeable maritime home markets, unlike Norway and the Netherlands which have to grow through exports and internationalisation. Reinforcing the level of exports and the number of companies that actively export is an important enabler of cluster growth and dynamics. Up to a certain level, exports can be done from the home country, beyond that level, companies have to internationalise their activities and start local production and services in export markets, often because of import levies, as for example the 40 percent import duty for equipment in China. Exports and

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Part III - Innovation Theory internationalisation of companies, sectors and the cluster as a whole are basic enablers of maintaining a competitive cluster and creating cluster dynamics. Enabler 6: Innovation and leader firms Companies can only maintain their export position in the long term when they constantly upgrade their products, services and production processes. This requires an advanced research and development infrastructure and policies that stimulate entrepreneurs to innovate, exchange information and take risks together. The leader firms in the cluster are able to set demanding standards, trigger innovation and even organise a number of companies (from the supply sectors) to address the innovation challenges. Innovation is an important enabler of cluster viability. Leader firms are the anchor companies within a cluster that are extremely important for the upgrading processes of the companies in a cluster. Monitoring and enabling leader firms and in particular their role of enabling smaller suppliers to innovate, are essential elements to keep a vibrant cluster. Enabler 7: Education and labour market A high quality and complete maritime educational infrastructure in combination with a transparent and large maritime labour market form together the seventh and last cluster enabler. Without welleducated individuals and sufficient career prospects within the sectors of the cluster, the future is not assured as an inflow of more and more highly-skilled people is a necessary condition for the modern operations, innovation, management, etc. Maintaining and strengthening the educational infrastructure is an important enabler, in particular for the nautical professions. Attracting the brightest people requires a positive image of the cluster, as well as a good two-way communication between the sectors and the general public.

21.4. Research, Development and Innovation How important is innovation in today’s ship design and shipbuilding? This sections presents the results of a studies conducted in recent years to establish the R, D&I content of ships in Europe and in the Netherlands in particular (First Marine International Limited, 2005).

Background Development of the competitiveness of the shipbuilding industry in Europe is being led by a programme called “LeaderShip 2015”, promoted and run by CESA. The aim of this programme is to lead the industry into a globally competitive position by 2015 through investment in performance improvement. Central to the programme is the importance of research, development and innovation (R, D&I) to develop and maintain a technological leadership in the European industries. It is expected that significant expenditure on R, D&I will be made in the coming years by the shipbuilding, repair, conversion and supporting industries in Europe. Until recently the shipbuilding and related industries had been disadvantaged when compared to other industries in that much of the R, D&I effort undertaken has not been eligible for government support. 38 The reason for this is that rules for support (including those enforced by the EU) generally state that 38

 International competitive rules relating to R, D&I are set out in the OECD’s “Frascati Manual”, which provides agreed definitionsforR,D&Iactivitiesandrulesrelatingtoprovisionofsupport.TheFrascatiManualwascreatedin1963.The latestupdate(thesixth)waspublishedin2002.

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Part III - Innovation Theory financial assistance can only be granted for R, D&I relating to the development of a prototype. Part of the definition of a prototype is that it will not be sold and this condition can almost never be met in the case of shipbuilding: prototypes are almost always developed as part of a commercial contract. The CESA Working Group made study of the R, D&I intensity of specific ship types relevant to the European shipbuilding industry. The definitions used to establish the RD&I intensity were as follows: x

x

x

Research: Work on basic (generic) technologies in naval shipbuilding (e.g. hydrodynamics, structure, fatigue, noise, vibration, deign tools) before contract and not dedicated to a specific contract (long term vision); Development: Using the results of “R” or not, significant and valuable work on systems or products, in the scope of a ship contract or for a range of ships or with possible applications on several contracts (mid-term vision); Innovation: This work contains R&D in itself, but with a short term vision.

Table 126 shows the results of the R, D&I intensity investigation. The average RD&I expenditure accounted for 9.9% of the total cost of the ship. 

Passenger Ferry/RoPax Chemical Gascarrier Container Coastal Dredger Supply Fishingvessel Tugs Offshore Average

PhaseA Engineering 4.4 3.7 4.4 3.5 3.9 4.0 Ͳ 4.0 3.0 3.5 5.5 5.6

PhaseB Workpreparation 3.0 3.8 3.3 3.0 2.1 0.5 Ͳ 2.0 2.0 2.0 6.0 3.9

PhaseC Production 2.2 1.7 1.7 2.0 1.1 1.0  1.0 0.5 0.5 1.8 1.9

PhaseD Operation 1.5 0.7 1.0 1.0 0.3 0.5  0.5 3.0 0.3 1.5 1.5

Total

11.0 9.9 9.5 9.5 6.0 6.0 15.0 11.3 8.5 5.8 16.5 9.9

Table 126: R, D&I intensity as percentage of total ship costs With these elements in mind, a CESA Working Group submitted a report to the Competition Directorate of the European Commission in 2003, setting out the case for a change in the rules to permit shipbuilding prototypes to be treated as a special case within the state aid guidelines. The Commission accepted this report and published a new Framework on State Aid to Shipbuilding at the 39 end of December 2003 . This framework permits support for R, D&I to be granted in shipbuilding, even though ships do not fulfil the requirements relating to prototype definitions.

39

Theframeworkisthelatestinaseriesofdirectivesdealingwithstateaidtoshipbuildingandrepair.InadditiontoR,D&I, itincludesprovisionsrelatingtoclosureaid,employmentaid,exportcredits,developmentaidandregionalaid.

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Part III - Innovation Theory Against this background, at the end of 2004 the Dutch Maritime Network concluded a study on R, D&I in the Netherlands, the aim of which was to evaluate the total level of expenditure on those activities. The scope of this work was slightly wider than covered by the provisions of the Draft Aid Scheme, including ship types that are not within the scope of the state aid framework. The aim was to estimate the total level of expenditure on R, D&I in the country, rather than only that which is eligible for support within EU rules. (The ship types not included within the framework are non-seagoing ships, military vessels and yachts). The results of the study clearly show that the industry in the Netherlands can be regarded as being at the forefront of innovative shipbuilding. The estimate was completed on the basis of limited data, however. R, D&I costs were supplied for a limited number of contracts and no data was provided on expenditure on process innovation, which had to be estimated from other sources. In addition to this, the study also set out to assess the innovation expenditure from supplier industries within the Dutch maritime network, specifically shipowners, equipment manufacturers and consultancy companies. Very little information was collected from these sectors and no means of extrapolating the data to cover the entire industry was found. Because work commenced before the Draft Aid Scheme was published, the study was also undertaken according to the old definitions of R, D&I activity, not the simplified definitions as discussed in the guidelines for measuring innovation expenditure presented in this publication. Comparisons made with previous CESA results however, which were based on the same definitions, are valid.

Objective of the study Innovation will be at the forefront of the development of the shipbuilding and repair industries in Europe in the coming decade. It will be a long-term effort to develop the competitiveness of the industries, for which industry members themselves must take responsibility. The overall goal of the work undertaken so far has been to stimulate companies to develop a lead in this field both within Europe and globally. Specifically, the objectives of the study are as follows: x x x x x

x x

To demonstrate the importance of R, D&I expenditure in the Dutch Maritime Cluster. To promote the development of an improved measurement of the value of innovation in the Dutch maritime industries. To provide a format for the discussion of innovation between companies and with external agencies, such as the Ministry of Economic Affairs. To stimulate the proliferation of innovation effort in the Netherlands. To provide a standard framework to structure the internal and external reporting of innovation expenditure by companies which is consistent with the framework and with the industries of other member states of the EU. To better quantify the valuable work being undertaken by Dutch companies so that this can be communicated to external organisations. To promote communication within the Network on the subject of innovation.

Methodology for prototype classification The level of innovation in Dutch shipbuilding has been classified according to protocols developed by the CESA working group on innovation. This work takes into account the eligible costs for R, D&I aid in shipbuilding according to the directive published by the EU. Three classes of ship are defined which relate to the likely intensity of R, D&I expenditure. The three types, in descending order of intensity, 523

Part III - Innovation Theory are prototypes, partial prototypes and sister ships. Sister ships are repeats of previous ships in a series and are judged to attract no eligible R, D&I expenditure. R, D&I expenditure therefore relates to prototypes and partial prototypes and the classification of these ships in Dutch shipbuilding has been an important part of this work. The definitions for classification of the three types are summarised in the following diagram. Oneoff

NewType

Series

Existingtype

Leadinanew type

Prototype

Leadinan existingtype

Followon

Sister

Partialprototype

Figure 500: Classification of ships in relation to R, D&I intensity The decision was made to classify ships are as follows. 1. Is the order a one-off or series? 2. If one-off is this a new ship type for the yard or is it significantly different to previous orders. If new or significantly different, it is classed as a prototype. If similar to previous orders (existing types), it is classed as a partial prototype. 3. If the order is part of a series, the lead ship in a series is classed as a prototype if the series is a new type or significantly different to previous types produced by the shipyard. The lead ship in a series that is similar to previous series is classed as a partial prototype and follow-on ships in a series are classed as sisters. A detailed evaluation of the output of the Dutch shipbuilding industry between 2000 and 2003 was undertaken based on a database of 443 ships (excluding mega yachts, which are not counted in the database) completed over this period, provided by the Dutch Shipbuilders Association (VNSI). In some cases it is not clear whether a ship may be a sister of a ship completed prior to 2000 not included in the database. In these cases, the output of the shipyard concerned prior to 2000 has been examined using the Lloyd’s Register database. This has enabled all ships in the VNSI database to be reliably classed within the protocol established by the CESA working group. Some very interesting results relating to the Dutch shipbuilding industry emerge from this analysis, as described below.

Innovation in the Netherlands The data collected through questionnaires confirms the commonly held view that the Dutch shipbuilding industry concentrates on technically-sophisticated ship types. The innovations listed by 524

Part III - Innovation Theory respondents and the risks involved in developing new and innovative products are significant. The innovations described include the development of novel ship types, innovations in hull design and 40 development of innovative systems . Risks include both technical and economic elements: technical in that the innovative nature of many of the projects described includes an inherent risk of technical failure, and economic in that the ships produced with significant technical innovations may fail to achieve contract specifications. Table 127 presents a summary of the distribution of output from Dutch shipbuilding between 2000 and 2003, based on VNSI’s database. Output is reported by CGT to represent work content, and the table shows the distribution of innovation by the amount of work done. The table also includes comparative figures for the distribution of shipbuilding orders in EU countries as a whole in 2002, taken from the analyses done by CESA, to indicate how Dutch shipbuilding compares to the average in Europe. 2002 was taken as the base year for the CESA work and is regarded as representative of the average. Industry

Dutch41shipbuilding

AllEU(>500GT)42

Year

2000 2001 2002 2003 Average4years 2002

Totaloutput (CGT)

543,785 493,070 461,675 351,070 462,400 1,669,184

Proportionofoutputcategorisedas: Partial Prototype Sistership prototype 17% 20% 63% 10% 25% 65% 7% 44% 48% 23% 30% 48% 14% 29% 57% 20% 20% 60%

Table 127: Innovation in Dutch shipbuilding compared to EU The average proportion of innovative ship types (prototypes or partial prototypes) in Dutch shipbuilding over the four years evaluated is marginally higher than indicated for the EU industry as a whole in 2002. In 2002 and 2003, however, the proportion has been significantly higher, showing an increase in the proportion of innovative work undertaken by Dutch shipyards. Whilst output can be seen to decline in terms of CGT over the four years shown in Table 127, in 2002 and 2003 over half the output of the industry was made up of innovative ships. The proportion of prototypes in 2003 can be seen to be particularly high, reflecting the technically sophisticated nature of the output in that year. This trend is set to continue in 2004. Table 128 shows the expected delivery of the order book from Dutch shipyards as it stands at the time of writing this report, using information from VNSI. Output in 2004 is anticipated to be the highest for five years and orders taken for 2005 already exceed the total output in 2003.

40

Theindustryhasrequestedthattheinformationprovideddescribinginnovationsisnotlistedinthereport.

41

VNSIdata.

42

CESA’sanalysisofinnovationinEUshipbuilding,2004.

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Part III - Innovation Theory Type

Prod/chemicalCarrier Generalcargoship Containership RoͲRovessel LNGcarrier Ferry Fishingvessel OthernonͲcargoship Total

No. 7 32 16 2 1 1 12 63 134

2004 GT CGT No. 29,100 44,660 2 100,100 147,035 17 71,650 93,780 21 12,000 12,600  1,500 3,075  500 1,500 3 4,500 18,000 4 96,800 228,000 6 316,150 548,650 53

2005 GT 18,000 78,300 105,600   31,000 1,900 34,100 268,900

CGT No. 18,900 2 106,955 3 121,020 6     38,150  7,600  60,500 2 353,125 13

2006 GT CGT 6,000 9,600 12,000 16,200 41,600 46,270         25,000 39,000 84,600 111,070

Table 128: Dutch shipbuilding order book at November 2004 (>100 GT) A database of the ships included in this table on which to base an estimate of the distribution of output by innovation type is not available from VNSI. Data on expected output from Dutch shipbuilding in 2004 has therefore been taken from Lloyd’s Register to estimate this. LR’s data indicates that 501,957 CGT is due to be delivered this year, 8.5% below the total indicated in the table above. Evaluation of this data indicates that the level of innovative products has increased further from that seen in 2002 or 2003, although with a reduction in the proportion of full prototypes. The expected distribution for 2004 is compared to the distribution for earlier years (repeated from Table 127 above) in Table 129. Year

2000 2001 2002 2003 200443

Totaloutput(CGT)

543,785 493,070 461,675 351,070 501,957

Proportionofoutputcategorisedas: Prototype Partialprototype Sistership 17% 20% 63% 10% 25% 65% 7% 44% 48% 23% 30% 48% 11% 45% 44%

Table 129: Development of innovation This analysis confirms that the output from Dutch shipbuilding includes a greater proportion of innovative ship types than is seen on average in Europe, and that this proportion has increased in response to market shifts. As will be seen in the estimates of expenditure by shipyards presented in the next section of this report, this has led to an increase in expenditure on R, D&I by the industry.

Estimate of R, D&I expenditure The response to the questionnaire exercise has been limited, with a limited sample for analysis as a consequence. Notwithstanding this, sufficient data have been collected to enable viable estimates of R, D&I expenditure in shipbuilding and repair to be made. For shipbuilding, the estimate has been split into two parts: contract-related R, D&I and process-related R, D&I. It is the contract-related element

43

Lloyd’sRegisterdata,excludingyachtsforcompatibilitywithVNSIdata.

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Part III - Innovation Theory that is new in terms of aid permitted by EU rules. A third estimate is included below relating to R, D&I expenditure in ship repair. Unfortunately insufficient data have been provided to enable further estimates to be made for other sectors of the marine industry, that is to say equipment supply, ship owning and research organisations.

Shipbuilding contract-related expenditure The methodology used to estimate contract-related expenditure is summarised as follows. 1. The value of orders is not included in VNSI’s database so it is not possible to estimate the level of R, D&I expenditure as a percentage of revenue, as was done in CESA’s methodology. Having said this, with shipbuilding prices currently rising, this percentage would be less informative as a guide to the required R, D&I budget in the Netherlands than the CGT method described hereafter. 2. Questionnaire returns from shipbuilders include information on contract-related R, D&I expenditure for specific contracts. This data was checked and verified to ensure it is consistent with eligible costs and that the classification of the ship as a prototype or partial prototype is correct. Clarification and revision of the data was necessary in some cases. 3. The data collected was then categorised by ship type to be compatible with the type classifications included in VNSI’s shipbuilding output database. The database includes all output from the industry, as required by the terms of reference, including inland waterway vessels and naval vessels. The one type not included is mega-yachts and this is discussed further below. The type categories used are listed below. It has not been possible to split out from VNSI’s database which of these are seagoing and which are inland waterway, although it is confirmed that both categories are included and this therefore makes no difference to the estimate of expenditure. x Cargo carrying x Dredger x Fishing x Passenger x Naval x Service craft x Tugs 4. For each ship, the reported R, D&I expenditure was divided by the CGT value to give a unitised expenditure in € per CGT. This was then averaged by ship type for prototypes and partial prototypes. The overall average values are €423 per CGT for partial prototypes and €1,510 per CGT for prototypes. In the case of service ships, no data was reported for a partial prototype and the overall average value has been used for that category. A number of prototype categories also had no data reported. In these cases the average value has been used, weighted according to the relative value of the partial prototype category compared to the average. This weighting is necessary to reflect variations in relative R, D&I content between ship types. The resulting values are presented in Table 130 below. 5. The expenditure per CGT for each category was multiplied by the output in each year using data from the VNSI database. The resulting product gives the total estimated R, D&I expenditure in each year. 527

Part III - Innovation Theory Table 130 presents a summary of the average value of R, D&I expenditure for each ship type and innovation category per CGT produced. Where average values have been used due to lack of data, the figures are presented in italics. AverageR,D&Iexpenditure(€perCGT) Partialprototype Prototype 174 1,020 484 2,530 185 662 762 2,725 383 1,369 423 1,924 630 2,253 423 1,510

Shiptype

Cargo Dredger Fishing Navy Passenger Servicecraft Tug Average

Table 130: Average contract related R, D&I expenditure per unit of work (CGT) The output of each ship type per year, by innovation category, is presented in detail in Appendix II, based on VNSI’s database. The total output and the resulting estimated expenditure per year is presented in Table 131, indicating also the average unit value of expenditure per year in € per CGT produced. Year

2000 2001 2002 2003 200444

Output(CGT)

543,785 493,070 461,675 351,070 548,650

Totalestimatedcontractrelated expenditureonR,D&I(million€) 158.4 113.7 119.8 194.2 178.4

ExpenditureperCGT produced(€) 291 231 259 553 355

Table 131: Estimated contract related expenditure in R, D&I45 It can be seen from Table 132 that the estimated expenditure per year varies quite considerably depending on the product mix, the level of throughput and the amount of innovation included in the products under construction. Factoring out the variation in throughput by using the value per CGT, there is still a considerable variation seen, in particular in 2003 where the value is very high, reflecting the relatively innovative nature of shipbuilding undertaken in that year. Table 132 includes an estimate of the value for 2004 based on the LR data discussed earlier. The estimated budget for 2004 is well below that indicated for 2003 despite significantly increased output but is above the average shown for the previous four years. This suggests that 2003 may have been an exceptional year, including an

44

BasedonactualordersreportedbyVNSI,usingthedistributionofinnovationtypesderivedfromLRdata,asshownin Table130. 45

Theresultspresentedexcludethemegayachtsectorforwhichnoinformationhasbeensubmitted.

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Part III - Innovation Theory unusual proportion of highly innovative ships. This is likely to be linked to the low throughput indicated in the year. To this estimate must be added an estimate of the value of contract-related expenditure in the megayacht sector. This has been based on information on the output of the industry included in the Lloyd’s Register database. The output for the period 2000 to 2004 is presented in Table 132, indicating also an estimate of the contract-related R, D&I expenditure. The basis of this estimate is discussed below. Year 2000 2001 2002 2003 2004

Output(CGT) 13,670 13,429 21,200 26,390 35,760

TotalestimatedcontractrelatedexpenditureonR,D&I(million€) 5.8 5.7 9.0 11.2 15.1

Table 132: Estimated contract-related expenditure in R, D&I for mega-yachts In general, mega-yachts may be classed as partial prototypes. Generally speaking they are one-off ships but produced in shipyards for which this is not a new ship type (see Figure 1.1 above). Applying the overall average value of contract-related R, D&I for partial prototypes, that is €423 per CGT produced, gives the estimates presented in Table 132.

Process-related R, D&I expenditure The previous section of this report considered expenditure on R, D&I related to the development of products. Further expenditure on the development of production processes in the industry should also be taken into account. No information has been collected on the actual expenditure by Dutch shipyards on R, D&I but it is possible to estimate what the budget should be to support this activity based on known expenditure elsewhere in Europe. As part of CESA’s evaluation of innovation in shipbuilding (the confidential report on which was published in April 2004), two EU countries reported expenditure on process-related R, D&I for the period 1999 to 2003. As the report is confidential, it is not possible to state the amounts reported or the countries concerned here, but the information has been used to derive a budgetary figure for Dutch shipbuilding. Based on estimates of revenue for the two countries concerned, it is estimated that process related R, D&I expenditure in shipbuilding was equivalent to 0.6% of turnover in one case and 1.0% in the other. The country reporting the higher level of expenditure is known to be at the forefront of investment in the shipbuilding process in Europe as part of their strategy for future development in the face of competition from the Far East. The country reporting the lower amount is also known to be active in the development of shipbuilding technology in this respect. Taking these two percentages as representing a range that may be considered by the shipbuilding industry in the Netherlands for investment in process development, the figures have been applied to the turnover of the industry in 2002 using the value reported by the DMN Study on the Dutch Maritime Cluster / Monitor. This is the only statistic available on the turnover of the industry. The turnover reported in 2002 was €2,020 million, including shipbuilding (sea-going, inland, navy and mega-yachts) and ship repair. The range of expenditure on process-related R, D&I that may be 529

Part III - Innovation Theory expected from the industry, using the percentages quoted above, would be between €12 and €20 million per year. Actual expenditure is not known.

Innovations in repair and conversion Routine repair work involves no contract-related R, D&I expenditure over and above the processrelated expenditure discussed in the previous section. Conversion work on the other hand may include significant innovations relating to the contract in the same way that shipbuilding contracts do. Limited information has been received from repair yards to enable this to be quantified. The R, D&I costs relating to two major conversions have been provided, one indicating a cost at 5.1% of the contract value and the other at 4.2% of the contract value. The Netherlands is a major competitor in the conversion sector, taking significant and high value contracts. It is estimated by BOS that the turnover relating to conversions is up to around €500 million per annum. Taking the average R, D&I content value indicated, 4.6%, it is estimated that the contract-related R, D&I investment in conversion work is equivalent to around €2.3 million per annum.

Summary of expenditures The following table summarises the estimated values of R, D&I expenditure in the shipbuilding and ship repair industries in the period 2000 to 2004. EstimatedR,D&Iexpenditure (million€perannum)

Sector

ShipbuildingcontractͲrelated (excludingmegaͲyachts)

113.7to194.2

ShipbuildingcontractͲrelated (megaͲyachts)

5.7to15.1

ShipyardprocessͲrelated

12.0to20.0

ShiprepaircontractͲrelated

2.3

Comments

Therangeindicatedfortheperiod2000 to2004,theaveragebeing€152.9 million. Therangeindicatedfortheperiod2000 to2004,theaveragebeing€9.3million. Arangebasedon2002turnover.The averageis€16.0million. Basedonconversionturnoverof€50 millionperannum.

Table 133: Summary of estimated R, D&I expenditure The total estimated expenditure over the past five years ranges from € 133.7 to € 231.6 million per annum, with the average being €180.5 million. The wide range in this estimate makes the prediction of future budgets difficult, in particular because of variations in throughput and product mix and the effect that this has on contract-related budgets. For process-related and ship repair contract-related, the averages indicated provide a guide to future budgets. For shipbuilding contract-related, the methods available for estimating future budgetary requirements are discussed below.

Prediction of future contract-related expenditure The estimating of future expenditure on shipyard process-related and ship repair contract-related R, D&I is relatively easy, based on the average amounts indicated in the table above. For shipbuilding contract-related expenditure, the range of estimated values for the past five years is wide and variations in product mix, throughput and innovation intensity make the development of a system for the estimate of a budget difficult. One way to do this would be to apply the average parameters for 530

Part III - Innovation Theory different ship types presented in Table 134 above to the known or predicted forward order book for the year concerned. However, details of throughput may not always be known far enough in advance to enable the actual forward order book figures to be used and a more simple mechanism has therefore been investigated. Using an overall average figure set against predicted throughput does not provide a reliable estimate as shown in Table 134. This shows the predicted results using the overall average figures for the years 2000 to 2003 against the detailed estimates and how the two methods vary. Year

2000 2001 2002 2003 Average

EstimatedcontractrelatedR,D&Iexpenditure(million€) Usingdetailedfactors Usingaveragefactors 158.4 187.5 113.7 127.5 119.8 138.0 194.2 164.0 163.2 154.0

Variation

+18% +12% +15% Ͳ15% +5%

Table 134: Estimated contract-related expenditure using detailed and average factors Clearly, whilst there is only 5% difference in the overall averages, the difference in each year is large. In particular, as output has reduced but the proportion of highly innovative ships has increased, the averages under-estimate the value in 2003 whilst over-estimating the value prior to that date. A range of other average methods have been tried but none yield a more accurate prediction than that above. It is concluded that the only reliable prediction can be made on the basis of a detailed analysis of the forward order book using the detailed parameters for R, D&I expenditure listed in Table 2.8. This conclusion highlights the need for the collection of data on expenditure by the industry on a routine basis to improve the level of knowledge on the subject over time.

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Part IV – Ship Design and Case-Studies

PART IV: SHIP DESIGN AND CASE-STUDIES

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Part IV – Ship Design and Case-Studies

22.

SHIP TERMINOLOGY AND DESIGN METHODS

22.1. Ship terminology Knowledge about shipping innovation requires first of all knowledge about ships. This section defines some basis measures, as described in the excellent textbook “Ship knowledge” by Klaas van Dokkum (Dokkum, 2003) A ship can be defined in various ways, depending on the perspective of the beholder. The naval architect has the most analytical way of defining a ship, as his definitions are used as the basic parameters for shipbuilders to construct and build a ship. The shipbuilder is mostly interested in the amount of steel that goes into the ship, as well as the number of man-hours. The shipowner is mostly interested in the carrying capacity of the ship, its operating and voyage costs, in particular the fuel consumption in relation to speed. The port and canal authorities are mostly interested in the volume of the ship (measurement) as this is often the basis for the calculation of port and canal transit costs. The flag state is interested in the manning and safety aspects of the ship, while the ship finance bank, the classification society, the insurer, the shipbroker, the charterer, and many other interested parties each have their own specific ship definition needs. In this section the most common elements used by the maritime professionals to define a ship are briefly discussed so that the layman can converse with the initiated. Figure 501 shows a side view of a ship, showing the relevant dimensions. A cross section of a ship is shown in Figure 502.

Loa Lpp Lwl

Ta

T

Tf

Figure 501: Definition of ship dimensions x x

x

x

Length over all (Loa) - The distance between the stem and the stern; Length between the perpendiculars (Lpp) - Distance between the fore and aft perpendicular (fore perpendicular = vertical line that crosses the waterline and the front of the stem (bow); aft perpendicular = vertical line around which the rudder rotates); Length on the water line (Lwl) - Horizontal distance between the moulded sides of the stem and stern when the ship is on her summer mark (moulded = distance between two points , measured on inside plating); Draught (T) - Distance between the keel and the waterline; 533

Part IV – Ship Design and Case-Studies x x

Trim - The difference between the draught at the aft (TA) and the draught at the stern (TF); Loadline - The water line of a ship lying in the water.

Freeboard

Draught (T)

Depth (D)

Figure 502: Definition of ship dimensions x

x x x

Breadth over all (Boa) - the maximum breadth of the ship as measured from the outer hull on starboard to the outer hull on port side (Port side is the nautical term that refers to the left side of a ship, as perceived by a person on board the ship and facing towards the bow. The equivalent for the right-hand side is starboard); Depth (D) - The vertical distance between the base line (top of the keel) and the upper (weather) deck, measured at half Lpp at the side of the ship; Freeboard - The distance between the water line and the top of the main (weather) deck; Air draught - The vertical distance between the water line and the highest point of the ship.

Figure 503 shows the Plimsoll mark or freeboard mark which is a permanent mark on the side of the ship indicating the maximum loadline under various conditions. It consists of a circle with a horizontal line drawn through it, which represents the maximum loadline or the minimum freeboard in salt water summer conditions. The letters on each side of the circle refer to the classification society, in this case Lloyd’s Register. The other letters refer to different conditions, such as: Summer (S), Winter (W), Tropics (T), Winter North Atlantic (WNA), Tropical fresh water (TF), Fresh water (F).

534

Part IV – Ship Design and Case-Studies DECKLINE LTF TF LF F

LT

T

LS LW

L

R

S W

LWNA

WNA

Figure 503: Plimsoll mark The volume of the ship determines in many instances its carrying capacity. The carrying capacity is usually expressed in tons (metric, short, long, gross, net), although for many ship types other parameters are used. For example, cubic metres for gas carriers, lane-metres for ro-ros, cubic feet for reefers, number of animals for livestock carriers, CEU for car carriers, passengers for ferries and cruise ships, etc. x

x x

x x x x

Gross tonnage (GT) - Ship’s volume in cubic meter below the main deck and the enclosed spaces above the main deck, multiplied by a constant, which results in a dimensionless number; Nett tonnage (NT) - GT minus volume space of the crew accommodation, navigation and propulsion equipment and workshops; Compensated gross tonnage (CGT) - Based on gross tonnage, it is a measure for a productivity metric (man hours/compensated gross tonnage) used in shipbuilding which attempts to take into account the influence of ship size and complexity on productivity; Displacement (tons) - The volume (m3) of the part of the ship below the waterline multiplied by the density of the displaced water (t/m3)46; Lightship displacement - The weight of the ship’s hull including the standard inventory, like anchors and life-saving equipment; Deadweight (Dwt) - The weight (tons) a ship can load until it is submerged to its maximum loadline; Cargo capacity: Deadweight minus the weight of fuel, provisions and ballast water.

The hull form of the ship is defined in various ways: quantitatively by form coefficients, and visually by lines. The form coefficients define the shape of the underwater body of the hull (down from the loadline), such as the water-plane coefficient, the midship section coefficient, the block coefficient and the prismatic coefficient. The most important coefficient is the block coefficient which is shown in Figure 504.

46

Theaveragedensityofseawateratthesurfaceoftheoceanis1.025g/ml;seawaterisdenserthanfreshwater,which reachesamaximumdensityof1.000g/mlatatemperatureof4°C,becauseoftheaddedweightofthesalts

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Figure 504: Block coefficient (Dokkum, 2003) The block coefficient (CB) is the ratio of the volume of the ship’s hull underwater body and the volume enclosed by the rectangle of length between the perpendiculars (Lpp), the breadth moulded (Bmld), and the draught (T). This is an indication of the fullness of the hull, which relates to ship’s speed. A low CB means a low resistance in the water, and therefore a high speed. Tankers have a high CB (0.8-0.9), containerships a medium CB (0.6-0.75), while navy frigates have a very low CB (0.50.55). The geometry of the hull can be defined by lines, such as the waterlines, ordinates, buttocks. These all come together in the lines plan of the ship. The waterlines are horizontal cross-sections of the hull which slice the hull in layers like a club sandwich (Figure 505).

Figure 505: Water lines (Dokkum, 2003) The ordinates slice the hull in vertical planes perpendicular on the side of the ship, like a sliced cucumber. The buttocks are similar to the ordinates, but they slice the ship in the longitudinal direction of the ship. The lines plan of a ship (Figure 506) contains the various lines by which the entire hull is defined, and on the basis of which the form coefficients are calculated.

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Figure 506: Lines plan (Dokkum, 2003) The hull is turned into a ship by adding the engines, deckhouse, cargo handling equipment, and so on. A number of drawings are made that define the ship, like the general arrangement plan, the midship section drawing, and construction plan. The most important drawing is the general arrangement plan which consists of a side view of the ship, a plan view of the most important decks, including superstructure deck, and cross sections from front and back view (Figure 507). Finally, the forces that work on a ship are discussed briefly. Most of the ships in the world float in the water based on the principle of buoyancy support, i.e. the displacement of water. Other ways of support are dynamic lift and powered lift, which will not be discussed here. Figure 508 illustrates the static forces (when the ship is in calm water and does not move) working on a ship. These static forces consist of the weight of the empty ship and its distribution over the length of the ship, the weight of the cargo, fuel, provisions, ballast water, ice on deck, and the hydrostatic pressure on the hull exercised by the water. The upward force exercised by the displaced water should be higher than all the downward forces of ship and cargo, otherwise the ship will sink. In general the forces on the midship section of the ship are the highest and form the critical design element of a ship. The forces are not equally spread over the length of the ship, and this causes shearing forces in the hull which in turn leads to longitudinal stresses in the ship. Apart from the static forces, there are dynamic forces working on a ship caused by external forces such as waves, wind and gravity. These hydrodynamic forces result in complicated behaviour of the ship and its hull under various conditions. The resulting deformations of the hull have been given names such as hogging, sagging, and torsion. The exaggerated deformation of hogging is shown in Figure 509. This causes severe additional stress in the ship’s hull in particular in the midship section as the figure also illustrates.

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Figure 507: General arrangement

Figure 508: Static forces acting on the ship’s hull (Dokkum, 2003)

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Figure 509: Dynamic forces (Dokkum, 2003) Torsion forces are a major problem in the design of containerships, having almost entirely open holds and decks. This is contrary to the tanker, which is a completely closed box with very high torsion stiffness, like the bamboo rod. The ship (weight and cargo) has a centre of gravity (G), while the displaced water exerts its upward pressure from another imaginary centre of buoyancy (B), as Figure 510 illustrates. When a ship rolls in the waves (lists, heels) the centre of buoyancy moves to counteract the forces induced by the centre of gravity. This vertical line through the B, intersects with the line through the centre of gravity in the static situation of the ship. This point is called the transverse metacentre point (M). For each angle of list, a metracentric point can be determined. If M is above G, the ship is stable in the water (Figure 511). But if the metacentre is below the centre of gravity, the ship is instable and will capsize.

Buoyancy

Centreofgravity Centreofbuoyancy Gravity Figure 510: Centre of gravity and buoyancy

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M KM G

B K Figure 511: Vessel stability These are some of the main terms and concepts that are used in shipping and ship design. In the following sections the basis design methods are briefly discussed.

22.2. Design methods Prof. H. Schneekluth published in 1987 “Ship design for efficiency and economy” (Schneekluth, 1987) and prof. Stian Erichsen two years later “Management of marine design” (Erichsen, 1989). Both academics explain the design methods of ships which are used by naval architects, but Erichsen also provides a broader approach to the design process. He incorporates economic parameters, market research, creativity techniques, and the organisation of the design process, which does more justice to the actual ship design process. The design and innovation of ships is the work of many people, working together in a team. These people do not necessarily have an engineering background. They are employed by shipowners, marine consultants, classification societies and shipbuilders. The shipowner has a deciding role in the design process, as he is the one paying for the ship. The fact that he has this “power of the purse” may create some conflict with the shipyard, which is logical as the revenues for the yard are the cost for the owner. This may lead to diverging views on ship design, as the owner wishes to maximise the revenues of the ship during its commercial life, while the yard has a short-term goal, making money on the construction. These diverging objectives are nicely symbolised in Figure 512, from the design brochure of the former Wärtsilä-yard.

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Figure 512: Fundamentally different views of a ship (Levander, Jahkola, & Raouta) The shipyard views the ship as a collection of technical systems, while the shipowner only sees freight revenue, its earning potential. It is therefore important to define the position of the ship designer. Other parties than the shipowner and shipyard can be involved in the design process as well, for example independent naval architects or shipbrokers. The latter category is very close to the market, the place where demand and supply of ships meet. Therefore, the shipbroker is often in a position to 541

Part IV – Ship Design and Case-Studies see opportunities for new ship concepts, or improvement innovations. A good example is the Superflex product tanker design from the Norwegian shipbroker Libaek. An example of an independent naval architect is the design of the first bulk carrier Cassiopeia by Ole Skaarup. There are three other parties associated with ship design: classification societies, the International Maritime Organisation (IMO) and the flag states. The classification societies develop the design rules for all sorts of ships to be met by the shipowner or shipyard. The classification societies have played in the past an important role in the development of scientific methods of ship design and calculation. Also in the present, they are at the forefront of developing new design criteria and design methods, such as the SafeHull system developed by American Bureau of Shipping in the 1990s, which introduced a new approach based on “engineering first principles” and away from the prescriptive design and construction rules that prevailed up till that time. However, classification societies do not design ships; they check and approve designs, and they survey the ships during its operational life. The IMO is yet another body that has developed rules and regulations for the design and operation of ships. These are of a more general nature and may influence the design fundamentally, but are not part of the design itself. An example of the way IMO rules influence design is the safety standards for ro-ro vessels. After the disaster of the Estonia, the design of the visor-doors at the bow had to be changed. Or the requirement for oil tankers to double hulls, and the future requirement of cleaning ballast water of ships. The third party is the country in which the ship will be registered. Some flag states have specific requirements in respect to manning or fire fighting and safety equipment, although there is a tendency to accept universal standards in order to maintain a level-playing field for the shipowner. The less innovative the design and the more standard, like in a series of ships, the larger the potential role of the shipyard, as much focus will be put on efficient production and low costs. In general, shipyards do not innovate new ship concepts by themselves. There are of course notable exceptions such as the high-speed light craft. Many shipowners work in close relationship with yards on new designs, so the picture is not black and white. But the yard's role is often more reactive to the demand of the owner, than proactive, i.e. anticipating and initiating fundamental change. The reticent attitude of shipowners to be too closely involved with one yard is caused by the desire of the owner to shop around for the best deal. The shipyard is aware of this and does not want to spend a lot of engineering hours on a design that it is not certain to build. So the commitment from the yard towards a new design is often restricted by the cost and uncertain benefits. Sometimes, the yard imposes solutions that are related to production constraints, such as the limited width of the slipway of draught in front of the shipyard or its access channels. The advantage of working with a yard in the design process is that it adds manufacturing knowledge in an early stage, which may simplify the structures and/or lower the cost. A major obstacle for the shipowner is the often limited capacity to design ships in house. During the very bad shipping years of the mid-1980s, most of the shipping companies eliminated their design staff in an attempt to save costs. The result is that they are now completely dependent upon outside consultants, who may not be fully aware of the logistical chains in which the ships operate and therefore do not fully understand the triggers for innovation that exist. In the ideal design environment for achieving innovation and creating a competitive advantage in shipping, the shipowner has a substantial level of in-company expertise and analytical skills for the monitoring of markets and operations, as well as liaison with the specialist consultants and builders of ships. 542

Part IV – Ship Design and Case-Studies It is up to the shipowner to engineer the business system in such a way that all the expertise required to innovate and design ships is integrated. This demands concurrent engineering, based on a network model, as a lot of the expertise has to come from outside. The organisation of the design process, and the incorporation of innovation, leads to a new design methodology, which is in most of the cases controlled by the decision maker: the shipowner.

The naval architect’s design protocol Erichsen distinguishes three main types of variables in the design process of ships: x x

x

Decision variables whose values are selected by the designer, such as main dimensions, speed, cargo handling system; Resulting variables whose value is a result or function of the decision variables, like moulded depth as function of draught and freeboard, displacement as a function of the main dimensions and fullness of the hull. Independent variables which cannot be influenced or controlled by the designer, such as waves, currents, ice, costs of material and components.

Costpertoncarried(NKr/ton)

Erichsen starts with the economic feasibility in to order establish the optimal range for the ship size and speed. He constructs a graph with on the horizontal axis the service speed, and on the vertical axis the cost per ton carried, based on a hypothetical roundtrip voyage of the vessel. The important variables are speed, deadweight, port time (cargo handling - loading/discharging), roundtrip distance and annual cost (based on a formula). The end result is shown in Figure 719, for three ship sizes: 150,000 dwt, 200,000 dwt, and 250,000 dwt. It is clear from these graphs that the economies of scale effect associated with big ships, results in an overall lower cost per ton transported, although there is a diminishing return from size, as the step from 150,000 dwt to 200,000 dwt results in a larger decrease in cost per ton than from the 200,000 dwt to the 250,000 dwt ship. 88 86 84 82 80 78 76 74 72 70 11

11.5

12

12.5

13

13.5

14

Speed(knots)

150,000

200,000

250,000

Figure 513: Cost formulas by speed

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Part IV – Ship Design and Case-Studies According to Schneekluth, the six most important decision variables to start with are the length (L), the breadth (B), draught (T), depth (D), freeboard (F) and block coefficient (Cb) as these determine the main dimensions and many of the ship characteristics, such as stability, hold capacity, hydrodynamic qualities such as power requirements and economic efficiency. An iterative procedure is needed when determining the main dimensions and ratios: x

Estimate the weight of the loaded ship. The first approximation to the weight is obtained for cargo ships using a typical value for the ship type of the ratio of deadweight to displacement.

x

Choose the length between the perpendiculars using for example Schneekluth’s formulae based on the statistics of optimisation results according to economic criteria, i.e. the length involving the lowest production costs: ‫ܮ‬௣௣ ൌ ο଴Ǥଷ ‫ ܸ כ‬଴Ǥଷ ‫ܥ כ‬ Where: Lpp ǻ V C

= = = =

Length between perpendiculars Displacement in tons Speed in knots 3.2, if the block coefficient has the approximate value of CB = 0.145/Fn within the range of 0.48-0.85

x

Establish the block coefficient, as a function of the Froude number and those factors influencing the length.

x

Determine the breadth, draught and depth collectively.

When the specifications for the new ship are different from the characteristics of existing ships, the comparison ship method cannot be used. This is also the case when there is a good existing comparison ship, but there are not enough data available. Therefore most ships will be designed by an iterative method like the one described by the Society of Naval Architects and Marine Engineers in "Principles of Naval Architecture". This method consists of a repetitive process. First a ship concept is composed. Then the characteristics, e.g. weights, hold capacities, stability and trim, main dimensions and coefficients, layout and propulsion are calculated. Finally, the calculated design is compared to the initial design demands and the ship configuration is adjusted accordingly. This process is repeated until the ship design meets the requirements of the client and classification societies. Every iteration the calculations and estimates become more accurate and the design more detailed. The iterations ensure a balanced solution. Stian Erichsen in "Management of marine Design" distinguishes two types of iterations: x

x

Iterations due to changes in the basis of the design The basis of the design comprises the definition of the problem and the assumptions, conditions and restrictions of the design. For obtaining a better design than previous ones, it is necessary to use ideas from other industries and technologies that may improve the design. New ideas and discoveries may change the initial assumptions and require redoing the design or parts of it. It is necessary to return to the stage in the design process where the initial assumptions and conditions were made and redo the design from that point on. Balancing iterations 544

Part IV – Ship Design and Case-Studies Balancing iterations serve to find a balanced solution. Because many variables are dependant on each other it may be found necessary to carry out iterations to bring the variables into conformity. New results for a variable can allow more accurate calculation of other variables. For example, for a ship applies the following basic equation: ‫ ݐ݈݊݁݉݁ܿܽ݌ݏ݅ܦ‬ൌ ‫ ݐ݄݃݅݁ݓ݀ܽ݁ܦ‬൅ ‫ݐ݄݃݅݁ݓ݌݄݅ݏݐ݄݃݅ܮ‬ The initial estimate of the lightship weight can be a percentage of the deadweight. From the deadweight and lightship weight the displacement can be calculated. When the displacement is known, the main dimensions of the ship can be determined. When these parameters have been decided, more accurate calculation methods, which require more information, can be used. On the basis of the new estimate of the light ship weight the new, more accurate displacement can be calculated. The iterative process is graphically shown as a spiral, which is derived from "The Principles of Naval Architecture" (Figure 514). Every circle represents a single iteration in the design process. The spiral is followed through from the outside to the core, suggesting that the accuracy of the calculations and estimates increases during the design process. This method also allows for an innovative design process. The Society of Naval Architects and Marine Engineers distinguishes four phases in the design of a ship: concept design, preliminary design, contract design and detail design. x

Concept design The concept design is the very first part of the design process where the shipowner's specifications are translated into naval architectural and engineering characteristics. The initial characteristics: length, breadth, draught, depth, block coefficient and power are determined. The preliminary light ship weight estimate plays an important role in this stage. It is usually derived from curves, formulas or experience.

x

Preliminary design In the preliminary design phase the major ship characteristics affecting costs and performance are determined. At the end of this phase, there is a precise definition of a vessel that meets the requirements and that is the basis for development of contract plans and specifications. This phase usually consists of several loops around the design spiral.

x

Contract design The contract design stage yields a set of plans and specifications that form an integral part of the shipbuilding contract document. It comprises one or more loops around the design spiral. It contains more precise features as hull form based on a faired set of lines, powering based on model testing, sea-keeping and manoeuvring characteristics, the effect of number of propellers on hull form, structural details, use of different types of steel, spacing and types of frames.

x

Detail design The final stage of ship design process is the development of detailed working plans. These plans are the installation and construction instructions for the ship fitters, welders, outfitters and others.

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Figure 514: Basic design spiral The design spiral is a generally valid method that enables the design of any type of ship and is therefore a good method to achieve a certain level of innovation in ship design. However, the results depend on the way the initial design is made. In theory it is possible to choose any ship configuration as a starting point, but because this is not very practical there are many methods to make the first conceptual design, e.g.: x x x x

Mathematical method; Coefficient method; Computer Exploration Models (CEM); Mission-based ship design (Seakey). 546

Part IV – Ship Design and Case-Studies Mathematical method The mathematical method describes all relations between the design parameters in equations. This method is very simple to use in computer programmes. Starting with some initial input, a design is calculated according to fixed formulas and coefficients. Most computer programmes that use this method contain some type of optimisation procedure that almost automatically guides the user to an “optimum” design. The advantage of this method is that it is very easy and quick to use. It can be used to make an initial design when there is not much time available for extensive calculations. By varying the input, different calculations can be made to determine the impact of parameter changes and a satisfying design can be found. Disadvantages of this method are that ship design is a very complex process, which means many equations. Simplifying the equations affects the ultimate design in a negative way. The equations are composed for a specific ship type. For the coefficients fixed values, based on previously built ships, are chosen. This and the fact that the relations are fixed, means that this method is not suitable if one wishes to achieve major innovations in the ship design. Coefficient method When a naval architect wants to design a ship similar to existing ships, he can collect descriptions of similar, existing ships from publications or other sources. From these data he can compose diagrams with characteristics, coefficients and ratios. He has to ensure that the data from these reports are corrected for important differences in the design, e.g., extra cranes or ice class. Some ratios and coefficients that can be used for this method are L/B, B/T, L/D, D/T, ws, wm, where L is the Length, B is the Breadth, T is the Draught, D is the Depth, ws is the specific weight of the ship and wm is the specific weight of the machinery. Coefficients from a number ships can be put into diagrams and plotted against other characteristics. In these diagrams lines can be drawn, showing the relation between the plotted characteristics. These lines will show the average values. From these lines the values of the characteristics of the new design can be estimated. This method is simple to use and the designer can carry out fast design calculations. The absolute results are not always reliable but the tendencies are sufficiently reliable. Many methods use coefficients as a basis for their calculations and estimates. Disadvantages are that the validity is limited to the data of the comparison ships, which are the basis of the coefficients. Data are often retrieved from foreign sources and therefore uncertain. The coefficients are the average values from built ships, and not necessarily for the best ships. Figure 515 illustrates the method with a graph of the relationship between the length of reefer ships and its capacity (m3).

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Figure 515: Reefer capacity as a function of length Concept exploration model Concept exploration model (CEM) is a computer-oriented design method, which in contrast to most other computer methods does not use an optimisation routine. CEMs are specific for one ship type. Every ship type requires another model. CEM consists of three phases: the pre-processor, the processor and the postprocessor. In the pre-processor the user specifies ranges of main ship dimensions and parameters he wants to examine, e.g., a range of ship length, width, depth, draught and block coefficient, and a step size for each of these parameters. For each discrete combination of values a design is produced by the processor. Also, economic parameters may be calculated. To limit computer time, the programme may reject solutions that do not comply with basic requirements like the metacentre height or minimum freeboard. The calculation procedures in CEM are for the greater part based on common procedures. These procedures generally make use of statistical data of previously built ships. In the last part of the programme, the post-processor, the user can set boundaries to main dimensions and/or resulting parameters of the design such as deadweight, power, volume of holds and steel weight. Designs outside these boundaries are rejected. The remaining ones can be compared to each other and ranked by means of a merit function consisting of one or several parameters. CEM can find the optimum design for a specific ship type, but only as far as this optimum can be determined by fixed equations and statistical data. Due to the large number of designs that is calculated, there is a good chance that the model finds a design that is better than the design the user would have found without this number-crunching method. Therefore, this method is an incentive for improvement innovation within certain restricted boundaries. Because a CEM is specific for every ship type, basic innovations are not possible. Figure 516 illustrates the output of a CEM calculation: ISO lines related to ship length and block coefficient.

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Figure 516: ISO lines related to the ship’s length and block coefficient

22.3. Shipping innovation methodology Shipping innovation is a complex matter, but basically no more complex than the innovation process in other industrial segments. However, if one wishes to strive for basic innovations, which form a clean break from past concepts and designs, the innovation process loses its comfortable structure that is customary for most of the improvement innovations. Where to start and how to structure the opportunity search for new shipping concepts? The objective of this book is to provide the innovator with a methodology which will help him and his colleagues to successfully accomplish this challenging task, without 'en route' getting stuck in the solutions of the past. The Shipping Innovation (SI) methodology is not a miracle cure which leads automatically to innovations, but rather a road map, a tool box or a set of instructions to help structure the innovation process. And foremost, to become aware that SI requires relatively little engineering expertise, but a whole lot of knowledge of markets, logistics, cargo handling, operations, technologies, performance indicators, benchmarking against competition, and the like. The innovation will not be created by a freewheeling brainstorm session only, but by arduous work concerning the total ramifications of the ship and its environment. This will provide the triggers for innovation. Environmental analysis in the widest sense forms the springboard for the innovator to apply his combination of creativity, engineering skills, intuition and rational evaluation knowledge which will ultimately result in a shipping innovation. Innovation is difficult to learn from textbooks, and this situation is even further complicated by fact that the curriculum of most engineering and business schools does not include courses on creativity and innovation. This is particularly worrisome as business managers and engineers are first of all persons who should understand creativity and innovation, and they should be equipped with the tools to conceptualise, analyse, visualise, synthesise, calculate, innovate, transform and modify the physical 549

Part IV – Ship Design and Case-Studies reality, either through products, processes or services. The Shipping Innovation methodology is based on a twelve steps process, which will be discussed below in more detail: x x x x x x x x x x x x

Step 1 - Who innovates and what is the business context? Step 2 - Organisation of innovation management; Step 3 - Problem definition/opportunity search; Step 4 - System modelling; Step 5 - Benchmarking of parameters; Step 6 - S-curve limits and shifts; Step 7 - Formulation innovation triggers; Step 8 - Stimulating creativity; Step 9 - Defining preliminary shipping innovation concepts; Step 10 - Applying traditional maritime design methodologies; Step 11 - Evaluation criteria and concept selection; Step 12 - Detailed design and feasibility of shipping innovations.

The twelve steps will be discussed below in more detail.

Step 1 - Who innovates and what is the business context? There are shipyards developing standard designs for reefers, bulk carriers, product tankers, chemical tankers, container ships, etc. Sometimes these standard designs involve basic innovations, but usually they stay at the level of improvement innovations. The designs are made with the objective to create a series of ships, which will allow the yard to create economies of scale in product development and shipbuilding. Also, the designs are optimised from a production perspective, in order to minimise steel weight and/or welding meters. There are of course exceptions. The shipyards develop their design based on previous experiences, benchmarking of competitive designs and discussion with owners/operators. Their objective is however to sell ships, or rather, to minimise idle hours of the workforce and maximise the utilisation of the production facilities. Basic innovation is risky for a shipyard, as it requires an investment in the project team, the research of tank testing and marketing to the prospective owners, without a guarantee that the shipowner will not ‘steal’ the idea and builds it with another, cheaper yard. Therefore most of the shipyards confine themselves to improvement innovations and leave the more basic work to shipowners and specialised consultants. Another reason why shipyards are reluctant to spend a lot of money on basic ship innovations is the fact that most designs cannot be properly protected by patent rights. Most basic innovations, like the container, are in themselves simple, existing technologies which are used in a new combination. In practice this is very difficult to protect; some countries, like Japan, have opted in the past for a policy of patent flooding, which means that they have registered thousands of ideas on minor design details. In case somebody comes up with a similar idea, which is part of a larger new concept, they sue and offer a way out by cross-licensing in the best of cases. This is usually at the detailed design level; new ship concepts cannot really be patented, although there have been exceptions like the L.A.S.H. (Lighter Aboard SHip), the wave-piercing catamaran and the double acting ice class ships. Shipyards that developed innovative designs cannot adequately protect their conceptual design, as it will quickly be copied with minor modifications by others. They therefore concentrate in general on marginal design improvements, which are of course also important when the current design is in the 550

Part IV – Ship Design and Case-Studies mature phase of the life cycle. This leaves it to the shipowners and consultants to develop basic innovations, new concepts for existing maritime trades or new trades, which until now could not move either because of the high freight level, or the too costly handling of the product. The problem with the shipowners in exercising this role is, that since the dramatic shipping years of the mid-1980s most of them have shed their staff in an attempt to stay afloat. They often have taken rescue to flags of convenience, ship-management companies and reduced overheads to the minimum, concentrating on finding employ for their ships and fending off the banks that attempted to take possession of the asset. An owner without an operational/nautical department, without crew management, without maritime engineers or naval architects is hardly able to initiate new designs, although the chartering department, which acts as an in-house broker, may spot opportunities for improvement. Luckily, a whole new category of owners also appeared during this through in the freight market of the 1980s on the scene: the industrial shippers/shipowners. For example the large forest-products manufacturers, who control the whole logistical chain and who are able to take a holistic view of shipping. This new demand and the increasing reduction in captive know how within many shipping organisations, facilitated the work of the independent consultants to some extent. However, the lean years in shipping have made also within this category of designers many casualties, although the tide has clearly turned since the bumper year 2004. The bottom line is that there is in general not a lot of captive expertise left within the shipowning community. If, in spite of this, the shipowners wishes to innovate the ship, he has to rely for a major part on the work of outsiders; this means that he has to be prepared to allocate resources (funds) to such a project, and not merely use in-house human resources that would lower the procedural and psychological threshold for trying to innovate. So, the first hurdle to be taken is to create a budget for the project. It is no use to try to innovate on the basis of inadequate funding. This also forces the shipowners to really make a positive choice for a research (or rather development) project. He can also create a consortium, with other shipowners, brokers, yards, and marine equipment suppliers. The innovation team, managed by the shipowner, should also contain a combination of different experts, from chartering, logistics, operations, finance, design, cargo handling, equipment suppliers, ship construction and building. Budget constraints usually put a limit on the number of man-hours and thus time that can be spent on internal research, but also on, for example, tank testing. Most of the owners balk at a budget which exceeds US$ 500,000; this means that innovation in shipping is, unlike in many other industries, more or less a shoestring operation. It has to be fast and low-cost, there is little room for mistakes and experimentation. Many owners find the above amount already way beyond their means and simply believe that detailed design and all kinds of model testing will come free from shipyards, once they have provided them with a basic conceptual design. In view of the very large investment in a ship (up to US$ 100 million), the R&D budget is in general extremely small. In sum, basic shipping innovations should be initiated by the shipowner, as he has the best insight into the multi-faceted triggers for innovation in design, but he has to do this in close cooperation with many other experts. Innovation budgets are in general very meagre and shipowners expect a lot of mileage out their R&D dollars, which demands a lot of creativity in putting together a team of experts, who are willing to work often for nothing but a promise of future involvement in the project, a sort of moral IOU. Consultants may find it hard to live from just that.

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Step 2 - Organisation, innovation management, concurrent engineering The small R&D budgets for design innovation dictate a very efficient organisation and lean management; the short time-horizon of many shipowners demands a 'quick & dirty' mentality of the project management. In other words do not study too long, there is a small time-window, come up quickly with results otherwise your support will run out. Innovation in shipping is often characterised by this “shorttermis”. The most efficient way to achieve the low-cost, quick results is by using the concurrent engineering design concept; the different fields of expertise should work in parallel, and coordinated by the a strong project manager from the shipowner. This should be a senior executive, as he has to translate the owner's ideas into the innovation, watch the budget, achieve results, and liaise with the rest of the shipping company's management and directors. He needs to have lobby power and respect from his peers. A SI project should preferably not be managed by a researcher or a manager from another staff department. It is the line manager, with little time available and time to waste who should chair and coordinate the design innovation team, but who can also defend the vulnerable project during its gestation period.

Step 3 - Problem definition/opportunity search Once the concurrent engineering innovation team is formed and the budget approved, as well as deadlines are set, the first important phase of the design project is to define and redefine the innovation problem or rather the innovation opportunity. This seems a trivial start, as the project got approval on a problem definition or outline specification of the innovation task. Nevertheless, there are many ways to look at the world, and the perception determines what you see or want to see. Consider the story of the two shoe-salesmen who were sent at the start of the 20th century to Africa in order to scan the market potential for their footwear. After six months of surveying the potential, one came back very depressed, as there was no market for footwear in Africa since “everybody walked barefoot”'. The second salesman returned in euphoria as his potential market seemed to be unlimited as “everybody walked barefoot”. A well-known problem: two people looking at the same situation and seeing different things. An example from the maritime industry shows that the question of perception and the definition of the 'real' problem are very difficult, like in the case of single-hull tankers versus double-hull oil tankers. The double-hull tanker has been triggered by the U.S. Oil Pollution Act 1990, which has the objective is to minimise oil spills and protect the marine environment from shipping. It is a well-known fact that in shipping around seventy percent of the accidents arises from human failures and not from technical failures. The double-hull tanker does not solve 70% of the potential pollution problems from tankers along U.S. coastal waters and ports. If one counts the costs of the transformation of the tanker fleet into a double hull fleet, and measure the relative effectiveness of the solution with other potential measures, than the focus of OPA90 was not so clear. Consider for example vessel traffic systems in the U.S., which were virtually nonexistent in the early 1990s. The most pressing example at that time was the Houston Ship Channel, where the Coast Guard had to rely on their eyes and ears to guide the highly dangerous chemical tankers safely through this passage, without the aid of radar and the like. So from a cost-effective point of view, the OPA90 act should rather have focused on the upgrading of the VTS-systems in the U.S., but then the burden of investment would have fallen on the U.S. ports, which is more difficult to implement than taking a measure which only affects foreign shipowners. They have no lobby power in Congress and do not represent any votes.

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Part IV – Ship Design and Case-Studies An innovation project can always be defined in many ways and it is the challenging task of the project team to come up with as many perspectives and definitions as possible. This task is harder, when the trigger for the design project has not been a problem, but is rather the uneasy feeling of looking for opportunities. How does one operationalise such a task? The standard approaches involve a discussion with the managers of the shipping company during which the following basic questions are asked and answered: x

x

x

Define the objectives/mission of the company; this forms the background (Gestalt) against which the problems/opportunities take shape; without objectives there are no problems or opportunities; Next, the managers should list all the problems/opportunities associated with the innovation task under consideration; these problems should then be divided into two categories: internal problems and external problems, which cannot be influenced by the management such as the freight rates in the tanker market; Finally, the managers should filter these problems and classify them into basic-problems and sub-problems, which results in a problem-hierarchy.

What might be useful as a next step is the creation of an integral or (w)holistic picture of the problem/opportunity through the sketching of a dynamic model, in which all the variables are drawn and the causal loops show the interactions. Often it is a good idea to consider the problem from a higher level, first ignoring the present situation. According to Stian Erichsen in Management of marine design (Erichsen, 1989), innovations are often prohibited by the initial formulation of the required innovation. The objective of a design job must be expressed so that no possible solution is excluded. Shipowners are often concentrated on one solution. When they express the aims of the design, they may encourage particular solutions or introduce conditions that restrict the possible solutions to some familiar type. Therefore, it may be worthwhile to spend some effort on reformulating the design aims: "The aim should express the design (innovation) objectives in a way that clearly states the purpose of the design but also leaves the options open for the wide variety of solutions which may exist." This increases the freedom of choice and encourages creativity and inventiveness. Abstract formulations can be used at any stage in the design process and for any design object. Erichsen gives several examples that clearly express what he means. Two of them are: x

x

Original: Design a bulk carrier where: D = x, B = y, L = z, d = t, V= h, reformulation o Design the transport of x tons of iron ore per year from point A to point B. o Design a bulk carrier that can be traded in the market for twelve years and can call at all important ports and that does not exceed Panamax limits. Original: Design a replacement vessel for M/S XXX Reformulation: o Design a vessel that can provide the same transport at M/S XXX and is adaptable to the expected development in techniques and business.

Step 4 - System modelling The shipping-innovation project, once defined in general terms, should now be focused on areas under control or which can be influenced by the company. It is therefore necessary to start the modelling process with a clear definition of the project (model) boundaries or limits. The boundary of the model is determined by the objectives of the model and the design objective of the innovation project. The shipping company only models the internal problems as endogenous variables, and treats the external problems as exogenous variables. For example, if the innovation project is focused on the 553

Part IV – Ship Design and Case-Studies creation of a shallow draught Suezmax oil tanker, than it is not useful to make a detailed shipping model of the transport of oil through the Suez canal, relate this to the world seaborne oil flows, and relate this in return to the development in the demand for oil, and ultimately to the relationship between world economic growth and demand for energy, in particular oil. This will shift the effort of the modelling work into areas way beyond the competence of the shipowner, and which is anyway of little value to the innovation effort. A better way to treat exogenous variables is to test the model for changes in key-external variables: what is the impact of a change on model behaviour?; if the impact is important, spend some extra time on a more detailed analysis in order to assess the risk on the viability of the design innovation project as a whole. The overall conceptual model of the innovation task will always become complex, a complexity that often cannot be handled integrally. Looking at a new ship concept, the innovation task may be divided into for example the cargo-handling system, the hold structure, the hull design, etc. Many variables in a model are aggregated and therefore the models do not lend themselves to address detailed questions. Besides, managers like to recognise enough detail in the model, it should resemble their mental model, otherwise they become suspicious of the terminology and the structure, and the confidence and acceptance levels will go down with it. The sub-models may thus become subinnovation projects, which can be handled by different teams. Naval architects should be involved in the hull form, hydrodynamics, propulsion system and machinery, etc.; cargo handling experts should be involved in new handling processes, hold or tank structures. The example of the chemical tanker based on the cylinder tank type containment system is an example of the 'division of labour' in an shipping innovation project. The entire process should be closely supervised of course, so that not every sub-group steers its own course; that is the job of the project leader, the spider in the concurrent innovation project. It is also useful to apply value analysis techniques in this phase of the project, in order to set priorities and define the problem/opportunity search hierarchy. The modelling effort will also highlight the driving forces of the model; these should be addressed urgently, as they may control the whole design innovation projects. Each variable should be carefully discussed and especially when new concepts are defined, and it will require a positive, creative attitude to venture into uncharted territory. For example, a design project of a chemical tanker may define the cost of cargo claims as a result of contamination of the cargo through cracking in the stainless steel tanks as a variable of the model, and thus an issue to be dealt with in the new design. The generic problem definition should than be formulated as "how can we design a tank (form, structure, material) that does not crack at all?". Although this may seem a trivial question, it may lead to consider new tank forms like the cylinder tank type, or the Stolt-Nielsen solution of the longitudinal cofferdams. The model will also indicate the relationship between the variables and from this, the critical factors and the critical paths may be identified. The innovation team will set priorities on the basis of this insight. Besides, a model is a powerful communications tool within the design team and between the team and the rest of the organisation. The other benefits from modelling the design innovation project are: x

Information that is necessary to fill the model variables and parameters is usually not readily available, while the 'educated guess' from the managers is often very far from reality. The administrative procedures are consequently changed in order to provide the data in the future. An example is the production of slops from tank washing on chemical tankers, which can be found in the book Innovation in chemicals shipping (Wijnolst N. , 1994). Very few managers 554

Part IV – Ship Design and Case-Studies within chemical shipping companies are able to estimate within a margin of 50% the actual slops production on their ships, as it never was their concern. P&I claims as a result of cargo contamination because of cracks in the tanks of a chemical tanker is another example; very few managers are aware of the real cost of cracking, as the insurance claims are handled by a department that in general does not report this kind of 'back office' information to the topechelons. The introduction of quality management systems and the obligation to administer the International Ship Management Code within shipping companies has helped to get companies to focus on these kinds of 'trivial data' signals. Signals that can become triggers for innovation. x

The systematic identification of the important variables that affect the design (and the company) through a model-building process, will help to strengthen the manager's mental model.

x

Managers are often absorbed in their day-to-day business, especially in shipping, as there is always bad weather, a strike in a far-away port, broken-down equipment, a bad debtor, an unhappy banker and the like to take care of. A model of a shipping innovation project pins them down to think about the future, and not only about tomorrow. This will help the managers to think ahead, make abstractions and aggregations.

x

If the model is not only verbal (causal loop diagram), but also translated into quantitative terms, it can be used to translate it into a simulation model of the innovation project. The manager can thus easily play around with the model himself, which may increase his confidence level, and consequently make him more liable to accept the final outcome.

x

The results of the modelling process are constantly fed back to the design team, which will lead to modifications of the original model, as new insights and ideas are triggered. Gradually the process will converge over time towards a solution.

The model is thus the common tool, or language of the design team through which evaluation of current and new ideas are tested and selected.

Step 5 - Benchmarking of parameters Innovation in shipping is done by companies to create a competitive advantage; its aim is to increase the relative performance of the shipping company in comparison with other operators in the sector. Performance can be translated into indicators. The modelling effort of the shipping innovation project as discussed above, provides the variables and parameters that are the indicators on the basis of which the performance can be measured. This process, which is called benchmarking, is an essential instrument in the design process. It provides an objective basis to compare performance within a company. Most of the companies have only looked at financial performance indicators, related to the balance sheet ratios and profit and loss accounts. Financial information is very important, but it requires in depth knowledge to link financial performance to operational performance. The benchmarking exercise will help shipping companies to extend the way they measure their own performance and that of the competition.

Step 6 - S-curve limits and shifts Benchmarking of the performance of shipping companies indicates the relative performance but not the absolute performance levels that can ultimately be attained. In order to assess these ultimate performance limits, it is necessary to construct S-curves, in which the relationship between innovation/ 555

Part IV – Ship Design and Case-Studies research/development effort is plotted against performance. In the absence of detailed S-curve data, it may be approximated via for example the plotting of time series such as the cost per ton for transport or handling. The example of the change over time from general cargo shipping to container shipping, as discussed earlier, shows that in spite of the concerted effort of shipowners and shipbuilders to improve the general cargo ship's cargo handling performance, the improvements had a marginal effect and the cost kept spiralling upward. This type of simple graphical time-series is often enough to understand the innovation challenge and to trigger innovation, beyond the traditional boundaries. The S-curve, or related graphs, helps the innovation team to assess the technology and speculate about the shifts in technology; this may also lead to new limits and a change of the model boundaries and even the structure. Model building, benchmarking and S-curve assessment set the stage for the creative phase in the shipping innovation project. It can be compared with the 'long march' which is sometimes frustrating as it gives the innovation team the impression that they are not creatively working on innovation. It can however be compared with the warming up of athletes; this is important to perform, without it, they ruin their muscles and never achieve the highest results.

Step 7 - Formulating innovation triggers These are: laws of physics triggers, geographical conditions triggers, economic parameters triggers, regulations triggers, related sector triggers, and of course innovation methodology triggers. Once the triggers have been identified and quantified, they form the basis of creative problem solving groups and techniques.

Step 8 - Stimulating creativity Each trigger can be taken as a basis for the application of creativity techniques. The Innovation team should have at least one person assigned to the role of independent facilitator, who keeps track of the methodological aspects of the creativity process and who is not involved in the actual innovation process. This facilitator should have followed a formal training in the use and scope of the various techniques. Training should have preceded the formation of the innovation team. The facilitator may propose techniques which are particularly suited for a certain task. For example, if the team's job is to develop a low resistance, very fast craft, than it may study the design of torpedoes. The Russians have developed an innovative torpedo, which creates an air cushion around it shell, which lowers its resistance and increases its speed to 200 knots (compared to 80 knots for conventional torpedoes). Sometimes free association, followed by technological analogies, followed by morphological analysis and/or idea card-brainwriting. Thus, divergent and convergent techniques are used, depending on the subject and the mood of the design team. Negative brainstorming is a very liberating effort if the design team is stuck and deactivated. The facilitator should therefore also be an individual with certain sensitivity towards the group dynamics. At the same time, the individual members of the team should be encouraged to use their own strength independently in order to come up with ideas. Some like to innovate-by-drawing, while others need a walk on the beach, or a stiff drink to tap their creative resources. The design team may also use advanced group decision rooms for their creativity sessions; this facilitates parallel and anonymous brainstorming with a relatively large group of people, roughly twice the number as used in normal group session.

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Step 9 - Defining preliminary shipping innovation concepts On the basis of the different working groups/creativity sessions, the best ideas are selected and put together into a number of conceptual designs. The advantages and disadvantages of each concept are formulated in qualitative and quantitative terms. The concepts are ranked accordingly and a selection of the best concepts is made. The previous step may be repeated if the concepts do not satisfy the expectations.

Step 10 - Applying standard maritime design methodologies This step is more or less equivalent to the standard design methodologies. Standard calculation programmes are not always applicable in case the design innovation is so novel that the current routines cannot be transformed. The same is true for the classification rules and regulations; it is therefore necessary to discuss new concepts in an early stage with the classification society's representatives. It should be avoided that newness is aborted because it requires a change in the design rules and regulations.

Step 11 - Evaluation criteria and concept selection Performance indicators that led to the innovation triggers can now be used to evaluate the new designs in more detail. The important criteria should be met and a balance should be sought between primary and secondary design parameters. These are not always of monetary nature, but may also be the damage stability coefficients. This process should lead to the selection of one design.

Step 12 - Detailed design and feasibility of shipping innovations The selected innovation/design should now be engineered in detail, and the detailed costs and benefits of the ship should be established. The standard operational, economic and financial feasibility studies will lead to an overall evaluation of all the relevant aspects. On this basis the management of the company can decide to perform further market analysis, or approach shipyards for actual quotations. They may also decide to try to patent certain novelties in the design. This should be done, before the outline specification is sent to the shipyards. The entire Shipping Innovation process will probably take no more than six months. This pre-supposes that various elements have already been researched in advance, such as the benchmarking of the shipping companies performance, as this takes a lot of time, due to a limited availability of information. The SI methodology is not cast in iron; it may however become an improvement over existing design methodologies. But then again, this may be overtaken by better propositions, as "the only constant (in shipping) is change"!

22.4. Mission-based ship design47 There are many types of ships built for different cargoes and conditions. Payload capacity and performance varies. The goals for the ship design are not the same for all shipowners. The naval architect must consider many different requirements and expectations in his design task (Figure 517). To be successful, the naval architect needs a simple but efficient ship design methodology.

47

Contribution by Kai Levander 557

Part IV – Ship Design and Case-Studies

Cruise Ship • GT • DWT

Tanker

140 000 10 000

• DWT / '

• GT

140 000

• DWT

260 000

• DWT / '

0,2

Cargo Oil Tank

Ballast Water Tank

0,8

Cargo Oil Tank

Cargo Oil Tank

Ballast Water Tank

Figure 517: Deadweight carriers and capacity carriers The most common way to describe the ship design has been by a spiral model, capturing the sequential and iterative nature of the process. The task structure is design-evaluate-redesign. This model easily locks the naval architect to his first assumption and he will patch and repair this single design concept rather than generate alternative ones. An approach that better supports innovation and creativity should be used. The design should start from the mission specified for the ship. There are two types of input data: demands that must be followed and preferences that describe goals. Dividing the requirements into musts and wants makes it possible to reduce the design work needed to find a technically feasible and economically preferable solution (Levander K. , 2003): x

x

x

Mission statement o Payload capacity, speed and range; o Restrictions in ports and on route; o Geographical conditions, like sea currents, tropical weather, ice. Initial sizing of the ship o Capacity carriers, e.g. container vessels, ferries and cruise ships, where the volume of the payload determines the size of the vessel; o Deadweight carriers, e.g. oil tankers and bulk carriers, where the weight of the payload determines the size of the vessel. Parametric exploration o Variation of main dimensions, hull form and lay out of spaces onboard in order to satisfy the demand for space for both the payload and ship functions.

Mission oFunction o Form o Performance o Economics 558

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Initial sizing of the ship The initial sizing is based on the space required for the payload and for the supporting systems onboard the ship. In a tanker the volume of the cargo tanks and the protecting double hull defines a major part of the space needed in the ship (Figure 518). The double hull is used for ballast water on the return voyage, when there is no oil in the cargo tanks. In a cruise ship the sizing is based on the passenger facilities, but crew and service spaces also demand much space. In addition technical spaces for machinery and storage tanks for fuel, fresh water, etc., are to be added (Figure 519).

700 000 Bunker, Technical, Crew

600 000

Volume [ m³ ]

500 000

Ballast

400 000

300 000

Cargo

200 000

100 000

0 0

50 000

100 000 150 000 200 000 250 000 300 000 350 000 400 000 DWT [ ton ]

Figure 518: Initial sizing of double-hull tankers 450 000 400 000 Technical & Tanks

Volume [ m³ ]

350 000 300 000 250 000

Crew & Service

200 000 150 000 Passengers 100 000 50 000

500

1 000

1 500 2 000 2 500 Number of Passengers [ D.O. ]

3 000

3 500

Figure 519: Initial sizing of cruise ships

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Defining the size of the vessel There are many different ways to define the size of a ship. For tankers and bulk carriers deadweight is often used to indicate the cargo capacity. Deadweight includes cargo, bunkers and stores, so the actual payload capacity will to some extend depend on the length of the route. For container vessels it is more logical to indicate the number of containers that can be carried, but then also the average weight of the containers must be considered. In ro-ro vessels the length of the cargo lanes is used to indicate how many trailers and lorries can be loaded. If ships of different type have to be compared, gross tonnage (GT) should be used. GT indicates the total volume of the ship. Back in time when ships were built in wood the GT was calculated for the cargo spaces inside the ship and was measured in 100 cubic feet (Figure 520). The GT has been used as a base for port fees and tolls, manning requirements, rules and regulations. Today the total volume of the ship, the Gross Volume, is calculated in cubic meters and converted to Gross Tonnage by a formula agreed upon at the “International Conference on Tonnage Measurement of Ships 1969 (Figure 521)

Figure 520: Swedish ship measurement from 1723 (Lessenich, 2002)

Design criteria for cargo ships For cargo ships there are three main factors affecting the technical feasibility and the profitability of the design. The deadweight/displacement ratio indicates how much payload, bunker oil and stores the ship can carry in relation to the total displacement. Tankers and bulk carriers have the highest ratio, while small, high-speed ferries have very little deadweight. Most of it is needed for bunker oil and not much is left for the payload (Figure 522). The speed and power must be judged in relation to the displacement of the vessel (Figure 523). At speeds below 20 knots the power demand increases slowly with increasing displacement, but at 35 or 40 knots the power curves become very steep. The third factor is the lightweight density, which is an easy way for a first weight estimate (Figure 524).

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Part IV – Ship Design and Case-Studies

500 000 450 000

Gross Volume [m3]

400 000 350 000

GT=( 0,2 + 0,02 x log GV ) x GV 300 000

GV| 3,2 x GT

250 000 200 000 150 000 100 000

GV| 3,4 x GT

50 000 0 0

25 000

50 000

75 000

100 000

125 000

150 000

Gross Tonnage

Figure 521: Relation between gross tonnage and gross volume 1,0 Bulkers

0,9

Tankers 0,8 Container Vessels DWT / Displ

0,7 0,6 RoRo 0,5 0,4 RoPax 0,3

Fast Ferry

0,2 0,1 0,0 0

100 000

200 000 Displacement [ton]

300 000

400 000

Figure 522: DWT/Displacement

561

Part IV – Ship Design and Case-Studies 100 90 35 kn Propulsion Power [MW]

80 30 kn 70 25 kn 60 50 20 kn 40 30 20 15 kn 10 0 0

100 000

200 000 Displacement [ton]

300 000

400 000

300 000

400 000

Figure 523: Speed and power 0,20

LWT / Gross Volume [ton/m3]

0,18 0,16 0,14 0,12

Container

0,10

RoPax RoRo

Tanker

Fast Mono Hull [ Steel]

Bulker

0,08 0,06 Fast Catamaran [ Alul]

0,04 0,02 0,00 0

100 000

200 000 Displacement [ton]

Figure 524: Lightweight density

Ship-design process The starting point is the mission and the functions of the ship (Figure 525). All systems needed to carry out the defined tasks are listed first. The areas and volumes to accommodate all systems are then calculated. This design method does not need pre-selected main dimensions, hull lines or standard layouts. System-based design is like a checklist that reminds the designer of all the factors that affect the design and records his choices. It gives the possibility to compare the selections with statistical data derived from existing, successful designs. The result is a complete system description for the new ship, which will act as the base for further design work (Figure 527). Ship’s functions can be divided into two main categories, payload function and ship function. In a cargo vessel the payload functions consist of cargo spaces, cargo handling equipment and spaces needed for cargo treatment onboard. The ship functions are related to carrying the payload safely from port to port (Figure 526). 562

Part IV – Ship Design and Case-Studies

Performance

Economics

• Resistance • Propulsion • Hull Structure • Machinery • Outfitting • Safety

• Building cost • Operating cost • Required freight rate • Profitability

Mission

FINAL DESIGN

Function

• Transport logistics • Route • Capacity • Speed • Restrictions

• Payload systems • Ship systems • DWT / ' • Power - Speed • Gross Tonnage

Form • Main dimensions • Hull lines • Space balance • Weight balance • Trim and stability

Structure

Hull, poop, forecastle Superstructures

Crew Facilities

Crew spaces Service spaces Stairs and corridors

Machinery

Engine and pump rooms Engine casing, funnel Steering and thrusters

Tanks

Fuel & lub oil Water and sewage Ballast and voids

Comfort Systems Air conditioning Water and sewage Outdoor Decks

Payload Function

Ship Function

Figure 525: The ship-design process

Cargo Units

Containers Trailers Cassettes Pallets Bulk / Break Bulk

Cargo Spaces

Holds Deck cargo spaces Cell guides Tanks

Cargo Handling

Hatches & ramps Cranes Cargo pumps Lashing

Cargo Treatment

Ventilation Heating and cooling Pressurizing

Mooring, lifeboats, etc.

Figure 526: Payload and ship functions 563

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MISSION

ROUTE, CAPACITY, SPEED, RESTRICTIONS

FUNCTION AND SYSTEM DESCRIPTION CARGO

Payload

AREAS

CARGO HANDLING

VOLUMES

CARGO TREATMENT

CREW FACILITIES

Operation

AREAS

VOLUMES

SERVICE SPACES ENGINE ROOM

Machinery

AREAS, VOLUMES

TECHNICAL SPACES

Tanks, Voids

6

VOLUMES

GROSS TONNAGE

WEIGHT

BUILDING COST

Lightweight Deadweight

Design Material Labour

FORM AND PERFORMANCE 45, 0

41, 50 40, 0

Main Dimensions

L • B • T • CB = ’

Wheel house

38, 70 36, 00

35, 0 33, 30 30, 60

30, 0

27, 90

Hull Generation

25, 20

25, 0 Upper Deck

Space balance

22, 50

20, 0

KM 15, 0

Weight balance

KG

Eng ine Room

CWL

10, 0

Speed & power

5,0

-20, 0

-15, 0

-10, 0

-5, 0

0,0 0,0

4,30

5,0

10, 0

15, 0

20, 0

Hydrostatics

Figure 527: System-based ship design

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23.

CONTAINER SHIP DESIGN

This chapter, by Kai Levander, presents a case-study of the design (process ) of a 3,000 TEU container ship, using the mission-based ship design methodology.

23.1. Container ship characteristics Mission of the ship System-based ship design is a tool for the concept phase. The size, weight and building cost of the vessel are calculated based on the mission. The process does not demand that the main dimensions of the ship have been selected and the general arrangement has been drawn. The payload and ship functions are listed and for each of them the required space in the ship is calculated. The space demand is expressed as the deck area and the volume needed for each system. Adding the volumes of all the specified spaces gives the total volume of the ship. The volume calculated in cubic meter (m3) can be converted to Gross Tonnage (GT). Historically one gross ton was equal to 100 cubic feet or about 2.8 m3. Today the conversion of the total volume in cubic metres to GT is through formula Now the weight and building cost can be estimated, based on the areas and volumes calculated from the mission of the ship. The payload and ship functions are listed in the design summary together with the areas and volumes needed for each of them. This summary gives the naval architect a specification of all ship system and a documentation of the design. The mission of the vessel is cargo transport. In the mission description the market segment and the operating area are specified (Figure 528). If the ship is intended for liner service, the route and schedule can also be described. The most important functions of the vessel will be those related to the cargo. The type of cargo, cargo unit and cargo capacity define the base for the vessel design. Cargo loading/unloading systems and onboard cargo treatment should also be specified. An important design input is the demanded speed, which affects not only the machinery power, but also the main dimensions and hull form. The range is needed to calculate bunker tank capacity and provision stores. Rules and regulations often depend on the operation area, like ice-strengthening for year-round operation in the Baltic. The operating area and route can also put restrictions on the main dimensions of the ship. The dimensions of the Panama Canal locks have affected the design of many existing ship types and the new locks under construction will do the same for next generation ship types. Summarising: x x

x x

Market segment o Operating area, length of route, schedule; Payload o Cargo type, cargo unit and cargo capacity; o Cargo handling and treatment onboard; Performance o Speed and range; Rules and regulations o Class and flag; o Crew demand and standard of crew spaces; 565

Part IV – Ship Design and Case-Studies x

Restrictions to the dimensions of the ship o Port facilities, length and draught restrictions; o Max dimensions for canals and bridges on the route.

Containers for sea transportation There are many different types and sizes of containers used today. The use of containers for sea transport started in the USA and therefore the dimensions were in feet, length 20 ft, breadth 8 ft and height 8 ft. The size of this “box” is called TEU (Twenty feet Equivalent Unit) and is used to describe the cargo capacity of container vessels (Levander K. , 2001). ISO has now standardised the dimensions and construction of container types most frequently used for sea transportation (Figure 528). The containers have strengthened corner fittings for lifting and latching. The strengthened corner posts allow the containers to be stacked on top of each other. This means that no intermediate decks are needed in the cargo holds of container vessels. Containers are also carried on the cargo hatches or on open deck (Figure 529). Up to ten layers of containers can be stacked on top of each other (Figure 530 and Figure 531). Typical Container Mix Today: 80% 40ft & 20% 20ft 40 ft CONTAINERS ( 2 TEU or 1 FEU ) Maximum Net Cargo Capacity: Average Net Cargo Carried: Designed for volume cargo: Gross weight: Container Type “high cube” 1 AA (MOST COMMON) 1A

30.48 - 3.48 = 27 tons 14 tons (volume cargo) max. density 410 kg / m3 30 480 kg

Height 2.895 m 2.591 m 2.438 m

Height 9´6” 8´6” 8´

Tare weight 4 150 kg 3 960kg 3 900 kg

2.895 m 2.591 m 2.438 m

12.192 m 2.438 m

20 ft CONTAINERS ( 1 TEU ) Maximum Net Cargo Capacity: Average Net Cargo Carried: Designed for heavier cargoes: Gross weight: Container Type “high cube” 1CC 1C

24.0 - 2.0 = 22 tons 7 tons (volume cargo) max. density 685 kg / m3 24 000 kg

Height 2.895 m 2.591 m 2.438 m

Height 9´6” 8´6” 8´

Tare weight 2 400 kg 2 340 kg 2 300 kg

2.895 m 2.591 m 2.438 m

2.438 m

6.058 m

Figure 528: The 40 ft and 20 ft ISO containers

Container loading and unloading Lift on-lift off is the usual way of loading and unloading containers. In the big container ports shorebased cranes are used for the container loading and unloading (Figure 532). To shorten the port time several cranes are used simultaneously on each vessel. The container cranes have a remote-operated spreader that attaches to the corner fittings on the container before lifting (Figure 533). In port the containers are moved by truck or tractor trailers to and from the ship loading cranes (Figure 534). Also straddle carriers can be used for container transfer. Straddle carriers can stack up to 4 containers to save space in the storage area (Figure 535). Many containers return empty to the producer and to save terminal space they can be stacked 6-8 high with a reach stacker trucks.

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Figure 529: Containers stacked on top of each other 69 tons 69 tons 20 tons / FEU

10

20 tons / FEU

9

20 tons / FEU

8

20 tons / FEU

7

20 tons / FEU

6

20 tons / FEU

5

20 tons / FEU

4

20 tons / FEU

3

20 tons / FEU

2

20 tons / FEU

1

69 tons 69 tons

MAX. STACK WEIGHT ABOVE LOWEST TIER

STATIC LOAD

DYNAMIC LOAD, MAX. 0.6g VERTICAL ACCELERATION

274 tons

175 tons

Max 200 tons TOTAL STACK WEIGHT 10 TIERS of 40´ CONTAINERS WITH AVERAGE WEIGHT OF 20 TONS

Figure 530: Up to 10 layers of containers can be stacked on top of each other

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Figure 531: Stacking of containers onboard

Figure 532: Shore-based container cranes

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Figure 533: The crane spreader attaches to the corner fittings of the container

Figure 534: Transport of containers to and from the quay-side cranes in port

Figure 535: Straddle carrier (left) and reach stacker (right)

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Part IV – Ship Design and Case-Studies Large portal or gantry cranes spanning several rows of containers are used in the storage area, both for stacking the containers and for transfer to or from road vehicle and rail wagon. The gantry cranes can either move freely on rubber-tired wheels or move on fixed rails. In smaller ports the same portal cranes are used both for the ship-to-shore container movements and for the container handling in the storage area (Figure 536). Stacker trucks use spreaders attaching to the top corner fittings of the container. The trucks are used in the terminal storage area or to load smaller feeder vessels or inland vessels or barges (Figure 537).

Figure 536: Rubber-tired gantry crane for container transfer to road vehicles or rail wagons

Figure 537: Container stackers used to load deck containers on a small feeder vessel

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Part IV – Ship Design and Case-Studies Container vessels can also be fitted with onboard cranes for loading and unloading containers. Feeder vessels visiting smaller ports often have cranes. The lifting capacity of ship cranes is typically 40 tons at 25 metres outreach (Figure 538).

Figure 538: Shipboard cranes for container handling

Securing containers The length and breadth of the cargo holds are adapted to the container dimensions (Figure 539). In the holds the containers are kept in place by flat bars or L-bars fixed to the bulkheads. These supports are called cell guides. The cell guides are welded to the transverse bulkheads between the holds or to support frames in the hold (Figure 540). Depending on the weight of the cargo 9 or 10 containers can be stacked on top of each other in the cell guides.

Figure 539: Containers stowed in the holds, on hatches and on deck Containers carried on the hatch covers or on deck are locked to each other with twist locks inserted into the corner fittings. In addition the containers are tied to the ship with lashing bars and turn buckles. Lashing bridges or fixed cell guides can be installed also on deck to reduce the lashing work in port and better protect the containers from being washed overboard in heavy weather (Figure 541 and Figure 542). 571

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Figure 540: Cell guides and corner fittings are used to support containers in the cargo

Figure 541: Lashing the containers on hatch covers or on deck

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Part IV – Ship Design and Case-Studies

Figure 542: Lashing of containers stowed on deck

Container ship characteristics Container vessels make up some 10% of the world merchant fleet. The ships are increasing in size and the average cargo capacity is reaching 4,000 TEU. The hull is divided into several cargo holds (Figure 543). The length and breadth of the holds is selected to suite the container dimensions. On the hatch covers additional containers are carried as deck cargo. The number of containers carried on deck is often greater than those in the hold. This makes the hull small and reduces the building cost. The gross tonnage is also low for container vessels and port fees and channel fees lower than for other type of cargo vessels with the same payload capacity.

Figure 543: 2,500-TEU container vessel

573

Part IV – Ship Design and Case-Studies Large hatch openings are needed in the weather deck to vertically lift the containers down the cell guides in the holds. Only narrow side decks are left outside the cargo holds (Figure 544). To strengthen the vessel a double side hull construction is used with a box section at the upper end. This box is built of very thick plates and is often used as a service corridor running the full length of the ship (Figure 545). Below this corridor the double-side hull is used for ballast water or fuel oil.

Figure 544: Finite element calculation of the hull stresses in a container vessel

Figure 545: Mid-ship section showing the double hull and box structure under the narrow side decks A special type of container ship is the open-top vessel, which has open holds without hatch covers. This vessel needs higher freeboard to reduce the amount of water entering the holds in heavy weather. A high capacity bilge pumping system is also installed in the cargo holds. Heavy tropical rain can give more water ingression than heavy waves at sea (Figure 546). The disadvantage of the higher freeboard 574

Part IV – Ship Design and Case-Studies is increased GT and increasing port and canal fees. In an open-top vessel the cell guides in the holds can be extended above the deck to also support the deck cargo.

Figure 546: Open top container vessel

Container ship characteristics The container ship design has been developing fast from small to bigger and bigger vessels. The number of container rows and the number of containers in the stacks in the cargo holds and on deck can of each generation of container vessels be seen in Figure 547. A Panamax container vessel with a 32.2-metre breadth can have 11 rows of containers in the hold and 13 on deck, as can be seen in Figure 548. Post-Panamax ships typically have 14-20 rows in the hold and 16-22 on deck. The biggest container vessel today, the “Emma Maersk” has 20 rows in the hold and 22 on deck. In a few years from now however, the new locks of the Panama Canal will lift this design limit, which had such immense impact on generations of ships. The width of the new locks will be 55 meters, allowing vessels up to a breadth of 49 metres to pass the waterway, subsequently creating a new class of vessels.called the New PanamaX (NPX). Figure 549 shows a comparison between the new Panama Canal and the Suez Canal.

23.2. System-based ship design Design steps The system-based design proceeds step by step to define the concept design of the vessel. Concept design is the first phase in the ship design task and is also called Project design. The concept design forms the basis for developing the technical drawings and calculations needed for signing a new shipbuilding contract with the shipowner. The ship specification and the general arrangement drawings are the most important parts of the ship contract documentation. 575

Part IV – Ship Design and Case-Studies

Figure 547: Container rows and stack heights in the holds and on deck for vessels

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Part IV – Ship Design and Case-Studies

Figure 548: Panamax container vessel, 11 rows in the hold, 13 rows on deck 50

40

30

NPX

10

Suez

Suez 77,5 m

New Panama 49,0 m

20

0 -40

-30

-20

-10

0

10

20

30

40

-10 New Panama 15,2 m Suez 18,9 m -20

Figure 549: Panama new lock limits compared to Suez Canal

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Part IV – Ship Design and Case-Studies

SystemͲbaseddesignsteps TransporttaskͲcontainersizesandtypes ͲCapacity ͲSpeedandpowerdemand ͲRouteandports Functiondescription CargoSpaces ͲContainersinholds  ͲContainersondeck  ͲOpentopcargoholds  Cargosecuring ͲCellguidesinholds ͲCellguidesondeck  CargoRelatedSpaces ͲHatchcover ͲContainercranesonboardtheship ͲServicecorridorsunderdeckpastthecargo holds Crewandservicefacilities Technicalfacilities ͲPropulsionmachinery ͲAuxiliarypowerandshaftgenerators ͲSteeringgearandbowthrustersrooms ͲWorkshopsandstores ͲBunkerandothertanks Systemsummary  Lightweightanddeadweight Buildingcostestimate Maindimensionsandhullform

GeneralArrangement  StabilityCheck 

Rulesandreferences ISOcontainersorspecialsizes SplitbetweenISO20and40ftcontainers Numberofrefrigeratedcontainers Restrictiontomaindimensions Payloadsystems Shipsystems  Numberofcontainerrowsintheholds Stackheightinholds(max9or10) Numberofcontainerrowsondeckandhatchcovers Stackheightondeckandhatches(sightlinefrombridge)    Additionalspaceneededforthecellguides Heightofcellguidesondeck   Hatchcoversweightmax30tonifliftedbyshorecranes Liftingcapacityandoutreach  Basedonnumberofcrew Flagstaterules  Basedonspeeddemand,useshipstatisticsasreference Poweralsotorefrigeratedcontainers   Basedonrangeandendurance Areasandvolumesneededtofulfilallthefunctions GrossTonnagecanbecalculated Lightweightiscalculatedforthemainweightgroups Deadweightiscalculatedforthetransporttask Basedonsystemsummaryandweightgroups Useshipstatisticsasreferenceformaindimensions SelecthullformcoefficientbasedonFroudeNumber CheckareasandvolumeswiththeSystemSummary Roughlayoutproposal Locationofcargoholds,machineryanddeckhouse EstimateKGforLightweightandDeadweight CalculateKMbasedonhullformcoefficients GMmin0,3m,butpreferably>1.0m

Table 135: System-based design steps

Mission description The mission description defines the transport task the ship is intended for. The operation area, cargo and payload capacity is defined. Type of machinery, rules and regulations and other preferences the 578

Part IV – Ship Design and Case-Studies owner might have should be mention. If there are limitations to the ship design, like the maximum dimensions in the Panama Canal or draught restrictions in the ports this should also be recorded in the mission statement. Project: 3000 TEU Container Vessel Name: NTNU 2005 MISSION DESCRIPTION Operation Area: World Wide Description: Regular, year round liner service Target Market: Container Transport PAYLOAD CAPACITY AND PERFORMANCE Cargo Capacity: 3 000 TEU Endurance: 40 days Range: 20 000 nm Trial Speed: 24,0 kn MACHINERY AND ROUGH POWER DEMAND Machinery Type: Slow speed Diesel, FP-propeller Auxiliary Power: 3 Diesel-generators Shaft Generators: No RULES AND REGULATIONS Class: DNV Flag: Norwegian Crew: 20 persons RESTRICTIONS TO THE MAIN DIMENSIONS On Routes: Panama Canal In Ports: No

Figure 550: Mission description for a 3,000-TEU container vessel In the operational description, the intended route and operating schedule is specified. The length of the route is given together with the time at sea and in port. From this the average speed can be calculated and crane capacity needed for the unloading and loading of the containers. Based on the total time per leg the time for a full roundtrip can be calculated and the number of roundtrips the ship can make during a year. These are important data for calculating the total cargo carrying capacity and economic profitability of the operation. Most ships have longer range and endurance than needed for the intended route to facilitate operation also on other routes. The range and endurance influence mainly tank capacities and provision space in the ship. Route: Distance:

Operating Schedule: Time per Leg: Time in Port: Time at Sea: Average Speed: Number of trips: Operating Days:

Hamburg-Baltimore 4 000 nm (one way)

Out 12,0 days 4,0 days 8,0 days 20,8 knots 15 180

Back 12,0 days 4,0 days 8,0 days 20,8 knots 15 180

Round 24,0 8,0 16,0 20,8 15 360

Trip days days days knots per year per year

Table 136: Operational description for the intended route 579

Part IV – Ship Design and Case-Studies

Container ship function

Payload Function

The next step in the system-based design process is to define all functions needed in the vessel and divide them into payload related functions and ship related functions (Figure 551). For each function the space demanded in the ship is calculated. All spaces are defined steel to steel and include the space needed for frames, deck beams or bulkheads. The total volume of all spaces onboard defines the ship size. In this system-based design - process SI-units are used. The gross volume is calculated in cubic meters (m3), but is also converted into the traditionally used GT.

Cargo Spaces

Cargo holds Deck cargo space Open top holds

Cargo Handling

Hatch covers Cranes Cell guides in holds Cell guides on deck Lashing equipment Ventilation Heating and cooling containers

Structure

Hull Poop, forecastle Deckhouse

Crew Facilities

Crew cabins Common spaces Stairs and corridors Ship service spaces

Ship Function

Container Ship Function

Cargo Treatment Power supply to refrigerated

Service Facilities Catering and stores Laundry and linen

Machinery

Comfort Systems

Main and aux engines Casing and funnel Steering gear, bow thrusters

Air conditioning Water and sewage Fire safety Fuel and Lube Oil

Tanks and Voids Water and Sewage Ballast and Void

Outdoor Decks

Anchoring and Mooring Life saving equipment

Figure 551: Payload function and ship function for container ships

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Part IV – Ship Design and Case-Studies

Cargo capacity and cargo spaces The payload related functions are the most important in the ship design process. The cargo capacity for container ships is best expressed in the number of 20-ft containers (TEU) that can be carried. For the design of the cargo spaces it is, however, important to show how many containers are expected to be 20-ft and 40-ft units. The weight per container is used when calculating the deadweight for the ship. The average weight of loaded containers is much lower than the maximum allowed weight. The container ship operators have been using 14 tons/TEU as the design load, but today the average has dropped even further to 8-12 tons/TEU (Table 137). To increase the ship stability light and empty containers are normally carried on deck. CARGO HOLD CAPACITY Container Type: Type 1: 20ft standard Type 2: 40ft standard Type 3: Type 4: Type 5: Total Hold Cargo

No of Units 400 600 0 0 0 1 000

TEU per unit 1,0 2,0 0,0 0,0 0,0

Unit weight 15,0 25,0 0,0 0,0 0,0

No of Category TEU weight 400 6 000 1 200 15 000 0 0 0 0 0 0 1 600 21 000

No of Units 400 500 0 0 0 900

TEU per unit 1,0 2,0 0,0 0,0 0,0

Unit weight 10,0 15,0 0,0 0,0 0,0

No of Category TEU weight 400 4 000 1 000 7 500 0 0 0 0 0 0 1 400 11 500

No of Units 800 1 100 0 0 0

TEU per unit 1,0 2,0 0,0 0,0 0,0

Unit weight 12,5 20,5 0,0 0,0 0,0

No of Category TEU weight 800 10 000 2 200 22 500 0 0 0 0 0 0

DECK CARGO CAPACITY Container Type: Type 1: 20ft standard Type 2: 40ft standard Type 3: Type 4: Type 5: Total Deck Cargo

TOTAL CARGO CAPACITY Container Type: Type 1: 20ft standard Type 2: 40ft standard Type 3: Type 4: Type 5: Total Container Capacity

1 900

3 000

32 500

Table 137: Payload capacity For container ship design it is important to decide how much of the cargo is carried inside the ship and how much are carried on the open deck or on the hatch covers. Only the enclosed cargo spaces are included in the volume of the ship and in the gross tonnage. In modern container ships more than half of the containers can be on deck (Figure 552).

581

Part IV – Ship Design and Case-Studies 10 000

On Deck

TEU

8 000 6 000

In Holds

4 000 2 000 0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 552: Containers carried in the cargo holds and on deck

Layout of cargo spaces For container vessels the layout of the cargo spaces must be based on the container dimensions. Containers are stowed both in the holds and on deck. The length, width and height of the cargo holds follow the number of containers stored in all three dimensions. Often the cargo hold length is selected such that two 40 ft containers can be stowed lengthwise. Space must be added between container and bulkhead for the steel structure and cell guides. The number of container rows in the hold depends on the breadth of the vessel. The container holds have a double-side structure to strengthen the hull and compensate for the large hatch openings in the deck. If cell guides are used in the hold or on deck, the space needed for them must be added to the container dimensions (Figure 553). The volume of the cargo holds can then be calculated from the number and dimensions of containers, adding extra space needed for cell guides and bulkhead structure. For the containers on deck only the storage area is needed and can be calculated from the number of deck containers and the average container layers (Figure 554).

Open and closed spaces The gross tonnage is calculated based on the total enclosed volume of the vessel. A low GT is important, because it affects the operating economics, like the minimum number and qualification of crew onboard and port and canal fees. Deck cargo space is not included in the GT and container vessels benefit from carrying more than half of the cargo on top of the cargo hatch covers as deck cargo. Also an open-top container vessel can benefit from this because only the cargo space up to the top of the cargo hold hatch coaming is included in the GT. But these vessels must have higher freeboard than vessels with hatch covers to reduce the amount of green seas that could enter the open cargo holds in heavy weather (Figure 555).

582

Part IV – Ship Design and Case-Studies TOTAL WIDTH 13 CONTAINERS = 32.24 m

HOLD WIDTH 11 CONTAINERS = 27.36 m

DOUBLE SIDE BREADTH = 2.44 m

CONTAINER HEIGHT 2.44 m2.90 m 0 mm SPACE BETWEEN CONTAINERS

BULKHEAD

DECK

PANAMAX BREADTH = 32.24 m

2.438 m CONTAINER WIDTH

45 mm

45 mm

SPACE BETWEEN CONTAINERS

SPACE BETWEEN BULKHEAD

Figure 553: Cargo hold, transverse section

12.192 m CONTAINER LENGTH

2.438 m CONTAINER WIDTH

CL 45 mm

1.804 m

1.608 m

0.204 m

DISTANCE BETWEEN CONTAINER AND BULKHEAD

DISTANCE BETWEEN CONTAINERS

DISTANCE BETWEEN CONTAINER AND BULKHEAD

28.000 m CONTAINER HOLD LENGTH

BULKHEAD

BULKHEAD

SPACE BETWEEN CONTAINERS

Figure 554: Cargo hold, longitudinal section

583

Part IV – Ship Design and Case-Studies 40,00

35,00

Deck Cargo Space – Open

space, not included in the Gross Tonnage

30,00

25,00

20,00

Cargo Holds with Hatches

15,00

– Closed space, included in CWL

the Gross Tonnage

10,00

5,00

0,00 -20,00

-15,00

-10,00

-5,00

0,00

5,00

10,00

15,00

20,00

40

Open Top Cargo Holds

35

30

– Open space, not included in the Gross Tonnage

25

20

– Cargo space up to the hatch coamings are included in the Gross Tonnage

15

CWL

10

5

0 -20

-15

-10

-5

0

5

10

15

20

Figure 555: Open and closed spaces in Gross Tonnage calculation

Cargo Hold Volume [m3]

250 000

200 000

150 000 100 000

50 000

0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 556: Volume of cargo holds in relation to total TEU capacity 584

Part IV – Ship Design and Case-Studies CARGO HOLDS Container Type: 20ft standard 40ft standard

Bulkheads in holds Cargo Holds

Container Dimensions Cell guide Length Breadth Height width m m m m 400 6,05 2,44 2,65 0,05 600 12,10 2,44 2,65 0,05 0 0,00 0,00 0,00 0,05 0 0,00 0,00 0,00 0,05 0 0,00 0,00 0,00 0,05 Average space demand per container in the holds 1 000 2,44 2,65 0,05 0,75 No of Units

Area m2 0 0 0 0 0

Volume m3 15 968 47 905 0 0 0

0 0

4 949 68 822

DECK CARGO Container Type: 20ft standard 40ft standard

Cell guides on deck Deck Cargo Spaces

Average Cell guide Length Breadth containers width m m in stack m 400 6,05 2,44 4 0,00 500 12,10 2,44 4 0,00 0 0,00 0,00 0 0,00 0 0,00 0,00 0 0,00 0 0,00 0,00 0 0,00 Average space demand per container on deck 900 2,44 4,00 0,00 0,75 No of Units

Area m2 1 476 3 691 0 0 0

Volume m3 0 0 0 0 0

412 5 578

0 0

Area m2 4 125 0 0 0 880 880

Volume m3 1 238 0 0 0 2 816 4 054

6 500

72 900

CARGO RELATED SPACES Name / Use of Space: Hatch covers Container cranes

Service corridore under deck Cargo Handling

TOTAL CARGO SPACES

No of Units 12 0 0 0 2

Average Space Demand/Unit Length Breadth Height m m m 12,50 27,50 0,30 2,44 2,44 5,00 0,00 0,00 0,00 0,00 0,00 0,00 200,00 2,20 3,20

Table 138: Cargo spaces and space for cargo handling and cargo treatment

Crew facilities The area needed for crew cabin departments are calculated based on the number and size of the cabins. To account for the cabin corridors and for the wall lining a correction factor is used. The area for mess- and dayrooms is based on the number of seats in each space. For stairs the average area and the number of decks they run through are used in the calculation. All areas and volumes shall be taken “from steel to steel” to include space lost behind ceilings and interior bulkheads. The distance “steel to steel” is used for all deck heights (Table 139).

585

Part IV – Ship Design and Case-Studies CREW ACCOMMODATION 2 6 8 2

Beds per Cabin 1 1 1 2

Total Crew

18

20

Suez crew

1 4 0 0 30 % of cabin area 19 24

Cabin Category: Officer Large Suite Officers Crew Repair

No Cabins

Cabin corridors, wall lining Crew Cabin Area

Size m2 24,0 12,0 12,0 12,0

Height m 2,8 2,8 2,8 2,8

15,0 m²/crew 12,0 0,0

2,8 0,0 2,8 16,4 m2/crew

Area m2 48 72 96 24 0 240

Volume m3 134 202 269 67 0 672

12 0 76 328

34 0 212 917

CREW COMMON SPACES Name / Use of Space: Officer Mess Officer Dayroom Crew Mess Crew Dayroom Gymnasium Swimming pool Hobby Crew Common Spaces

Seats 8 8 16 16

m2/seat 2,0 2,0 1,8 1,8

Height m2/crew m 0,80 2,8 0,80 2,8 1,44 2,8 1,44 2,8 1,00 2,8 1,00 2,8 1,00 2,8 7,48 m2/crew

Area m2 16 16 29 29 20 20 20 150

Volume m3 45 45 81 81 56 56 56 419

D-height m2/crew m 6,40 2,8 4,50 3,2 0,00 0,0 10,90 m2/crew

Area m2 128 90 0 218

Volume m3 358 288 0 646

700

1 980

CREW AND EMERGENCY STAIRWAYS Name / Use of Stair: Main Stairs Engine Room Stairs Crew and Emergency Stairways

TOTAL CREW FACILITIES

Decks 8 6 0

m2/deck 16 15 0

35,00 m2/crew

Table 139: Calculation of crew spaces

Service spaces The service spaces comprise areas needed for the ship’s operation, like the wheelhouse, radio room and offices. Catering spaces like galley, provision store and garbage rooms are also listed. Hotel services include the laundry and linen store. Some technical spaces are often located in the deckhouse, close to the accommodation, like rooms for air-conditioning units and ventilation fans, lift machinery and deck stores. They are defined as part of the service facilities (Table 140).

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Part IV – Ship Design and Case-Studies

40

Crew [ persons ]

35 30 25 20 15 10 5 0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 557: Number of crew on container vessels

Machinery systems, tanks and voids To be able to calculate the space demand for the machinery a rough estimate of the propulsion power and auxiliary power must be made. For an exact calculation you need to now both the main dimensions and the displacement of the ship. They are the end result of the system based design and are not available at this stage. The easiest way to proceed is to estimate the power demand based on statistical data from other ships (Figure 558). If you find out later that the estimate is far off, you must go back and change these input values. Because a spreadsheet is used for the system based design calculations any change made to an input variable will automatically update area and volume calculations. The spreadsheet program does the looping in the design spiral for the naval architect and saves time and hard work. The resistance and propulsion power is given for trial condition, assuming no speed reduction due to wind, waves or shallow water. The trial speed is reached with machinery power at the maximum continuous rating (100 % MCR). In normal service at sea the speed of the ship is reduced due to winds and waves. A sea margin of 15-25 % is added to the power calculated for trial condition to get the power needed for the same speed in actual operation. In service the machinery is also operated at reduced power, 80-85 % MCR to lower the fuel consumption and maintenance cost. The operating schedule for the ship should be based on the speed reached at reduced power and including a sea margin so this schedule can be kept also in bad weather condition (Figure 559). For the engine and pump rooms only the volume demand is calculated, because they are located low down in the ship and the shape of the hull is not known jet. For work shops and stores both area and volume shall be calculated. The engine casing goes up through the decks in the hull and many times also through the deckhouse. The space demand is calculated in the same way as for stairs by defining the average area and the number of decks penetrated. Tank volumes are calculated based on consumption of fuel and lubrication oil for the demanded range. A margin factor is included to give some allowance for delays or route changes. Fresh water tanks and sewage tanks are dimensioned 587

Part IV – Ship Design and Case-Studies based on consumption per day and the demanded endurances. If the ship has evaporators and produces fresh water during the voyage, the margin factor can be less than 1 (Table 141). SHIP SERVICE Name / Use of Space: Wheelhouse Offices Sick bay Cargo Handling

m2/crew 4,00 1,00 1,00 1,00 0,00 7,00

Ship Service Spaces

Height m 2,8 2,8 2,8 2,8 2,8

Area m2

Height m 3,0 3,0 2,8 2,8 2,8

Area m2

Height m 2,8 2,8 2,8 2,8 2,8

Area m2

80 20 20 20 0 140

Volume m3 224 56 56 56 0 392

CATERING SPACES Name / Use of Space: Galleys Provision store Garbage

m2/crew 1,00 1,50 0,50 0,00 0,00 3,00

Catering Spaces

20 30 10 0 0 60

Volume m3 60 90 28 0 0 178

20 20 0 0 0 40

Volume m3 56 56 0 0 0 112

240

680

HOTEL SERVICES Name / Use of Space: Laundry and Linen Store Hotel Store

m2/crew 1,00 1,00 0,00 0,00 0,00 2,00

Hotel Services

TOTAL SERVICE FACILITIES

12,00 m2/crew

TECHNICAL SPACES IN THE ACCOMMODATION Name / Use of Space: Air conditioning rooms Deck stores and workshops Swimming pool trunk and equipment Other technical spaces Technical spaces

m2/crew 3,00 1,00 1,00 0,50 0,04

Height m 2,80 2,80 2,80 2,80

Area m2 60 20 20 10 110

Volume m3 168 56 56 28 308

Table 140: Service spaces

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Part IV – Ship Design and Case-Studies

80 70

Propulsion Power [MW]

Propulsion Power 60 50 24...26 knots 40 21...23 knots 30 20 17...20 knots 10 Aux Power 0 0

2 000

4 000

TEU

6 000

8 000

10 000

Figure 558: Propulsion and auxiliary power 60

1,15 ˜ PTrial ˜ VService / VTrial

3

PService 40

100% MCR 80% MCR

30

Trial

20

Service

Propulsion Power [ MW ]

50

10

0 14

15

16

17

18

19

20

21

22

23

24

25

26

Speed [ knots ]

Figure 559: Power in trial and service condition

589

Part IV – Ship Design and Case-Studies MACHINERY, SPEED AND POWER Machinery Type No of Propellers Speed Propulsion Power Load factor Sea Margin Shaft Generators Load factor Auxiliary Power Load factor Total Installed Power:

Slow Speed Diesel and FP-propeller 1 Trial Condition Service Condition 21,5 kn 24,0 kn 28000 kW 35 000 kW 100 % 80 % 0% 15 % 0 kW 0 kW 0% 0 % 2160 kW 3 600 kW 100 % 60 % 38 600 kW

In Port 0 0 0 0 0 2 160 60

kW % % kW % kW %

MACHINERY SPACES Name / Use of Space: Engine- and Pump Rooms Steering gear Bow thruster room Switchboard rooms Workshops and stores Emergency generator, Battery room

m2/kW

Decks Engine casing, air intakes Funnel Technical Spaces

3

0,004 0,002 0,002 0,003 0,001 m2/deck 100 50

3,20 3,20 3,20 3,20 2,80

154 77 77 116 39

Volume m3 15440 494 247 247 371 108

3,0 10,0 0,52 m3/DWT

300 760

900 500 18 300

Range Endurance nm days 38,7 20 000 20 000 38,7

Margin factor 1,2 4,0

Volume m3 7 473 187

40,0 40,0

1,2 0,2

192 12 7 500 3 000 1 000 19 400

Area m2 375 320 40 740

Volume m3 1 125 0 60 1 190

m3/kW 0,40 0,01 0,01 0,01 0,01 0,00

Height m

Area m2

TANKS AND VOID SPACES Name / Use of Space: Fuel Oil Lub Oil Fresh Water Sewage Holding BW, side tanks BW, peaks and double bottom Voids etc Tanks and Void Spaces

Consump. Consump. g/kWh ton/day 145 200 1 1,5 l/crew/day 4 200 2 75

0,55 m3/DWT

OUTDOOR DECK SPACES Name / Use of Deck: Mooring deck forward Mooring deck aft Crew deck Outdoor Deck Spaces

Length m 15 10

Breadth m 25 32

Covered m2/crew % 18,75 100 16,00 0 2,00 50 37,00 m2/crew

Table 141: Technical facilities

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Part IV – Ship Design and Case-Studies

System summary When the areas and volumes for all systems are summarised, the size of the ship is defined (Table 142). For the system-based design process the naval architect requires statistical data from built ships to estimate the areas and volumes needed in a new design. The statistic values for the coefficients can be calculated “backwards” from existing ship drawings. The same system description is used for the existing ship as for the calculation of the new design. The system description is in principle similar for all ship types, but the names and calculation variables may change for different ship types. The design process follows the same steps and methods for all ship types. SPACE ALLOCATION 0 5 578 880 6 500

Volume m3 68 822 0 4 054 72 900

m3/crew 99,00 19,60 8,90 5,60 133,00

700 140 60 40 940

1 980 392 178 112 2 660

0,10 0,96

110 1 100

308 3 000

m3/kW 0,38 0,00 0,01 0,01 0,47

39 116 300 760

14 699 139 371 400 18 300

m3/DWT 0,55

-

19 400

m3/crew 59,25

740

1 190

Cargo Holds Deck Cargo space Cargo Related Spaces TOTAL CARGO SPACES

m2/DWT 0,00 0,16 0,03 0,19

m3/DWT 1,97 0 0,12 2,08

Crew Facilities Ship Service Catering Hotel Service TOTAL FURNISHED SPACES

m2/crew 35,00 7,00 3,00 2,00 47,00 0,04 0,35

Technical spaces in the accommodation TOTAL INTERIOR SPACES

m2/kW Machinery spaces Switchboard rooms, emergency gen, battery room Workshops and stores Engine casing and funnel TOTAL TECHNICAL SPACES

TANKS AND VOID SPACES

0,001 0,003 0,008 0,020

m2/crew 37,00

OUTDOOR DECK SPACE

GROSS VOLUME GROSS REGISTER TONNAGE

Area m2

m3/DWT 3,28

114 800

GT/DWT 1,00

GT 35 000

Table 142: System design summary

591

Part IV – Ship Design and Case-Studies The gross volume for the ship given by the system description in cubic metres is translated into gross tonnage (GT) using a formula agreed upon at the “International Conference on Tonnage Measurement of Ships 1969: ‫ ܶܩ‬ൌ ሺͲǤʹ ൅ ͲǤͲʹ ‫ܸܩ݃݋ܮ כ‬ሻ ‫ܸܩ כ‬ Where GV is the total volume of all enclosed spaces (m³). The gross tonnage of a reference ship this can be converted to gross volume (m³) by an approximation formula ‫ ܸܩ‬ൌ ͶǤͷ ‫ ܶܩ כ‬଴Ǥଽ଻ଵ The calculated values can now be compared with statistical data from built container vessels. This is a good way of checking that the system description is complete and the space demand calculated is realistic (Figure 560 and Figure 561).

Weight groups The first weight estimate can be done based on the information in the system summary. In the concept design phase it is sufficient to divide the lightweight into 6-10 main groups. As the design process proceeds and more information becomes available, each main group can be further divided into sub groups and sub-sub groups. Also the deadweight can be calculated based on the operation data in the mission description and the machinery data in the technical facility definition (Figure 562).

Lightweight and deadweight The system-based ship design uses volumes, areas and installed machinery power for the weight calculation. The main dimensions have not been selected at this stage in the design process and cannot be used for any weight estimate. The steel weight of the hull and deckhouse are calculated based on their volume. The funnel and engine casing above main deck are included into the deckhouse volume. Remember that: ܸ௛௨௟௟ ൅ ܸௗ௘௖௞௛௢௨௦௘ ൌ ܸ௚௥௢௦௦ For the ship outfitting the gross volume is used and for machinery the installed power. Interior outfitting is based on the furnished area. Payload related systems are best calculated “piece by piece” (Table 143). To give the necessary accuracy the weight coefficients must be based on data from built ships (Figure 563, Figure 564 and Figure 565).

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Part IV – Ship Design and Case-Studies

120 000

100 000

GT

80 000

60 000

40 000

20 000

0 0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

TEU

Figure 560: Container ship statistics

400 000 Other 350 000 Bunker 300 000 Ballast

Volume [m3]

250 000 Cargo 200 000

150 000 Gross Volume 100 000

50 000

0 0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

TEU

Figure 561: Container ship statistics

593

Part IV – Ship Design and Case-Studies

Payload related equipment

Lightweight LWT

Hull, poop, forecastle

Deckhouse, casing, funnel

Interior outfitting

Machinery

Ship outfitting

Deadweight DWT

Ship Displacement

Hatches Cranes Cell guides Lashing

Payload

Containers Passengers ( max 12 )

Supplies

Crew Provision and stores

Bunkers

Heavy fuel oil Marine diesel oil Lube oil

Water

Fresh water Sewage in holding tanks Ballast & heeling water

Figure 562: Lightweight and deadweight main groups

594

Part IV – Ship Design and Case-Studies LIGHTWEIGHT Weight Group: Payload related

Hatche covers Container cranes Cell guides in holds Cell guides on deck

Hull Structure Deckhouse Interior Outfitting Machinery Ship Outfitting Total Reserve LIGHTWEIGHT

Unit Area No Capacity Capacity Hull Vol Dh Vol Area Pp+Pa Gross Vol Gross Vol % Gross Vol

Value 4125 m2 0 units 1 000 cont 900 cont 110 000 m3 4 800 m3 940 m2 38 600 kW 114 800 m3 114 800 m3 5 114 800 m3

Coeff ton/unit 0,200 40,000 0,200 0,000 0,085 0,060 0,250 0,070 0,006 0,124 0,131

Weight ton 825 0 200 0 9 350 288 235 2 702 689 14 290 710 15 000

DEADWEIGHT Item: Hold Cargo Deck Cargo Crew Provision & Stores Fuel Oil Lub Oil Fresh Water Sewage in Holding Tanks Ballast Water for Trimming and Antiheeling Ballast Water for Stability DEADWEIGHT

Unit Capacity Capacity Persons Persons Consump. Consump. Consump. Produced

Value 21 000 ton 11 500 ton 20 persons 20 persons 2 359 ton/trip 18 ton/trip 96 ton/trip 36 ton/trip

DISPLACEMENT

Coeff 1,00 0,90 0,10 0,20 1,20 2,50 1,20 0,30

Weight ton 21 000 10 350 2 4 2 830 44 115 11 600 0 35 000

50 000 DWT / Displacement

0,70

Table 143: Lightweight and deadweight calculation

595

Part IV – Ship Design and Case-Studies

Lightweight density of different vessel types 0,180

LWT / Volume [ton/m3]

0,160

Container RoRo Ferry Tanker

0,140 0,120 0,100 0,080

Fast Mono Hull [ Steel ]

0,060 0,040

Fast Catamaran [ Alu ]

0,020 0,000 0

25 000

50 000

75 000

100 000

125 000

150 000

Gross Tonnage

Hull and Superstructure Weight 0,14

Hull Structure

SWT / Volume [ ton / m3 ]

0,12

Tanker Container RoRo Ferry

0,10

0,08

0,06

Deckhouse Superstructure

0,04

0,02

0,00 0

25 000

50 000

75 000

100 000

125 000

150 000

Gross Tonnage

Figure 563: Statistical data for lightweight calculation

596

Part IV – Ship Design and Case-Studies Machinery Weight MWT / Installed Power [ ton / kW ]

0,14

0,12

Tanker 0,10

Container 0,08

Ferry 0,06

RoRo

0,04

0,02

0,00 0

10 000

20 000

30 000

40 000

50 000

Installed power [ kW ] Interior Outfitting

IWT / Furnished Area [ ton / m2 ]

0,350

0,300

Cargo 0,250

0,200

Passenger Ferry 0,150

0,100 0,050

0,000 0

10 000

20 000

30 000

40 000

50 000

Furnished Area [ m2 ]

Figure 564: Statistical data for lightweight calculation

597

Part IV – Ship Design and Case-Studies

Ship Outfitting Weight ( Interior outfitting and payload related weights are not included ) 0,020

OWT / Volume [ ton / m3 ]

0,018 0,016 0,014 0,012 0,010

Ferry

0,008

Cargo

0,006

Tanker

0,004 0,002 0,000 0

25 000

50 000

75 000

100 000

125 000

150 000

125 000

150 000

GT Payload Related Outfitting 0,016

PWT / Volume [ ton / m3 ]

0,014

Cargo Ship, Hatches and cranes 0,012 0,010 0,008

Ferry, 2 Car Decks 0,006 0,004

Ferry, 1 Car Deck Tanker

0,002 0,000 0

25 000

50 000

75 000

100 000

Gross Tonnage

Figure 565: Statistical data for lightweight calculation The deadweight is calculation based on the demanded payload and performance. Cargo vessel data often includes both the deadweight at the design draught and the maximum deadweight at the scantling draught. At the design deadweight the cargo holds in a container vessel are full, but not all deck cargo space. The average weight of loaded containers are today only 10-14 tons/TEU, much lower than the maximum allowed weight. Fuel and lubricating oil stores are calculated based on the 598

Part IV – Ship Design and Case-Studies length of the route, the average speed and the specific consumption of the engines. Some reserve must be included for delays or heavy weather. The crew weight is estimated as 100 kg per person. Provision, fresh water and sewage depend on number of persons and length of route. In many ships fresh water is produced onboard by evaporating seawater, so all the fresh water consumed during the trip need not be included in the deadweight. Similarly sewage is treated and discharged overboard at sea and must be stored only in ports.

Check of the weight calculation The DWT/Displacement ratio is an important indicator of the money-making potential of the design. For container vessels this ratio is around 0.70. The steel weight of the hull is the biggest weight item in the lightweight. Also the machinery weight is important, because most container vessels use heavy, slow speed diesel engines for propulsion (Figure 566). The calculated lightweight should be compared with the values from built ships to check that the weight coefficient used in the calculation are realistic and that the design will have the strength and safety standard demanded by class rules and international regulations (Figure 567).

Cargo Handling Hull Structure

Deckhouse Interior Outfitting

Machinery

Deadweight

Ship Outfitting

Figure 566: Lightweight distribution

Building cost estimate An estimate of the building cost of the ship can now be done. Only the data in the system description and the weight calculation are needed. The main cost factors are design, material and production labour. In the system based design process the material cost and the production man-hours are calculated for the same items as those in the weight calculation. Design man-hours are calculated for the whole ship based on the lightweight (Table 144). The calculation is for a proto-type vessel and includes full design cost. Several vessels are normally built to the same design and the design cost is then split between them. Ship material and equipment have seen a very strong price increase in 2007 and 2008 due to the very large demand for newbuildings. 599

Part IV – Ship Design and Case-Studies

25

120000

100000

80000

DWT / TEU at Tdwl

Deadweight at Tdwl and Tmax

20 At Tmax

60000 At Tdwl

15

10

40000

5

20000

0 0

2 000

4 000

6 000

8 000

10 000

0 0

2 000

4 000

TEU

6 000

8 000

10 000

TEU

Figure 567: Container vessel weight statistics

Ship loan financing

Broker's Fee

Profit

Building time financing Design

Material

Labour + Overhead

Figure 568: Building cost distribution

600

Part IV – Ship Design and Case-Studies MATERIAL AND LABOUR Cost Group: General Payload rel. Hatche covers Container cranes Cell guides in holds Cell guides on deck Hull Structure Deckhouse Interior Outfitting Machinery Ship Outfitting Total Reserve MATERIAL & LABOUR

Unit LWT Weight No Weight Weight Hull WT Dh WT Area Pp+Pa Gross Vol LWT % LWT

Coeff Value EUR / unit 15 000 200 825 3 000 0 0 200 1 500 0 1 500 9 350 1 500 288 1 500 940 2 000 38 600 400 114 800 15 15 000 2 600 5 15 000 2 700

Coeff h / unit

Design Labour + Over Head Material Building time financing ( Interest x Time / 2 ) Total Production Cost Profit Financing, Payment Broker fees

Hours 150 000 410 000

6 % months

EUR / h 35 35 18

5 % 3 % 1 % Price Price / TEU Price / GT

BUILDING PRICE

3 2 0 0 0 14 0 2 15 2 39 2 40

3 10 0 50 50 25 50 20 1,00 0,15 26 5 27

PRICE ESTIMATION h / LWT 10 27

Material MEUR

Price MEUR

Labour 1000 hours 45 8 0 10 0 234 14 19 39 17 386 19 410 Price EUR / LWT 350 957 2667 179 4100

5 14 40 3 62 3 2 1 68 4500 23 000 EUR / TEU 1 900 EUR / GT

Table 144: Building cost estimate (Prototype vessel)

Selecting main dimension The statistics of previously-built ships are a good starting point for selecting suitable main dimensions of the vessel (Figure 569, Figure 570 and Figure 571). The designer must consider any special features planned for this ship. The number of container rows in the holds and the number of containers stacked on top of each other affects the breadth and depth of the hull. The number of containers stowed longitudinally in each hold and the number of holds influence the selection of the length of the ship. Also the speed of the vessel must be considered when selecting the main dimensions. A hull with suitable form parameters is needed to keep the power demand at a competitive level (Schönknecht, Lusch, Schelzel, & Obenaus, 1983). In the system-based design already the displacement and the block coefficient have been determined, and slenderness ratio can be calculated for the selected main dimensions. Recommended values for the hull coefficients, slenderness ratio and longitudinal centre of buoyancy depend on the Froude Number (Figure 572, Figure 573 and Figure 574). ‫ ݊ܨ‬ൌ

‫ݒ‬ ඥ݃ ‫ܮ כ‬௪௟

|

ͲǤͷͳͶͶ ‫˜ כ‬ ඥͻǤͺͳ ‫ͳ כ‬ǤͲ͵ ‫ כ‬୮୮ 601

Part IV – Ship Design and Case-Studies ‫ܥ‬஻ ൌ

ο ͳǤͲʹͷ ‫ܮ כ‬௣௣ ‫ܶ כ ܤ כ‬ ‫ܥ‬௉ ൌ

‫ܥ‬஻ ‫ܥ‬ெ

ͳǤͲ͵ ‫ כ‬୮୮ ‫ܮ‬௪௟ | ο ଵȀଷ ο ଵȀଷ ሺ ሻ ሺ ሻ ͳǤͲʹͷ ͳǤͲʹͷ The prismatic coefficient CP and the slenderness ratio have great influence on the resistance of the hull, as can be seen in the Guldhammer-Harvald resistance calculation diagrams. The section area curve for the hull is well defined by the CB and CM values. A rough lines plan can now be drawn and the section area curve (SAC) compared the recommended shape shown in (Figure 575). ݈ܵ݁݊݀݁‫ ݏݏ݁݊ݎ‬ൌ

Restrictions to the main dimensions should also be remembered. If the ship is intended for liner service on a selected route length or draught limitations in the ports must be checked. The container cranes in the ports can have limited outreach, which can limit the breadth of the hull. Maximum dimensions for the Panama or Suez canals often affect the ship design. It is also important to check air draught limitations from bridges or electrical cables on the intended routes.

400 350

Length OA Panamax

300 Length PP

Length [m]

250 200 150 100 50 0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 569: Main dimensions for container vessels

602

Part IV – Ship Design and Case-Studies

50 45 40

Breadth [m]

35

Panamax

30 25 20 15 10 5 0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 570: Main dimensions for container vessels

30 Depth

Draught and Depth [m]

25

20

15

10 Draught DWL 5

0 0

2 000

4 000

6 000

8 000

10 000

TEU

Figure 571: Main dimensions for container vessels

603

Part IV – Ship Design and Case-Studies

1,0

CB, CM, CP, CW

CM 0,9 CW

0,8 0,7

CP

0,6 0,5

CB 0,4 0,00

0,10

0,20

0,30

0,40

0,50

Froude Number Figure 572: Recommended hull form coefficients

10 9

Lwl / Depl^1/3

Slender Hull Form 8 7 6 5

Displacement Hull Forms

4 0,00

0,10

0,20

0,30

0,40

0,50

Froude Number Figure 573: Recommended hull slenderness ratio

604

Part IV – Ship Design and Case-Studies

5

LCB [ % of Lpp / 2]

4 3 Lwl / Depl ^1/3 = 5,0

2 1 0 -1 -2 -3

Lwl / Depl ^1/3 = 7,0

-4 -5 0,10

0,20

0,30

0,40

0,50

Froude Number Figure 574: Recommended position of the LCB

1,0 0,9 CB = 0,85 0,8 0,80 0,7

A/(B*T)

0,70 0,6 0,60 0,5 0,50 0,4 0,3 0,2 0,1 0,0 -0,1

0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1,0

1,1

x / Lpp

Figure 575: Recommended section area curves for different block coefficients

Layout proposal Now the designer can start to develop the lay out of the ship. First the number of decks in the hull is selected as well as their height above the baseline. Most ships have a double bottom, but the number of additional decks varies by ship type and size. The deckhouse may at this stage be simplified to a box, and the size and number of decks selected based on the interior areas needed for the crew and ship service spaces (Figure 576). Based on this geometric definition all deck areas and volumes in the hull and in the deckhouse can be calculated. The available areas and volumes are compared with the 605

Part IV – Ship Design and Case-Studies system description to check that all defined functions fit into the hull and deckhouse. When the space balance is right, the weight balance is confirmed by calculating the displacement from the selected main dimensions. The factor 1.025 is the density of salt water. Stability and propulsion power are checked using empirical formulas and available data from other ship. The developed design must fulfil the five criteria defined by the equations below: Volumes:

ܸ௛௨௟௟ ൅ ܸௗ௘௖௞௛௢௨௦௘ ൒  σ ܸ௦௬௦௧௘௠ௗ௘௦௖௥௜௣௧௜௢௡

Deck areas:

‫ܣ‬௛௨௟௟ ൅ ‫ܣ‬ௗ௘௖௞௛௢௨௦௘ ൒  σ ‫ܣ‬௦௬௦௧௘௠ௗ௘௦௖௥௜௣௧௜௢௡

Displacement:

οൌ ‫ܮ‬௣௣ ‫ܥ כ ܶ כ ܤ כ‬஻ ‫ͳ כ‬ǤͲʹͷ ൒ ‫ ܹܶܮ‬൅ ‫ܹܶܦ‬

Stability:

‫ ܯܩ‬ൌ ‫ ܯܭ‬െ ‫ ܩܭ‬൒ ݅݊‫ݕݐ݈ܾ݅݅ܽݐݏ݁݃ܽ݉ܽ݀݀݊ܽݐܿܽݐ‬

Machinery Power:

ܲ௜௡௦௧௔௟௟௘ௗ ൒ ܲ௣௥௢௣௨௟௦௜௢௡ ൅ ܲ௛௢௧௘௟௟௢௔ௗ 40,00

35,30

35,00

32,50

30,00

29,70

26,90 25,00 24,10

21,30 20,00 18,50

15,00

15,30

KM KG

CWL 10,00

5,00

2,00

-20,00

-15,00

-10,00

-5,00

0,00 0,00

5,00

10,00

15,00

20,00

Figure 576: Lay out of hull, container holds and deckhouse

Geometric definition of hull and deckhouse When the main dimensions have been selected, also the hull form parameters, like slenderness, block coefficient, length/breadth and breadth/draught can be calculated and evaluated against the Froude number. The water plane area coefficient and midship area coefficient can be selected based on the recommendation given above. The relation between CW and CB in the diagram is roughly in the equation below. Both the CB and CW are needed for the calculation of the deck areas and volumes in the hull: 606

Part IV – Ship Design and Case-Studies ‫ܥ‬஻ ൌ 

ο ͳǤͲʹͷ ‫ܮ כ‬௣௣ ‫ܶ כ ܤ כ‬ ‫ܥ‬ௐ ൎ ‫ܥ‬஻ ଴Ǥସ ‫ܥ‬௣ ൌ

‫ܥ‬஻ ‫ܥ‬ெ

Hull To calculate the volume of the hull and the deck areas at other levels than the design water line (DWL) you need to make a hull line drawing. A rough estimate can be estimated with the help of Figure 577. The diagrams show how the block coefficient and water plane area coefficient vary with the depth to waterlines at different levels in the hull. The waterline levels are shown in relation to the design waterline as “h/T”. For each deck in the hull the corresponding deck area and the volume from that deck to the next deck are calculated and inserted into the spread sheet table shown in Table 145. The hull volume defined in the diagram is from the base line up to the level “h”. To get the volume between two decks the volume of the hull below the lower deck must be deducted from the hull volume up to the upper deck. If the ship has a poop deck aft or a forecastle these volumes shall be added to the hull volume when calculating the hull weight. The poop and forecastle are part of the ship hull structure.

Hatch Coamings The cargo holds have hatch coamings around the opening in the upper deck. The coaming prevents water on deck from flooding the holds. The coaming also protects people from falling down into the hold. The hatch covers rest on top of the coamings. In a container vessel the hatch covers are normally of pontoon type and are lifted on and off by the shore based container cranes. The hatch coamings reach 1-2 metres above the upper deck. The enclosed volume of the hatch comings shall be included in the hull volume.

Deck house approximation The areas and volumes in the deckhouse are calculated assuming that each deck is a square box (Figure 578). The length and width is roughly estimated for each deck. If the ship has a separate engine casing behind the deckhouse, the volume should be added to the deckhouse volume. Also the funnel is included into the deckhouse volume: ܸ௛௨௟௟ ൅ ܸௗ௘௖௞௛௢௨௦௘ ൌ ܸ௚௥௢௦௦

607

Part IV – Ship Design and Case-Studies CB variation with h / T 3,0 CB = 0,40 2,5 CB = 0,50 CB = 0,60

2,0

h/ T

CB = 0,70 CB = 0,80

1,5

1,0

0,5

0,0 0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1,0

CB

CB ( h ) u L pp u B u h

HullVolume

CW variation with h / T 3,0 CW = 0,75 2,5 CW = 0,80

h/ T

2,0

CW = 0,85 CW = 0,90

1,5

1,0

0,5

0,0 0,0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1,0

1,1

CW

DeckArea

CW ( h) u Lpp u B

Figure 577: Variation of hull block coefficient and water plane area coefficient

608

Part IV – Ship Design and Case-Studies SELECTED MAIN DIMENSIONS Length OA: Length WL: Length PP: Breadth Hull: Breadth WL: Draught: Freeboard Deck: Freeboard: Depth to Upper Deck:

235,00 225,00 220,00 32,20 32,20 11,00 15,50 4,50 18,50

LWL / ’^1/3 : LWL / LPP : L/B: B/T: Fn : CB : CW : CM : CP :

m m m m m m m m m

6,20 1,02 6,83 2,93 0,26 0,63 0,84 0,96 0,65 0,655

DECK AREAS AND VOLUMES IN THE HULL Height above BL Deck Name: m Double Bottom 0,00 Tank Top 2,00 15,30 Deck 1 18,50 18,50 Upper Deck 18,50 Hatch Coamings & Hatches 21,00 TOTAL HULL PART 18,50 AREAS AND VOLUMES IN DECKHOUSES Height above BL Deck Name: m Deck Cargo Space 21,00 Deckhouse on Upper Deck 18,50 21,30 Deckhouse 2 24,10 Deckhouse 3 26,90 Deckhouse 4 29,70 Deckhouse 5 32,50 32,50 Wheelhouse Funnel 24,30 TOTAL DECKHOUSES 35,30 TOTAL HULL AND DECKHOUSES

Deck height m 2,00 13,30 3,20 0,00 0,00 2,50

Deck area m2

Deck height m

Deck area m2 5600 400 400 200 200 120 0 96 50

2,80 2,80 2,80 2,80 2,80 0,00 2,80 10,00

3540 6614 6869 6869 6869 6869

Area coeff 0,00 0,25 0,00 0,00 0,00 0,80

Area coeff 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 0,00

System Area m2 0 1 654 0 0 1 650

System Area m2 5 600 400 400 200 200 120 0 96 7 020

System Volume m3 5 904 69 610 21 152 0 0 13 738 110 400

System Volume m3 1 120 1 120 560 560 336 0 269 500 4 460

Geometric Definition

8 700

114 900

SeaKey System Demand

8 600

114 800

Table 145: Calculation of areas and volumes in the hull and deckhouse

609

Part IV – Ship Design and Case-Studies

Figure 578: Hull is divided in horizontal layers by each deck, from double bottom to upper deck

Stability check The transverse stability and trim resulting from the selected hull form and lay out proposal is checked at this stage. The centre of gravity is calculated for the ship based on the weight groups used in the lightweight calculation. The vertical centre of gravity for each weight group is estimated in relation to the depth of the hull (Table 146). To help in theses estimates the centre of volume for the hull and the deckhouse can first be calculated based on the data in the geometric definition. The centre of gravity of the deadweight is calculated in a similar way and combined with the lightweight figures gives the centre of gravity of the ship in loaded condition. The centre of buoyancy and the metacentre height can be estimated for the selected hull form based on the empirical formulas. The transverse stability indicated by the GM-value should be at least 0.3 metres, but to fulfil the stability demand in damage condition higher values are often needed. ହ

ଵ

஼ಳ

଺

ଷ

஼ೈ

Centre of Buoyancy above keel: ‫ ܤܭ‬ൌ ܶ ‫ כ‬ሺ െ ‫כ‬ Metacentre above C.o.B.:

‫ ܯܤ‬ൌ

ூ೅ ‫׏‬

ൌ

ሻ ಳయ ൨ భమ

൤଴Ǥ଴ଷ଻ଶ‫כ‬ሺଶ஼ೈ ାଵሻయ ‫כ‬௅೛೛ ‫כ‬ ‫׏‬

Metacentre above keel: ‫ ܯܭ‬ൌ ‫ ܤܭ‬൅ ‫ܯܤ‬ Initial stability ‫ ܯܩ‬ൌ ‫ ܯܭ‬െ ‫ܩܭ‬

610

Part IV – Ship Design and Case-Studies LIGHTWEIGHT Weight Group: Payload related:

Hull Structure Deckhouse Interior Outfitting Machinery Ship Outfitting Total Reserve

Weight ton 825 0 200 0 9 350 288 235 2 702 689 14 290 710

LIGHTWEIGHT

15 000

Hatche covers Container cranes Cell guides in holds Cell guides on deck

DEADWEIGHT Hold Cargo Deck Cargo Crew Provision & Stores Fuel Oil Lub Oil Fresh Water Sewage in Holding Tanks Ballast Water for Trimming and Antiheeling Ballast Water for Stability

Weight ton 21 000 10 350 2 4 2 830 44 115 11 600 0

Centre of Gravity KG/D KG (m) 21,28 1,15 0,00 0,00 11,10 0,60 0,00 0,00 11,10 0,60 24,05 1,30 23,13 1,25 7,40 0,40 18,50 1,00 0,64 11,80 18,5 1,00

0,66

Moment ton×m 17 552 0 2 220 0 103 785 6 926 5 434 19 995 12 743 168 655 13 135

12,12

181 790

Centre of Gravity KG/D KG (m) 11,10 0,60 25,90 1,40 24,05 1,30 19,43 1,05 7,40 0,40 9,25 0,50 7,40 0,40 1,85 0,10 9,25 0,50 0,00 0,00

Moment ton×m 233 100 268 065 48 78 20 945 409 852 20 5 550 0

DEADWEIGHT

35 000

0,82

15,12

529 068

LIGHTWEIGHT+DEADWEIGHT

50 000

0,77

14,22

710 858

SHIP STABILITY FOR SELECTED DIMENSIONS Centre of Buoyancy Transverse Metacentre Metacentre above keel

KB BM KM

6,44 m 8,58 m 15,02 m

INITIAL STABILITY

GM

0,80 m

Table 146: Calculation of ship centre of gravity and stability

Machinery power and speed check The resistance of the hull form and efficiency of the selected propulsion arrangement can be calculated using the methods presented by Guldhammer-Harvald, Holtrop or other available model test data. The influence of the selected main dimensions should always be checked. The length of the vessel has the greatest influence on the resistance. If the length is increased both Froude number and the block coefficient decreases and the slenderness ratio increases, which all contribute to lower resistance. Increasing the breadth reduces only the block coefficient, but Froude number and the slenderness remains the same (Figure 579).

611

Part IV – Ship Design and Case-Studies

100

80

60 Power [MW ] 40

35,0

20

32,5 0 200

30,0 225

27,5

250 Length [ m ]

Breadth [ m ]

275

Figure 579: Influence of length and breadth on power demand for 24 knots The resistance and propulsion power is calculated for trial condition, assuming no speed reduction due to wind, waves or shallow water. The trial speed is reached with machinery power at the maximum continuous rating (100 % MCR). In normal service condition the speed is reduced due to winds and waves. A sea margin of 15-25 % is added to the power calculated for trial condition to get the power demand in actual service. In service the machinery is operated at lower power, 80-85 % MCR to reduce the fuel consumption and maintenance cost. The operating schedule for the ship should be based on the service speed so the schedule can be kept also in bad weather condition.

Design summary Now a summary page can be made with all the important main data calculated in the System Based Design process as shown in Table 147. This data sheet acts as short specification and presents the capacity and performance of the ship design in a clear and simple way. The numerical calculation of the concept is now ready and the next step in the design process is to draw the general arrangement and prepare the presentation material for the vessel.

612

Part IV – Ship Design and Case-Studies MISSION DESCRIPTION Operation Area: Description: Target Market:

World Wide Regular, year round liner service Container Transport

PAYLOAD CAPACITY AND PERFORMANCE Total Cargo: Hold Cargo: Deck Cargo: Crew: Endurance: Range: Trial Speed:

3 000 1 600 1 400 20 40 20 000 24,0

TEU TEU TEU persons days nm kn

Total Load: Hold Load: Deck Load: Crew Cabins: Time for roundtrip: Length of roundtrip: Average Speed:

32 500 21 000 11 500 18 24,0 8 000 20,8

ton ton ton cabins days nm kn

m m m GT m3 m3 m2

Length PP: Breadth WL: Draught: Deadweight: DWT / TEU Displacement: DWT/Displ.:

220,00 32,20 11,00 35 000 11,67 50 000 0,70

m m m ton ton/TEU ton

MAIN CHARACTERISTICS Length OA: Breadth Hull: Depth Hull: Gross Tonnage: Gross Volume: Cargo Space: Cargo Deck:

235,00 32,20 18,50 35 000 114 800 72 900 6 500

MACHINERY AND ROUGH POWER DEMAND Machinery Type: Slow Speed Diesel and FP-propeller Propulsion Power: 35 000 kW No of Propellers: 1

Auxiliary Power: Shaft Generators:

3 600 kW 0 kW

Exchange Rate: Dollar Price: Price/LWT: Price/DWT: Price/GT:

8,0 75 5 000 2 100 2 100

DELIVERY TIME AND BUILDING COST Delivery: Building Price: Price/LWT: Price/DWT: Price/GT:

2005 600 40,0 17 100 17 100

MNOK NOK/kg NOK/ton NOk/GT

NOK/USD MUSD USD/ton USD/ton USD/GT

Table 147: Design summary

613

Part IV – Ship Design and Case-Studies

Figure 580: General arrangement of 1,200-TEU open-top container vessel

Figure 581: General arrangement of 3,000-TEU Panamax container vessel, with hatch covers

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24.

RO-RO VESSEL DESIGN

This chapter, by Kai Levander, presents a case-study of the design (process) of a shortsea, ro-ro vessel, using the mission-based ship design methodology.

24.1. Ro-ro vessel characteristics Shortsea Ro-ro shipping Ro-ro cargo vessels are used on many shortsea routes in Europe, the Mediterranean area and Japan. The ships operate on fixed schedule, often between two ports. If the ro-ro ferry carries less than 12 passengers or lorry drivers onboard the ship can be built according to cargo vessel rules (Figure 582). Ro-ro cargo is loaded through the stern onto the main deck, with internal ramps to the lower hold and upper deck. The upper cargo deck can be uncovered for the full length. Only a small deckhouse is needed to accommodate the crew.

Figure 582: Shortsea ro-ro Vessel For ro-ro cargo handling a driveway is needed between the ship and the quay. In most vessels the stern door is used as the drive ramp leading to the main ro-ro deck. To speed up the cargo handling and shorten the time in port, a double level ramp can be used making it possible to load both the main deck and upper deck at the same time (Figure 583). In ports with big tidal water level variations a long link span supported by floats or pontoons must be used between the quay and the ship to reduce the slope angle of the loading drive way (Figure 584).

Deepsea ro-ro On long ocean routes the ro-ro concept is in decline. There are only a couple of operators using deepsea ro-ro vessels. More and more cargo is taken over by the container ships. Deepsea ro-ros are much larger than the shortsea ro-ro vessels. They have large quarter ramps or slewing ramps for the cargo access and do not need dedicated quays or link spans in the port (Figure 585). Some of the deepsea ro-ros have hatches or cell guides on the top deck for lo-lo container handling (Figure 586).

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Figure 583: Two-level drive ramp

Figure 584: Floating link span for ports with high tidal water level variation

Figure 585: Quarter stern ramp for deepsea ro-ro vessel

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Figure 586: Deepsea ro-ro vessel with quarter stern ramp

Figure 587: Ro-ro port terminal

Ro-ro cargo units The ro-ro ferries form an important link in the intermodal “door to door” transport network (Muller, 1999). A regular year round time schedule with frequent departures from each port makes it possible to promise just on time delivery to the end customers. The ro-ro cargo spaces in modern ferries are designed to accommodate almost every type of intermodal cargo unit (Figure 588 and Figure 589). Road vehicles are the dominating cargo units in ro-ro ferries, but more and more containers are also carried in the feeder traffic to and from the major deep-sea ports.

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Figure 588: Road vehicles are well-suited for ro-ro vessels

INTERMODAL CARGO UNITS

MULTIMODAL CARGO UNITS

ROAD UNITS

WHEELLESS

Pallet

Container

Swap body

RAIL

SEA

VEHICLES

WHEELED

CARGO

WAGGON

UNITS

VEHICLES

Semi trailer

Lorry

Open waggon

Cassette

Barge

Full trailer

Articulated vehicle

Closed waggon

Roll trailer

Ship

Terminal trailer

Road train

Multimodal units can be used in all transport modes Road units fit also rail and sea transport Rail units fit only sea transport

Figure 589: Intermodal cargo units

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Part IV – Ship Design and Case-Studies

Road and rail cargo units The truck and semi-trailer combination is very suitable for sea transport because the truck can drop the trailer in the port and only the cargo unit” is loaded into the ferry (Figure 590). In the arrival port another truck picks up the trailer and takes it to the final destination. For the loading and unloading of the trailers terminal tractors are used (Figure 591). These are easy to manoeuvre and can both pull and push the trailers into the ship. ro-ro vessels carrying trailers normally only have a stern ramp for loading and unloading. When trucks with full trailers are used, also the truck and the driver must be taken onboard (Figure 592). A truck with full trailer cannot be turned around in the narrow lanes on the ro-ro decks and the vessel must have a drive through possibility with both bow and stern doors. Ro-ro cargo vessels cannot carry more than twelve drivers, unless built to the passenger vessel rules. The dimensions and weight of the road vehicles are important for the design of the ro-ro spaces onboard. The rules and regulations for the trucks and trailers are not the same in all European countries. In Scandinavia and Finland much longer and heavier road trains are used than on the continent.

Figure 590: Truck and semi-trailer

Figure 591: Terminal tractors used for loading and unloading the semi-trailers on ro-ro vessels

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Figure 592: Truck and full trailer

Rail wagons Also rail wagons can be used as an intermodal cargo unit. A train ferry has rail tracks on the cargo decks for the wagons. If flush-mounted, dedicated rail profiles are used for the trains, also road vehicles can be loaded on the same deck to allow mixed cargo. Finland and Russia have a different rail gauge than the rest of Europe (Figure 593). The wheel bogies of the wagons must be swapped in the port terminal on rail ferry routes from these counties. Also the height and width of the wagons are different in many counties and the rail wagons must be tailored for the indented operation area (Figure 594).

Figure 593: Rail gauges and rail wagon max dimensions

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Figure 594: Covered rail wagons with swap bogies for 1435/1524 mm rail gauge The European Union has been promoting rail transport to reduce the road traffic jams and air pollution in large population centres. The weight and cost of rail wagons are high compared to the payload capacity. Road traffic is very competitive and much more flexible. Rail transport will need more support to increase its market share.

Intermodal transfer Semi-trailers can be loaded and unloaded by terminal tractors through stern doors. The trailers are pushed in back end first by the terminal tractors when loading and pulled out when unloading. No bow door is needed in the vessel. A road truck with semi-trailer must drive forward when loading. The roro deck must be at least 25 metres wide for the truck and semi-trailer to make a 180-degree turn and drive out through the stern gate. For fast loading and unloading of trucks with semi-trailers and road trains the ro-ro decks should have drive through possibility.

Figure 595: Road vehicles are the main cargo for ro-ro vessels

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Part IV – Ship Design and Case-Studies Semi-trailers can also be loaded on rail wagons to reduce road congestion. The trailers are lifted with gantry cranes or fork lift trucks. Trailers do not have the same corner fittings that are used in containers so special lifting hooks must be used. The hooks lift the trailer from the bottom chassis frame.

Figure 596: Semi-trailer transfer to rail wagon Containers are best suited for intermodal transport and can be used at sea, on road and on rail. In the main container ports many containers are transferred from the large trans-ocean container vessels into smaller feeder vessels that bring them to smaller ports. Hamburg, Rotterdam and Antwerp are the main container hubs in northern Europe with regular feeder traffic to and from Scandinavia.

Figure 597: Reloading containers into a feeder vessel

Ro-ro cargo units for use in ports The roll trailers and cassettes are intended for cargo handling in port. Roll trailers are cargo platforms with wheels at the rear end. The terminal tractor uses a detachable gooseneck to lift the forward end 622

Part IV – Ship Design and Case-Studies and transfer the roll trailer onboard (Figure 598). Cassettes are wheel less platforms and the terminal tractors use lift-trailers to handle them (Figure 599). The cargo is loaded and lashed on the platforms in the port. Roll trailers and cassettes can be tightly stowed side by side and need less space on the cargo deck than road vehicles. The 40 ft roll trailers and cassettes can carry 60-80 tons, but the strength of the ro-ro decks, the slope of the ramps and the pulling power of the terminal tractor may limit the load. The roll trailers and cassettes can also be used for container handling and two 40-ft units can be carried on top of each other (Figure 600) The dimensions of the cassettes have been selected to fit the 40-ft ISO container (Figure 601). The cassettes have attachment points built into the platform sides for lashing the cargo. The cassettes can be stowed side by side on the ro-ro deck to prevent sliding in heavy seas. The axle load of the terminal tractor and lift trailer are higher than for normal road vehicles and the ro-ro decks must be additionally strengthened on ships carrying them. If the cassettes are used to carry two containers on top of each other, the free height on the ro-ro decks must be bigger than for road vehicles. The slope of the shore ramps and internal ramps between the different decks in the ro-ro ship should be less than 7 degrees. The terminal tractor pushes the cassette into the final position on the ro-ro deck to be able to retract the lift-trailer and get out from the deck (Figure 602).

Figure 598: Terminal tractor with detachable gooseneck for roll trailers

Figure 599: Terminal tractor with lift-trailer for the wheel-less cassettes

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Figure 600: Double-stacked containers on cassette

Figure 601: Cassette dimensions and axle loads

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Figure 602: Terminal tractor with lift trailer for cassette handling

Ro-ro cargo handling Road vehicles can obviously not be stowed on top of each other, like containers and ro-ro ship must distribute the cargo over several decks to get a full load onboard. A typical ro-ro vessel has a lower hold, main deck and upper deck for the cargo units (Figure 602). The cargo is loaded through the stern ramp to the main deck and from there by internal ramps to the lower hold and upper deck (Figure 604). A two level ramp system, with access both to the main deck and upper deck can be used to speed up the cargo handling in port (Figure 583). The upper deck is often left partly open, which reduces the gross tonnage of the vessel. On the open deck vehicles with dangerous cargoes can be carried. The cargo is loaded in lanes on the ro-ro decks. The lanes are between 2.8 and 3.0 metres wide for road vehicles so that 0.4-0.6 metres empty space is left between the units. The tracks and trailers are lashed to the deck to prevent shifting in heavy weather. Ro-ro cassettes can be stowed close side by side and the lane width is reduced to 2.6 metres. The cassettes need less lashing than trailers, but it is important that the cargo is properly stowed and lashed on the cassette itself. The cargo capacity of ro-ro vessels is expressed in lane-metres. The average cargo weight is 2.0 tons per lane-metre for road vehicles, which means about 25 tons for a semi-trailer. But ro-ro cassettes loaded with paper roll or two 40-ft containers can weigh 60 tons, which means about 5.0 tons per lanemetre.

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Figure 603: Ro-ro ship with several cargo decks

Figure 604: Double stern ramps

24.2. System-based ship design The functions of a ro-ro vessel are divided into two main categories, payload function and ship function, in the same way as for container vessels (Figure 605). In the ship functions the hull structure is defined from the keel to the upper deck. Upper deck is the deck covering the main ro-ro deck. In 626

Part IV – Ship Design and Case-Studies many ro-ro vessels also the upper deck is used for cargo and is protected by the weather deck. The roro spaces on the upper deck need not be closed and of water thigh construction. The weight per volume of this part is much lower than for the hull below the upper deck and the weight is calculated as for a superstructure in the weight estimate.

Payload Function

Cargo Spaces

Cargo Handling

Closed RoRo cargo decks Open RoRo cargo decks

Shore ramps, side doors Internal ramps, cargo lifts Lashing equipment

Ventilation

Cargo Treatment Heating and cooling

RoRo Function

Power supply to refrigerated trailers and lorries

Structure

Hull RoRo space on upper deck Deckhouse

Crew Facilities

Crew cabins Common spaces Stairs and corridors

Ship Function

Ship service spaces

Service Facilities Catering and stores Laundry and linen

Machinery

Main and aux engines Casing and funnel Steering gear, bow thrusters Air conditioning

Comfort Systems Water and sewage Fire safety Fuel and Lube Oil

Tanks and Voids Water and Sewage Ballast and Void

Outdoor Decks

Anchoring and Mooring Life saving equipment

Figure 605: Payload and ship function for ro-ro vessels

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Part IV – Ship Design and Case-Studies Route: Distance: Operating Schedule: Time per Leg: Time in Port: Hours at Sea: Average Speed: Number of trips: Operating Days:

Helsinki - Lybeck 630 nm (one way) Out 1,5 days 6,0 hours 30,0 hours 21,0 knots 120 180

Back 1,5 days 6,0 hours 30,0 hours 21,0 knots 120 180

Round 3,0 12,0 60,0 21,0 120 360

Trip days hours hours knots per year per year

Table 148: Operational description for the intended route

Payload system in ro-ro vessels The mission description defines the payload capacity based on the number of cargo units of different length that shall be carried onboard (Table 149). The required lane length can then be calculated for each cargo type. Based on the average unit weight, also the total payload capacity in tons can be estimated. For road vehicles the average weight is often assumed to be 2 tons /lane-metre. If the vessel is intended to accommodate trucks with drivers also the driver capacity must be specified. If more than 12 drivers are carried the vessel must meet passenger vessel safety rules. The intended route and operation schedule is used to calculate the service speed. Based on this information the propulsion power can be estimated and the bunker consumption calculated.

Cargo spaces The space needed for the ro-ro cargo is calculated based on the length and width of the cargo lanes (Table 150). Ro-ro cargo units cannot be stowed on top of each other and the cargo is divided on several decks (Figure 606). When describing the cargo spaces it is important to show how much of the cargo is carried inside the vessel on enclosed decks and how much is carried on open decks. Also ro-ro vessels carry much of the cargo outside, in the same way as container ships. Only the enclosed cargo spaces are included in the Gross Volume of the ship or the Gross Tonnage (Figure 607). Statistics from existing ships can be used as a base for the cargo distribution between the different decks, but the designer should avoid copying if he is looking for new alternatives. For calculation of the volume also the height of the ro-ro deck is needed. The height of trucks and trailers is limited to 4.0 metres for the use on roads in the European Union. The free height on ro-ro decks should be at least 4.5 metres because the terminal tractors lift up the forward end of the trailers when they are taken onboard. Also the angle between the ramp and ro-ro decks increases the demand for free height when the truck and trailer drives in or out of the ship. If the vessel is going to carry double stacked containers on cassettes the free height on the ro-ro deck should be close to 7.0 metres. The space needed for the deck beams must be added to the free height, because in the volume calculation the distance between the decks shall be taken “from steel to steel”. The add-on coefficient estimates the area outside the cargo lanes for web frames at the ship side and space lost as the deck narrows in the bow area.

628

Part IV – Ship Design and Case-Studies RORO CARGO CAPACITY RoRo Cargo Category: Type 1: Trailer Type 2: Cassettes with containers Type 3: Lorries Type 4: Type 5: Total RoRo Cargo

No of Units 205 120 12

337

Unit length 13,7 12,2 18,8

Unit weight 26,0 60,0 35,0

38,5 t/Units

Lane Category Length weight 2 811 5 342 1 464 7 200 226 420 0 0 0 0 4 500 13 000

CAR CAPACITY No of Units

Pax Car Category: Car size 1: Car size 2: Car size 3: Total Private Cars

Unit length

Unit weight

Lane length

0

Category weight

0

0

Additional Beds 2 0,0

Persons 12

DRIVER CAPACITY Cabin Category: 1: Driver cabin with 2 beds 2: 3: Driver Cabins

Lower Beds

Cabins 6

6

12

Drivers without cabins Total Drivers

12 0 12

Table 149: Payload capacity and operation for a ro-ro vessel

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Part IV – Ship Design and Case-Studies RORO CARGO SPACES Name / Use of Deck: Trailers in Lower Hold Cassettes on Main Deck Trailers on Upper Deck, closed Trailers on Upper Deck, open Weather Deck, Open Total RoRo Cargo Demand:

Lanes Width Add-on m m % 500 3,0 15 1 500 2,8 15 1 400 3,0 15 300 3,0 10 800 3,0 10 4 500 lane-m 4 500 lane-m for Ro-Ro Cargo

Height m

Lanes m

Height m

6 8 6 --

Area m² 1 725 4 830 4 830 990 2 640 15 015

Volume m³ 10 350 38 640 28 980 0

Area m²

Volume m³

77 970

CAR SPACES Name / Use of Deck: Separate Car Deck Separate Car Deck

Total Private Cars

Width m

Add-on %

0 lane-m 0 lane-m for Private Cars

Demand:

0 0 Separate Deck Only

CARGO HANDLING AND OTHER TASK RELATED SPACES Average Space Demand/Unit Length Breadth Height m m m 60 4 60 4 10 1 10 1

Cargo Handling

Area m² 264 264 16 16 0 560

Volume m³ 792 158 96 90 0 1 136

TOTAL CARGO SPACES

15 580

79 110

Name / Use of Space: Inside Ramp to Lower Hold Outside Ramp to Weather Deck Ventilation spaces Deck 3 Ventilation spaces Deck 4

No of Units 1 1 2 2

3 1 6 6

Table 150: Calculation of ro-ro cargo spaces

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Part IV – Ship Design and Case-Studies

Figure 606: Payload distribution on different decks

Figure 607: Enclosed and open cargo spaces

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Ship systems in ro-ro vessels The areas for crew accommodation and service spaces are calculated in the same way as for container vessels. All areas and volumes for the furnished spaces are measured “from steel to steel” to include space lost behind ceilings and interior bulkheads (Figure 608).

Figure 608: Crew and service spaces A first estimate for the machinery power can be based on statistics for ro-ro vessels or be taken from Figure 523. If you find out later that the estimate is far off, you must go back and change these values. In a spreadsheet any change made to an input variable will automatically update all the related area and volume calculations.

Figure 609: Machinery spaces, tanks and voids

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System summary for ro-ro vessels The system summary gives the space for all functions needed in the ro-ro vessel (Table 151). The calculated Gross Volume is converted into Gross Tonnage and can be compared with existing vessels. For ro-ro vessels this is best done based on the cargo lane-meters (Figure 610). The furnished deck area is used to estimate interior outfitting weight and cost. For engine and pump rooms only the volume is calculated, but other technical spaces outside the engine room, like machinery shops and stores area best estimated based on the area demanded. SPACE ALLOCATION m²/DWT

RoRo Cargo Spaces Car Spaces Cargo Handling and Other Task Related Spaces TOTAL CARGO SPACES

Crew and Driver Facilities Service Facilities TOTAL FURNISHED SPACES Technical spaces in the accommodation TOTAL INTERIOR SPACES

Machinery spaces Control rooms, workshops and stores Engine casing and funnel TOTAL TECHNICAL SPACES

m³/DWT

0,6 0,0 0,0 0,7

Area m²

Volume m³

3,4 0,0 0,0 3,4

15 015 0 560 15 580

77 970 0 1 136 79 100

m²/person m³/person 29,3 83,6 6,8 18,9 42,1 120,8

820 190 1 010

2 340 530 2 900

3,2 91,58

8,9 262,42

89 1 099

249 3 149

m²/kW 0,05 0,04 -

m³/kW 0,33 0,12 0,05 0,5

1 340 1 053 2 390

8 844 3 147 1 285 13 300

m³/DWT TANKS AND VOID SPACES

OUTDOOR DECK SPACE

m²/person m³/person 16,3 50,0

GROSS VOLUME

-

19 100

390

1 200

116 000

GROSS TONNAGE

35 000

Table 151: System summary for ro-ro vessel

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Gross Tonnage

50 000 40 000 30 000 20 000 10 000 0 0

1 000

2 000

3 000

4 000

5 000

Cargo Lane- Metres

Figure 610: Relation between cargo lane-metres and gross tonnage

Ro-ro vessel main dimensions Ro-ro vessels carry most of the cargo inside on the enclosed main deck or in the lower hold. The upper cargo deck is often at least partly open and this space is not included in the gross tonnage. This is different from container vessels, which carry more than half of the containers as deck cargo and comparison should be based on TEU or deadweight. Statistics for ro-ro vessels show, however, good correlation both based on deadweight and gross tonnage. Also statistics based on lane-metres for cargo can be used (Figure 611). This indicates that most ro-ro vessels follow very similar design solutions. If you want to compare the ro-ro ship also with passenger-car ferries, the statistics should be based on gross tonnage. The selection of the main dimensions is done in the same way as for container vessels. After the system summary the weight can be calculated and suitable main dimensions selected based on the block coefficient and slenderness ratio in relation to the Froude number. The recommended values for the hull coefficients, slenderness ratio and longitudinal centre of buoyancy shown in Figure 572 to Figure 574 are the same for all ship types. The ro-ro cargo units cannot be stowed on top of each other and much empty space is lost around them. The deadweight of a ro-ro vessel is low compared to container vessel of similar dimensions. The number of cargo lanes on the decks will influence the selection of the hull breadth. The main cargo deck is also the bulkhead deck and must be located well above the waterline to satisfy the damage stability criteria. The distance between the main deck and the upper deck depends on the height of the cargo units.

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35

30 200 25

Breadth [m]

Length oa and pp [m]

250

150

100

20

15

10 50 5 0

0 0

1 000

2 000

3 000

4 000

5 000

0

1 000

Cargo Lane-Metres

3 000

4 000

5 000

20

35 000

Depth to Upper Deck

18

Draught and Depth [m]

DWT and Displacement [ton]

2 000

Cargo Lane-Metres

30 000

25 000

20 000

15 000

10 000

16 14 12 Depth to Main Deck

10 8 6

Draught at CWL

4 5 000 2 0

0 0

1 000

2 000

3 000

4 000

Cargo Lane-Metres

5 000

0

1 000

2 000

3 000

4 000

5 000

Cargo Lane-Metres

Figure 611: Main dimensions and deadweight for ro-ro vessels

Lay out of ro-ro vessels The ro-ro decks should be as free as possible from pillars, engine casings and other obstacles in the cargo lanes. If the machinery can be located in the bow or on the upper deck, cargo handling becomes easier and faster. Diesel-electric propulsion gives this possibility, but is an expensive solution. Combining a diesel-mechanical main propeller with a contra rotating electric pod propeller, like in the ro-ro vessel presented in Figure 612 and Figure 613 can be an interesting alternative.

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SERVICE LIFT

Part IV – Ship Design and Case-Studies

MOORING DECK

VOID

BW

-10

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220

230

OFFICES & CONFERENCE ROOM

EMERGENCY GENERATOR

RAMP

-10

0

AIR CONDITION

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

240

GARBAGE

220 SL

CREW GYMNASIUM AND SAUNA

LAUNDRY AND DRIVER'S LINEN SAUNA STORE

230

PROFILE

250

260

270

280

290

250

260

270

280

290

Deck 4 24000

270

280

290

Deck 3 18000

OFF. DAYROOM

CREW DAYROOM

240

PROVISION GALLEY STORE

CREW MESS

OFF. MESS

LOUNGE

MOORING DECK

MOORING DECK

RAMP

-10

0

10

20

30

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220 SL

230

240

250

260

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220 SL

230

240

250

260

270

280

290

Deck 2 10000

230

240

250

260 BW

270

280

290

Doublebottom 1600/3000

MOORING DECK

RAMP

-10

4000 FROM BL

1600 FROM BL

HEELING TANK

VOID

VOID

VOID

VOID

VOID

VOID

1600 FROM BL

VOID

3000 FROM BL

HEELING TANK

VOID

SETTLING

HFO HFO DAY DAY TANK TANK

CYCLO CONVERTER ROOM

RAMP UP

-10

0

10

20

30

40

50

60

HEELING TANK

70

80

90

100

110

120

130

140

150

160

170

180

190

200

210

220

HEELING TANK

Figure 612: Vessel with diesel-mechanical main propeller and electric contra-rotating pod

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Deck 4

Deck 4 4800

6000

24000

Deck 3

Deck 3

6800

8000

18000

Deck 2

Deck 2 4800

6000

10000

Deck 1

Deck 1

4000

4000

DB

Figure 613: Vessel with diesel-mechanical main propeller and electric contra rotating pod

Ro-ro vessel with traditional machinery arrangement Most ro-ro vessels are built with traditional machinery using medium speed diesel engines. Both single and twin screw solutions are used. Most vessels have the engine spaces located aft and different solutions are used to locate the engine casing away from the loading and unloading lanes at the stern gate (Figure 614). x x x x x x x x x x

Length overall Length bp Breadth Depth Draught design Gross Tonnage Deadweight Cargo capacity Main engines Service speed

180.0 166.2 24.2 16.7 6.0 20,000 9,700 2,600 2x9.5 20.0

m m m m m GT tons lane-metres MW knots

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Part IV – Ship Design and Case-Studies

Figure 614: Ro-ro vessel with 2600 lane-metre cargo capacity

Fast ro-ro vessel High service speed can improve the possibility of sea transport to compete with land based transport. Earlier ro-ro vessels were built to operate at 15-20 knots, but the next generation could be built at 2530 knots. These vessels can still have steel hulls and diesel machinery operating on heavy fuel oil (Figure 615). Slender hull forms and added propulsion power increase their speed potential. Performance in heavy seas is very important and demand careful consideration (Figure 616). But it is not enough to be fast at sea, the time needed for unloading and loading in port should also be considered. Improved access to the ro-ro decks, double level shore ramps and no lower hold are some easy way of reducing long time in port for unloading and reloading.

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Figure 615: Fast ro-ro vessel

Figure 616: Sea keeping test in head seas

Advanced ro-ro for macro cassettes Normal ro-ro ships must load the cargo on several decks to get the full payload onboard. If the cargo is carried in containers a macro cassette could be used for the cargo handling. 6 40 ft boxes are loaded on each cassette by stowing 3 containers on top of each other in 2 rows (Figure 617). The containers are lashed to the cassette and each other with twist locks. This will be the same amount of cargo as 639

Part IV – Ship Design and Case-Studies normally is carried on 3 decks in a conventional ro-ro ship. The macro cassettes will be transported onboard with a high capacity lift-trailer. The ship needs only one deck and no internal ramps to lower holds or upper decks. The cassette deck can be fully open, because the containers protect the cargo, like the containers on deck in a lo-lo container vessel (Figure 618). Azimuting pods with internal electric motors are used for propulsion. The power is transmitted by cables from the diesel-generators in the bow to the pods at the stern.

Figure 617: Macro cassette cargo handling

5200

10600 2900

200

12000 9000

1800

2900 15000

5200

WL 6.5 m

BL

0 13500

Figure 618: Ro-ro for macro cassettes

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25.

FOREST PRODUCTS SHIPS

The term forest products, covers a wide range of different products derived from trees. They have in common that they are based on the same material: cellulose. Logs from trees can be transformed into the following intermediary of products: wood, wood chips, wood pulp, paper and board. The transport of these products has triggered a number of innovative ship designs, such as the woodchip bulk carrier (Figure 619), the open-hatch bulk carrier for the transport of pulp, paper and timber (Figure 620), the timber carrier (Figure 621), the log bulk carrier (Figure 622) and the side-loading multi-purpose vessel for pulp and paper (Figure 623). The case-study described in this chapter considers an innovative logistical system with the purpose to lower the logistical costs of paper reels transport. In particular, reducing handling costs and damage to the vulnerable reels can result in substantial savings. Inland transportation in Western Europe, currently by truck, can also be made more efficient.

Figure 619: Wood chip carrier

Figure 620: Open-hatch bulk carrier

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Part IV – Ship Design and Case-Studies

Figure 621: Timber carrier

Figure 622: Log carrier

Figure 623: Side loader The following categories of paper and paperboard products can be distinguished: x x x x

Newsprint, which is thin, uncoated paper on which newspapers are printed; Uncoated paper, like copier paper and books; Coated paper, like paper for magazines and catalogues; Wrapping paper;

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Part IV – Ship Design and Case-Studies x

Kraftliner, which is thick, rough paper for the production of corrugated paperboard, paperboard boxes, etc.

Paper is a vulnerable cargo, packed either on reels or pallets with boxes of sheets. This case study focuses on the design of a new transport chain and specifically a new way to transport paper reels (Figure 624). Besides a new concept, this chapter also describes the process how this concept was established and the creativity process used. The case-study is based on a master thesis project of Remko van der Lugt, made at Kvaerner-Masa Yards (today Aker Yards), Turku, Finland in 1993 (Wijnolst & Lugt, 1993).

Figure 624: Paper reels and clamp truck

The existing situation The land transport in Finland from the paper mill to the Finnish port is carried out by truck as most inland waterways are frozen during several months of the year. For the majority of the small Finnish ports forest products make up most of the business. As the amount of work is not constant in the port, the number of workers must be adapted to the maximum amount of work when the ship is loaded. This makes stevedoring a costly operation. There are two solutions to reduce the handling costs: x x

Automation of the cargo handling; this makes harbour workers more or less redundant. Make the stevedoring work independent from the presence of a ship; this makes it possible to have a continuous amount of work;

Presently the paper reels are (un)loaded using one of the following three methods: x Lift-on/lift-off (lo-lo); x Stowable roll-on/roll-off (sto-lo); x Roll-on/roll-off (ro-ro).

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Part IV – Ship Design and Case-Studies In the lift-on/lift-off method the reels are lifted on board from the trailer by a crane (Figure 625). The reels are lifted by the crane by friction clamps or vacuum clamps. Friction clamps are a scissor-like construction that clamps around the reel. This type of loading is slow and the reels are easily damaged. Vacuum clamps suck themselves to the top of the reel. This way of loading is faster, but for every reel size a different clamp is required. If a lot of different reel-sizes have to be handled, again the friction clamps have to be used. Ships loaded by the lift-on/lift-off method are often uncomplicated oldfashioned dry cargo ships.

Figure 625: Lift-on/Lift off The stowable roll-on/roll-off method came into use to overcome most of the problems of the lifton/lift-off method. A roll-on/roll-off ship is used. Platform cars are used to roll the cargo on board, where it is unloaded by a lift truck. The platform cars or trailers can also be positioned next to a side loader, from where the reels are distributed further by lift trucks. The roll-on/roll-off method is a more universal system for transhipment. The paper reels are loaded on a trailer or cassette in the warehouse. Then the trailer is driven to the ship. Via a stern ramp the trailer enters the main deck. From here a hoistable ramp or lift gives access to lower and upper decks. The trailer is put into place, where upon the tug master disengages and drives back to the warehouse to pick up a new trailer. The trailer is lashed to the deck to prevent it from shifting (Figure 626).

Figure 626: Roll-on/Roll off To achieve continuous flows, the shipping companies maintain liner services. Almost all ships that operate in these services are purpose-built ro-ro and sto-ro vessels. The rest is shipped by tramp 644

Part IV – Ship Design and Case-Studies vessels, usually lo-lo dry cargo ships. The liner services operate often on a weekly to two-weekly schedule, with multiple ports of call in Western Europe. The discharging operations in North Western Europe are similar to the loading operation in Finland, but in reverse order. The paper can be transported from the port of discharge to the consuming industry by either road, rail or inland waterway. Trucks are most commonly used because of their high flexibility. It is, however, the most expensive way of transportation. Trains are not very flexible, because of the rail infrastructure required. Inland barges are the cheapest form of transport. At present, inland waterways are hardly used for the paper transport. Low speed, little flexibility and the requirement of large batches of cargo are factors that make barges less attractive. The integral logistic cost per ton of paper in 1993 was around 400 Finmarks. The distribution cost amounted to 29%, discharge to 12%, sea transport to 13%, transhipment to 17%, inland transport to 12%, capital costs 17%. The costs as a function of transport distance are shown in Figure 627 Sea transport, covering some 1000 km, only makes up 13 percent of the total costs, and proves that shipping is a very cheap way of transport.

Figure 627: Logistical costs set out against covered distance

Problem definition The objective of this study was to come to a substantial reduction of the overall logistical costs using an integral system approach. During the process of idea generation, the following ambitions should be achieved: x

x

The system must be simple. As little as possible mechanical and electronic systems are used, in particular on board of the ship. These parts tend to break down, due to the moist and salty environment; Because of the vulnerability of paper reels, good damage preventing capabilities are required.

Value analysis shows the most profitable direction for innovation: 645

Part IV – Ship Design and Case-Studies x x x x

Capital costs: These can be reduced by cutting down the time the paper spends in the warehouse; Loading of the seagoing vessel in the Finnish port: handling costs can be reduced substantially by decreasing the labour content; Discharging of the vessel at western European port: Cargo handling solutions from the Finnish port will also bring a benefit to the stevedoring costs in Western Europe; Distribution over Western Europe: Major benefits can be achieved, possibly by using inland waterways.

This chapter not only describes a new concept for the transport of paper reels, but also describes the thinking and creativity process behind it. The objective is to design a system that is capable of reducing the total cost per ton by half as shown in Figure 628.

Figure 628: Ideal solution: Logistical costs against the covered distance

Potential solutions Paper can be transported in unitised parcels. A distinction must be made between units meant to lower the stevedoring and warehousing costs, transhipment units and intermodal units, which cover the complete logistical chain.

Intermodal unit A quite obvious and dominating intermodal unit is the container. What can be learned from the container operations for the unitisation of forest products? For the transhipment unit, existing analogies are the barge carrier and the tug/barge system. Also, the concept of floating warehouses of Kværner Masa Yards is considered. The intermodal unit is considered from the view of progressive abstraction. The question posed in this context is: "What is the core function of a cargo carrying unit, when it is used for paper reels?" The 646

Part IV – Ship Design and Case-Studies answer is: "To connect paper reels to each other so that bigger units are obtained". This definition highlights a striking phenomenon. At the paper mills large reels are cut and rerolled into smaller reels. Putting these reels together into bigger units means the reconstruction of the large reel. This seems to be a waste of energy. It appears much more efficient to transport large reels, and to do the cutting further up the logistical chain. At the end of the production line produced paper is rolled onto a giant reel, with approximately a length of 8 metres, a diameter of 3 metres and weight of 30 tons. When the reel is full, it is transferred to another machine, where it is cut into smaller units with the dimensions required by the printing houses. The question is: "Can the paper be cut later in the chain?" Then the cutting has to take place as far up the chain as possible, i.e. in a West European warehouse. From there the paper can be distributed in small parcels.

Figure 629: Giant reel compared to container The transport of the giant reels has some complications. Transport in a vertical position is impossible. Also, the reel would deform. If the reels are transported in a horizontal position, they tend to become pear shaped. Inland transport in Finland is carried out by rail or road. The maximum width of a lorry is 2.6 metres. As forest products industry in Finland is of major importance, possibly dispensation can be obtained to move reels with a larger diameter. If this is not possible, the reels have to be adjusted to the rules. This means the diameter of the reels have to be cut back to a bit less than 2.6 m. The weight of the reel will then decrease to 21 tons48.

48

StoraEnsohassincedevelopedforitsowncaptivetransportsystem,averylarge80tonscontainer,whichitusesinits logisticalsystemfromSwedentoBelgium.Thisgiantcontainerdidnotexistatthetimeofthestudy

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Figure 630: Stora Enso giant 80-ton container

Cradle container A special cradle for the transport of giant reels can be developed. The upper part of the cradle has to be from paper friendly material to reduce damage, for example multiplex. The substructure is a cassette, fitting in the rolux system. To get the cradle in a standard 40 ft. container the bottleneck is the height of the door opening. This height is 2.26 metres, which then is the maximum height of the reel cradle. High-cube containers are 0.15 metres higher. A 40 ft. container cannot be fully used, since the length of the reel (8 metres) is significantly shorter than the inner length of the container, 12.01 metres. A 30 ft. container would be more suitable, but they less popular.

Figure 631: Cradle for giant reels

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Transshipment unit The next step beyond the intermodal unit is the transhipment unit. A barge carrier system makes the transhipment independent of port facilities. This system provides a transhipment unit without the need for an expensive quay-side logistic harbour function. When inland waterways are used, the barges can be used to cover a larger part of the logistical chain than just the transhipment. The barges are transported in a tug/barge combination. This method reduces the port time of seagoing vessels because of the fast transhipment. It is independent of port installations, while loading and discharging of the barges does not influence the port time of the carrier. Disadvantages are the expensive equipment onboard the ship and the need for multiple sets of barges, requiring large investments. Also, the payload is low in relation to the total deadweight, because of the excessive packaging. Several barge carrier systems have been developed in the past, but none of them was a great success. This is probably also the case for the transport of forest products. The floating warehouse concept is developed by Kværner Masa Yards Technology. The initial idea was generated by use of a creativity technique, in which the following question was asked: "When considering the logistical chain, what would happen if one part was kept out?" The stevedoring was kept out of the forest products chain. The idea was to use floating warehouses in the ports. When the forest products arrive at the Finnish port, they are not put into storage in a warehouse on the quay, but directly loaded into a floating warehouse. This can be a warehouse on a pontoon, a barge or even a ship. At regular intervals, these warehouses are shipped to the European distribution site, no matter if they are completely full or not. By maintaining a regular schedule, a good degree of service can be accomplished. At the European port, the distribution takes place directly from the floating warehouse, without transhipment. Since the use of ships as a warehouse would be highly inefficient, because of the extreme high port times of the high value ships, lighters function as warehouses. These lighters can, for example, be transported by heavy-lift dock ships (Figure 632). This would provide and ultimate kind of barge carrier. However, heavy-lift ships transporting floating warehouses have some major disadvantages:

Figure 632: Floating warehouse on heavy-lift ship

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Part IV – Ship Design and Case-Studies x x

Operations of a heavy lift ship are too expensive to start a competitive service in the low freight rate forest products market; The floating warehouse is carried by the heavy-lift ship, so it does not need to withstand the waves by itself. However, the movements of the ship imply large forces, so the warehouses require a heavy construction after all.

Another way of using the floating warehouse system is to use a tug/barge system. A tug/barge system is a kind of barge carrier system. The principle difference is that during the sea journey the barge is not protected and carried within the hull of the seagoing ship, it floats by itself. The tug is used as propulsion unit only. A second difference compared to the regular barge carrier is the number of barges transported. For a tug/barge system this number is limited to one. The barges can be transported by river to the consumer area. Then the logistical system would look as follows. The reels are transported from the paper mill to the Finnish port by truck or train. At the port, they are directly stowed in the barge. The barge remains in the port for a fixed period of time. Weekly, or maybe twoweekly, a tug delivers an empty barge and picks of the full one, even if the barge is not totally full. In western Europe the tug drops the full barge and picks up the empty one, which is transported back to Finland. The warehouse barge remains at the quay. Trucks load the paper directly from the barge and transport it to the client.

Can dispenser The paper unit used most often is the paper reel. Using the creativity method of progressive abstraction, the following core questions can be defined: x x

"What is the shape of a paper reel?" "What advantages and opportunities does this shape bring?"

The paper reel is a cylinder. The most important quality of a cylindrical shape is that it has the ability to roll. This characteristic is elaborated further. How can this be introduced into the logistical chain? An analogy is a can dispenser (Figure 633). Those are machines that distribute cans as seen in cafeterias, gas stations, etc. The cans are stacked in rows on inclined shelves. When someone wants a can, he pulls the small hatch open. A cradle bearing a can comes out. When the hatch is shut, the cradle slides back and because of the inclination of the shelf, the next can rolls onto the cradle. To construct a bulk-like transhipment system, instead of using conveyors, the forces of gravity can be used. Inclined paths to and from the warehouse are created. The reels roll over these tracks to the ship at the quay. It is possible to have the paths take care of the warehousing function, in the form of short term buffer stocks. Instead of the reels rolling one by one, a whole ship's cargo can be loaded onto the path in advance. When the ship arrives, the reels only have to be released to roll onto the ship. The same principle can be used inside a ship. If the transhipment is carried out through the stern, the movements can remain in a longitudinal line. The complex system with cradles can be avoided. The essence of the analogy is that just like the can dispenser, emptied spaces are filled up by use of gravity and the rolling capabilities of cylinders. This concept can be implemented in the warehouse. The reel carrying paths are given a small slope. If the first reel is taken out of the path, when it is loaded onto the ship, the entire line of reels will shift one place, so that the next reel comes into position to be loaded (Figure 634).

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Figure 633: Can dispenser

Figure 634: Implementation of the can dispenser A series of problems become manifest with the system of rolling reels: x x x x

If a line of cylinders is pushed forward, friction problems arise. High friction between reels, or between ground and reel imply high wear of the outer surface of the reel; Due to the friction a relatively large inclination is required to initiate the rolling of the reels; The paper reels have many different cross sections. Because of the uneven division of forces, the large reels will be pushed out of line, on top of a smaller reels; If not guided, the reels will probably not roll in an exactly straight line, due to inequalities of reels or track.

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Reels on wheels One solution to avoid the complications of rolling cylinders is to put a steel bar inside the tube of the reel, put it on wheels and guide it on rails. A problem that arises here is the danger of askew sliding of the reels with axle. To cope with this problem, small, uncomplicated wheels can be connected to the axle. From this moment on the “Reels-on-Wheels” system is born. The internal structure of the hold will only consist of a steel framing with rails over the entire length of the cargo hold. The rails will also serve as longitudinal stiffeners. Figure 635 shows the cross section of a reel on wheels.

Figure 635: Cross section of a “reel on wheels”

The logistical chain of Reels on Wheels An entire chain using the Reels-on-Wheels system can be created, from the paper mill to the printing house, including the use of barges on the inland waterways. This way the distribution can take place close to the centre of the market area. At the paper mill, the axles with wheels are put on the reels when they come out of the production process. Then they are directly, using the force of gravity, rolled into trucks, thus eliminating the warehousing function at the paper mill. To be able to load the reels longitudinally into the lorries, the length of the axles cannot exceed the maximum width of the vehicle. In Finland this is 2.6 metres. Therefore, the width of the reels must be smaller than 2.5 metres.

Figure 636: Road train for “reels on wheels” system In a Finnish port, at the quay, the truck discharges its cargo into the warehouse, consisting of a number of inclined rail tracks. This warehouse is situated directly next to the quay. The reels roll down the track, so that the warehouse is automatically filled up. There are a large number of different possible

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Part IV – Ship Design and Case-Studies constructions, of which one is shown in Figure 637. The ship can be trimmed to give the rails an inclination, so the reels can roll down by use of gravity.

Figure 637: Loading and unloading process of “reels on wheels”

The ship design The initial idea was to develop a cellular cross section of the hold. Every pair of rails is separated from the others by a horizontal construction member. To optimise this cross section, other configurations had to be generated. In order to be able to do this, information on the dimensions of the mix of paper reels is required. There is a large variety of dimensions of the reels, thus a very flexible way of handling and stowage of the reels is required. The paper reels were classified in a number of groups. The group with reel diameters of 990-1040 mm is by far the largest. The 1190-1240 mm group is also significantly larger than the rest. Together they make up two thirds of the total volume. The cross section of the hold must be optimal for these two groups and also acceptable for the remainder. Cross section 1 - One per rail The initial idea for the hold configuration was one rail per cell. The hold is divided by horizontal and vertical structural members, so that the cross section is divided into cells. Each cell contains one rail on which reels can be loaded. An important disadvantage of this structure is that if all reels have to be accepted, the height of the cells (and therefore the spacing of the reels) will have to be very large. This implies a very low use of the available cargo space and the vertical location of the centre of gravity is very high. This may give stability problems. Using different cell height can make the hold more efficient, but it will decrease the flexibility of the hold. Another option is to reject all extreme reel sizes that are quite rare. This, however, is not a real innovative solution. There must be better ways. 653

Part IV – Ship Design and Case-Studies

Figure 638: Rolling reels ship Cross section 2 - Three rails per cell The required height for one reel will have to be reduced, without decreasing flexibility. This can be done by increasing the height of the cells, which means reducing the number of transversal stiffeners, so that more rails can be put into one cell. This way, large reels can be placed into the cell. The cell is then filled up with smaller reels in the remaining rails. If those are not available, the remainder of the rails will stay empty. For this system a minimum of three rails per cell is required. Cross section 3 - Multiple rails The two previously described options do not have much flexibility. The hold will not be used optimally. That is why it was necessary to find new ideas to solve this problem. Ample flexibility would be created if movable rails were used in the hold. That way, the hold would become very flexible. However, movable rails imply a complex construction. And mechanic constructions onboard of seagoing vessels imply high risk of malfunctioning and a lot of maintenance. Therefore the idea did not appeal too much. However, if the rails cannot be moved, another possibility to get a similar result is to put more rails into the hold, one set for 1040 mm reels and one for the 1240 mm reels. This way the loader is free to choose which set of rails to use. The flexibility of the system increases. But, in this case, some rails have to be placed so close to each other that no wheel would fit in between. With a small amount of extra rails, a system with a standardised, very small, rail spacing can be achieved. The hold would not be totally optimal for the two largest groups any more, but better for the overall results, and the flexibility is improved considerably. What is the maximum number of rails that can be put into the hold? This number is determined by the minimum rail spacing required. This is the distance needed for the wheels, the cross section of the rails and the required safety margins. The estimated minimum rail spacing is 218 mm. For strength reasons the hold is equipped with one transversal stiffener. Cross section 4 - Multiple rails, no transversal stiffener To obtain even more flexibility, also the last transversal stiffener ca be removed. This gives ultimate flexibility, at a cost of heavier construction, and the required width for the constructive members will

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Part IV – Ship Design and Case-Studies be quite high. But, by selecting the appropriate rails, every reel can be loaded efficiently, see Figure 639.

Figure 639: Hold with multiple rails, without transversal stiffeners

Evaluation of the different alternatives The various alternatives are evaluated by giving grades on the most important decision parameters. These are: x x x x

Flexibility: the simplicity with which the hold is loaded; Weight: the weight of the construction; Volume: space required for the construction, split into vertical and transversal space; Opinion: personal opinion based on the values of the previous attributes.

Table 152 shows the evaluation of the cross sections. The multiple rail options provide the best opportunities. The alternative with no transversal stiffener is given the most characteristic grades. this might be a signal for large opportunities provided that the negative issues are dealt with.

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Part IV – Ship Design and Case-Studies Configuration Cells,onerail Cells,threerails Multiplerails,plusstiffener Multiplerails,nostiffeners

Flexibility ͲͲ Ͳ + Ͳ

Weight ++ + +Ͳ Ͳ

Transversalspace ͲͲ Ͳ + ++

Evaluation Ͳ Ͳ+ + +

Table 152: Evaluation of cross sections Figure 640 shows the design of the reels on wheels carrier.

Figure 640: “Reels on Wheels”

Costs It is very hard to give a good overall cost estimation. A rough estimate shows that costs for transhipment could be reduced by about two-thirds. In Finland the transhipment costs can be decreased by an even larger percentage, as labour costs are an even more expensive factor. The estimated cost reductions are shown in Figure 641. The “reels on wheels” concept could cause an S-curve shift when the overall transport costs of the logistical chain will become substantially lower than the current system (Figure 642) as the analysis suggests. Implementation would mean a real S-curve shift. The drawback of the proposed solution is that it requires a total system investment and that is something that proved to be an important constraint.

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Figure 641: Total reduction in transhipment costs

Figure 642: Potential S-curve shift in forest products shipping

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26.

SUSTAINABLE SHIPPING

Shipping has been for many centuries the most environmentally-friendly way of transport, as it consumes the lowest amount of energy per ton-mile of all modes. Until recently, that was enough to qualify shipping as “sustainable”. In the past two decades though, emissions from shipping have become subject of debate putting question marks behind the claim of sustainability. The reasons behind this change in perception are the remarkable growth of seaborne transport and the use of “dirty” heavy fuel oil containing a high quantity of sulphur and other pollutants. A lot of innovation has been directed towards the reduction of those emissions and to improve the efficiency of engines. The attempts of reducing ship emissions depends to a large degree on the current structure of the world fleet and its propulsion systems, as it takes about 25 years to renew the fleet. The first section of this chapter provides insight into the current propulsion systems. The awareness that emissions from ships posed a problem, surfaced in the 1970s, but few countries took action, with the exception of Sweden. The way in which the Swedish Maritime Administration took measures to reduce the environmental footprint of shipping is the subject of the second section.

26.1. Analysis of propulsion systems of the world fleet49 Table 153 provide a unique summary of the world fleet by ship type and major sub-categories, capacity and number of ships, propulsion systems and power of main engines, propeller type and number of auxiliary engines. The world fleet amounts per April 2008 to 103,476 ships with a capacity of 1,199 million dwt. More than half of the ships (56%) are powered by heavy oil burning direct drive engines, and 38% by diesel burning geared drive engines. The average installed power of the main engine in the fleet is 3,937 kW, while that of the ships delivered since the year 2000 is 7,843 kW, almost double the number. The ships on order have on average a power of 12,284 kW (3 times the current average). This illustrates clearly the rapid increase in the size of ships and the drive for economies of scale. Most of the ships have fixed pitch propellers (72%) and the average number of screws is 1.3. The average number of auxiliary engines is 2.7 and the average power is 406 kW. The increase in ship size and engine power reduces the fuel consumption per ton deadweight over time. Big engines on big ships produce much less airborne emissions than small engines on small ships. Sustainability of shipping thus increases gradually, not as a conscious effort, but rather as a result of sound economics. Figure 645 shows the downward trend of the average fuel consumption in kg/dwt/day over the period 1969 - 2005. Fuel consumption was halved during this period. These trends in the major ship categories will be discussed briefly in the following sections. It will be clear that, due to the long lifetime of ships (25 years), the implementation of new engine technologies that will reduce emissions and increase sustainability, will take time. A focused scrap and built program for old and small ships could be envisaged to speed up the renewal process. Such a program could be implemented in a period of stagnating demand for newbuildings, which is clearly not the situation at the moment.

49

Section 26.1 to 26.4 by Anders Sjøbris 658

Oil Tanker

Size/Subtype

200,000+ dw t 120 -199,999 dw t 60 -119,999 dw t 10 -59,999 dw t -9,999 dw t Oil Tanker Total Chemical Tanke 20,000+ dw t 10 -19,999 dw t -9,999 dw t Chem ical Tan Total LPG 50,000+ cbm -49,999 cbm LPG Total LNG 200,000+ cbm -199,999 cbm LNG Total Other Tanker Tank Barge Other Other Tanker Total Bulker 200,000+ dw t 100 -199,999 dw t 60 -99,999 dw t 35 -59,999 dw t 10 -34,999 dw t -9,999 dw t Bulker Total General Cargo 10,000+ dw t 10,000+ dw t, 100+ TEU -9,999 dw t, 100+ TEU -9,999 dw t General CargoTotal Other Dry Reefer Dry Barge Special Other Dry Total Container 8,000+ teu 5 -7,999 teu 3 -4,999 teu 2 -2,999 teu 1 -1,999 teu -999 teu

Unit Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Cbm Cbm Cbm Cbm Cbm Cbm Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t Dw t TEU TEU TEU TEU TEU TEU

Propulsion System Fleet Apr 2008 No of Oil Engine Diesel Oil Capacity Ships Direct Drive Geared Drive Other 1 151,893,710 517 96% 3% 56,356,151 372 94% 3% 99,890,357 1,078 99% 0% 31,651,610 919 88% 9% 10,464,189 4,567 67% 30% 350,256,017 7,453 77% 20% 42,572,658 1,052 93% 4% 9,567,043 641 71% 27% 8,347,236 2,334 53% 45% 60,486,937 4,027 66% 32% 10,485,977 140 96% 3% 5,770,363 962 72% 27% 16,256,340 1,102 75% 24% 1,696,547 8 31,314,960 251 1% 0% SG 97% 33,011,507 259 1% 0% SG 97% 12,033,921 427 0% 1% NP 99% 1,114,528 395 63% 35% 13,148,449 822 31% 17% NP 39% 23,265,197 103 94% 6% 113,243,439 697 97% 3% 112,526,721 1,536 96% 3% 88,012,658 1,915 98% 2% 52,443,093 2,115 91% 7% 3,359,799 1,132 64% 35% 392,850,907 7,498 90% 9% 11,757,768 689 79% 13% 26,849,335 1,230 76% 23% 13,171,565 2,595 29% 71% 27,586,836 12,508 72% 25% 79,365,504 17,022 66% 31% 6,692,846 1,235 81% 18% 2,573,976 317 3% 2% NP 92% 2,994,280 223 52% 42% 12,261,102 1,775 63% 18% 1,301,623 148 100% 0% 2,670,304 444 100% 0% 2,928,416 740 98% 2% 1,755,444 696 96% 3% 1,656,865 1,173 88% 11% 670,576 1,135 50% 49%

Avg Pow er of Main Engine, kW Propeller Type, % Avg no Aux Engs of Delivered On Fixed Contr. Avg Avg Fleet 2000Order Pitch Pitch Other 2 Screw No kW 24,618 26,922 27,193 99% 0% 1.0 3.1 1,036 17,090 18,141 17,657 87% 13% 1.1 3.2 1,234 12,299 12,909 13,380 96% 4% 1.0 3.1 763 7,509 7,997 8,526 87% 13% 1.0 3.1 684 1,229 1,822 2,410 84% 10% 1.2 2.4 149 6,019 11,699 12,789 87% 9% 1.1 2.8 500 9,038 9,196 9,269 87% 12% 1.0 3.2 841 5,165 5,397 5,065 65% 32% 1.0 3.3 626 1,827 2,275 2,666 76% 20% 1.0 2.7 292 4,242 5,615 5,864 77% 20% 1.0 3.0 513 13,493 13,304 14,030 98% 1% 1.0 3.6 1,006 3,228 4,385 5,477 74% 24% 1.0 2.8 434 4,532 6,409 8,280 77% 21% 1.0 2.9 520 36,267 38,069 24,608 36,267 27,916 95% 4% 1.0 3.2 2,587 24,968 36,267 30,658 95% 4% 1.0 3.2 2,587 11 25,452 0 1% 0% N.P. 0.0 2.3 542 1,526 37 2,800 84% 12% 1.2 2.4 205 739 16,940 1,680 41% 6% 0.6 2.4 231 17,306 3,364 21,659 94% 4% 1.0 3.3 795 15,113 18,267 16,411 98% 1% 1.0 3.1 692 9,906 16,773 11,174 98% 1% 1.0 3.0 549 8,211 10,089 8,828 97% 2% 1.0 3.1 530 6,433 8,543 6,574 94% 6% 1.0 2.9 457 1,534 6,028 2,907 85% 13% 1.1 2.6 237 7,815 9,688 10,820 95% 4% 1.0 3.0 501 5,908 1,884 6,562 93% 5% 1.0 2.8 416 7,876 4,683 8,013 75% 25% 1.0 3.3 631 2,643 8,241 2,847 50% 49% 1.1 3.0 317 1,122 2,968 2,089 85% 8% 1.2 2.4 116 2,036 4,228 4,306 79% 15% 1.1 2.7 240 4,952 1,372 9,241 84% 15% 1.0 3.1 551 48 5,980 432 3% 0% N.P. 0.1 2.1 392 5,787 75 8,663 56% 41% 1.3 3.2 495 4,181 1,515 7,305 66% 15% 0.9 3.1 539 68,603 8,765 74,286 95% 0% 1.0 4.6 3,013 55,716 68,603 53,800 97% 1% 1.0 4.1 2,430 34,946 56,479 34,081 99% 1% 1.0 3.8 1,777 21,472 38,094 21,196 96% 3% 1.0 3.6 1,355 12,359 22,581 12,109 79% 21% 1.0 3.4 965 5,705 12,980 7,519 54% 44% 1.0 3.2 587

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Table 153: The current fleet of ships and average equipment/performance (I)

Type

Container Vehicle

Size/Subtype

Total 4,000+ ceu -3,999 ceu Vehicle Total Roro 2,000+ lm -1,999 lm Roro Total Ferry Pax Only, 25kn+ Pax Only, <25kn RoPax, 25kn+ RoPax, <25kn Overnight Ferry Total Cruise 1,000+ low berths -999 low berths Cruise Total Yacht Total Off shore Crew /Supply Vessel Platf orm Supply Ship Of fshore Tug/Supply AHTS Support/safety Pipe (various) FPSO, drill Platf orm Offshore Total Service Research Tug Dredging SAR & Patrol Workboats Other Service Total Fishing Fishing Traw lers Other Fishing Total Miscellaneous Pontoon Other MiscellaneousTotal Total O 1

Unit

Propulsion System Fleet Apr 2008 No of Oil Engine Diesel Oil Capacity Ships Direct Drive Geared Drive Other 1

TEU 10,983,228 CEU 2,330,725 CEU 631,239 CEU 2,961,964 Lm 578,818 Lm 626,533 Lm 1,205,351 Pax 256,698 Pax 674,277 Pax 136,143 Pax 1,205,605 Pax 688,519 Pax 2,961,242 Lberths 349,881 Lberths 85,602 Lberths 435,483 Gt 587,877 Dw t 261,005 Dw t 2,702,882 Dw t 601,870 Dw t 1,874,852 Dw t 571,170 Dw t 1,442,147 Dw t 31,545,856 Dw t 10,503,247 Dw t 49,503,029 Gt 1,467,807 Gt 3,466,265 Gt 2,690,241 Gt 528,437 Gt 1,661,651 Gt 1,162,877 Gt 10,977,278 Gt 4,030,829 Gt 5,788,278 Gt 1,640,656 Gt 11,459,763 Dw t 5,062,173 Dw t 6,420,657 Dw t 11,482,830 Dwt 1,191,758,708 SG

4,336 427 337 764 194 1,493 1,687 983 2,112 178 2,390 753 6,416 150 372 522 1,053 620 1,765 551 1,212 492 247 243 946 6,076 895 12,317 1,214 1,008 1,070 822 17,326 12,853 9,638 1,278 23,769 884 685 1,569 103,476

82% 95% 74% 85% 30% 30% 30% 25% 51% 6% 43% 21% 39% 5% 26% 20% 23% 22% 20% 17% 10% 29% 3% 17% 4% 15% 39% 32% 38% 43% 46% 37% 34% 68% 52% 59% 61% 5% 16% 9% 56%

17% 5% 26% 15% 64% 66% 66% 68% 41% 89% 50% 76% 54% 22% 50% 42% 59% 75% 71% 80% 88% 59% 43% 3% 8% 61% 46% 64% 45% 53% 40% 47% 59% 30% 47% 34% 37% 8% 30% 18% 38%

SG 7%

DE 57% DE 19%

11%DE 45%NP 45%NP, 20%DE 80%NP 12%DE 8%DE 8%DE 12%DE

78%NP, 8%DE 27%NP, 7%DE

Avg Pow er of Main Engine, kW Delivered On Fleet 2000Order

22,294 13,151 7,957 10,860 15,736 2,930 4,402 3,114 1,213 22,223 2,842 14,204 4,219 44,533 4,820 16,232 2,278 2,548 2,529 3,215 5,262 2,516 6,195 9,944 1,051 3,353 2,387 1,904 2,632 2,602 2,071 2,633 2,066 688 956 1,381 834 215 8,989 4,046 3,937

34,317 6,868 14,312 9,490 12,076 18,709 15,282 2,157 3,380 1,885 23,599 5,549 4,438 27,904 55,070 39,025 4,100 2,783 3,886 3,922 4,788 6,494 4,140 12,676 8,995 4,579 1,809 3,427 2,385 5,929 3,814 4,601 2,656 2,772 874 1,266 1,092 1,498 231 5,851 7,843

35,530 13,731 10,658 13,119 16,609 4,043 11,044 3,105 3,114 26,883 14,020 25,920 11,858 58,906 8,381 46,780 3,031 3,647 4,244 4,738 6,818 6,542 11,720 26,882 2,583 6,221 11,610 3,365 11,008 4,371 8,697 5,693 4,717 1,355 2,166 3,021 1,850 433 18,640 13,864 12,284

Propeller Type, % Avg no Aux Engs of Fixed Contr. Avg Avg Pitch Pitch Other 2 Screw No kW

81% 94% 77% 86% 29% 54% 51% 46% 77% 7% 59% 29% 58% 29% 47% 42% 64% 80% 65% 64% 30% 56% 13% 39% 2% 46% 58% 58% 69% 66% 65% 72% 61% 88% 68% 76% 79% 10% 43% 24% 72%

18% 4% 23% 13% 71% 26% 31% 4% 5% 15% 19% 69% 18% 41% 29% 32% 7% 1% 18% 29% 64% 27% 37% 7% 1% 25% 33% 11% 18% 19% 8% 13% 13% 8% 31% 16% 18% 0% 15% 7% 15%

43% WJ 77% WJ 7%DR

29%AZ 9%AZ 9%WJ 5%DR

11%DR 45%NP 45%NP 80%NP

10%DR

16%DR 5%DR

78%NP

1.0 1.0 1.1 1.0 1.4 1.7 1.7 2.2 1.7 3.3 1.8 1.9 1.9 2.1 1.8 1.9 1.9 3.1 2.0 2.0 2.0 1.7 1.9 0.9 0.4 1.8 1.6 1.7 1.5 1.8 1.8 1.7 1.7 1.0 1.0 1.1 1.0 0.4 1.6 0.8 1.3

3.6 3.2 3.0 3.1 3.7 2.7 2.9 2.0 1.9 3.4 2.4 3.8 2.6 4.0 3.2 3.4 2.3 2.0 2.5 2.4 3.1 2.7 3.3 2.8 3.3 2.7 2.7 2.1 2.6 2.3 2.2 2.5 2.2 2.1 2.6 2.4 2.4 1.7 2.8 2.4 2.7

1,293 1,032 670 861 1,291 385 550 59 80 506 247 948 333 2,676 690 1,129 143 63 305 248 571 284 682 1,253 1,292 418 359 95 503 140 175 193 149 164 320 238 252 137 643 456 406

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Table 154: The current fleet of ships and average equipment/performance (II)

Type

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Liquid bulk Tankers are typically ships sailing over longer distances without a lot of manoeuvring. The propulsion is therefore very simple. The arrangement is often a fixed propeller (99% of the largest size vessels) connected to a direct-driven 2-stroke engine. The average power of the largest tankers is about 25,000 kW for one engine. The smaller ships, smaller than 60,000 dwt, are mainly used in short distance services. The smaller the tanker, the more likely the ship is equipped with a 4-stroke engine in combination with a gear box and controllable pitch propeller. In general, tankers have fixed propellers, also the smaller ones. The total carrying capacity of tankers is some 450 million tons, of which the oil tankers represent almost 75 % of the capacity (Table 155). The table also shows that all LNG tankers are equipped with 2-stroke engines, a situation that will change as the future will show an increased use of (4-stroke) dual fuel engines in this kind of ships. Pump capacity of the tankers depends on the size and number of auxiliary engines. Surprisingly, this capacity does not depend on the size of the tanker. The typical tanker has three engines of around 500 kW each. Type  Oil (dwt)

Chemical (dwt) LPG (cbm) LNG (cbm) Other

Category  200,000+ 120Ͳ199,999 60Ͳ119,999 10Ͳ59,999 Ͳ9,999 20,000+ 10Ͳ19,999 Ͳ9,999 50,000+ Ͳ49,999 200,000+ Ͳ199,999 TankBarge Other

#  517 372 1,078 921 4,575 1053 642 2,351 140 963 8 251 428 395

Fleet Engine Dwt GT 2ͲStroke 4ͲStroke Other/Unkn (1,000) (1.000) # % # % # % 151,894 80,480 510 99% 1 0% 6 1% 56,356 30,019 360 97% 7 2% 5 1% 99,890 55,732 1,064 99% 9 1% 5 0% 31,676 19,486 797 87% 95 10% 29 3% 10,491 6,511 430 9% 3765 82% 380 8% 42,597 26,251 972 92% 64 6% 17 2% 9,578 6,006 447 70% 184 29% 11 2% 8,417 5,366 428 18% 1,827 78% 96 4% 7,203 6,134 135 96% 2 1% 3 2% 5,447 4,659 364 38% 587 61% 12 1% 822 1,096 8 100% 0 0% 0 0% 17,254 22,829 1 0% 7 3% 243 97% 12,037 5,980 0 0% 4 1% 424 99% 1,115 805 49 12% 325 82% 21 5%

Table 155: Tanker types

Dry cargo The dry cargo shipping sector represents a carrying capacity of about 245 million tons and 23,133 ships. The ships are very simple, often without any type of equipment. Vessels with a high volume, e.g. wood chip carriers, are often equipped with cranes and conveyor belts for the self discharging of cargo. In the smaller bulk carrier segment there are other types of self-discharging/loading vessels, e.g. cement carriers using pneumatic equipment, scrapers or C-conveyor vessels. The heavy segment consists of bulk carriers transporting typical bulk products like ore, soya cakes and coal. The vast majority of those ships are equipped with 2-stroke engines indicating long transport distances and the use of tugs in the ports. 661

Part IV – Ship Design and Case-Studies Small dry cargo vessels are often used to carry general cargo. Some of them can also be used to lift containers, but strictly are no container vessels as they do not have the container stowing equipment to match the class directives. In Europe, smaller general cargo vessels are typically tramp vessel in the Baltic Sea. The number of reefer vessels is stagnating, due to the competition from the reefer container. There is a smaller market for semi-bulk capacity and specific cooling and air change requirements. Most of the new reefer capacity is in container carriers with a reefer section in which pallets are stowed. As some fruit is sensitive and requires a very strict air-flow and temperature control, there is a part of the transport sector that needs dedicated full reefer ships. Type  Bulker (dwt)

GeneralC. (dwt) (dwt/TEU)

Category  200,000+ 100Ͳ199,999 60Ͳ99,999 35Ͳ59,999 10Ͳ34,999 Ͳ9,999 10,000+ Ͳ9,999 10,000+/100+ Ͳ9,999/100+

Reefer

#  103 697 1,539 1,915 2,115 1,134 692 12,552 1,232 2,600 1,235

Fleet Dwt GT (1,000) (1.000) 23,265 11,836 113,243 58,294 112,726 60,904 88,013 52,851 52,443 32,471 3,375 2,214 11,795 7,862 27,746 18,949 26,872 19,242 13,198 9,904 6,693 6,175

2ͲStroke # % 103 100% 690 99% 1,500 97% 1,877 98% 1,926 91% 122 11% 533 77% 1,652 13% 943 77% 321 12% 661 54%

Engine 4ͲStroke Other/Unkn # % # % 0% 0% 6 1% 1 0% 33 2% 6 0% 28 1% 10 1% 151 7% 38 2% 920 81% 92 8% 93 13% 66 10% 9,777 78% 1,123 9% 275 22% 14 1% 2,267 87% 12 0% 536 43% 38 3%

Table 156: Dry bulk carrier types

Unitised cargo A container ship is very much a general cargo vessel trading in a specific market and equipped with cell guides. The vessel size ranges from 150,000 dwt down to 5,000 dwt. The largest ones are not only large in cargo volume, but also have the world’s larges engine sizes. Those ships are equipped with 2stroke engines with fixed propeller and propeller shafts. The engines are 14 cylinder slow-speed, heavy-duty engines of 80,000 kW. Only in the smallest sector of container ships dominates the 4stroke engine. Vehicle carriers are either very large or smaller feeders. The vessel carries light voluminous units. The large ships have 2-stroke engines, the smaller ones 4-stroke. In the ro-ro segment mostly 4-stroke engines are used. The reason behind this is the lack of space in the aft of the vessel. Some vessels have 2-stroke slow-speed engines in the fore end of the ship, though this affects the weight distribution of the vessel. The main challenge for the design of a ro-ro vessel is to ensure as many lane-metres cargo space as possible. Therefore, ships with the engine in the front require diesel-electric propulsion in which the engine powers generators in their turn powering the ship.

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Type  Container (TEU)

    Vehicle (CEU) RoͲro (laneͲmetre)

Category  8,000+ 5Ͳ7,999 3Ͳ4,999 2Ͳ2,999 1Ͳ1,999 Ͳ999 4,000+ Ͳ3,999 2,000+ Ͳ1,999

#  148 444 740 696 1,175 1,137 427 337 194 1,498

Fleet Dwt (1,000) 15,692 33,748 39,175 24,884 24,049 9,818 7,793 2,967 3,198 4,094

Engine GT 2ͲStroke 4ͲStroke Other/Unkn. (1.000) # % # % # % 14,855 148 100%  0%  0% 31,210 443 100%  0% 1 0% 33,544 735 99%  0% 5 1% 20,420 681 98% 5 1% 10 1% 19,289 1,010 86% 150 13% 15 1% 7,917 478 42% 636 56% 23 2% 22,019 410 96% 15 4% 2 0% 6,912 222 66% 110 33% 5 1% 4,992 68 35% 118 61% 8 4% 5,310 180 12% 1,183 79% 135 9%

Table 157: Unitised cargo carrier types

26.2. Environmental awareness and emission control Figure 643 gives an overview of service speed distribution of the world fleet by ship type. It shows that most ships run at a service speed of less than 17 knots. This gives an indication of the very environmentally-friendly operation of the entire fleet. In general the speed of ships is affected by the market situation. In times of a high demand for ships the speed increases to make as many round trips as possible, whereas in a more depressed time the ship operators/owners try to keep down the voyage costs and save fuel. This is visualised in Figure 644. Figure 645 demonstrates clearly the economies of scale for oil tankers of different size. Large ships almost exclusively use slow-speed engines with revolutions of less than 200 rpm. It is common to connect these engines directly to the propeller (no gear box) so that the propeller and the engine have the same revolution speed. Slow-speed engines are the most energy-efficient engines, with a specific fuel consumption (SFC) of 160 -170 g/kWh. Those engines burn almost anything that can be combusted, including the dirtiest residue oils. Residue oils are oil products that are left in the refinery when the better products, petrol and diesel for cars, have been cracked out of the crude oil. The heavy residue oil is less expensive, about half, than the cost of crude oil. Residue oil has to be heated to be pumped and processed in the machine room. The heated oil is processed in separators where particles that can damage the engine are removed from the fuel oil. This harmless waste is pumped into a sludge tank and delivered at a reception facility when in port. Ports are obliged to accept sludge from the vessels when they call. The cleaned fuel is pumped into the diesel pumps of the engine. The diesel pumps are timed with the injectors, ejecting the diesel at the right moment into the cylinder where the fuel combusts when compression reach the right pressure. Exhaust gases are the result of the combustion. Major components of the exhaust are CO2, NOx , CO , HC and N2O. The CO2 is the freed coal atom that binds two oxygen atoms to become stable. The amount of nitrogen oxide produced is related to the pressure at the combustion, the higher the pressure the more NOx. Unfortunately, higher pressure is better for the efficiency. NOx is an unwanted pollutant that acts as fertiliser. It is neither hazardous nor poisonous, but it causes harm to nature. 663

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Bulk ship Oil Tanker

Cargo Ferry Passenger Ferry

Chemical Tanker Reefer ship

Container ship Ro-Ro ship

Cruise ship Vehicle Ro-Ro

Gas Tanker

General Cargo

10000 9000 8000

6000 5000 4000 3000 2000 1000 0 21

6076

3946

4205

4659

6720

8780

5120

2577

1842

1314

1177

814

657

493

416

528

<6

6 - 10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

518

584

116

26 - 30 31 - 40 41 - 50

6 >50

No Knots

Speed

Figure 643: Vessels by speed 17

16

Average speed, knots

Number of ships

7000

15

14

13

12

11

10 -1969

1972

1975

200 000 dwt +

1978

1981

1984

60' - 199 999

1987

1990

1993

1996

1999

10' - 59 999 dwt

2002

2005

- 9 999 dwt

Figure 644: Development of speed of oil tankers

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Average total fuel consumption, kg/dwt/day

3.0

2.5

2.0

1.5

1.0

0.5

0.0 -1969

1972

1975

200 000 dwt +

1978

1981

1984

60' - 199 999

1987

1990

1993

1996

10' - 59 999 dwt

1999

2002

-9 999 dwt

Figure 645: Average fuel consumption of ships built

200 180

Average NOx emissions g/dwt/day

160 140 120 100 80 60 40 20 0 1990

1993 200 000 dwt +

1996 60' - 199 999

1999 10' - 59 999 dwt

2002

2005 F - 9 999 dwt

Figure 646: The NOx emission level in g/dwt and day for oil tankers Sulphur is the most hazardous part of the exhaust gases. Combined with oxygen sulphur forms sulphur acids, which is extremely sour and deteriorate irons and other metals, and causes damages to nature. Fresh air consists normally of 78 % N2, 21% O2 and 1 % other substances of which CO2 is the main component. Table 158 summarises the most common emissions from diesel engines. 665

Part IV – Ship Design and Case-Studies NOx

Nitrodioxides

HC

HydroCarbons

CO PM(x)

Carbonmonoxide Particles(X) x is 10 or 2,5 relating to the size of particles

CO2

CarbonDioxides

Caused by combustion

pressure

at Reduced by lower compression, cooler combustion or to 95% by Selective Catalytic ReductionSCR Nonburntfuel Burningasexhaustinbestofcasesusedfor thereductionofParticleswhenburned Restofcombustion Reducedbyoxidationorcatalyticreduction Soot, related to the particles in Better fuel is a good solution to keep down the fuel. Often it is a rest of theamountofPM.Filterandaftertreatment carbon or carbon particles in of the filters that traps the particles can connection to sulphur particles reduce the amount substantially. Tests of or other micro particles in the scrubbersusingseawaterarecarriedoutin fuel. full scale. To some extent the problem remains as the water has to be treated or properlybedisposedof The result when the stable Acommonpartoftheair,notbeingnoticed Carbon molecule connects to until it appeared to affect the climate as a two Oxide atoms forming a climate gas. Can not be treated but techniques to store it deep in earth has stableunit startedtobedeveloped.

Table 158: Diesel engine emissions In the 1970s it was found that lakes in the north of Sweden and Norway were dead. The situation is not obvious as dead lakes have clear and fine water. But these lakes did not carry fish any more. Nor were there algae, other vegetation or other specious that could support life. It was found that the lakes were sour. The air in the area had a fair deal of acidosis emissions imported from vehicles, vessels and from the industries in the west of Scandinavia. The reason for the quick and worsening condition of these lakes and the soil in the area was explained by the fact that there is almost no limestone in this part of Scandinavia. Limestone is common in the Continental Europe and buffers the acid rain and reduces the effect. It were not only the lakes that were affected. The forest also showed signs of degradation. This was explained by the fact that acidulous substances dissolve the aluminium in the soil. The trees need the aluminium to make use of the nurturing substances from the soil. Action had to be taken and time was pressing. The Swedish government started to implement new regulations to reduce the acid load and rain produced locally. The lakes and some of the forests were treated with limestone powder dumped from aeroplanes. First of all it was necessary to get a fair picture of how much the national emissions contributed to the situation and how fast measures could be implemented. Some measures could be taken relatively quick. The reduction of sulphur was achieved by limiting the sulphur in diesel fuel. The authorities made forecasts to estimate the reductions. It was quite simple to make these forecasts for the road vehicles, as this was governed by the new laws regulation the maximum sulphur content of fuel. (Figure 647.)

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40

Sulphus(thousand))

35 30 25 20 15 10 5 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2019

0

Sea

Road

Figure 647: Sulphur emissions forecasts made by the Swedish Administrations in 1995 However, it was not all that simple to reduce the emissions from sea transport. The only records available on marine fuel consumption and quality were the amounts of marine diesel oil sold in Sweden. The majority of the fleet bunkered in Rotterdam or in Germany. Studies were initiated and the first assessments of emissions by sea transport were produced in 1990. The basic data concerned ships calling at Swedish ports. Data were not stored in databases but often in hand written records. The records contained the name of the vessel and the day of the call plus the gross tonnage of the ship, as this is the basis for the national fairway dues in Sweden. On the basis of this information and an estimated relation between engine power and gross tonnage, it was possible to create a model on the movements of the ships. The simple way was to summarise each ships movement along the Swedish coast and calculate the distance to the port. A guideline of dividing the emissions between countries for traffic crossing the Baltic Sea was introduced. This was applied to the highly frequent ferry traffic that also had powerful engines. The result shows that the share of the ferry traffic was 65 % of the national emissions. This high number is caused by the high frequency of the traffic and the large installed power for sailing through ice in wintertime. There was a problem of controlling and stimulating the shipowners to take measures to reduce the ship’s emissions. In the mid 1980s the ports agreed to oblige the ferry operators to reduce the sulphur emissions in port (Figure 648) a limit was set to 0.5% sulphur maximum if multiple vessels were calling at a port simultaneously. The German authorities and ports demanded the ferry operators to discharge the black water in port. The story goes that the first time the Stena ferry discharged its black water in Kiel they lifted the lids of the sewage system in the city and the smell in the terminal was not very pleasant. It took some years before the ship operators and the cities found a balance.

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16 Sulphus(thousandtons)

14 12 10 8 6 4 2

Ferries

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

1982

1981

1980

0

Otherships

Figure 648: Sulphur emission from seaborne traffic in Sweden It was quite obvious that the ports had a substantial influence on the ferry operators in this respect. Many ship operators converted the engines to accept residue oil. Many of the old ships were built to run on MGO which is why the conversion required a complete overhaul of the fuel system, including heating of bunker tanks, fuel cycling system to avoid fuel stops in the engines at port stop, new separators etc. Around 1995 the Swedish maritime administration decided to create new fairway dues based on environmental performance. Another important issue for the Swedish Maritime Administration was the reduction of NOx emissions. It turned out that a relatively simple technique, called SCR, Selective Catalytic Reduction, was available able to reduce NOx emissions by around 95%. The big advantage of SCR is that it is an after treatment process. The process does not affect the engine and its running conditions. NOx is built up when free nitrogen meets the oxygen under pressure and forms stable NO or NO2. The higher the pressure, the more NOx is created. On the other hand, the higher the pressure is the higher is the efficiency of the engine. 2-Stroke engines create 17 g/kWh, 4-stroke engines hover around 14 g/kWh. Modern techniques reduce the NOx production to around 12 g/kWh. In order to induce shipowners to adopt SCR to reduce NOx emissions, an extra incentive was introduced by the Maritime Administration that resulted in a return of half the investment during a period of three years after installing the NOx depleting equipment. Recordings were taken onboard the vessels the moment the depleting equipment was installed. In extreme cases 4-stroke engines produced up to 28 g/kWh of NOx, a level that indicated that the lifetime of that engine would not be much longer. Other engines produced around 8 g/kWh. As the Maritime Administration granted reductions for everything less than 12 g/kWh, these ships were considered as running with depleting arrangement. Ships installing SCR depleting equipment reduced the NOx level to less than 2 g/kWh (Table 159).

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SCR CONVERTER

NO-ANALYSER

TT OXI PDT

SCR DUST BLOWING AIR

TT GAS MIXER

PS INJECTOR FS

DIESEL

CONTROL METERING

INJECTION AIR UREA TANK (UREA / WATER 35-40%)

SERVICE PUMP

Figure 649: The SCR presented by DEC Performance ͲNOxreduction ͲHCreduction ͲCOreduction ͲNoisereduction Operation ͲTempspan ͲFuel  

 90Ͳ99%atMCR 75Ͳ90%atMCR 50Ͳ90%atMCR 20Ͳ35dB(A)  270Ͳ500˚C MDO/HFO  

Installation ͲWeight ͲVolume Consumables ͲUreasolution40% ͲCatalystlifespan Cost ͲInvestmentcost ͲOperatingcost ͲNOxcost

 Silencer+20Ͳ50% Silencer±20%  1.5litre/kgNOx 12,000Ͳ100,000h  35Ͳ75,000USD?MW 3Ͳ4USD/MWh 0.5USD/kgNOx

Table 159: Marine SCR - key figures The major trick in the SCR process is to break up the NOx by adding NH3 (ammonium), which results in N2 (nitrogen, air) and water. One drawback is that the process is not 100% and there will be a slip of NH3 by roughly 0.003 g/kWh. In reality the NH3 is a quite nasty ammonium but in this application it is supplied in a slurry mode in low concentration (60% clean water). It is essential that all tanks and pipes are absolutely clean. Otherwise there is a great risk of damaging the catalysts. Some manufacturers of SCR equipment add an oxidisation step after the catalyst, though the benefit of this is contested. Notable successes were scored. For example, the Maritime Administration agreed with the forest industry in Sweden that all forest products ships should be equipped with NOx depleting equipment 669

Part IV – Ship Design and Case-Studies and should use fuel with a sulphur content of less than 1%. This resulted in reduced emissions by one of the major groups of operators running frequent traffic to and from the country. The Swedish ports adopted the same incentive system as the Maritime Administration, using their port dues. Presently most of the ports have at least a sulphur scheme, but many also have an NOx scheme. In 2008 some 150 ships have or have ordered SCR equipment. In past years installing NOx depleting equipment became more popular, as vessels in domestic Norwegian service have to pay a tax of NOK 15 per kg NOx. The tax is applicable inside and outside of the Norwegian territory. For this reason the offshore industry equips its supply vessels with NOx depleting equipment, or with dual fuel engines. The tax applies to all type of vehicles and emission sources, not only ships. A list of the base for calculation the emissions are given in the tax description. It has become popular to install LNG engines as an option to reduce NOx. NOx emission from a dual-fuel engine running on LNG is less than 2 g/kWh, which is significantly lower than from gas turbines amounting to some 4 g/kWh. The natural gas fired dual-fuel engine should give “significantly less” emissions than this. When the environmental dues were introduced in Sweden it was also obligatory that ships claiming credits for lower emissions to have a recording system on board. The records should show the consumption of urea and the NOx emission level, in order to be entitled to reduced fairway dues.

26.3. New technologies Sulphur emissions are simple to calculate because “sulphur in” is “sulphur out”. There are two major ways of determining the amount of sulphur in the fuel. The simplest way is to trust the records presented by the supplier in the fuels note. The more complicated one is to analyse the quality. This has proven to be a quite difficult in the case of residual oil. This type of oil can comprise a number of different oil fractions as it may be blended. If the sample is not representative fort he whole tank, it will give an incorrect reading. Besides, analyses are quite costly. Many shipowners always include a fuel test by routine to keep a record of the engines condition or to know if the fuel potentially caused damage to their engines. If fuel oil contains harmful substances it may cause high maintenance costs or in the worst case engine problems. Recently, equipment to analyse fuel quality has become less expensive and is sold at a price that allows it to be installed and used on every ship. Some shipowners use higher quality distillate fuel only and claim that engine room crew can be reduced, while the maintenance intervals and costs are significantly lower, potentially compensating for the higher fuel costs. As the use of low sulphur and clean fuels in the European ports has become mandatory, this part of the emission problem has decreased. One problem that remains however is a proper knowledge of the fuel quality to get a good picture of other emissions. It is possible to measure exhaust gases, but it requires instruments to be placed in the exhaust gas flow for analysis the components emitted. The costs are in the region of € 10 - 15,000. Another difficulty is to check on ships following a scheme or declaring a certain standard. New techniques however are at hand. The most spectacular is one that allows screening the plume emitted from the ship’s funnel. The screening can indicate whether more detailed checks are required. There are plans to equip Coast Guard’s patrolling airplanes with this equipment.

The HAM engine Another way to reduce NOx emission is cooling down the combustion. This can be done by bringing water into the combustion chamber. Water can be injected in the same way as diesel fuel. It can be 670

Part IV – Ship Design and Case-Studies synchronised with the engine cycle. A second way is to moist the air before entering the combustion chamber. The chamber will be filled with moist air, also raising the mass of the air in the chamber and cool down the combustion. The extra mass inside the combustion will increase the turbo effect in the compressor, resulting in a softer process in combination with a lower combustion peak, thus keeping down the NOx. The effect is audible, when switching on the HAM the engine moves softer and smoother and the high noise disappears. The process is illustrated in Figure 650 and Figure 651. The system has been installed on MS Mariella and is currently in service between Finland and Sweden. Compressor

Turbine

Hot compressed air Humidified and cooled air

Engine

Humidificaiton tower

Water filling catch tank

Heat exchanger Bleed-off

Figure 650: The Humid Air Motor arrangement

Figure 651: The HAM technique

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Part IV – Ship Design and Case-Studies The effect is expected to reduce also the energy output engine, though the full picture is not clear yet. As a side effect the saturated air gives a higher mass flow through the engine, which may result in an increase of the energy effectiveness. That would mean that the area under the green curve (light) above would be larger than under the red curve. But this has still to be proven. The arrangement has proved a NOx reduction of 70 % using a quite simple technique that can easily be retrofitted. HAM is proven to be effective, although it needs some further development, technical as well as commercial. There is a principal difference between the HAM and the SCR technique. SCR is an after-treatment system which does not affect the engine, while HAM directly affects the engine. Engine manufacturers are not keen to install such systems into the engine’s combustion process, unless they do it themselves, and therefore will no longer guarantee such engines. HAM has been tested on a Pielstick engine.

Scrubbers There is a debate on whether sulphur in fuel should be eliminated by the the refineries or by the ships. Refineries claim that it is too expensive to remove sulphur during the refinery process and they claim that it is a much simpler procedure to install equipment that washes out the sulphur on the ship instead. Their motivation is that sulphur often binds to particles in the fuel. By letting the exhaust gases pass through sea water, these particles would be washed out, together with the sulphur. The idea is to keep a tank with sea water that works as a service tank to the scrubber. When used the content of the tank is to be washed out at sea. This is based on an idea that the contaminated water is harmless to nature, a fact that is still to be proven. One ship, the ferry Pride of Kent, has been equipped with the scrubber. Cruise ferries in the US have also recently been fitted out with scrubbers as part of a research test program. The seawater scrubber system is understood to use the natural chemistry of seawater to remove virtually all sulphur oxide and significantly reduce particulate matter emissions. The seawater is then treated to remove harmful substances before it is discharged. The cruise vessels involved are trading seasonally in Alaskan waters.

Figure 652: Principal design of the exhaust gas scrubber

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Part IV – Ship Design and Case-Studies The technology emphasised the critical issue of how to reduce pollution from ships. This motivated the IMO and the European Union to declare some sea areas as PSSA (Particular Sensitive Sea Areas) and regulate the limit of sulphur allowed in SOx Emission Control Areas (SECAs). The solution is to some degree already considered as the maximum sulphur content in the ship’s fuel, which may not exceed 1.5%. EU decided that as from 1 January 2008 in port MGO or MDO has to be used, not exceeding exceed 0.1%. In principle to date these steps are by far the most important ones taken to reduce acidosis emissions in Europe. It concerns all shipping activities in Northern Europe and in all other European ports. It should be added that a number of ships trading in these waters use fuels of 0.5% sulphur on voluntary basis. There is ample low-sulphur fuel available in the area, as refineries in the Nordic countries are the major producers of such fuel. Recently a time table for emission reduction from marine fuels was set by IMO50 and EU. The MARPOL Annex VI amendment gives the following time table. The global sulphur cap is to be reduced effective from January 1, 2012 to 3.5% down from current 4.5%, after which a progressive reduction will lower the level to 0.5% effective from January 1, 2020, subject to a feasibility review to be competed no later than 2018. Sulphur in the bunker of the ships trading in the SECAs would be reduced from the current 1,5% to 1%, starting from March 1, 2010, to be further reduced to 0,10% effective January 1, 2015. It was also agreed to introduce a progressive reduction of NOx from marine Tier III engines, for engines built after January 1, 2016 and operating in emission-controlled areas. Overall, the revised Annex VI will set the maximum levels for SOx ,NOx and Particulate Matters (Pm10) in Emission Controlled Area. Table 160 summarises the emission reduction factors for the various equipments discussed in this section. Typeofdepletingequipment SCR SCR+Oxidiser LowNOxͲslidevalves HAM DWI EnginesaccIMOTechNOxCode Scrubber

NOx 91%  20% 70% 50% 6% 

CO  70%     

VOC  80%     

Slipppm  15     

PPM       95%

Table 160: Summary of reduction factors

Shore Power A way to solve local emissions in port areas can be through using shore power (also referred to as cold ironing). This allows ships to shut down their auxiliary engines during berthing. Installing such a system in a newbuilding ship does not cost a lot, but retro-fitting an existing ship may take up to € 1 million, depending on the required power. Besides, the port has to invest in power stations, as the additional demand for energy by the ships is substantial and usually cannot be taken from the existing grid. The main technique is to provide high voltage power to the ship, 7 - 15 kV, which gives two major advantages: the size of the cable between the ship and the shore as well at the required

50

SetbyMarineEnvironmentCommittee(MPEC)57session:March31ͲApril42008

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Part IV – Ship Design and Case-Studies infrastructure remain of manageable size. Many ports already have high voltage infrastructure, as their cranes use such power for their operations.

Powergenerationcost(Euro/kWh)

In Sweden, the port of Gothenburg has been actively promoting the introduction of shore power in order to keep down the air emissions from the ships. However, some of the liner shipping operators did not see any benefit in using shore power until 2008 when MGO, the only low sulphur fuel that is allowed to be used in port, became too expensive. Up until recently shore-produced electricity was much more expensive than generating power onboard using HFO oil. One major reason was that shore-shore-based electricity was taxed, thus increasing the cost level (Figure 653). 0.140 0.120 0.100 0.080 0.060 0.040 0.020 0.000 RoͲro1

Ferry

RoͲro2

RoͲro3

Shiptype

OnboardgeneratedpowerHFO

OnboardgeneratedpowerMGO

Shorepower

Figure 653: Cost of generating electrical power including taxes as per 2006 The increase in fuel price, in addition to the EU directive that allows only MGO 0.1% sulphur to be used in ports gave cold-ironing the push it needed. Today all shipping companies are interested to use in the shore-based power supply, although it can be claimed that this electricity should not be taxed, as power generated by the ship is not taxed either. The lesson learnt is that operators are careful not to add costs that may reduce their income, unless there is a compulsory due or tax that applies to all transport modes and services. In that case shippers are willing to cover the extra cost that involved.

Dual fuel engine Presently the world is facing two major issues that will affect the future life on earth: the consumption of non-renewable energy resources and the pollution from burning fossil fuels affecting the quality of life on earth and the future prospects of development. The common most efficient ship’s engine is the large 2-stroke heavy diesel engine. It is capable of burning the heaviest fuel oils containing a high percentage of asphalt. By storing it in heated tanks and separating the harmful particles, it is efficiently burnt in the engine. The motor is the refinery favourite as it takes care of the residues from the refinery cracking. For this reason it is called residue oil. The cost of the residue oil is about half the cost of crude oil, and that is why it is also the favourite of the owners of larger ships. The thermal efficiency is around 40%, a figure which is beaten only by multi function power-thermal stations. 674

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Powergenerationcost(Euro/kWh)

0.180 0.160 0.140 0.120 0.100 0.080 0.060 0.040 0.020 0.000 RoͲro1

Ferry

RoͲro2

RoͲro3

Shiptype

OnboardgeneratedpowerMGO

Shorepower

Figure 654: Energy generating costs 2008 The dual fuel engine is built upon a standard diesel engine although with an increased cylinder diameter in order to accommodate the larger amount of fuel required for the combustion. All engines are of 4-stroke type as this is the only combustion form in which the gas flow can be controlled. The engines are built from the same set of cylinders and the total power depends on the number of cylinders in the engine. The system described hereafter is as presented by Wärtsilä and marketed as their 32DF engine power ranges from 2,100 kW to 6,300 kW and the 50DF covering 5,700-17,100 kW. The basic technique is illustrated in Figure 655.

Wärtsilä 32DF Exh.

Exh.

Air and Gas Intake

Compression of Gas/Air Mixture

Exh.

Injection of Pilot Fuel Ignition

Figure 655: The working principle of the dual fuel engine51

51

IllustrationsbyWärtsilä

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Part IV – Ship Design and Case-Studies The major feature of the process is that the gas is injected in the air flow entering into the cylinder the moment the piston sucks in the air. Once in the cylinder and under compression, ignition will be triggered by injecting a small amount of pilot light oil diesel fuel. The pilot injection is about 1% of what would have been injected if the engine would run on diesel. Once the engine reached the working temperature and the combustion chamber is clean, the ignition will continue without the pilot injection and the engine will run in an Otto process. A clean combustion chamber is required as the ignition must be controlled in order to have a properly running engine. Enginetype SGͲSparkignited DFͲdualfuel GDͲGasdiesel

Fuel NG(4bar) NG(4bar)&FO NG(350bar)&FO

Ignitionsystem Sparkplug Pilotfuel Compressionignition

Table 161: The three different types or modes of gas engines In order to get the right timing, an electronic sensor system is attached to the cylinder, which times the injectors to get the exact right moment, as shown in Figure 656. Once the engine reaches the working temperature, the process will continue without the pilot fuel. The performance of the gas oil is extremely good and environmentally friendly. The best performance is achieved running on boiled off LNG, as it is a very clean fuel. The process can run on NG (pure natural gas) but this contains substances because of which more pilot fuel may have to be used.

Figure 656: Lean burn gas engines From Table 162 it can be seen that the gas fuels run at higher temperature than oil fuels and that the emissions are very low. Especially it can be noted that the CO2 emission is about 25 % lower than for a fuel oil. The reason is that the gas contains CH4, which binds to oxygen during the combustion process. The carbon will bind to oxygen and form CO2. A new substance is hydrocarbon HC, THC, CH4, NMHC which can be removed using catalysts. The HC is a residue of fuel (gas) that is not burnt in the cycle. Research is ongoing to see if this can be eliminated. (NB: The natural gas NG option is

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Part IV – Ship Design and Case-Studies for the 34SG engine only). It should be noted that the sulphur, particulates and the NOx are of levels that can be accepted as clean emissions. Fuel SulphurcontentͲ(%) Power[bmep]Ͳ(bar) ShaftpowerpercylinderͲ(kWm) Shaftefficiency[ɻ]Ͳ(%) ExhaustgastemperatureͲ(˚C) Nitrogenoxides[NOx]=(g/kWh) Carbonmonoxide[CO]Ͳ(g/kWh) Sulphur[SO2]Ͳ(g/kWh) Hydrocarbons[THC]Ͳ(gkWh) ParticlesͲ(g/kWh] Carbondioxide[CO2]Ͳ(g/kWh)

LNG Ͳ 20 950 47.3 399 1.2 2.2 .09 6.5 0.07 449

LFO 0.5 20 950 44.0 365 14.7 1.0 2.2 Ͳ 0.22 665

HFO 1.5 20 950 44.0 360 14.9 1.1 6.7 Ͳ 0.46 705

NG Ͳ 20 450 48.0 390 1.2 2.1 Ͳ 5.5 0.07 Ͳ45

Table 162: The performance of dual fuel engines running of different fuels Shaft efficiency (use of energy) is high, while it can even increase if the hot exhaust gas is used for generating electricity. The Dual-Fuel engine is sensitive to rapid shifts in loads, causing revolution speed to vary. Electronic timing control will regulate revolution speed, using fuel injections. Once the engine runs better, it will switch to 100% gas fuel. This will take approximately one hour. During this time the combustion will burn away residues from LO fuel until the combustion chamber is sufficiently clean. A sparkplug will ignite the gas as to control the timing and reach the best efficiency. Ships running on LNG need around double the bunker tank volume, and tanks need to be insulated. Gas valve Twin oil injector

Air/gas mix

Pilot oil injection

LFO injection

Figure 657: Cross section of a Dual-fuel engine fuel injection system 677

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Fuel cells In fuel cells hydrogen and oxygen (from the air) reacts to produce an electric current, heat and water. The concept is, like as hydropower, emission free, efficient and silent (Södahl, 2005). There exist some different types of fuel cells fit for commercial use. Three types are considered suitable for ships. These are: x

Proton Exchange Membrane fuel cell (PEM) PEMFCs, also known as electrolyte fuel cell, are currently under development at may fuel cell companies. PEM fuel cells use a thin solid membrane as electrolyte. Thse cells deliver high power density and offer low weight and volume compared to other Fuel Cells. Low temperature operation (about 75°C) allows them to start quickly. This makes them more suitable to be used in vehicles. PEM normally requires hydrogen as fuel. Output per unit ~ 120 kW.

x

Molten carbonate fuel cell (MCFC) Molten carbonate fuel cells use an electrolyte composed of a molten carbonate salt mixture suspended in porous, chemically inert lithium aluminium oxide (LiAlO2) matrix. These systems are large and operate at very high temperatures (around 650°C). They are very efficient when the heat produced is used for secondary energy generation. MCFC fuel cells use a corrosive electrolyte, which makes durability a challenge. MCFC can use a range of gaseous and liquid fuels. Output ~ 250 kW.

x

Solid Oxide fuel cell (SOFCs) Solid oxide fuel cells use a hard, non-porous ceramic compound as electrolyte. SOFCs are very efficient when their heat is recaptured for secondary energy use and present energy efficiency may be up to 80%. Size, heat output and a long start-up time make this fuel cell suitable for stationary applications. SOFCs can use a range of gaseous and liquid fuels. Output ~ 125 kW.

The cost of a fuel cell operation has been calculated from today’s perspective and in comparison to present fuel engines running on low sulphur fuel. The cost consists mainly of capital cost. In comparison to diesel engines of any kind the maintenance costs are comparatively low, so is the fuel cost for SOFC and MCFC cells. In comparison to a standard diesel engine, in 2005 energy production using fuel cells was 2.5 times higher. The cost of diesel fuel has doubled since then. The availability of LNG will put the fuel cell technology in a better competition.

26.4. Port of Rotterdam emissions Emissions from ships have taken centre stage since the European Commission has expressed its intention to bring shipping under the Greenhouse Gas Emission Trading Scheme (ETS). There are conflicting views about the level of emissions from shipping today. The current estimates are based on the “guestimates” of the total bunker fuel consumption of the world fleet, which are then translated into emissions. As global data about bunker fuel consumption is erratic and unreliable, this method can not be used for trading schemes and more formal international policies. Another method that is frequently used to relate fuel consumption (and thus emissions) of the ships to an idealised mathematical curve of the relationship between gross tonnage and engine power, has a number of serious shortcomings. Figure 658 shows the world fleet of bulk carriers, plotted in a graph 678

Part IV – Ship Design and Case-Studies with the engine power on the vertical axis and gross tonnage on the horizontal axis. Each dot represents a ship. The use of the mathematical formula to approximate the real fuel consumption of bulk carriers sailing for example on the North Sea, may lead to serious errors. In addition, the real performance depends not only on the ship, but also on the speed and the weather. The lowest actual fuel consumption can be just half of the highest. There is a kind of average level which may represent the long term consumption, but this does not apply when the ship is manoeuvring in fairways and to and from ports. The impact of bad weather on speed and fuel consumption is shown in Figure 659 which is from a ship in a liner service on the North Sea. High seas and strong head wind demand often more energy to keep the schedule. This is reflected in the graph which links the fuel consumption (vertical axis) to the speed (horizontal axis) for a southbound and northbound voyage. The southbound voyage requires more fuel than the northbound voyage due to the weather conditions. A third method that has been successfully used for monitoring ships’ emissions is the combination of tracking the actual movements of a ship using AIS (automatic identification system) signals. The AIS signal can be recorded every 6 minutes and on that basis, the actual speed can be calculated. Next, the AIS can be linked to the detailed information of ship via the Lloyd’s Register database, which provides information the type of ship, engine type, engine power, and so on. In order to test the effectiveness off this approach, a case-study was made in 2007 in order to calculate the fuel consumption from ships in the Port of Rotterdam during a 24-hour period. Based on the fuel consumption, the greenhouse emissions were calculated. This case-study made by Lloyd’s RegisterFairplay Research will be briefly discussed.

Figure 658: Relation between the size of a vessel in GT and installed engine power

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65

55 2

Tons/24hHFO

R = 0,5875

45

35 2

R = 0,049

25

15 10

11

12

13

Northbound

14

15

Southbound

16 17 18 Knots Linear (Northbound)

19

20

21

22

Linear (Southbound)

Figure 659: Ship’s actual fuel consumption by route There are two major modes to distinguish when producing an emissions assessment: ships en route and ships in port or in a port area. Ships en route use a continuous rating of the engine that can be calculated from knowing the ships normal mcr52 and the ships speed at 85% mcr. This information is retrieved from the Register of Ships. The information is linked to the actual speed the ship which is measured by recording the AIS data every six minutes. The AIS data contains the ship’s movement and reading of the speed, heading and condition. Lloyd’s Register-Fairplay runs the AIS-Live world wide system and keeps a record of ships’ where-about. (Figure 660) shows a snapshot of the AIS-Live system for the North Sea. (Figure 661) shows the information that all the ships broadcast continuously. The ship Aberdeen is in slow motion, moving at 0.5 knots, heading 6°, her position, type and size. The ships status is “anchored” to information that is entered by the crew onboard the ship. The ship’s IMO number is also visible which makes it possible to link her to the data in the ship register. The ship is heading for Scheveningen once she cleared her anchor.

52

mcr=maximumcontinuousrating,whichisthemaximumoutputofpoweratcontractedspeed

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Figure 660: Ships' location in the English Channel read by the AIS-Live system

Figure 661: information broadcasted by the ship The traffic data of AIS-Live is linked to the vessel data in the ship register, which provides the engine type, power and this is fed into the engine emission characteristics database. The AIS data are transaletd into actual speed, based on the reading of every six minutes. This speed in turn is linked to a graph which relates speed to fuel consumption. The actual fuel consumption is used to calculate the emissions. Figure 662 illustrates this procedure. The next step is to define to port area in order to take only those emissions of ships into account that are related to the Port of Rotterdam. (Figure 663) shows the port area and the anchorages at sea which form an integral part of the port system, as well as the fairways leading to the port. The figure also shows an actual snapshot of the AIS-Live system for this port area (Figure 664). The next step was to monitor all the ship movements during a 24-hour period and to establish speed and fuel consumption. Figure 665 shows a partial print of all the thousands of AIS data recordings. Each dot represents the position of a ship during the continuous recording. The final results are shown in Figure 666. Figure 667 shows a sample of the information in the Lloyd’s Register of Ships that is used to calculate the fuel consumption. Figure 668 summarises the emission factors that are used in the emission model which translates engine type and fuel consumption into emissions. 681

Vesseldata

Engineemission characteristics database

Trafficdata

Emission calculation

Outputof results

Propulsion fuel consumption tonsfuel/day

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Knots

Figure 662: Principal method to assess the emission from the monitored ship

A

52° 17’ N

3° 11’ E

Leaving 4° 00’ E

Anchor

52° 03’ N

B

Leaving Anchor 51° 48’ N

4° 40’ E

Figure 663: Area under study: Port of Rotterdam

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Figure 664: Actual ship locations

Figure 665: Response of the recording

Design. 6M32 6M25 6M20 9M32

Spec fuel cons g_fuel/kWh 183 182 192 183

Emis NOx g/kWh 11,1 9,8 7,77 11,1

Emis CO g/kWh 0,31 0,6 0,61 0,31

Emis HC g/kWh 0,05 0,7 0,59 0,05

Type/def Type/def Lowest of HC Emis PM of PM sulphure measured g/kWh measured content FID C3 0.2 ISO8178 0.03 FID C3 0.15 ISO8178 0.03 FID C1 0.12 ISO8178 0.03 FID C1 0.2 ISO8178 0.03

Highest sulphure content 5 5 5 5

Figure 666: Emission factors from database of engines

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Part IV – Ship Design and Case-Studies IMO no 7426643 7428380 8206997 8207032 8207056 8214968 8217881 8912170 8917089 8920529 9031375 9044815 9048110 9085479 9103207 9122552 9140932 9145267 9145413 9147136 9250402 9257369 9279018

Vessel type Oil Products Tanker Container Ship Oil Products Tanker Chemical/Oil Products Tanker Oil Products Tanker General Cargo Ship Passenger (Cruise) Ship Passenger Chemical Tanker Chemical/Oil Products Tanker Passenger/Ro-Ro Cargo Ship Tug Crude Oil Tanker Refrigerated Cargo Ship Chemical Passenger (Cruise) Ship Refrigerated Cargo Ship Container Ship Oil Products Tanker General Cargo Ship Hopper Dredger Offshore Supply Ship General Cargo Ship

Dwt 1162 49262 17654 17617 17654 1440 7186 175 40296 4759 62 229 301569 7480 2876 6354 4260 8937 29500 8130 895 1850 3200

GT 784 52007 10937 10937 10937 998 46052 600 22633 3206 295 307 158680 5471 1359 59652 3817 7171 21605 4999 708 1237 2409

DOB Main engine des. 197605 6R493TY60 197711 8RND90M 198405 K6SZ52/105CL 198503 K6SZ52/105CL 198507 K6SZ52/105CL 198305 3512TA 198506 7RLB66 199111 3406TA 199501 5L60MC 199112 9M453C 199206 TAMD122A 199312 3606TA 199407 7S80MC 199409 8M552C 199312 6MDZC 199711 16ZAV40S 199701 8M32 199806 6R46C 199703 6L60MC 199711 6M32 200202 3406C-TA 200402 3508TA 200411 3512BHD DITA

Aux engine YANMAR RUSTON FAMOS FAMOS FAMOS VALMET WARTSILA CATERPILLAR FAMOS MTU FORD CATERPILLAR MTU VALMET VALMET ISOTTA MTU POYAUD PAXMAN VALMET CATERPILLAR CATERPILLAR VALMET

Aux model 2TLE 2YWA 2FP631A 2FP631A 2FP631A 311CSG 12V32 3304B 2FP630A 12V183 2726T 3304BDI-T 12V183 320DSG 320DSG 1712T3TE 12V183TE52 12VUD25S5 16YLXM 320DG 3304B-T 3304BDIT 320DSG

Figure 667: Example of reading from Register of ships In addition to the emission factors produced from the database of engines the sulphur content has to be added. This part has become simple in recent years as the sulphur content in ship’s fuel has been strictly regulated. Most of the ships calling at the port of Rotterdam trade in North European waters where the IMO and the EU regulate the sulphur level in fuel since a number of years. Ships at anchor and at berth use auxiliary engines for the power supply. This is modelled as a function of ship type and activity in the port. Finally the ships identified are checked against the database of ship equipped with and using emission depleting arrangements. Once these figures have been established, the database can be run presenting the total emission profile of the port. Figure 668 shows the composition of the ship types that were recorded during the 24-hour period on 26 April 2007 in the Port of Rotterdam. Of the total deadweight of the ships of more than 5 million ton, bulk carriers and containerships and tankers formed the three largest categories. Based of the fuel consumption calculation, and the emission factors, the emissions of the main engines and auxiliary engines were calculated. These are summarised in Figure 669 The emission from auxiliary engines (1,300 tons) exceeded by far the emissions from the main engines. This is logical as most ships in the port are moored and use their auxiliary engines. The largest greenhouse gas emission is CO2 followed by NOx.

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Figure 668: Sum of deadweight of the ships record

Figure 669: Emissions from sea transports in port of Rotterdam The advantage of the AIS-Live methodology as discussed here is that it can be done from desk research in more than 600 ports in the world on a continuous basis. It is relatively simple and low cost, and should therefore be used to establish an independent benchmark for all the ports in the world. This 685

Part IV – Ship Design and Case-Studies benchmark can be used to monitor real-time the emissions from ships and to measure the impact of new regulations to reduce these emissions.

26.5. World fleet emission calculation A recent study from the National University of Technology of Athens for the Hellenic Chamber of Shipping provides not only a sound methodology for the calculation of emissions from shipping, but also applies it to the entire world fleet of commercial shipping (NTUA, 2008). As both aspects are relevant in the current discussions on achieving sustainable shipping, the methodology and some keyresults will be summarised.

Methodology A ship with a payload W (tons) carries fully laden a cargo from port A to port B, which are L kilometres apart with a speed V (km/day) and returning empty in ballast condition at a speed of v (km/day). W is a function of the ship’s deadweight and its capacity utilisation. The ship spends time T (days) loading in port A and time t (days) discharging in port B. The fuel consumption (tons/day) of the ship under various conditions are known: G while loading and g while discharging in port, F fully laden at sea and f in ballast condition at sea. F and f are proportional to the cube of V and v respectively. The coefficients of proportionality are not the same in both cases. As all fuel consumptions are assumed to be known from the data of the engine manufacturers, and there will be no variations in the service speed of the ship, the cube law will not be used here. The CO2 production from burning fuel by the ship’s engine is proportional with the fuel consumption. The ratio is as follows: 1 ton of bunker fuel produces 3.17 tons of CO2. Based on these assumptions, the fuel consumption and emissions of CO2 can be calculated as follows: x x x x x x

Transit time from port A to B (days): L/V Transit time from port B to A (days): L/v Total fuel consumption per roundtrip (tons): GT + FL/V + gt + fL/v Total ton-kilometres produced per roundtrip: WL Total CO2 produced per roundtrip: 3.17 (GT + FL/V + gt + fL/v) CO2 per ton-km: 3.17 (GT + FL/V + gt + fL/v)/WL which can be simplified into 3.17[(GT + gt)/L + F/V + f/v]/W

The CO2 per ton-km is a decreasing function of distance L and speeds V and v (quadratic-function). The calculations for other emissions like SO2 and NOx are similar, using appropriate coefficients that depend on the quality of all fuels used during the roundtrip and on the type of engine. Applying the above equation to the world fleet encounters some obstacles, as for example the distances that the thousands of ships sail between ports are not known in great detail. Therefore another approximation was used in the study, based on the number of days (D) that the ship is operational during the year and the time spend at sea and in port. Whereby s is the fraction of the time D that the ship is at sea and p the port time, where p = 1 - s. The sea days per annum are sD, and the port days per annum are pD. An average speed of V was assumed for the sea voyage, and an average cargo capacity utilisation of w (0<w<1) is assumed for all sea legs. If a ship travels full in one direction and returns empty (in

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Part IV – Ship Design and Case-Studies ballast), then the coefficient w = 0.5. In case of triangular routes w could be higher than 0.5. The aforementioned equation for fuel consumption and CO2 emission will thus be modified as follows: x x x x x

Sea kilometres per annum (km): sDV Total fuel consumption per annum (tons): (sF + pG)D Total CO2 production per annum (tons): 3.17(sF + pG)D Total ton-km’s per annum: (wW)(sDV) CO2 per ton-km: 3.17(sDF + pDG)/wWsDV which can be simplified into 3.17[F + (p/s)G]/wWV

CO2 emissions world fleet The NTUA study provides a number of scenarios of the world fleet emissions. These can be summarised in a number of graphs with CO2 emissions per ship type and size. The first insight from these graphs is that bigger ships produce lower levels of CO2 per ton-km than smaller ships. Economies of scale work in favour of sustainable shipping. Figure 547 shows the decreasing CO2 output in grams per ton-km of dry bulk carriers. A handy-size bulk carrier (15-35,000 dwt) produces on average about 9 grams per ton-km, while a Capesize bulk carrier produces approximately 3 grams per ton-km, one third the amount of the Handysize vessel.

40 CO2pertonne/km(grams)

35 30 25 20 15 10 5 0

Figure 670: Emission statistics bulk carriers Figure 671 shows the results for containerships. A Handysize containership (between 1,000 and 2,000 TEU) produces about 14 grams per ton-km, while a post-Panamax containership produces 11 grams per ton-km. These figures contrast with those of bulk carriers, as the economies of scale effect is lost by the large containerships as a result of the increase in speed of the vessels. If the large containerships 687

Part IV – Ship Design and Case-Studies would reduce their service speeds from say 24 to 20 knots, than the positive effects on lower CO2 emissions as a result of the economy the scale effect would become visible as well.

CO2pertonne/km(grams)

35 30 25 20 15 10 5 0

Figure 671: Emission statistics container ships The CO2 emissions from the entire world fleet measured in million tons per year have been calculated as well by NTUA. Figure 653 gives an overview by major ship category. It shows that the containership sector is the largest producer of CO2; in particular the category of post-Panamax ships stands out. It is self-evident that a speed limit for containerships, depending on the deadweight, blockcoefficient and engine type, could result in a dramatic decrease of fuel consumption and consequently CO2 emissions.

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Smallbulk(0Ͳ5) Coastal(5Ͳ15) Handysize(15Ͳ35) Handymax(35Ͳ60) Panamax(60Ͳ85) PostͲPanamax(85Ͳ120) Capesize(>120,000dwt) Containerfeeder(0Ͳ500) Feedermax(500Ͳ1000) Handysize(1000Ͳ2000) SubͲPanamax(2000Ͳ3000) Panamax(3000Ͳ4400) PostͲPanamax(>4400TEU) Smalltanker(0Ͳ10) Handysize(10Ͳ60) Panamax(60Ͳ80) Aframax((60Ͳ80) Suezmax(120Ͳ200) VLCC/ULCC(>200,000dwt) LNG(0Ͳ50) LNG(>50,000m3) LPG(0Ͳ5) LPG(5Ͳ20) LPG(20Ͳ40) LPG(>40,000m3) Reefer(0Ͳ5) Reefer(5Ͳ10) Reefer(>10,000dwt) Product/chem(0Ͳ5) Product/chem(5Ͳ15) Product/chem(15Ͳ25) Product/chem(25Ͳ40) Product/chem(40Ͳ60) Product/chem(>60,000dwt) RoͲro(0Ͳ5) RoͲro(5Ͳ15) RoͲro(15Ͳ25) RoͲro(25Ͳ40,000dwt) Generalcargo(0Ͳ5) Generalcargo(5Ͳ15) Generalcargo(15Ͳ35)

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CO2 emissionbyvessel(milliontons/year)

Figure 672: CO2 emission by vessel category 689

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27.

BALLAST-FREE SHIPS

By Eelco van Rietbergen and Clemens van der Nat

27.1. Ballast water issues The concept of ships carrying ballast is almost as old as shipping itself. In the Dutch golden age the sailing ships carried sand and stones to maintain sufficient stability on their voyages to the East. This ballast was unloaded to be replaced by the valuable cargo for the home voyage. Many brick buildings on Java are silent reminders of this ballast procedure. After the introduction of steel ships, and especially the development of techniques to make watertight compartments, the role of sand and stones was replaced by seawater as a much simpler and cheaper means to achieve the ship’s correct hydrostatic conditions. As the size of ships grew, also the amount of ballast water on board increased substantially. Especially on trades based on a one-way laden voyage, like oil and ore, the return voyage always has to be done in ballast. As ships involved in these trades are also very large in size, the amount of ballast water carried has become enormous. To illustrate this with some numbers; on average oil tankers or bulk carrier take approximately 30 to 40% of its deadweight as ballast. For a 250,000-ton ship this results in 75,000-100,000 tons of ballast water on each single trip! The problem is not limited to one-way trades. Also in general cargo and container ships ballast water is a necessity to ensure safe sailing conditions between a discharge port where there is no return cargo and the next port where the vessel actually will be loaded. Sometimes additional ballast water is required, even when it is laden to achieve sufficient stability. The amount of ballast in general is less (20-50% of the deadweight) as the size of these ships is much smaller, however this is compensated by the large number of such vessels and the fact that they reach almost every accessible port on earth. In total approximately 3 billion tons of water ballast is shifted over the world oceans and seas per annum.

Why ballast? Why do ships need ballast water? For modern ships there are three main reasons: x

To assure the correct waterline to achieve practical operating sailing conditions. As illustrated by Figure 673, an empty ship lies ‘high on the water’. A ship needs a minimum draught aft to keep the propeller sufficiently below the water surface during sailing, to guarantee sufficient thrust without cavitations and air ingress, but also to avoid propeller racing when sailing in waves. The forward draught needs a certain minimum value (as stipulated by Classification Society Rules) to avoid the risk of slamming and consequential structural damage to the forward part of the vessel.

x

To achieve a safe loading condition from a hydrostatic point of view, or more generally speaking, to achieve sufficient stability. The sand and stone ballast of the old sailing ships were specifically meant for this purpose, but also modern ships may need to fill ballast tanks to guarantee meeting minimum stability criteria. Especially containerships are a compromise between speed (requiring a slender hull form), carrying capacity and stability. Entering ballast is sometimes necessary to compensate for the high centre of gravity of the cargo by filling the 690

Part IV – Ship Design and Case-Studies double-bottom ballast tanks. The opposite case is also possible; ballast water is required to raise the centre of gravity! For some bulk carriers and general cargo ships carrying very dense heavy cargoes, a very low centre of gravity may result in poor hydrodynamic characteristics, as the ship will behave very ‘stiff’ when sailing. Introducing ballast water in upper hopper tanks raises the total centre of gravity and reduces the accelerations of the ship to acceptable levels. x

To achieve a favourable distribution of shear strength and overall longitudinal bending moment. Especially on the very large oil tankers and bulk carriers a partly-loaded condition may result in an unfavourable weight distribution, leading to unacceptable shear forces and/or bending moments. Taking in ballast at selected compartments is necessary to achieve a more evenly distributed weight distribution in line with the buoyancy distribution of that particular waterline.

Figure 673: Empty ship It has to be born in mind that above reasons are directly related to the current state-of-the-art ship design. The vessel’s dimensions, hull shape, tank and cargo hold lay-out are such that operational sailing conditions can be achieved by the introduction of ballast water when this is required for a specific loading condition.

What is the problem of ballast water? The main problem originates from the fact that with the sea water also the living creatures in the water will enter the vessel’s ballast tanks, as illustrated by the ballast sequence of Figure 674. These living creatures are taken out of their natural habitat, shipped all over the world and introduced in new environments. This phenomenon is occurring on a worldwide scale, based on main and minor shipping routes. But, why is introducing new creatures in another environment such a problem. One could argue this would only mean more local species. However, there are three main objections: x

Bio-diversity. Not only the number of organisms in a particular eco-system is important, but also the number of different species. Differences in local circumstances like (water) temperature, salinity, climate and bottom results in numerous combinations of different living environments. Organisms living in a particular living environment have adapted to these circumstances and created a delicate eco-system. In this eco-system all species are dependent on each other in the food chain. The introduction of new species may disturb this delicate local balance by a shift in the eco-system. Some niches may be taken in by the new species 691

Part IV – Ship Design and Case-Studies and could result in native species becoming extinct. The introduction of a new species could actually lead to a decrease in the number of different species, which may even become a disaster when the new species have no natural enemies, as the new species may dominate the eco system totally. x

Rate of introduction of new species. The wide-spread shipping and the increased size of ships accelerates the speed of dispersing species around the world. As the eco-system is a balanced system, current shipping substantially increases the risk of local eco-system disturbance.

x

Non-reversibility. As such, the introduction of new species can even be worse than another environmental disasters, like a major oil spill. Oil spills have an immediate major effect on the local living environment, but the eco-system will survive after a short or medium recovery period. In contrast, the introduction of new species and disturbance of the eco-system is not immediately visible, but the effect is usually non-reversible. Once introduced, new species will not vanish, and its effects on biodiversity are difficult to predict.

Figure 674: Ballasting of ships

What are the effects? In recent decades the introduction of new species has led to several devastating effects on various locations around the world, including: x

Economical This includes damage to infrastructure and installations, mainly to uncontrolled growth of marine organisms. A typical example is the European Zebra Mussel that blocks cooling water grids and sewage pipes in the US. Another example is the introduction of the Comb Jelly from the US to the Caspian Sea, which has led to the collapse of the local fishing industry as this species exploded without natural predators and took such a portion of the local plankton reserve that the local fish stock, mainly Kilt was diminished. Also the tourist industry can be hit, there are numerous examples of swim water quality being heavily affected by the introduction of algae’s and jellyfishes.

x

Ecological The introduction of non-native species may cause an explosion of those species outside their normal habitat and affect the bio-diversity of a particular eco-system. Typical examples are the 692

Part IV – Ship Design and Case-Studies introduction of the Atlantic Croaker and Chinese Wolhand Crab in the North Sea area, and the North Pacific starfish in the Australian Great Barrier Reef. x

Health The introduction of some species may also seriously endanger public health. Examples are non-native algae poisoning local mussels and the re-introduction of the cholera bacterium in South America.

It must be noted that there are more causes for the introduction of non-native species, e.g. business and leisure traffic by air and commercial fishery farms. However, shipping has contributed substantially due to its global nature, the short time of passage between two different locations and the increase in sea traffic intensity.

Figure 675: Dispersion of sea creatures

Legislation The International Convention for the Control and Management of Ships Ballast Water & Sediments was adopted by consensus at a Diplomatic Conference at IMO in London on Friday 13 February 2004. The convention is divided into Articles and an Annex. Latter includes technical standards and requirements in the regulations for the control and management of ships' ballast water and sediments. The GEF/UNDP/IMO Global Ballast Water Management Program (GloBallast) is assisting developing countries to implement the IMO ballast water guidelines and prepare for the new IMO ballast water convention

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Part IV – Ship Design and Case-Studies In addition to the international conventions from IMO many regional authorities have taken the initiative to draft and implement new or additional rules to protect their own area of influence. A few of the many examples are: the US Saint Lawrence Seaway Development Corp. and the Norwegian Shipping Directorate. An overview of national regulation in preparation or in force is presented in Figure 676.

Figure 676: Overview of National Ballast Water Management Regulations

27.2. Solutions for ballast water In order to manage the problems involved with the use of ballast water in shipping three different solution routes can be distinguished as presented in Figure 677.

Exchange Initially ballast water management methods were directed by operational procedures for continuous or intermittent water exchange. The main principle of exchanging ballast water is the assumption that organisms taken from sheltered water environments (restricted water depth environment) will not survive in open sea conditions at a considerable distance (minimum 200 nm) from shore. Although this assumption has no direct scientific evidence, it is generally accepted as an adequate solution to, at least, control the organism dispersion problem. The two main methods for exchange are sequential exchange of ballast water of various compartments or continuous exchange by the flow-through principle. Dilution of original content by mixing it with

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Part IV – Ship Design and Case-Studies water from other locations during the voyage can be considered as a variation on sequential or flowthrough method. The main advantages of the exchange methodology are: x x x

It is simple; It can be applied to both new and existing ships; It requires to limited amount of conversion work.

Figure 677: Ballast water management methods (Peikert, 2007) The main disadvantages of exchange methodology are related to two main issues: x x

Biological effectiveness; Safety concerns.

Biological effectiveness In practise, it is difficult to prove that after an exchange the compartment meets the stringent Regulation D-2 Ballast Water Performance Standard with respect to microbial limits. This has two reasons. Firstly, it is difficult to ascertain that all ‘old’ water will be replaced by ‘new’ water. Structural and piping arrangements within compartments may result in water pockets remaining in the tank. Especially the flow-through method is more susceptible to this issue then full-sequential exchange as the tanks are never fully emptied. Secondly, taking in ballast water in shallow water often leads to the introduction of sediments in the ballast tanks. In the course of time, the bottom of a compartment is filled with soils providing an excellent hiding place for organisms (Figure 678).

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Figure 678: Sediments in bottom tanks

Safety concerns As described earlier, ballast water is needed for the vessel’s stability and/or structural strength. This implies that altering the ballast situation during the voyage directly affects the loading condition of the vessel and may endanger crew and ship. This is especially the case in the sequential method, which requires extensive step-by-step planning to assure that each step meets the intact and damage stability criteria and will not lead to shear forces and bending moments beyond allowable limits. During the flow-through process the loading condition of the vessel is less affected, though the tank pressure needs to be monitored carefully and controlled in order to prevent collapse of the tank structure. Table 163 summarises the advantages and disadvantages of the sequential and flow-through exchange methods (Peikert, 2007).  Advantages

 Disadvantages 

Sequential Applicableonnewanexistingships

FlowͲthrough Very limited change in loading conditions Noconversionworksnecessary Canbeusedinbadweatherconditions Changesinloadingconditionforeachstep Conversionworksnecessary Limitationsregardingstability,longitudinal Notalltanksdesignedforconstanthigh strength pressure

Table 163: Advantages and disadvantages of exchange methods A recent example of the risks involved with ballast water exchange at sea is the capsizing of the Cougar Ace. It capsized while releasing water from the ship's ballast tanks. The tanks were filled in Japan and the vessel was emptying foreign water while simultaneously refilling the tanks with local water to prevent contaminating US marine waters. In general this is a complicated procedure. Not only must the addition and subtraction of tank water weight be calculated precisely, weather conditions and cargo placement and weight are major factors as well. In the case of the Cougar Ace, the ship's ballast tanks failed to refill properly, throwing the ship off balance. As the ship listed portside, a large swell pushed it further, causing the ship to capsize.

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Figure 679: Capsize of the Cougar Ace

Treatment The second method is to treat the ballast water in such a way that after treatment it is does no longer contain any living organisms anymore. Ballast water treatment is considered a biological effective and safe solution and the ballast water management regulations are primarily directed to facilitate this solution. The major challenge with ballast-water treatment was that at the time the ballast water issue started receiving attention, no systems or equipment were available that could deal with the huge water intake. Equipment suppliers were not able to develop equipment, as it was unknown which biological effectiveness performance standard it should meet. With the formulation of the IMO D-2 Performance Standard this has changed and many initiatives have arisen to develop a suitable system. Matters are what kind of techniques is suitable for treating and how to apply these in treatment systems. Three techniques are presently available: mechanical, physical and chemical. Many systems use a combination of different techniques at the same time. Why to apply more than one technique at the same time? Treatment systems have to deal with two different types of substances in the ballast water, i.e. sediment and organisms. Sediment is primarily removed using mechanical techniques like filtration or cyclonic separation. Removing sediment out of the water ascertains that no breeding ground occurs at the bottom of the ballast tanks for unwanted organisms to survive. As mechanical treatment hardly affects the small organisms in the water, another method is used to neutralise the organic properties. A first group comprises physical techniques, based on adding some kind of physical phenomenon to the water in which organisms can not survive, like UV-C light, high frequency vibration, cavitation and super saturation. The second technique comprises chemical treatment, either by adding active substances to the water or applying techniques that start a chemical reaction in the water, for example using a catalyst. Chemical treatment is considered as very risky. It is for this reason that the IMO Ballast Water Convention makes a distinction with respect to the approval procedure for treatment systems. All treatment systems have to comply with Guideline Res. MEPC 125(53) Guidelines for approval of ballast water management systems (G8). This certification is given by the flag state, however often it is delegated to 697

Part IV – Ship Design and Case-Studies an authorised classification society. Treatment systems using active substances have to comply with Guideline Res. MEPC 126(53) Procedure for approval of ballast water management systems that make use of active substances (G9). The approval of these systems is carried out by IMO only and involves a lengthy route of testing and statistical interpretations to final acceptance.

Figure 680: Ballast water treatment equipment Figure 681 presents a schematic of the approval procedure for Ballast Water treatment systems as presented by Peickert. As currently most systems use a combination of treatment techniques whereby the most successful systems also use active substances on the basis of chemical treatment, the availability on the market of approved systems is limited. What are the main advantages and disadvantages with respect to use of treatment systems to comply with water ballast management regulations? Advantages are: x x x x x

The system can be applied on both existing and new ships; It has only very limiting effects on current design of ships; It is in principal a simple and self-contained systems; The system can be adapted and upgraded to the latest standards; It is biological effective as per D-2 Standard regulations.

Disadvantages x x x x x x

Handling capacity of system may limit operations or requires extra units; The systems requires space on board; Extra operational costs for operation (energy) and maintenance required; Extra initial investment is required; Depending on the system it will interfere with the operational procedure; There is a limited number of approved systems available. 698

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Figure 681: Approval procedure Ballast Water treatment systems

Isolation The third and last method for water ballast management is to isolate the water taken on board, or in other words to prevent that water from the location of departure comes in contact with water at the location of arrival. There are three solutions x

x

x

To deliver the water onshore where it can be treated separately without affecting the operational discharging and loading procedures. Water can than be processed by a land-based reception facility. This solution requires large infrastructure at every port, ensuring sufficient capacity for all ships. Presently these facilities are not (yet) available in ports. To return the water to its origin. This can only be done by ships sailing on a fixed route and with sufficient deadweight to carry this amount of ballast water during the loaded voyage. For most ships this means that paying cargo capacity is reduced to allow for taking sufficient ballast water. To keep the water ballast outside the vessel. This means that vessel design is such that no, or only very limited ballast water is required to guarantee a safe passage both fully laden and when empty.

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27.3. Ballast-free ship design The water ballast issue has served as an innovation trigger for the marine industry to come with practical solutions for an environmental problem to which shipping itself contributes. Present solutions to solve this problem are either focused on ballasting procedures, on development of specific equipment, especially for treatment systems, or on new ship designs which eliminates the ballast water issue. The remaining part of this chapter will focus on the ship design solution and how these have been initiated followed up and organised.

Vela Overflow Concept This patented technology, developed by Vela International Marine Limited, utilises a central pipeline at the bow which, when underway, allows water to enter the pipeline at the bow at a pressure sufficient enough to overflow the ballast in tanks through the tank’s outer shell openings located at or near the ballast water line as illustrated by Figure 682. Sufficient flow is claimed to ensure that the entire contents of the ship’s ballast spaces are changed by three times the volume (as required by the BWM Convention) in 36 hours assuming a speed of 14 knots.

Figure 682: Vela International Marine Ltd. Overflow Concept

U-M Flow-Through Concept University of Michigan researchers are investigating a new design for cargo ships that would eliminate ballast tanks. The U-M ballast-free ship concept offers a promising alternative by creating a ballastfree ship using a constant flow of local seawater through a network of large pipes, called trunks, that runs from the bow to the stern, below the waterline. Through this system a very slow, but constant flow through the trunks from bow to stern is created, meaning that the vessel is always filled with local sea water, not hauling water from one part of the world to the other. The U-M ballast-free ship concept was conceived in 2001 and patented in 2004. It is intended for new vessels only.

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Figure 683: U-M ballast-free flow-through concept The researchers claim that the results from the tank tests and computer simulations suggest this ballast-free ship concept will provide significant propulsion power savings, possibly as much as 7.3 percent, because of the improved water in-flow of the propeller. The added construction costs of the ballast-free design, for extra hull steel, trunk-isolation valves, piping and welding, could be more than offset by eliminating the filtration system and the ballast tanks.

NOBS Concept The Non Ballast Water Ship (NOBS) concept, introduced by the Shipbuilding Research Center of Japan, provides an extremely transversely raked hull bottom to maintain a sufficient draught in the light loading condition. This design claims a sufficiently deep enough transit draught without ballast water when the ship is light, carrying cargo. Widening the ship’s breadth compensates the decreased displacement and reduced deadweight. A comparative illustration is indicated in Figure 684 below.

Figure 684: NOBS Concept compared with traditional hull

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Part IV – Ship Design and Case-Studies A comparison of principal dimensions between a NOBS and conventional (Suezmax) tanker shows that maintaining the same length and draught, the breadth is substantially increased, from 43 metres to 56 metres. As for this type of ship no ballast is available to compensate for uneven load distribution, extra steel is required to increase the longitudinal strength. For a Suezmax design the hull steel weight increase is understood to be in the order of 15%. Dimensions Lengthbetweenpp(m) Lengthwaterline(m) Breadth(m) Bottomrake(deg) Draught(m) Displacement(tons) Draughtaft(m) Draughtfore(m) Lightshipdisplacement(tons) LightwaterBst(m)

Conventionalship 265 271 43 0 16 160,000 8.8 5.8 68,650 43,000

NOBSships 267 271 56 15 16 162,500 7.9 3 28,100 0

Table 164: Comparison between conventional and NOBS ship design

Ballast-free multi-purpose concept: MonoMaran The merit of the Dutch MonoMaran concept is that it generates a relatively large draught at light displacement through a recess at the bottom part of the vessel. This hull shape has the advantage that a rectangular box shaped cargo hold is maintained, which allows the concept to be used for multipurpose and container ships. One of the challenges of the original MonoMaran concept is a larger wet area surface compared to a conventional hull of equal deadweight, causing more frictional resistance. However it was thought that applying air lubrication, maintained through two lower hulls, could compensate this. In addition the developers also proposed to combine the air lubrication with the engine exhaust gasses, which could reduce the CO2 emission. For propulsion a variety of options is suggested, including; traditional twin-screw propulsion by Azipods or azimuth thrusters. All propulsive options are driven by a diesel-electric engine located in the front of the vessel. Locating the engine room forward resulted in a better balanced ship, with large weight items located both forward and aft. The original conceptual idea for the MonoMaran was applied to an existing 20,000-dwt vessel and the researchers managed to come with technical feasible, well-presented proposal in which one of the key design parameters, the maximum draught, has remained unchanged compared to the conventional ship. The following sections will describe the concept development process for a ballast-free multi-purpose ship.

27.4. Development of the MonoMaran The Dutch ballast-free MonoMaran concept was developed as a follow-up of the design contest with the support of the Dutch Maritime Network. A stepwise approach had been adopted to allow for budget control, structured problem solving and more companies to become involved. For completion of the technical concept development a three-stage approach was used, as illustrated in Figure 686.

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Figure 685: MonoMaran wet area surface

• Selectbenchmark • Definefunctionalspecification • Develop1st concept

Phase1:Initialconceptcheck

• Hulloptimisation • Vesselconceptdesign • Analysisof: o Resistance&propulsion o Constructionandweight o Leadingconditions o Economicfeasibility

Phase2:Optimisation

• Analysis o Motionandseakeeping o Performanceinice

Phase3:Specialsubjects

Figure 686: Three-stage approach

Phase 1: Initial concept The first phase consisted of a feasibility study where the original idea was developed into an initial conceptual design (Figure 687) on basis of a state-of-the-art benchmark vessel. For the benchmark vessel a 4000-ton deadweight general cargo vessel was selected of 85-metre length. The vessel is suitable to transport (pallet) cargo, neo-bulk and containers and is constructed according to FinnishSwedish ice class 1A. Most particular feature of this benchmark was a service speed of 14 knots, 703

Part IV – Ship Design and Case-Studies where the current fleet of this size normally is designed for 12-13 knots. This type was selected, as this vessel is very relevant for the Dutch specifically the Baltic trade still has a strong foothold in the Netherlands. It must be noted that at the start of the project the benchmark vessel was only available as concept design and no actual built ship was available for reference.

Figure 687: Initial conceptual design On basis of this benchmark an initial concept was developed combining the original idea from the design contest with an earlier developed “Fastflex” design. In the first iteration of the design the length of the vessel was limited to 85 metres. It appeared that a multi-purpose version was possible, whereby constraints with respect to dimensions, deadweight and hold volume were met. However first calculations indicated a small increase in lightship weight, an increase in gross tonnage due to the larger size and a substantial increase in required power when compared to the benchmark ship.

Figure 688: Monomaran In order to improve the power characteristics a second iteration was carried out where the length of the vessel was increased to 94 metres (Figure 688). Although this results in a bigger vessel for the same deadweight, the flexibility in the design was also increased without big penalties in steel weight and costs. One of the major problems in developing the concept was the uncertainty to which extent generally used theoretical models and calculation procedures were applicable. One particular 704

Part IV – Ship Design and Case-Studies parameter frequently used in ship calculations is the block coefficient. However for this vessel this is difficult to establish as the displacement in combination with the main dimensions result in a low figure and often unrealistic results. This means that assumptions had to be made how to properly apply calculation procedures, but also resulted in substantial uncertainty with respect to the calculation results.

Phase 2: Optimisation The most important uncertainties of the design are related to the resistance and propulsion characteristics of this hull design. To reduce these uncertainties a substantial model test program was initiated. Also the layout, main construction, steel weight, propulsion configuration were addressed.

Resistance & propulsion To check calculations on resistance and propulsion a model test program was carried out by MARIN, Wageningen. For this purpose the ballast-free hull lines, as developed in the second iteration of the initial concept study, were used. The test program involved various aft ship configurations in order to optimise propulsion set-up. Also a conventional hull was tested to obtain reference with the current benchmark hull shape. From the first series of model testing it appeared that the initial hull form should be further improved in order to achieve acceptable installed propulsion power levels.

Figure 689: The MonoMaran design in the test basin This numerical optimisation was carried out in close co-operation with MARIN using the first series of model test results. Calculation routines and evaluation procedures had to be re-evaluated to understand the cause for the high propulsion power. This process resulted in a revised hull shape that was tested during a second series of model tests. Studying the test results revealed that the resistance 705

Part IV – Ship Design and Case-Studies was substantially decreased by 15%, but required propulsive power could be decreased by 25% through selecting the appropriate configuration.

Construction A new hull design also requires a careful study of structural aspects. For this purpose a separate working group was formed where the project team was supported by experts from the consortium that included a well-reputable engineering office with much experience in structural design and one of the major classification societies. This main task for the working group was to develop a main section from which an accurate estimate of the steel weight could be made. In this process the structural working group developed various alternative concepts including both transverse and longitudinal stiffening. As both stiffening systems proved to have specific advantages, a final main section was developed for both versions. It appeared that the difference in steel weight and cost was negligible and within the accuracy of the method applied.

Design The design work concentrated on developing various alternatives on basis of different propulsion configurations. In this respect a large matrix of possible combinations was explored involving dieseldirect vs. diesel electric drive, fixed or controllable pitch propeller, type of propulsion: thrusters, pods or traditional propeller, single vs. twin screw, etc. From this exploration most feasible options were used and worked out in a concept design. The diesel-electric configuration with either twin screw traditional propellers or thrusters proved to be the most interesting options, mainly due to the favourable propulsion efficiency. In these configurations the load carrying capacity in terms of full load container capacity (TEU) could be maximised. After finalising the design an economic study was carried out to prove the economic viability of the ballast-free concept. This study revealed that the design and subsequent marketing should be developed towards specific targets in order to gain the competitive edge. The capability to carry more full loaded containers in combination with efficient operational profile where no time is lost to load and treat ballast water can result in a additional return on investment.

Phase 3: Special subjects Some design aspects had not been studied in detail, but were considered to be of particular importance for this ballast-free general cargo concept. The behaviour in waves, especially at light-load condition was of interest as it is unknown in what respect traditional sea-keeping programs would deal with the new hull form. As the Baltic trade was seen as a prime operating region, also the behaviour in ice condition required further study. All these aspects required model testing to confirm a satisfying performance. In addition to this the total design was to be reviewed and final design calculations to be carried out including intact and damaged stability check.

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Figure 690: General arrangement of the vessel

Ice testing The main purpose of the ice testing was to confirm the ability of the design to obtain ice class 1A notation. In addition to this, the behaviour in ice conditions could be observed very well as the facility in Helsinki provides optimum visual access to the model with large windows in the bottom of the tank. The model testing program in ice conditions was carried out at the Aker Arctic Research facilities in Helsinki, Finland. The program included: x x x x x x

Level ice testing at two different ice thickness values and different power settings; Unfrozen wide channel testing with brash ice in two thickness at different power settings; Visual observations of backing in wide channel brash ice; Transit and backing in floe ice field conditions; Channel break out tests; Capability to cross a thick rubble field.

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Figure 691: Model testing in ice conditions All tests were done for two draughts, the fully-loaded design draught and the minimum transit draught, a condition consisting of light ship weight with a limited amount of consumables representing arrival conditions. The ice testing confirmed the ice class 1A notation of the concept and provided some areas of attention for future development.

Sea-keeping Sea-keeping tests were carried out at the sea-keeping facilities of MARIN. The tests were performed in the sea-keeping and manoeuvring basin, which measures 170 x 40 x 5 metres in length, width and depth respectively. A towing carriage, carrying recording equipment and personnel can travel the length of this basin. The model was self-propelled during the tests. Connections between model and carriage consisted only of free-hanging thin electric wires for measurement signals and power supply. Also, the sea-keeping tests were carried out at two different draughts, the fully-loaded design draught and a light load representing lightship with 50% consumables. In addition to standard measurement sensors, the model was equipped with additional pressure transducers in the bottom to monitor the slamming and bottom pressure in the forward part of the vessel. In order to obtain a direct impression of the severity of slamming, the slamming induced flexural accelerations were recorded. For this purpose the longitudinal bending stiffness of the sea-keeping model is reduced with vertical cuts at five sections in the model sidewalls. The criterion for the depth of the cuts was the natural frequency in the 2-node bending, which is the major contributor to the slamming induced vibrations. The model was subjected to a large number of tests involving different combinations of wave heights, wave directions, speed, loading conditions and hull fittings. Registrations include video recordings of all tests, photographs and measurements including accelerations, rpm and torque and pressure transducers in the forward bow part of the model.

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Figure 692: Model testing in different wave-heights From the test results it appeared that the ballast-free ship at full load has similar motional behaviour as a conventional vessel, however depending on load distribution, may perform even better in some wave conditions. In light load it appeared that some wave directions proved to be more critical. It is this condition where the limitations of the ballast-free concept proved to be most pronounced but acceptable. Where conventional ships have the option to select a light ballast condition for nice weather and heavy ballast condition for severe conditions, the ballast-free ship does not have this choice.

Open Innovation The most interesting aspect of the ballast-free ship development was the organisation in an open innovation environment. In this project 14 different Dutch companies and institutes were involved. Four of these formed the project team serving as an executive committee for organisation and execution of the activities to arrive at a final design. The 10 other contributors provided their input on basis of their specific expertise for various subjects like construction and propulsion configuration. This means that the final design is result of larger and minor work of all partners in the development and individual contributions may be difficult to distinguish In such an organisation it is important to make specific agreements on intellectual property rights and future revenues. This has been arranged in a co-operation agreement. The most important aspect in such an agreement is to define precisely the actual content of the co-operation. The easiest case is when a patent is granted, as this is a clearly-defined document. The next option is when clear deliverables can be defined, e.g. drawings, specific calculations or computer files. This is of interest when it requires specific know how developed in the project to produce these deliverables. When these two possibilities are not possible or can not be clearly defined, the definition of the content of cooperation becomes much more complicated. For the ballast-free ship no patent was available, therefore the deliverables were defined as to ensure the required know-how to be developed. Furthermore special provisions were made to appreciate the contribution of the originators of the initial concept. 709

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Lessons learned In the development of the ballast-free ship some specific experiences were observed that could be beneficial for other projects as well: x

x

x

In such a project the spin-off is almost as important as the development of the project itself. The renewed insight and application of generally-accepted theories, the use of calculation methods/procedures provides an additional added value to the project that was not foreseen; In developing new concepts the correct selection of an appropriate benchmark is crucial. As new ideas have to be evaluated and compared to the present standard, it is very important to select this present standard properly; The organisational set-up of the project worked very well. This means a core project team to manage the project and for carrying out the essential technical work. This team is supported by a group of companies that have an interest in the project and can provide their expertise for developing specific issues like construction, propulsion, etc.;

Focus on implicit advantages. The general paradigm “There is no free lunch” is often applicable to new concepts. This means that advantages of the concept are often counteracted by disadvantages in some other fields. However when the concept opens the possibility to include additional advantages, the earlier cons may be compensated totally or become insignificant.

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28.

CHEMICAL TANKER

Chemical tankers are complex and expensive ships, as they often carry hazardous cargoes. A lot of experience and know-how has been gathered over recent decades and formalised in detailed design rules and regulations from the International Maritime Organisation and the classification societies. From a technical point of view, the present generation double-hull chemical tankers form a milestone in design and safety. In spite of the increased technological sophistication of chemical tankers, one major problem seems difficult to solve over the years: the time spent in port remains very long in relation to the time spent at sea. A major chemical tanker owner and operator, faces a port time of around 40 percent. This causes a tremendous loss of charter revenues; therefore this problem should be reduced in magnitude. A study was undertaken in collaboration with the owner in order to understand in the greatest possible detail the reasons behind the large port time. This study led among others to the understanding that on the basis of the current design of the chemical tanker, based on the integral rectangular tanks, often with stiffeners inside, corrugated bulkheads and heating coils, it is difficult to reduce the port time dramatically.

Figure 693: Cargo heating of a 40,000-dwt ship Therefore it was tempted to redesign and innovate the chemical tanker in a fundamental way. Central to this approach were the qualities inherent to the stainless steel cylinder type tanks. These tanks are easy to manufacture under factory conditions, and through their ideal form can withstand enormous pressures and are easy to clean, because the heating coils are placed outside the tank and no internal stiffeners are used. This case-study describes the design of a 44,300 cbm chemical tanker, based on the use of the cylinder tanks and it was made for a chemical tanker operators in the early 1990s.

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28.1. Description of the design First, the design will be described and a comparison will be made with a traditional design of more or less equivalent capacity. Thereafter the key elements of the design will be highlighted.

Future design philosophy The design of chemical tankers will be influenced by a number of developments partly triggered by initiatives outside the sector itself. These are: x

Elimination of pollution from slops Approximately 90 percent of the wash water of tanks (slops) can be legally pumped over board; it is to be expected that current regulations will become much stricter, as is already the case in certain fragile marine environments, such as the Mediterranean Sea, the Baltic Sea and the North Sea. The disposal of slops at shore reception facilities is very costly. One way to reduce costs is to reduce the slops production.

x

High quality standards The quality standards of the chemical tanker industry will increase further and will ultimately resemble those of the food industry, which is virtually impossible to achieve with current tank types.

x

3 Rs-design principles Recently, design principles in shipping are going through a minor revolution, if one considers the change from rule-based to engineering first principles design. Another revolution in design principles is already on its way: sustainable technology. This can be typified by the 3 Rs: Reduce, Re-use, Re-cycle. This will have profound consequences for the concept design of ships.

General arrangement and principal dimensions The use of cylindrical stainless steel tanks in chemical tankers will be demonstrated on the basis of a large chemical tanker design, equivalent to a series of modern, existing chemical tankers. This design is labelled Standard and it is shown in Figure 694. The new design is shown in Figure 695. Its principal dimensions are given in Table 165. Dimensions Deadweight(tons) Tankcapacity(cbm) Lengthoverall(m) Lengthbetweenpp(m) Breadth(m) Depth(m) Draught(m) Lightshipweight(tons) Displacement(tons) Blockcoefficient Servicespeed(knots)

Standarddesign 35,400 38,021 182.3 176.1 32.0 14.0 10.6 12,600 48,00 0.78 13.5

Cylindertanker 35,497 44,300 218.5 209.5 32.24 21.5 10.7 18,043 53,500 0.722 17.75

Table 165: Comparison between standard vessel and cylinder tankers 712

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Figure 694: Standard chemical tanker design 713

Part IV – Ship Design and Case-Studies

Figure 695: Cylinder chemical tanker design 714

Part IV – Ship Design and Case-Studies The capacity of the 43 cylinder tanks and the 10 small slops tanks (optional) is 44,300 cbm. The cargo carrying capacity is determined by the specific weight of the cargo, the tank volume and the draught. The standard tanker has a design draught of 10.6 metres. The displacement of the cylinder tanker at this draught is 53,497 tons, which is composed as follows: x x x x x x

Steel weight 11,982 tons; Engine room 1,572 tons; Outfit 1,488 tons; Stainless steel cylinder tanks 3,000 tons; Light ship weight 18,043 tons; Deadweight 35,497 tons.

The cylinder tanker has a large volume (GT) and high freeboard. The draught can therefore easily be increased to 11.6 metres. On this draught the deadweight cargo capacity is 38,292 tons. The service speed of the cylinder tanker is 17.5 knots, which is at least 2.5 knots faster than the Standard design. This is due to the low block coefficient (0.722 versus 0.78) and the extra length of the ship. The fuel consumption is 62 tons per day, including the shaft generator for the auxiliary power.

The tanks Figure 696 shows the cross section of the cylinder tanker. The width is 8.5 metres and the height 20 metres. The capacity per tank is approximately 1,100 cbm. The capacity of all tanks is 44,332 cbm. Including 10 optional slops tanks (870 cbm), the capacity is 45,200 cbm. With a filling level of 98% the capacity is 44,300 cbm. As the tanks are extremely protected, all tanks should be allowed by I.M.O. to carry type I cargoes. An advantage of the completely independent cylinder tanks is that the problem of cargo incompatibility is fully eliminated.

Figure 696: Cross section of the cylinder chemical tanker 715

Part IV – Ship Design and Case-Studies All tanks are from stainless steel and are, because of their ideal cylinder form, easy to clean. According to calculations of a specialist in tank wash installations, the tank can be cleaned in less than 15 minutes (pre-wash), which represents a time saving of 75% compared to a conventional, integral tank of similar capacity. As a consequence the amount of wash-water diminishes proportionally. Figure 697 shows the three dimensional drawing of the tank, the load line and the tank cleaning installation.

Figure 697: Tank, load line and tank cleaning installation

Key-elements of the cylinder tank chemical tanker There are many advantages of the cylinder tanker compared to the standard design. In this paragraph, the key-elements will be highlighted. x

All tanks are made of stainless steel and are independent. The absence of coated tanks improves the quality of the cylinder tanker;

x

The ratio of tank surface to tank capacity of the standard tanker based on integrated tanks is 0.8 sqm/cbm and of the independent cylinder tanker 0.6 sqm/cbm. This is a 25 percent reduction in tank surface for the same capacity. This reduces the amount of stainless steel and the wetted surface, which has to be cleaned as well;

x

The steel hull and stainless steel tanks are built in parallel, which reduces the construction period with 3-4 months. This saves construction financing;

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Part IV – Ship Design and Case-Studies x

The hull is relatively simple to build and resembles a double-hull oil tanker or an open containership. The simple construction and the absence of difficult stainless steel work at the yard, results in a reduced construction cost of the hull of the cylinder tanker;

x

The stainless steel cylinder tanks are built under factory conditions to the highest quality standards, independent of the workmanship at the yard and the weather conditions;

x

The construction of the cylinder tanker requires less sophistication from the yards, which increases the possibility to shop around and lower the prices. The tanks can be built on another continent and transported with heavy lift vessels or on containerships to the yard;

x

The depreciation of the cylinder tanker is substantially lower, as the stainless steel tanks can be taken out of the hull at the end of the commercial life of the tanker and even be reused in a new tanker; this has a positive effect on the 3 Rs design philosophy; the residual value of the stainless steel weight, which is normally lost when scrapping standard chemical tankers, will increase with the value of the stainless steel weight of the tanks; consequently, the annual depreciation can be reduced;

x

The cylinder tanks are independent and insulated, while the heating/cooling coils are placed on the outside. Therefore traditional compatibility problems (product and heat) and contamination problems from cracking will be eliminated;

x

The cylinder tanker has in fact a triple barrier (double hull and tank shell) and should therefore be allowed to transport IMO type I products in all its tanks;

x

The cylinder tanks can be designed to transport super-phosphoric acid (specific weight 2.15). They can therefore also become pressure vessels, and transport certain chemical gases, in combination with cooling of the tanks; this may open up niche-markets;

x

Some tanks in the ship can be designed to transport high-heat products, while others may transport refrigerated cargoes at little extra cost;

x

The insulation around every cargo tank, reduces the energy use for heating and cooling purposes once the cargo has reached its temperature;

x

The cylinder tanks have practically all the same capacity. This, in combination with the absence of compatibility problems, makes commercial and operational planning of cargoes easy and fast. Revenues may thus be improved during the booking of last minute spot cargoes;

x

The cylinder tanks can be filled at any rate, as the relatively small diameter of the tanks limits the free water surface effect, creating again more flexibility;

x

The cylinder tanks are easy to clean because of their ideal form, small diameter (large impact of water jet), and through the absence of coils within the tanks (no shadows); it is estimated that a reduction of 75 percent of the water use can be achieved and an equivalent reduction in washing time;

x

The lower slops production saves time in port for washing and reduces the cost of delivery of slops to shore reception facilities, and is in anticipation of stricter disposal rules;

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Part IV – Ship Design and Case-Studies x

The cylinder tanks are ideally supported and do not form part of the hull's structure, so the ship's motions will not create cracks in the tanks, therefore reducing future cargo and P&I claims;

x

The cylinder tanker has a very favourable damage stability behaviour, because of the absence of longitudinal bulkheads, which improves the safety in case of a collision;

x

The H&M and P&I premiums will be lower for a cylinder tanker because of the damage stability, triple barrier and elimination of cracking in tanks aspects;

x

The cylinder form of the vertically placed tank makes it worthwhile to install automated washing machines in the tanks (multistage fixed installed, or retractable). This may reduce the number of ratings on board;

x

The cylinder tanker will be longer than the standard chemical tanker. This may increase the optimum service speed. The corresponding increase in fuel consumption may be offset by the shorter sea time of a journey and increased productivity of the tanker. Applying the same speed, the longer tanker will have 10 percent reduced fuel consumption. The higher economic service speed, may lead to an annual extra earning potential of more than 30 days charter hire;

x

The cylinder tanker has a high freeboard, which allows the ship to sail at an increased draught. This increases the commercial deadweight capacity and the earning potential of the ship with approximately 10 percent (the cylinder tanks have the extra volume to accommodate this extra deadweight;

x

The absolute smoothness of the cylinder tank's inner surface and the excellent cleaning characteristics will set a new standard of quality in the chemicals shipping industry. This should command a premium in the freight rate, or alternatively, should lead to an advantage over a standard vessel in a bad market.

The long list of advantages is partly counterbalanced by some disadvantages of the design. These are briefly discussed below: x

The independent tanks do not form part of the double hull structure. Consequently, the lightship weight of the cylinder tanker will increase in comparison with the standard tanker. The extra steel weight increases the building cost, it is estimated that this increase is in the order of magnitude of 5 percent. It should be borne in mind that the tanks in the Standard design are not all stainless steel, but are partly coated, in particular the wing tanks. Therefore the quality of the designs is not really comparable;

x

The utilisation of the ship's hull is quite poor by the cylinder tanker. There is a lot of empty space around the cylinder tanks. This increases the gross tonnage of the ship, which will have consequences for the port and canal dues. The increase in costs depends on the number of ports and the routes (Panama or Suez Canal, etc.). These costs per year are approximately 40 percent higher than those of a standard chemical tanker;

x

The cylinder tanker is a completely new design, although it may be compared with gas tankers. Shipyards may be initially hesitant to contract such a ship as this innovation may pose some extra costs and risks for the yard. This is, however, a problem, that every innovation in shipping faces. 718

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28.2. Financial evaluation In order to evaluate the performance of the cylinder tanker, it is compared to the standard design. In this paragraph an overview is given of the estimated differences in values and prices. Please note that these data are from 1992/93.

Construction costs The construction cost of the cylinder tanker is estimated by the following formula: ‫ ݐݏ݋ܿ݊݋݅ݐܿݑݎݐݏ݊݋ܥ‬ൌ ܹ௅ௌௐ ‫ܥ כ‬ௌ௉ ‫ܥ כ‬ி Where: WLSW =

Light Ship Weight;

Csp

=

Specific building cost per kilogram (US$/kg); this is estimated from the course of the specific building costs in the period 1965-1992;

CF

=

Complexity factor; this is a multiplication factor that expresses the complexity, and with this the labour costs, of the ship type. For example, the factor for a VLCC is 0.75, for a chemical parcel tanker it is at least 1.6.

 Lightshipweight(tons) Cost/kg(US$/kg) Complexityfactor Costlightship(US$million) Coststainlesssteeltanks(US$million) Costspumps,piping(US$million) Totalcost(US$million)

Standardtanker 12,600 3.90 1.6    80

Cylindertanker 15,043 3.00 1.0 45 27 13 85

Table 166: Costs calculation

Depreciation The construction costs of the cylinder tanker are almost in line with those of the standard tanker. The simple hull form (bulk carrier) of the cylinder tanker, makes it possible to have the ship constructed at unsophisticated yards and the cost/kg can therefore be low. Another advantage of the design is that the expensive stainless steel tanks (US$ 27 million) can be built in parallel with the hull, thus shortening the construction period. This also creates an added value at the end of the commercial life of the ship. As the cylinder tanks are independent, and do not deteriorate while in use, they can simply be taken out and be reused in a new ship. The annual depreciation of the cylinder tanker is US$ 0.75 million lower than that of the standard tanker (US$ 70 million/20 years = US$ 3.5 million/year, versus US$ 55 million/20 years. = US$ 2.75 million/year)

Financing For comparison's sake only the cost difference of US$ 5 million is considered. A part of this sum is covered if financing cost during the construction are taken into account. Because of the parallel 719

Part IV – Ship Design and Case-Studies construction of the hull and the tanks, the construction can be reduced by at least four months. On basis of an average investment during construction of 50% of the new building price and an interest rate of 8%, the interest savings of the cylinder tanker are: Ͷ ‫ כ‬ͺΨ ൌ ܷܵ̈́ͳǤͳ͵݈݈݉݅݅‫݊݋‬ ͳʹ This lowers the cost difference to US$ 4 million. The interest payments over a ten year period, when discounted are: ͲǤͷ ‫ܷ̈́ܵ כ‬ͺͷ݈݈݉݅݅‫כ ݊݋‬

ܷܵ̈́Ͷ݈݈݉݅݅‫ כ ݊݋‬ͺΨ ‫ כ‬͸Ǥ͹ሺ‫ݎ݋ݐ݂݄ܿܽݐݎ݋ݓݐ݊݁ݏ݁ݎ݌‬ሻ ൌ ܷܵ̈́ʹǤͳͶ݈݈݉݅݅‫݊݋‬

Operating cost The operating or running costs of the two designs will differ in some important areas: x

Crew: Because the cylinder tanker has a remotely-controlled pumping and tank-cleaning system, the number of crew members could be reduced by 5. The savings per year are estimated as follows: ͷ ‫ ݏ݄ݐ݊݋݉ʹͳ כ ͲͲͲʹܷ̈́ܵ כ‬ൌ ܷܵ̈́ͳʹͲǡͲͲͲȀ‫ݎܽ݁ݕ‬

x

Repair and maintenance: No mayor difference between the standard tanker and the cylinder tanker.

x

Stores and provision, lubrication oil: Only the lubrication oil consumption will be slightly higher because of the large capacity of the main engine.

x

H&M and, P&I insurance: The value of both ships is almost equal, so premiums should not differ too much.

x

Ship management costs: The overhead costs of managing the ship are in principle identical for both ships.

Voyage costs The variable costs consist mainly of fuel consumption, port and canal dues, and slops disposal. x

Fuel cost: Because of a lack of information on the speed/fuel consumption relationship of the standard tanker a fuel consumption of 45 tons/day, 40 tons for propulsion and 5 tons for auxiliary engines, is assumed, for a service speed of 15 knots. The annual bunkers, on the basis of 40% port time for loading/discharging and a fuel price of US$ 82 per ton is US$ 868,000. The cylinder tanker has a service speed of 17.5 knots and a shaft generator of 1,125 kW. The total fuel consumption is 62 tons/day. If the ship sails at 15 knots, the fuel consumption is almost equal to that of the standard tanker.

x

Port and canal dues: These costs are based on the tonnage measurement, which can be GT, NT, or Panama Canal or Suez Canal adjusted measurements, or adjusted for segregated ballast tanks, etc. The standard tanker is 22,000 GT, which compares favourably with the 39,500 GT of the cylinder tanker (+ 80%). As port and canal dues do not proportionally increase with an increase in GT, the cylinder tanker should be approximately 40% more expensive. If the ship makes only roundtrips between Rotterdam and the U.S. Gulf, then, based on 40% port time, the annual cost difference could be: o Standard tanker : 9 trips * US$ 50,000 = US$ 450,000 720

Part IV – Ship Design and Case-Studies x

o Cylinder tanker : 9 trips * US$ 70,000 = US$ 630,000 Slops disposal cost: Slops disposal costs much money, which is often paid by the shipowner, and sometimes by the shipper/receiver, depending on the conditions in the contract. The slops production depends on many factors, such as tank configuration, washing-machine installations, the type of cargo, etc. The cost of disposal depends on the type of cargo, the amount of slops, the port, etc. Because of the complexity of this issue, it is sufficed with the statement that the cylinder tank can be cleaned by the retractable machine with 75% less water consumption. In theory, the slops costs are proportionally lower.

Commercial aspects The cylinder tanker has many commercial advantages, of which only three can be objectively quantified. These are: x x x

More voyages in the same period, because of higher service speed of the cylinder tanker; Less port time, and therefore more voyages because of the short period required for washing the cylinder tanks; 8% extra deadweight capacity.

Higher service speed benefits The difference between the average service speed of the standard tanker and the cylinder tanker is 2.5 knots. This means that while sailing 219 days per year, the higher speed will create an extra 2.5/15 * 219 = 36.5 days which can be used for a voyage. This represents a potential extra charter revenue of 36.5 days * US$ 25,000/day = US$ 912,500 per year. The greater service speed will cost extra fuel, ± 62 - 45 = 17 tons/day, or 17 tons/day * US$ 82 * 36.5 days = US$ 50.881. The net benefit of the 17.5 knots speed is thus US$ 861.619.

Shorter port time The traditional chemical tanker spends 40% of the year in port for loading, discharging and tank washing. With 18-20 port calls per year, this leads to an average of 7-8 days per call. Fast and efficient cleaning of the cylinder tanks will reduce this time with at least 1 day per call, so 18 days a year. The extra earning capacity is 18 days * US$ 25,000/day = US$ 450,000.

Extra deadweight capacity The cylinder tanker is able to increase its deadweight capacity by almost 3,000 tons, as the high freeboard allows a draught of 11.6 metres. For 10 roundtrips per year, the potential extra earning capacity is 30,000 tons. With a freight rate of US$ 40/ton, this is US$ 1,200,000 per year. Only 25% or US$ 300,000 is taken into account. Table 167 gives a summary of the costs and benefits, shown in this section.

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Part IV – Ship Design and Case-Studies  Benefits      Costs 

Costcategory Lowerslopcosts Lowercrewcosts Higherdeadweight Shorterporttime Higherspeed Lowerdepreciation Highernetinvestment Higherportdues

Difference(US$*1,000) n/a 0.12/year 0.30/year 0.45/year 0.68/year 0.75/year 2.10 0.18/year

Table 167: Cost overview In conclusion, the cylinder type chemical tanker offers a better quality of transport due to the use of cylindrical tanks, which offer many advantages over the integral tanks. The higher cost of construction is largely offset by the lower costs of depreciation due to the fact that the cylinder tanks are easy to take out and re-used when the ships is being demolished. The higher operating costs are offset by the increased deadweight, while the higher voyage costs due to the higher gross tonnage, are offset by the lower fuel consumption or higher speed, which increase the earnings potential. In short, investment in the cylinder tanker is a better proposition than in a conventional parcel tanker.

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29.

MALACCA-MAX CONTAINERSHIP

Container shipping has become the fastest growing segment in world shipping over the past 40 years, which has facilitated the growth in size of this ship type. At the same time this has resulted in ever lower freight rates, which in turn stimulated international trade en economic growth. Has this virtuous circle system limits, in particular related to the size of containerships? For more than 20 years the ship size was restricted to Panamax dimensions. Since 1988 this hurdle has been taken and the largest ships of today are on their way to take the next geographical constraint relevant for the shipping industry: the Suez Canal. “Where will this increase in container ship size end?” is a question that preoccupies many port authorities, terminal operators and of course shipowners. In a master thesis study, Marco Scholtens set out to answer that question in 1998. The answer is the Malacca-max container carrier, a ship of just over 18,000 TEU. It was named after the third major design parameter in the world: the Strait of Malacca with a maximum draught of 21 meters. The thesis was published in 1999 as Malacca-max: The ultimate container carrier (Wijnolst, Scholtens, & Waals, 1999), followed by a second book a year later, titled Mallaca-max [2]: Container shipping network economy (Wijnolst, Waals, Bello, Gendronneau, & Kempen, 2000), again based on a number of in depth thesis studies by students at the Delft University of Technology. The studies in these two books are still relevant, not only from a methodological point of view, but also from a public reaction point of view. In 1999, when the Malacca-max containership concept was published, the view was expressed that by 2010 the 18,000 TEU could become a reality, based on trade growth to and from Europe and the Far East and the economic advantages of large containerships, in particular with regards to unparalleled fuel economy and low transit dues through the Suez Canal of these ultra-large ships. The reactions in the professional press for the most part, questioned this claim. However, when Maersk launched its E-class of 14,500 TEU in 2006, some of the critics were fast to change their opion. If rumours are correct than the 18,000 TEU ship may see the day of light by 2010. Why is there a limit to the capacity of 18,000 TEU? The VLCC fleet of oil tankers has a draught that allows them to pass the Strait of Malacca on their way to Japan. The Strait of Malacca is part of one of the most important routes in shipping. So it is argued that the ultimate draught for container ships will become 21 meters, just as the VLCC fleet. On the basis of this design parameter a conceptual design of a containership has been made. The ship is meant to be used in a shuttle operation between for example the ports of Rotterdam, Singapore and Shanghai, although it could be extended to other ports as well, provided they have sufficient draught and cargo. One bottleneck standing in the way of this huge container ship is the Suez Canal. The draught and width of the Canal is a moving target since it is getting deeper all the time by the continuous work of the Suez Canal Authority dredgers. It is expected to reach the 21-metre draught in the year 2010 from its 17 metres in 1999.

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29.1. Ship design 29.1.1. Design innovation in shipping methodology. Scholtens used in his study the Design Innovation in Shipping (DIS) methodology which incorporates, triggers for innovation in the standard design cycle. The underlying philosophy of the DIS-approach is that most of the ship designs in the world are related to a number of triggers, ranging from physical law triggers to geographical conditions triggers, from regulations triggers to economic parameters triggers, and of course not to forget technological triggers. By systematically analysing the environment - in the widest sense - in which a ship operates, the designer is able to identify, through benchmarking and S-curve analysis, potential shifts that may create a competitive advantage. Economic parameter triggers, such as the stevedoring cost and port time of ships, triggered deepsea container shipping in the first place and later on, the geographical conditions triggers became the stepping stone for change: post-Panamax containerships. There are of course many container routes in the world that do not permit to operate ships with a draught of 21 m. But, it is our firm believe that eventually owners will push the design envelope to the max, Malacca-max! A new ship design may be technically perfect, but that does not necessarily mean that the owner will be able to make a decent return on investment. In order to establish the latter, the shipowner makes investment and voyage calculations. On the basis of a number of facts and assumptions, the Malaccamax container ship was compared in 1999 with three other container ship sizes: the Panamax ship of approximately 4,500 TEU, the current largest container ship of 8,000 TEU, and the Suex-max ship of 12,000 TEU. It is demonstrated that the Malacca-max ship offers economies of scale of approximately 30 percent over a Panamax ship and 16 percent over the current (1999) largest ship of 8,000 TEU. The study started with a review of the developments of container ships and shipping until now in an attempt to find parallels with developments in liquid and dry bulk shipping. Also other factors that might influence the design parameters of the vessel, such as operational demands of owners, characteristics of waterways and design characteristics of recent large container ships, have been examined. The main research question was: Is it attractive for liner companies to operate with 18,000 TEU container vessels (is it technically feasible and economically attractive)? To arrive at the answer to that question, the challenge was structured in the way as schematically shown in Figure 698.

29.1.2. Step One: Concept development This section describes the design process of an Ultra Large Container Ship. The first step is to explore different concepts, based on variation in the location of superstructure and engine room. The breadth of the design is chosen equal to that of the widest Very Large Crude Carriers, which is based on the width of the Suez Canal. A larger breadth would require an extra widening of the Canal for only a small group of container ships. The maximum breadth is between 55 and 60 meters. Maximum length is primarily determined by manoeuvrability in narrow waters and port basins. An over all length of 400 meters is acceptable. These lengths have been surpassed by ULCCs in the 1970s, so no insurmountable problems are expected. Strength calculations are not considered at this stage. Please keep in mind that the study was done in 1998/99.

724

Part IV – Ship Design and Case-Studies  Feasibility Malaccamax concept

O rganisation (owners etc.)

Comparison to other ships

Adaptations to the logistical chain (not a part of this study)

Design parameters Malacca-max

Adaptations to harbour basins/cranes etc. (not a part of this study)

Infrastructure (ports/canals)

A daptations to the Suez Canal *

Design alternativ es (engine/lay-out etc.)

Conc ept design 1

Concept design 2

Investigate c ost and consequences of adaptations *

Concept design 3

Choice for a preliminary design alternative

Main dimensions

Construc t ion/ lt. sh. weight

Stability

Estim ation with use of SafeHull software in final stage

Container capacity

Design iterations

Res is tance

Preliminary design M alaccamax container carrier *

Cost analys is and compar ison with cost levels of current vessels *

Figure 698: Design process 725

Part IV – Ship Design and Case-Studies Due to the large dimensions and high speed of the ship, the required propulsive power cannot be placed on one shaft. A twin propeller installation is necessary. A service speed of 25 knots is chosen, which is equal to the service speed of the present largest container vessels. The hull form is based on that of a large Panamax container ship and transformed to its new dimensions. The form was mainly selected because it was the only twin propeller hull form that is readily available in the transformation software used. The hull has the following main dimensions and characteristics: x x x x x x x x x x

Loa = 400 m Lpp = 380 m B = 55 m D = 35 m Cb = 0.625 Hdouble bottom = 2.00 m Bdouble skin = 3.00 m Propulsive power is generated by two slow speed diesel engines, with main dimensions: LxBxH Bdouble skin = 3.00 m = 22x8x11 m Gross volume needed for the stowage of containers is set at 15.00 metres in length (for one block of 40 ft containers), 2.70 metres wide and 2.60 metres high. There are six tiers of containers stowed on deck and thirteen below deck level.

These assumptions will not yet lead to an optimum design, but only serve to compare the layout options with each other. A more accurate design is made at a later stage, after the best design concept has been selected. Figure 699 illustrates the major choices that have to be made in the design of a container vessel.

Propulsion When direct propulsion is applied the space required for the main engines is limited. Direct propulsion on two shafts is technically very well feasible and is the cheapest solution. Although the power could theoretically be delivered by one propeller, there is no engine available that can deliver anywhere near the required power. It would require a complicated, heavy and especially expensive gear box to transmit the power of two large engines on one shaft. Space savings can be achieved by using dieselelectric propulsion, but these are very small. The extra container capacity will not offset the higher investment costs and lower propulsion efficiency (a capacity increase of about 0.5%). Furthermore, the power that would have to be transmitted by one shaft is very large (about 50 MW) and must be transferred by a heavy and extremely expensive gearbox.

Hatch covers Although most large container ships to date have been built with hatch covers, there is a number of arguments in favour of an open hatch construction. Some pros and cons of open hatch constructions are given in Table 168. An open hatch construction is selected to reduce the already critical port time of large container vessels.

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Part IV – Ship Design and Case-Studies

Bridge midships

Bridge forward

Bridge aft

LAY-OUT

Direct drive

ULTRA LARGE CONTAINER VESSEL

Single propeller

PROPULSION

Dieselelectric

CARGO HANDLING

Open Hatch

Two propellers

Hatchcovers

Figure 699: Overview of major concept options Hatchcovers Disadvantages: x Containerplanningcomplicated x Manyshiftings/handlingsofhatchcovers x Manylashings x Constructionproblemsduetolargetorsion displacementofhatchcoamings Advantages: x Moreflexibilityin20ft/40ftdistribution x LowerGT(lowerportandcanaldues) x Lowercentreofgravitylightshipweight(allows moredeckcontainers)

 

Openhatch Advantages: x Lesscomplicatedcontainerplanning x Fewshiftings,nohandlingofhatchcovers x Muchlesslashingsneeded x Abovementionedadvantagesleadtolower handlingcostsandshortertimeinport Disadvantages: x Benttopofguidesbycontainerbumpingcanblock cells x Seasprayontanktopcancausecorrosion x Iceandsnowcanblockcellguides x Guidesmoresusceptibletocorrosion x Verylimitedflexibilitybetween20ft/40ft containers

Table 168: Comparison of container ship designs

Layout options The three alternatives that have been studied are:

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Part IV – Ship Design and Case-Studies x

Bridge forward, combined with diesel-electric propulsion. Due to the forward placement of the bridge this ship has a good visibility and more containers can be stowed on deck. The motions on the bow may become excessive.

x

Bridge forward, combined with twin propeller direct propulsion with slow speed diesel engines. This alternative is for a large part the same as alternative 1. But, due to the aft placement of the engine room the distance between the accommodation and the engine room is very large

x

Conventional solution for large container ships. Accommodation is placed 3/4 to the aft of the ship, with the main engines directly underneath the bridge. The required line of sight of 375 meters over the bow can only be achieved by removing some deck containers. Also, the deckhouse needs to be higher, which leads to larger horizontal accelerations due to rolling of the ship.

The three conceptual designs are shown in Figure 700. 

Figure 700: Conceptual design alternatives

Conclusions The extra container capacity due to placing the bridge forward, is very significant. No slot capacity has to be sacrificed due to visibility requirements. The total gain is about 700 TEU. The extra capacity due to installation of diesel electric propulsion is marginal. The installation of large diesel-generator sets in the bow section of the ship leads to a significant space loss, which largely offsets the gains that are 728

Part IV – Ship Design and Case-Studies made in the aft section. Maximum container capacity of the three concept designs is given in Table 169. DieselͲelectric(1) 6,485 12,970

 FEU TEU

Forwardbridge(2) 6,450 12,900

Conventional(3) 1,134 12,268

Table 169: Container capacity for different design concepts Due to the very limited advantages of diesel-electric propulsion, concept 2 is selected. This concept promises to be the most cost-effective design, and is developed in further detail. A design which is capable of transiting the Suez Canal only needs to be slightly smaller, while a Malacca-max ship can achieve a significantly larger capacity.

29.1.3. Step Two: Preliminary design of a Malacca-max containership Although the design is based on concept 2, a number of major changes are made to develop a true Malacca-max design with optimum container capacity: x x x x

Breadth is increased to 60 metres, which is the maximum acceptable width due to Suez Canal limitations; Height of double bottom is increased to 2.75 metres, which is the minimum required by classification rules; Container blocks are placed closer to each other (14.0 metres instead of 15.0 metres), which allows one extra block of containers; Stacking is increased from 19 to 21 tiers.

Main dimensions and characteristics The main dimensions of the Malacca-max ship are as follows: x x x x x x x x x x x

Loa = Lwl = Lpp = B = T = D = Cb = Displ. = DWT = Capacity Vschip =

400.00 m 390.00 m 380.00 m 60.00 m 21.00 m 35.00 m 0.62 313,571 tons 242,800 tons = 18,154 TEU 25.00 kn. (at 90% MCR)

The general arrangement of the Malacca-max container ship is shown in Figure 701.

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Part IV – Ship Design and Case-Studies

Figure 701: Malacca-max design 730

Part IV – Ship Design and Case-Studies

Hull form The hull form has been determined by transformation of a standard hull within the PIAS design software. The hull has a pram-shaped stern, which both increases container capacity as well as facilitates the placement of two propellers. The block coefficient is 0.62. According to some formulae (Ayre, Silverleaf & Dawson, etc.) the block coefficient can be chosen considerably higher, since the speed of the ship is relatively low compared to its length (Fn = 0.208). However, because many other large container ships have block coefficients that are considerably lower than advised by these approximation formulae, these formulae have not been applied in this case.

General arrangement The ship has 26 blocks of 40 ft containers. Under deck 20 containers are stowed abreast, above deck there are 24 rows. This gives a total stowage capacity of 18,154 TEU at with 8 tiers of deck containers. Because of the very large torsion loads on the hull, the double side width is 5.00 metres. Transverse bulkheads are placed at an interval of two 40-ft blocks. The deck containers have to be supported by special chocks to prevent excessive stack weight. These chocks are supported by either the transverse bulkheads, or directly by the cell guides when they are located midway down the hold. A more detailed structural design of the midship section is described later.

Propulsion The service speed of the ship is 25 knots. This is a common service speed for the current generation of post-Panamax container vessels. A higher service speed causes a sharp increase in fuel costs, therewith negating the entire purpose of the design, which is cost reduction through economies of scale. A resistance prediction was made using the Holtrop & Mennen resistance prediction method. Two 5blade propellers of the Wageningen B-series have been selected to calculate propeller efficiency. This propeller is probably not the best design available for this speed, but its characteristics are readily available in the software that has been used. Speed(knots) 17 18 19 20 21 22 23 24 25 26 27

Pd(kW,trials) 25,700 30,362 35,770 42,034 49,211 57,505 67,106 78,251 91,243 106,405 123,954

Pd(kW,service) 29,555 34,916 41,135 48,327 56,593 66,131 77,172 89,989 104,929 122,366 142,548

EngineMCR(kW) 3,2839 3,8796 4,5706 5,3696 6,2881 7,3479 8,5746 9,9987 11,6588 13,5962 15,8386

Table 170: Propulsive power of Malacca-max container ship

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Part IV – Ship Design and Case-Studies Engines that provide the required power output run at a speed of about 100 rpm. A propeller with a diameter of 8,600 mm was selected. This provides optimum performance at this speed and power output. The results of the resistance and propulsion calculations are show in Table 170. The engines operate at 90% MCR in service condition. At a specific consumption of 166 grams/kWh., the fuel consumption is 430 tons per day at the service speed of 25 knots. Only few engines are available that can deliver the required power output. These are shown in Table 171. Both engines can also be delivered in a 12-cylinder version, so possibly shaft generators can be fitted to deliver auxiliary power. Enginetype:

SulzerRTA96CͲ11 MAN/B&WK98MCͲC

Ncylinder

Pengine(kW.)

L(m)

11 11

60,390 62,810

20.87 22.63

B(m) 10.06

H(m)

Weight(tons)

12.88 14

1,890 2,076

Table 171: Propulsive power Malacca-max container ship

Stability One of the decisive factors for the container capacity of the ship is stability. The number of deck containers is mainly determined by stability demands, which means that the maximum capacity cannot always be loaded. Stability calculations are limited to determining initial GM values for a series of loading conditions. Table 172 shows the initial GM for a cargo of homogenous 12-ton containers. In this case the GM value is negative and therefore not acceptable. Table 173 shows some cases in which it is possible to load the maximum number of containers. Item Wsteel Equipment Machinery Supplies Containerload

KG= KM=

Mass 64,295 1,373 5,103 20,000 217,848 308,619 29.95 29.11

VCG 17.7 32.5 10.0 17.0 35.2

LCG 188.2 236.7 80.0 120.0 172.8

VCG*m 1,140,000 44,600 51,000 340,000 7,670,000 9,240,000

LCG= GM=

LCG*m 12,100,000 325,000 408,000 2,400,000 37,600,000 52,900,000 171.34 Ͳ0.84

Table 172: First stability check Malacca-max design Loadcase 12tonshomogenous 12tonshomogenous Mix14/10tons 14tonshomogenous

NumberofTEU 18,154 17,482 18,154 15,930

KG(m) 29.95 28.11 28.09 28.13

GM(m) 0.84 1.00 1.02 0.98

Table 173: GM value at different load conditions

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Part IV – Ship Design and Case-Studies

Container support Due to the absence of hatch covers, measures have to be taken to prevent excessive stack loads. Therefore a support system has to be fitted for the deck containers. Figure 702 shows a possible solution.

Figure 702: Support mechanism deck containers

Lightship weight estimate Several methods are available for estimating the steel weight of the ship. However, since this ship is so different from any existing ship, ordinary extrapolation methods may not be suitable. Their accuracy has to be evaluated first, before it can be used to determine the steel weight of the Malacca-max. To do this four methods are used and the results are compared to the real weights of three existing ships. The results are given in Table 13.

Method Westers The best method available at the moment for the steel weight, is the method of Westers. It uses a single deck ship as the basis. Specific container ships are not available in the software. Therefore, stringers, double skin and bulkheads have to be added separately, to enhance accuracy. Since the method originates from 1962, some assumptions might not be valid anymore. The method has been checked with more recent ships, although only few these large container ships were available. For the Malacca-max the following results are obtained: x x x

Wst = Wequip. = Wmach. =

64,295 tons 1,373 tons => 5,103 tons

L.S.W. = 70,771 tons.

The following modifications were made: x x

Weight has been added for the cell guides. This weight is estimated at 0.33 tons/TEU; Machinery weight is estimated by multiplying main engine weight by 1.35.

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Part IV – Ship Design and Case-Studies x

The modified method of Gallin has been used for the equipment weight. Boonstra and van Keimpema modified the graphs used in order to take account of more recent developments in ship design.

Method Sneekluth The method of Schneekluth uses less input variables than the previous method, and is considered less accurate. There is, however a special set of input values for container ships available. The modified method of Gallin has been used for the equipment weight, and the machinery weight is again estimated at 1.35 x main engine weight.

Method Vossnack Ernst Vossnack (former Nedlloyd naval architect) uses a single formula for estimating the weight of container ships. This formula is: ‫ ܹܵܮ‬ൌ ͻ͹Ǥͷ ‫ܪ כ ܤ כ ݈ݓܮ כ‬ሺ݇݃ሻ This produces a steel weight which is almost linear with ship volume. This denies every possibility of economies of scale in construction weight. This method must therefore be regarded as a very rough rule of thumb formula, which is only applicable in a very limited size range.

Midship extrapolation The last method used is based on extrapolation of the weight of the midschip section. ABS’s SafeHull program provides the weight of one hold in the midship section. With this result an average steel weight per meter midship section can be calculated. This weight can then be integrated over the length of the ship using the weight distribution shown in Figure 18.

Wst (= 133.1 tonne/m)

a

1.0

b

0.8

0

0.25

0.75

1.0 Loa

Figure 703: Midship extrapolation of steel weight With a steel weight of 133.1 tons/metre in the midship section, the hull steel weight is 50,588 tons. Some extra items must be added, such as forecastle, bridge, funnel and fenders. Their weight is derived from the method of Westers. Again the weight of the cell guides is estimated at 0.33 tons/TEU. According to this method the steel weight of the Malacca-max is 60,432 tons.

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Part IV – Ship Design and Case-Studies

Accuracy of the methods used To get an indication of the reliability of the different methods, also the light ship weight of some recently built container ships has been estimated using these methods. The actual light ship weight of these vessels is known, and can be used to compare. The following modifications/assumptions apply: x x x x

Weight of cell guides is estimated at 0.33 tons/TEU in method Westers; Equipment weight has been calculated using the modified method of Gallin; Weight of hatch covers is estimated at 0.31*Loa*B tons; Weight of machinery is: bare engine weight*1.35 tons.

The results are given in Table 174. Shiptype: MalaccaͲmax

Item: Steel Equipment Machinery Total MaerskKͲclass Steel Equipment Machinery Total P&ONl.South. Steel Equipment Machinery Total HyundayAdmiral Steel Equipment Machinery Total

RealLSW

n/a

34,130

28,500

22,000

Westers 64,295 1,373 5,103 70,771 26,032 5,083 2,430 33,545 20,621 4,848 2,740 28,209 15,095 3,911 2,430 21,436

Sneekluth 65,240 1,373 5,103 71,716 26,420 5,083 2,430 33,933 22,864 4,848 2,740 30,452 15,870 3,911 2,430 22,211

Vossnack

79,852

Midship 60,432 1,373 5,103 66,908

31,176

29,649

21,193

Table 174: Lightship weight calculated with various methods The results of the method Westers are surprisingly accurate. The difference between the weight estimate and the actual ship weight is in all cases under 2.5%. The Sneekluth method also provides reasonably accurate results, with accuracy between 0.9% and 6.8%. This is quite good, since the method only uses eight input variables. The linear formula of Vossnack also performs reasonably well for the checked ships, but its accuracy outside the range of currently built ships is doubtful. Extrapolating the midship section weight for the Malacca-max ship also gives a value which more or less corresponds with the other methods. The method of Westers appears to be the most accurate, which is not really surprising, since it takes many more factors into account than the other methods. The method of Westers is expected to give the best steel weight estimate of the Malacca-max. Therefore, in the rest of the calculations a light ship weight of 70,771 tons is assumed.

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Loading and discharging a Malacca-max container ship Using conventional cranes, the time in port of an 18,000 TEU vessel becomes unacceptably long. Loading and unloading the entire vessel, using six cranes, would take more than six days. A new crane concept is needed to boost the loading speed. Crane builder Huisman-Itrec has developed a crane concept capable of doing 70 moves per hour. The container is unloaded in three steps: x x x

Vertically out of the hold. A manned crane with a conventional spreader picks up the container and hoists it straight up. Horizontally to the quayside. The container is placed on an automatic trolley, which then transports the container to the quay. Vertically down to the quay. The container is moved from the trolley into an elevator, which automatically transports the container down and places it at the bottom of the crane.

The crane base also has a small container storage buffer, which can smooth the movement of containers away from the quay. A drawing of this crane, with an outreach of 74 metres, is shown in Figure 704 and Figure 705.

Figure 704: Malacca-max container crane

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Part IV – Ship Design and Case-Studies

Figure 705: Malascca-Max container crane

STRENGTH ASSESSMENT MALACCA-MAX CONTAINER SHIP The Malacca-max container ship is much larger than any container ship built to date. Structural difficulties that arise in recent large container ships are likely to become even more important for this larger ship. Therefore, an analysis of the strength requirements and construction is essential to prove the technical feasibility of the concept. Furthermore, to make economic calculations about the cost savings that can be achieved, construction costs of the vessel need to be determined. The steel weight has a major impact on the construction cost, so an estimated accurate weight is essential to determine the required investment costs of the vessel.

Approach First the layout of the midship construction is chosen, then the minimum dimensions of the construction elements are calculated. Estimated steel weights of fore and aft sections will be extrapolated on the basis of weight distributions of existing ships. The program SafeHull, developed by the American Bureau of Shipping, was used to check the scantlings against the minimum requirements for the strength of the midship section. Use of this program is mandatory for the design of large container vessels that are classed with ABS. For an effective use of the program, a realistic design of a midship section is required as starting point. A preliminary design of the midship is made by manual and spreadsheet assisted calculations. The minimum scantlings are determined with help of the Lloyd’s rules for containerships. Direct calculations are made for some critical elements, such as longitudinal strength, torsion strength and transversal loading. These calculations resulted in a preliminary design for a midship section, which was then analysed with SafeHull.

Preliminary design of midship section The concept chosen for the midship section of the ship is comparable to the construction of other large container ships. The main elements are:

737

Part IV – Ship Design and Case-Studies Double bottom The double bottom is longitudinally stiffened at both bottom and tank top. Longitudinal girders, placed at the container corners support the container weight. These girders connect to plate floors at the corners of containers, and to transverse girders in the middle of containers (i.e., every 10 ft). Double sides The width of the double sides has been increased compared to the initial concept design. Longitudinal strength and torsion stiffness requirements make a large double hull essential. Double side width is chosen at 5.00 meters, or two containers wide. Under deck the containers are placed 20 containers wide, on deck 24 containers. The double sides are longitudinally framed, with large vertical web frames at every 10 ft, coinciding with the location of the plate floors and transverse girders in the double bottom. These web frames extend over the full width of the double sides. Longitudinally framed stringers are located at 10, 15, 20, 25 and 30 metres above the keel. The stringer at 30 metres is part of a strength box used to give extra longitudinal and torsion warping strength. The upper part of the construction is made from high tensile steel (steel 40), to increase the allowed stresses in the material sufficiently to enable acceptable plate thickness. The double bottom is also constructed with high tensile steel (steel 32), as tensions here reach very high levels due to longitudinal bending as well. Bulk heads In order to assure adequate transverse strength, bulkheads have been applied at every second bay of 40 ft containers. In order to prevent buckling of the bulkheads under compressive stress deep stiffeners are applied to the bulkheads. These bulkheads offer direct support for the container cell guides. The bulkheads are stiffened by transversal stiffeners, which are supported by vertical web frames. These web frames are placed every 2.50 metres, and are in the same vertical plane as the double bottom side girders. Longitudinal beams, which connected the bulkheads in the outline design have been removed. The risk of buckling in these elements makes their useful application questionable. Cargo Support In order to support the container cell guides, as well as assist in the transverse strength, transverse beams have been placed midway in each hold. These beams are stiffened like the uppermost part of the bulkheads. Since these beams have to carry the weight of a large number of containers, their strength will be manually checked through direct calculations.

Minimum scantlings (Lloyds rules) For an estimate of the minimum scantlings of the construction elements the rules for constructing container ships by Lloyd’s Register of Shipping have been applied. In many cases, the formulae have been simplified to speed up the calculation process. In every case, approximations have been made to be on the safe side.

738

Part IV – Ship Design and Case-Studies In most cases, especially in the case of required plate thickness, the minimum scantlings are far less than used to support the main hull loads such as bending and torsion. All used construction elements have been checked to comply with the minimum scantlings as given by the rules.

Direct calculations Longitudinal strength Longitudinal bending is probably the most critical loading condition of the ship. The limited deck width, combined with a very large length results in high loads on the construction. Heavy plates and stiffeners will need to be used to cope with the stresses placed on it. For the purpose of this calculation, the ship is considered to be a slender beam. Vertical shear deflections are considered to be negligible. This means that the entire loading and deformation of the ship is considered to be due to bending. The strength requirements have been determined with the Lloyd’s regulations for containerships. A simplified approach for the calculation of the bending moments has been used. Lloyd’s regulations require a combined stress diagram over the entire length of the ship. Since in this stage the interest is primarily focussed on the bending moments in the midship the maximum value of the load will occur. The total bending load is considered to consist of the following elements: x

x x x x

Still water bending moment. This has been calculated for a range of different loading conditions using design software. Several unfavourable loading conditions result in very high stresses; Vertical wave bending moment. The Lloyd=s rules formula for VWBM (P4,Ch.8,Sec.1.5) has been used; Horizontal wave bending moment. The Lloyd=s rules formula for HWBM (P4,Ch.8,Sec.1.5) has been used; Hydrodynamic torque warping stress. Again using Lloyd=s rules as a guideline; Cargo torque warping stress. Several loading conditions have been taken into account. The formula used by Lloyd=s results in a limited warping stress, negligible compared to other elements. Manual calculations of unfavourable loading conditions result in significantly higher stresses.

The construction elements participating in the longitudinal strength are calculated using an Excelspreadsheet. This way it is easy to determine the section modulus and moment of inertia of the crosssection of the ship and to vary the dimensions of the elements. The resultant stresses due to longitudinal bending are given in Table 175. As can be seen in the table, unfavourable loading of the ship quickly results in very high stresses in the construction. It is therefore essential to make a careful loading plan in order to avoid these situations. The loading condition considered to be normative for the longitudinal strength is a fully loaded ship in oblique waves. This condition represents the heaviest unavoidable load of the ship. Transverse strength Due the large breadth of the ship, combined with the very open construction of the deck, transverse strength is going to be of significant importance to the design. Some major simplifications have been made to make some quick calculations of the resulting stresses in the construction: 739

Part IV – Ship Design and Case-Studies Componentsofloading: SWBM: VWBMsagging: VWBMhogging: Mt(rules): Mtc(rules):

Differentloadingconditions: Seesheet Ͳ1.27E+07 9.14E+06 1.76E+06 2.20E+05

Materialproperties: YieldstressHTS YieldstressMS Kl

350 235 0.671

Longitudinalbendingmoment(Mpa) StillWater Fullyloaded Hogging Hoggingemptybunk Sagging Headseas

Fullyloaded Hogging Hoggingemptybunk

Obliqueseas

Fullyloaded Hogging Sagging Torsionhalfloaded Torsion,deckload Torsionemptybunk.

Designcondition

Fullyloadedoblique

SWBM:

Fullload(18,150TEU) Maxhoggingload Maxhoggingemptybunkers Maxtorsionload(belowdeck)

kNm 1.439E+07 2.562E+07 2.899E+07 1.232E+07

Maxtorsionload(fulldeck)

1.537E+07

Maxtorsionloademptybunkers Maxsaggingload

1.963E+07 Ͳ8.132E+06

HWBMinducedstress:

Moment: Position 14,390,000 Deck Bottom 25,620,000 Deck Bottom 28,990,000 Deck Bottom Ͳ8,132,000 Deck Bottom 23,520,000 Deck Bottom 34,750,000 Deck Bottom Ͳ20,810,000 Deck Bottom 21,850,000 Deck Bottom 33,080,000 Deck Bottom Ͳ17,720,000 Deck Bottom 26,760,000 Deck Bottom 35,680,000 Deck Bottom 39,940,000 Deck Bottom 21,850,000 Deck Bottom

Max.stress: 131.06 88.00 131.06 88.00 131.06 88.00 131.06 88.00 233.83 137.00 233.83 137.00 233.83 137.00 233.83 157.00 233.83 157.00 233.83 157.00 233.83 157.00 233.83 157.00 233.83 157.00 233.83 157.00

40.88 Designed: 122.13 73.96 217.48 131.71 246.10 149.04 Ͳ69.04 Ͳ41.81 199.68 120.93 295.04 178.68 Ͳ176.62 Ͳ106.97 226.34 153.20 321.70 210.95 Ͳ191.27 131.96 268.04 178.46 343.80 224.34 379.95 246.23 226.34 153.20

Deficit:

86.42 43.71 115.03 61.04

61.21 41.68

87.87 53.95

34.21 21.46 109.97 67.34 146.12 89.23

Table 175: Longitudinal bending stresses in the midship section

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Part IV – Ship Design and Case-Studies x

x x

The transverse construction of the ship is considered to be cut loose from the rest of the ship, so transferred forces and moments from sections fore and aft of the considered block are neglected. Stresses in the considered section are calculated through the use of the theory of slender beams. The construction, with a B/D ratio of less then 2, is not very slender. Out of plane bending of the bulkheads and double bottom due to transverse moments are neglected, as well as the risk of buckling.

These very rough approximations are made to simplify the calculations to a level suitable for manual calculations. The accuracy of these calculations is therefore low. The transverse strength has been calculated for two extreme conditions: 1. Fully loaded hold, lowest point of wave. (sagging) See also Figure 706a. 2. Empty hold, wave top. (hogging) See also Figure 706b.

A : S a g g in g c o n d it io n

B : H o g g in g c o n d it io n

Figure 706: Transverse strength The calculations have been made in Excel, and are shown in Table 176. Inputdata:

Hwave Weightholdcont. Weightdeckcont. Layersondeck B Bsides Lhold T Inertiatransversal Neutralaxistransv. Bottompress.hogg. Bottompress.sagg.

Sagging

10 14 14 8 60 5 29 21 626.78 11.03

m t/TEU t/TEU m m m m m4

Hogging

Bendingmomentstransverse Mwavebottom Ͳ Ͳ3.41E+09 Mwavesides 2.13E+08 5.62E+08 Msteelweight 1.04E+09 1.04E+09 Mcont.hold 8.93E+08 0.00E+00 Mcont.deck 7.91E+08 0.00E+00 Total: 8.40E+08 Ͳ1.81E+09 Maximumstressesintransverseload Sigmadeck 32.12 Ͳ69.11 Sigmabottom Ͳ14.78 31.8

Nm Nm Nm Nm Nm Nm MPa MPa

2.61E+05 N/m2 1.61E+05 N/m2

Table 176: Stresses due to transverse bending 741

Part IV – Ship Design and Case-Studies Torsion stiffness Hydrodynamic torque caused by oblique waves can cause high stresses in a large container ship. Sufficient measures will have to be taken to ensure sufficient resistance to these loads. The main stress component will be the torsion warping stresses. These can be manually calculated for a prismatic cross-section of the ship, but this is quite a complicated calculation. The warping stresses have to be included in the longitudinal stress calculation, and in this case the approximation formulae for warping stress given by Lloyd’s in the longitudinal strength calculation have been used. The values given by Lloyd’s, however, are based on ships of a conventional layout, with the superstructure in the aft part of the ship. This results in a large closed construction, which can limit warping. The Malacca-max design has a deeptank in front of the engine room, which will provide the required warping resistance. Still, the length of the unsupported cargo hold is very large, so the approximation formula has to be considered with caution. The shear stresses due to torsion can be estimated through the use of a simple formula. Š‡ƒ”ϐŽ‘™ሺൌ ɒ ‫‡–ƒŽ’– כ‬ሻ  ൌ –Ȁʹπǡ ሺϐ‹”•–ˆ‘”—Žƒ‘ˆ”‡†–ሻ Where: IJ tplate Mt ȍ

= = = =

Maximum shear stress Plate thickness at this location Torque moment (Lloyd=s rules) Surface closed by the double hull and bottom

This results in a maximum shear stress of IJ = 92.6 Mpa. Taken separately, this is acceptable, but it remains to be seen how other stresses influence on the total stress distribution. It is obvious that torsion loads need to be examined further to see how they interact with the other loads placed on the hull. Transverse beam bending The transverse deck beams have to support the deck containers, and so they must be able to carry a considerable load. The bending moment of this beam has been calculated by assuming the maximum load of deck containers being equally distributed over the length of the beam. Furthermore, the beam is considered to be simply supported at both sides. This is slightly pessimistic, but necessary, in case of partial deck loads being concentrated in one section of the beam. With dimensions of the beam, the stresses can be calculated: ߪ௕௘௡ௗ௜௡௚  ൌ ͲǤʹͻʹ ‫ כ‬ሺ‫ܮ‬௦௣௔௡ ሻଶ ‫ܽܲܯ‬ If stresses must remain below 88/kL (high tensile steel factor) = 131 MPa, it is necessary to place at least two columns to support the beam. This would result in a beam span of about 16.50 m. The resulting bending tensions then become: ɐୠୣୟ୫ ǡ ƒš ൌ ͹ͻǤͷƒǤ An alternative solution is to support weight of the deck containers by the cell guides. The loads that result are not easily predictable by manual calculation. It is likely that the limiting factor will be buckling strength. A drawing of a longitudinal cross-section of the ship is shown in Figure 707.

742

Part IV – Ship Design and Case-Studies

Figure 707: Longitudinal cross section

Calculations in SafeHull All calculations yet have been 2-D approximations of 3-D stress situations. 3-D calculations must be made using a finite element method. For this purpose ABS’ SafeHull strength assessment software is used. This program evaluates the dimensions of the structural elements against the requirements of ABS rules. Within the framework of this master thesis study, a full finite element analysis of the construction is too complicated and time consuming. Since the goal of the strength calculation is to demonstrate the technical feasibility, a very detailed constructive design is not really necessary. Due to software limitations some limited simplifications had to be made, but they have no real effect on the final result. SafeHull calculations show that a considerable reduction in minimum scantlings can be achieved compared to the manual calculation. The maximum steel thickness is 70 mm of HT 40 steel in the sheer strake and upper deck.

Conclusions Calculations show it is technically feasible to construct a Malacca-max container ship. The midship section, with a 2.75 metres high double bottom and a 5.00 metres wide double side is theoretically capable of resisting all the individual loads placed on it. Longitudinal bending stresses are the dominant factor of loads placed on the ship structure. The weight distribution of the containers needs to be planned with some care. Concentrating the heavy containers at both ends of the ship will result in extreme stresses in a hogging condition. There are still several uncertainties in this design. Therefore, it is not possible to determine the final dimensions of the construction without a lot of further work. 743

Part IV – Ship Design and Case-Studies Finite element calculations may demonstrate the need for heavier (or maybe lighter) construction elements. It may also be necessary to make fundamental changes to the construction if problems arise that cannot be readily solved by an increase of existing plate thickness.

ECONOMIC EVALUATION OF THE DESIGN The most important reason for constructing ever larger container vessels has always been the prospect of relative cost reductions or economies of scale. Generally, larger ships can carry cargo in a more efficient way and therefore cheaper. The feasibility of Malacca-max container ships is therefore dependent on the validity of this trend for even larger ships. To determine the economic feasibility of Malacca-max container carrier a cost calculation model has been made. It compares the cost level of a Malacca-max containership with the cost level of several large container vessels, notably the Panamax, Maersk S-class, and Suezmax.

Cost elements Usually the sea leg accounts for only a minor portion of the total cost. The majority of the costs involve terminal handling, overhead, through transport, container hire, etc. Cost reductions that can be achieved in deepsea transport should not lead to increases in other parts of the chain. It is very well possible that larger container ships lead to increases in transhipment cost due to larger and more expensive cranes and higher loading speed. This would negate the scale advantages of larger ships. Unfortunately, further research is needed on the effects on the rest of the transport chain. The calculations in this study are limited to cost savings that can be achieved in the deepsea transport legs. The costs for operating a large container vessel are divided into the following groups: x x x x x

Capital cost; Operational cost; Voyage cost; Miscellaneous cost; Terminal handling charges can be included.

Calculation model The cost levels between several large container vessels are compared using a spreadsheet model in Microsoft Excel. All direct ship-related cost elements are calculated both for a single roundtrip as well as per year of operation. Capital cost is calculated as a sum of depreciation and interest. Parameters relating to the loan can be entered into the model, such as interest rate, running period and percentage of equity. The interest paid during construction of the ship is also taken into account. The loan is considered to be on an annuity basis, with constant payments taking place each year. Operating cost comprises the following items: x x x x x x

Manning; Repair & maintenance; Insurance; Nautical management cost; Lube oils, paint, stores; Survey reservation.

Manning is calculated by multiplying the number of crew with the leave factor and average wages (all inclusive). Repair & maintenance, insurance, nautical management costs and the yearly survey 744

Part IV – Ship Design and Case-Studies reservation are considered to be dependent on the value of the ship. Lubricating oils and stores are considered to be dependent on the main engine power and the average running hours of the engine. A yearly cost increase (due to inflation or other developments) can be entered for all the separate cost elements. Voyage cost includes the following items: x

Fuel cost; Fuel costs are calculated using the speed sailed during the voyage, instead of the consumption at maximum service speed. Container ships are not scheduled to sail at their maximum service speed all the time. During normal operations their fuel consumption will therefore be significantly lower than it is at maximum service speed.

x

Port costs Port costs are divided into items such as pilotage, towage, tonnage dues, agency costs etc

x

Canal dues. Canal dues in this case are the Suez Canal dues. The Suez Canal net tonnage, on which the dues are based, must be entered in the model. This tonnage differs considerably from the net tonnage of the ship since the Suez Canal Authority have their own system of tonnage calculation.

Miscellaneous costs can be added, like cost for repositioning empty containers. (Repositioning costs are the terminal handling charges of empty containers). If desired terminal handling charges can be added to the total cost. This gives an impression of the very significant impact of terminal handling costs to the total transport costs. All the cost items are added up over the length of one round voyage and these are used to calculate a required time charter rate as well as a required freight rate. It takes factors into account such as user specified fuel price, west- and eastbound load factor, and expected return on investment. A life cycle profitability analysis can be made with the model as well. All cost levels are estimated over the life cycle of the ship, as well as income predictions. There is a separate sheet where expected market developments can be entered. An expected return on investment over the life cycle of the ship can then be calculated.

Assumptions For the quantitative assessment of the cost involved in operating the Malacca-max container ship the following assumptions have been made, based on a roundtrip between the hubs of Rotterdam and Singapore, via the Suez Canal: Capital costs: x x x x x x x

100% of the ship is financed with a bank loan; The loan has a running period of 25 years (equal to the life of the vessel); Repayment of the loan is in the form of annuity payments; The loan has an interest rate of 6%; The building cost of the ship is considered to be linearly dependent on light ship weight (this makes an honest comparison between building prices of all used ships possible); The ship is both financed and paid for in US dollars; Depreciation of the ship is linear over a period of 25 years; 745

Part IV – Ship Design and Case-Studies x

Residual value is 5% of new value.

An attempt has been made to obtain an average ship price per light weight ton. Due to the very limited availability of construction weight data and the cyclic nature of shipbuilding prices this does not produce reliable data. The best is to assume a linear relationship between light ship weight and newbuilding price. The Maersk K-class has been used as a benchmark for price, since it is a very recent series of ships, the largest design to date and apparently built at a very competitive price. Since there are a large number of these ships, development costs have a relatively low impact on building costs. This might lead to an underestimate of the newbuilding price, but the effect is the same on the cost levels of all the reviewed ships. Operational costs: x x x x x

The crew consists of European officers and Asian enlisted ratings; Ship insurance, maintenance & repair and nautical management costs are considered to be linearly dependent on ship value, causing a 0.75% of newbuilding value yearly expense each; Cost of lubricating oils is based on main engine power (kW) multiplied by the yearly running hours multiplied by 0.15; Survey reservations are made each year for all special surveys and are equal to 0.5% of newbuilding value each year; Cost escalation for all items is 2.5% annually;

Voyage costs: x

x x x x

Fuel costs are calculated using the speed required for a six week round voyage. This is about 20 knots, which is slightly lower than usual for large container ships. A five week schedule would require a service speed of about 24 knots, which cannot be maintained in rough conditions; The fuel price is estimated at 75 US$/ton, for heavy fuel oil, 130 US$/ton for Marine Diesel Oil; 5% of occupied slots is considered to be active reefer containers, both westbound and eastbound; Suez Canal net tonnage is estimated at 90% of gross tonnage; Harbour costs are based on the system of port dues as it is applied in Rotterdam.

Miscellaneous costs: x x

Brokerage costs can be included, but in this case of very large ships in liner operations they are excluded; The repositioning of empty containers due to the trade imbalance between Europe and Asia can be included in the costs. In this case however, the westbound and eastbound load factor are considered to be equal.

Recent studies indicate an average westbound occupancy level of 71% while eastbound occupancy is 68%. This is based on all ships. However, the largest ships tend to attract the majority of the cargo, and therefore have a higher load factor. Furthermore, since this calculation assumes a hub-feeder operation instead of multi-porting, the occupancy level of the ship is always at its maximum level. Therefore, a load factor of 90% is assumed for both east- and westbound legs. 746

Part IV – Ship Design and Case-Studies MAINDIMENSIONS Loa(m) Lwl(m) Lpp(m) B(m) D(m) T(m) Cb

400 390 380 60 35 21

BUILDING YardPrice OwnersDeliveries Supervision

(US$1,000) 170,000 5,000 2,500

Reservation

4,000

Totalbuildingcosts

70,771 243,800 208,000 110,000 190,000 18,154

PROPULSION Speed(kn.) Mainenginepower SFOCmainengine(gr/kWh.) Shaftgeneratoron? SFOCaux.generators (gr/kWh.) CrewNo.

25 120,000 185 y

25

181,500

INVESTEDSUM Buildingcosts Initialcosts Workingcapital

(xUS$1000) 181,500 4,911 0

Financesum

186,411

Sharecapital Subsidies Totalequity

0 0 0 186,411 186,411

Totalliab INITIALCOSTS Initialcrewing Initialfinancingcosts Int.duringconstr. Totalinitialcosts

TONNAGE LSW(tons) DWT(tons) GT(tons) NT(tons) SuezCanalNet(tons) Cargocapacity(TEU)

6%

(xUS$) 0 0 4,911 4,911

FINANCE Equity Liabilities Totalliabilitiesandeq.

Labilitiesoveryears Startredemption Balloonlastyear Interestoverliabilities US$/NLG.exchange LoaninUS$ Mortgage(xUS$1000) Yearlyannuity(*US$ Projectyears Yearly Endvalue DemandedIRR

0% 100%  25 Ͳ  6.00% 2 y 186,411 25 4% 5% 8.00%

747

Part IV – Ship Design and Case-Studies INTERESTDURING Instalment 1 2 3 4 5 6

Months 0 6 8 10 12 18

Date 30/06/1999 30/12/1999 01/03/2000 30/04/2000 30/06/2000 30/12/2000

Part 10% 10% 10% 10% 10% 50% 100%

Payable 18,150 18,150 18,150 18,150 18,150 90,750 181,500 Factor

1 Crew: CrewExpenses(wages,costs,victualing) Insurance(H&M,P&I) Maintenance&Repair Managementcosts Lub.oils,paint,stores Othercosts Surveyreservation Runningdaysperyearnormal Runningdaysexdocking&specialsurvey Numberofdockings/specialsurveys Meanrunningcostsperyear(US$x1000,Ͳ) Meanrunningcostsperrunningday(US$) Voyagecharacteristics Route:RotterdamͲSingapore TypeofCargo Yearoftrip Roundtripcalculation? HFObunkerprice(US$/ton) MDObunkerprice(US$/ton) Distance(nm) Sailedspeed(kn.)(max:25) Costofopportunity Brokeragecosts(US$) PassingSuezCanal? BunkerscarriedinSuezCanal(tons)

Days 183 62 60 61 183

Interest 546 370 537 728 2,730 4,911

Total Increase 3 (%peryear) (%peryear) Crew/year 1.6 30000 1200 3% 2

factor 25

Value: 175,000 Value: 175,000 Value: 175,000 Power: 120,000

Outstanding 18,150 36,300 54,450 72,600 90,750 181,500

% 0.75%

1312.5

3%

0.75%

1312.5

3%

1312.5

3%

1350 100

3% 3%

875

3%

7463 20535

3%

% % 0.75% Hours

Factor 7500

0.15

Value: factor: 175,000 0.005 365 355 4



Cont. 2001 y 75 130 8.25 19,5 0,0% Ͳ y 10000

Cargocharacteristics Loadfactorwestbound(%) Loadfactoreastbound(%) Emptieshaulage IncludeTHCemptiesincost? THCempties(US$/TEU) FEU%inload Reefer%inloadwestbound Reefer%inloadeastbound IncludeTHCincost? Loadingcapacity(moves/h.)

90% 90% 0% y 150 75% 5% 5% n 420

748

Part IV – Ship Design and Case-Studies Running costs break down CrewExpenses (wages,costs,victual ing) 16%

Surveyreservation 12% Othercosts 1% Lub. oils,paint,stores 18%

Insurance (H&M,P&I) 17%

Maintenance& Repair 18%

Managementcosts 18%

TypeofVessel

SuezCanalnettonnage First5000

Lad.

Bal.

Next5000 Lad.

Bal.

Next10000 Lad.

Next20000

Bal.

Lad.

Bal.

Next30000 Lad.

Bal.

Rest Lad.

Bal.

Crudeoil

6.49

5.52

3.62

3.08

3.25

2.77

1.40

1.19

1.40

1.19

1.21

1.03

Products

6.75

5.52

3.77

3.08

3.43

2.77

1.93

1.19

1.93

1.19

1.93

1.19

LPG

6.75

5.75

3.77

3.21

3.43

2.92

2.42

2.06

2.42

2.06

2.42

2.06

Drybulk

7.21

6.13

4.14

3.52

2.97

2.53

1.05

0.90

1.00

0.85

1.00

0.85

Container

7.21

6,13

4,10

3.49

3.37

2.87

2.42

2.06

2.42

2.06

1.83

1.56

Moretons Lad=laden

Surcharge

Bal=ballast

Fee

120,000

44,000

219,600

430,850

0.14

60,319 535.169

749

Part IV – Ship Design and Case-Studies ShipParticulars MalaccaMax Loa(m) 400 B(m) 60 T(m) 21 Speed(kn.) 25 DWT(tons) 243.8 GT(ton) 208 Capacity(TEU) 18.154 Capacity(units) 11.346 Crewno. 25 Buildingprice(xUS$1,000) 181.5 Enginepower(kW.) 120 Servicespeed(kn.) 25

Voyagecosts/THC Rotterdam Pilotage Towage,tugs Tonnagedues Loadingcosts Mooringdues Agencyfees Otherexpenses Idletimeinport Totalcosts/timeRotterdam

0.45 0

0.3 0

Atsea(maxsp.) 513 Ͳ 513

Inport Ͳ 36 36

Costs(US$) 697.553 31.579 729.132

Cons.(tons) 9.301 243 9.544

Trip HFO MDO Totalcosts/consumption

(US$/ton) Costs(US$)

SuezCanalDues/time Singapore Pilotage Towage,tugs Tonnagedues Dischargecosts Mooringdues Agencyfees Otherexpenses Idletimeinport Totalcosts/timeSingapore Fuelcost/sailingtime Canaldues/transittime Voyagecosts+terminalhand.

Fuelcosts HFOconsumption/day(tons) MDOconsumption/day(tons) Totalconsumption/day(tons)

30,370 12,500 93,600 Ͳ 4,720 Ͳ 10,000

Time (hours)

151,190

4 2 0 48.6 1 0 0 1 57

1,070,338

48

30,370 12500 62400 Ͳ 4,720 Ͳ 10,000

4 2 0 48.6 1 0 0 1 57 846 0 1,007

119,990 729,132 Ͳ 2,070,650

CostsperTEU Slotcosts(US$/TEU/day) TCE(US$/TEU/day) Cost/slot/mile(US$/TEU/mile) Transportcost/TEU

7,31 4,29 0.019 153

Roundtripcosts Capitalcosts Operationalcosts Voyagecosts Terminalhandlingcharges Miscellaneouscosts Totalcosts(US$) Cashexpenditure(US$)

(US$) 2,079,406 861,972 2,070.650 0 0 5,012,028 5,012,028

Yearlycostsatthisroute CapitalcostsatCOO Operationalcosts Voyagecosts Terminalhandlingcharges Miscellaneouscosts Totalcosts/year Totalcashexpenditure Unitcapacity(TEU/year) Transportedcargoperyear

(US$1000) 18.082 7.495 18.006 0 0 43.583 43.583 315.719 284.147

750

Part IV – Ship Design and Case-Studies

Economies of scale of large container ships A number of recently built large containerships have been evaluated for their over all cost level, so a comparison can be made with the expected cost level of a Malacca-max ship. This gives an indication of the cost savings that can be achieved with these large ships (Table 177). Ship: TokyoSenator HannoverExpress HyundaiAdmiral HanjinLondon P&ONedlloydSouthampton MaerskKͲclass MaerskSͲClass Suezmaxdesign MalaccaͲmaxdesign

Capacity(TEU): 3,017 4,407 4,411 5,302 6,674 7,400 8,400 11,989 18,154

Loa(m) 215.6 294 275 279 299.9 318.6 348 400 400

B(m) 32.20 32.25 37.10 40.30 42.80 42.80 42.80 50.00 60.00

Ws+m(tons) 12,517 20,870 22,003 25,832 28,500 34,134 37,550 54,259 70,771

Table 177: Large container ships compared The development of slot costs versus ship size is shown in Figure 708. Larger ships can achieve significant economies of scale on total slot costs. This effect is less evident when the time charter equivalent rate is used as a benchmark. It can be concluded that major savings are achieved due to reduced fuel consumption per TEU and lower Suez Canal dues (which make up the bulk of the voyage cost). Construction costs per TEU are less influenced by increasing ship size. Figure 709 shows the development of cost levels versus ship size. Note that this is only the cost of the deep-sea transport leg. Transhipment cost and through transport, which constitute up to 80% of the total costs, are not included. The graph shows that significant cost reductions are achieved through upscaling of ship size. Savings for the Malacca-max design amount to anywhere between a 16% (Maersk S-Class) and 30% (Panamax design) over all cost reduction. These cost savings sound quite spectacular and attractive. However, these cost savings are calculated over the deepsea leg only. If the cost savings are calculated over the total container transport cost, cost savings are somewhere between 3% and 6%. Therefore, it is essential that the savings that can be made through the employment of larger ships are not offset by higher costs on shore. In short, ultra large container ships provide the owner with a potential cost saving which is significant, especially in a cutthroat market. It is interesting to note that the sea leg of 8,250 nautical miles costs approximately just as much as the container moves in port.53

53 In1999heavyfuelcostapproximatelyUS$75perton,whileearly2008thepricehoveredaroundUS$500perton.Itis evidentthattheeconomiesofscaleoflargecontainershipshastippedevenmoreinfavouroftheMalaccaͲmaxsizeships duetoitsunparalledfueleconomy.

751

Part IV – Ship Design and Case-Studies 12

US$/TEU/day

10 8 6 4 2 0 0

5,000

10,000

15,000

20,000

Shipcapacity(TEU)

Slotcosts

Timecharterequivelent

Figure 708: Slot costs and time charter equivalent of large container sips 250

US$/TEU

200 150 100 50 0 0

5,000

10,000

15,000

20,000

Shipcapacity(TEU)

Figure 709: Transport between Rotterdam and Singapore (Deepsea leg only)

29.2. Multi-porting versus hub-feedering - a cost model The section is based on the work of thesis student François Bello and was published in (Wijnolst, Waals, Bello, Gendronneau, & Kempen, 2000).

752

Part IV – Ship Design and Case-Studies The introduction of the Malacca-max container carrier in the container trade between Europe and the Far East, will lead to a change in the logistic system of the routing of the ships and the number of port calls. The current multi-porting call patterns will be modified into hub-feedering systems (hub and spoke). Multi-porting is a distribution concept in which the deepsea container carriers collect the cargo in main ports of one region for one of the main ports in another region. E.g., in Northern Europe the ports of Le Havre, Antwerp, Rotterdam, Bremerhaven, Hamburg and Felixstowe are called at before sailing to the Mediterranean or the Far East to call at ports like Singapore or Hong Kong. The Malacca-max carrier will only call at a limited number of mega hubs: Rotterdam for Northern Europe, Marsaxlokk/Malta for the Mediterranean, Singapore for South East Asia and Hong Kong for Northern Asia. Upon arrival in one of these mega hubs, containers are transhipped onto other ships for feeder transport to local ports. Rotterdam thus becomes the mega hub for Northern Europe. In order to understand the fundamentals of the economy of both systems, a cost model has been developed in order to compare the differences in cost structure of both concepts. Figure 710 shows the difference in calling patterns for the multiporting and hub-feeder systems. One of the reasons for the use of a hub-feeder system instead of multi-porting is the reduction of time required to transport the containers between two regions or continents. There are two timesaving strategies for deepsea container carriers: x x

Minimising the turnaround time in port; Reduction of the number of ports served.

Figure 710: Multi-porting versus hub-feedering When more ports are included in the calling pattern, the operating and voyage costs will increase. Additional time necessary for the entry of the port, the manoeuvring in the port and the non-working hours of the port personnel, decreases the annual revenues of the ship. So, when the number of ports decreases, the additional time will decrease as well. A reduction of the turnaround time is especially important for bigger and more expensive ships. The economies of scale of bigger ships demand a concentration of container handling in several specialised ports at both ends of a trade route. In this section the difference between the two concepts is quantified with the help of a model. The studies were made in 1999, and published in 2000. 753

Part IV – Ship Design and Case-Studies

Model structure In order to compare the economies of multi-porting with hub-feeder call patterns, a quantitative model has been made.

Sailing distances The first step is to determine the sailing distances between the different ports. Table 178 shows the sailing distances in the multi-porting and hub-feeder situation. A container ship calling at Le Havre as the first port, and continuing to Antwerp, Rotterdam, Bremerhaven, Hamburg and finally Felixstowe, sails a total distance of 1,373 nautical miles. Hub&feedering

MultiͲporting Route ModelinͲLeHavre LeHavreͲAntwerp AntwerpͲRotterdam RotterdamͲBremerhaven BremerhavenͲHamburg HamburgFelixstowe FelixstoweͲModelout Total

Distance(nm) 0 252 141 290 152 360 178 1373

Route Deepsea ModelinͲRotterdamͲModelout Feedering RdamͲLeHavreͲRdam RdamͲBremerhavenͲHamburgͲRdam RdamͲFelixstoweͲRdam

Distance(nm)

494

494 747 242

Table 178: Roundtrip sailing distances In the hub-feeder situation, the container ship sails to the hub Rotterdam and from there the containers are transhipped onto feeder vessels to the different ports. Le Havre, Antwerp, Bremerhaven, Hamburg and Felixstowe thus become feeder ports. The distances to these ports from Rotterdam are shown in the table. Note that Antwerp is omitted from this table since containers are feedered to this port by inland barges. The calculation of the distances is quite straightforward. The assessment of other parameters of the cost model is more complicated.

Fuel consumption of container ships In order to use the model for a range of vessel sizes, deepsea as well feeder ships, the correlation between TEU capacity and fuel consumption has been established based on the analysis of a large number of representative ships. Figure 712 shows the correlation, with the TEU capacity on the horizontal axis and fuel consumption in tons/day on the vertical axis. The relationship can be expressed as: › ൌ ͲǤͲ͵ͻʹš ൅ ͷǤͷͺʹ Where: y x

= =

Fuel consumption (tons/day) TEU capacity of ship

754

Part IV – Ship Design and Case-Studies 30

Servicespeed(tons)

25 20 15 10 5 0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

TEUcapacity

Figure 711: Service speed as a function of TEU capacity 300

Fuelconsumption(tons)

250 200 150 100 50 0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

TEUcapacity

Figure 712: Fuel consumption as a function of TEU capacity

Service speed Bigger ships have a higher average service speed than smaller ships. This influences the time it takes to go form one port to another. The relationship between the TEU capacity of ships and their service speeds is shown in Figure 711. The relationship can be expressed as: ‫ ݕ‬ൌ ͷǤͶͳ͹ͺ‫ ݔ‬଴Ǥଵ଻ସ ͸ 755

Part IV – Ship Design and Case-Studies Where: y x

= =

Service speed in knots TEU capacity of ship

Gross tonnage of container ships The gross tonnage of a ship is a parameter which determines to a large extent the port costs. The relationship between TEU capacity and gross tonnage of container ships is shown in Figure 713. The relationship can be expressed as: ‫ ݕ‬ൌ ͳʹǤͷͷ͸‫ ݔ‬൅ ͳͲͺ͹Ǥʹ Where: y x

= =

Gross tonnage TEU capacity of ship 90,000 80,000

Grosstonnage(tons)

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 0

2,000

4,000

6,000

TEUcapacity

Figure 713: Gross tonnage as a function of TEU capacity

Time charter rates The time charter rates of container ships depend on the TEU capacity. The relationship between time charter rate in US$/TEU/day and the TEU capacity is shown in Figure 714. The relationship can be expressed as: ‫ ݕ‬ൌ ͳͲͺǤͲͷ‫ି ݔ‬଴Ǥଷ଻ସଷ  Where y x

= =

Time charter rate in US$/TEU/day TEU capacity of ship

756

Part IV – Ship Design and Case-Studies Please note that the curve may shift from year to year, depending upon the general level of the container ship charter market. The relative differences between the various ship sizes remains however

16 14

Charterrate(US$/TEU/day)

12 10 8 6 4 2 0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

TEUcapacity

fairly stable. Figure 714: Charter rates per TEU per day as a function of TEU capacity Figure 714 can be reworked into Figure 715, which has the time charter rate for the entire ship on the vertical axis, and not the charter rate in US$/TEU/day. The relationship can be expressed as: ‫ ݕ‬ൌ ͳͲͺǤͲͷ‫ ݔ‬଴Ǥ଺ଶହ଻  Where: y x

= =

Charter rate of ship in US$/day TEU Bcapacity of ship

Port costs The calculation of port costs for the ports of Le Havre, Antwerp, Rotterdam, Bremerhaven, Hamburg and Felixstowe, is quite complicated. Based on a generalised port cost model of the Port of Rotterdam (1999), the relationship between TEU capacity of container ships and the port costs has been established. It should be noted that in the ports of Felixstowe, Bremerhaven and Le Havre, the items dock tonnage, HD Kajegebuhr, and dues on goods, have been omitted from the comparison. These items are generally eliminated by rebate structures in these ports. The elements that constitute the port costs are shown in Table 179. Please note that the container stevedoring costs are not part of these costs.

757

Part IV – Ship Design and Case-Studies 30,000 25,000 Grosstonnage(tons)

20,000 15,000 10,000 5,000 0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

TEUcapacity

Figure 715: Charter rates per day as a function of TEU capacity LeHavre

Docktonnage Duesongoods Harbourdues Harbourpilotage HDKajegebuhr Lightdues Mooring Quaydues Reporting Sea/riverpilotage Towageassistance VTSdues Zeevaartpolitierecht

X X

X

X X

Antwerp

Rotterdam

Bremerhaven

Hamburg

Felixstowe X

X X

X X

X X X

X X

X

X

X

X X X X X

X X X X

X X X X X

X

X X

X X X

X X

Table 179: Elements of port costs The port costs in relation to the TEU capacity of container ships are summarised in Figure 716 for all the ports.

758

Part IV – Ship Design and Case-Studies 120,000

Portcosts(Euro)

100,000 80,000

Antwerp Hamburg

60,000

Rotterdam 40,000

Bremerhaven LeHavre

20,000

Felixstowe 0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

TEUcapacity

Figure 716: Port costs per port The model calculations are also based on the distribution of the containers over the six ports. The input to the model is the container share of each port, expressed as a percentage of the TEU capacity of the ship. It is also assumed that the same number of containers is discharged and loaded in each port. The impact of different container shares is calculated with the model. The mix between 20 ft and 40 ft containers has an important impact on the number of container moves in each port and thus the stevedoring costs and the port time. The TEU factor has been set at 1.5, which means that the TEU capacity of the ship has to be divided by 1.5 in order to arrive at the number of containers. It is easy to change the assumption in the model. x The cost of heavy fuel oil for bunkers has been taken as fixed. In 1999 the HFO price was US$ 65 per ton. It can easily be changed in the model. x The container handling costs vary per port, but are approximately US$100 per move. x The time the ship spends in port (days) depends on the number of containers that have to be discharged and loaded. x Feedering containers from Rotterdam to Antwerp will be done with inland barges, at a fixed cost per TEU.

Calculations The cost factors that are used in the model can be grouped into three categories: Container stevedoring costs, voyage costs (bunker and port costs), operating costs (time charter rates multiplied by the number of days). The feeder costs to Antwerp, by inland barge, have been taken as separate item. The cost structure is shown in Figure 717.

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Handling charges

Handling rate * number of moves

Voyage costs

Fuel costs Port entry costs

Operating costs

Time charter rates * Time ship in model

Antwerp transport costs

Only when containers are moved to Antwerp by inland barge

Figure 717: Cost model The total costs for the shipowner are not equal to the value added in the hub port. And that is an important factor for the Port of Rotterdam. The value added in multi-porting and hub-feeder is totally different. The hub-feeder alternative creates much more value added for the hub port than its share in the multi-porting situation.

Results of the calculation model Figure 718 shows total costs of the multi-porting and hub-feeder calls as a function of the capacity of the container ship (2000 - 6000 TEU). De integral cost of multi-porting are systematically lower than the cost of hub-feeder. De value added of hub-feeder for the hub port is of course much higher than in the multi-porting alternative. The cost difference can be reduced when the share of containers with final destination the hub port increases. This is logical since all transhipment onto feeder vessels requires extra container handling, and is therefore more expensive. The share of stevedoring costs (handling charges) is much higher in the hub-feeder alternative, while the voyage and operating costs are much lower. The handling costs per TEU in the hub-feeder situation are higher because of the additional transhipment move. The voyage costs are lower because of the fact that bunker costs and port charges are lower. The operating costs of the ships are also much lower in the hub-feeder case. The total cost figures of the two alternatives are converging more or less with an increase of the cargo flows with Rotterdam as final destination. It therefore depends on the container destinations and the economies of scale effect of container handling costs in the hub port whether the total costs of hubfeeder will match those of the multi-porting alternative.

760

Part IV – Ship Design and Case-Studies 1.8 1.6

MillionUSD

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2000

3000

4000

5000

6000

TEUcapacity

Multiporting

Hub&Feedering

AddedValueM

AddedValueH&F

Figure 718: Costs as a function and value added of container ship capacity The total costs per TEU per call for the multi-porting and hub-feeder alternatives have been summarised in Figure 719 as a function of the ship’s TEU capacity. The costs per TEU in the multiporting case are, based on the assumptions, always below those of the hub-feeder case. The cost advantage of multi-porting ranges between US$ 20 and US$ 35 per TEU, depending on the ship size. 160 150 Cost(US$/TEU))

140 130 120 110 100 2000

3000

4000

5000

6000

TEUcapacity

US$/TEUMultip.Europe

US$/TEUHub&FeederEurope

Figure 719: Total cost per call per TEU

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Part IV – Ship Design and Case-Studies

Hub-feeder: container ship productivity effect In the hub-feeder situation the time spent in port of the container ship will be reduced in comparison with the multi-porting alternative. Therefore, there are fewer ships required for a service since the round-trip time will be shorter. In order to compare the impact of this increased productivity of the hub-feeder situation, two round-trips have been compared: Rotterdam to Singapore. The first case is multi-porting on both ends. The second case is multi-porting on one end (Singapore) and hub-feeder in Rotterdam If a million TEU is transported by this service annually, than the number of ships required in both cases are summarised in Table 180. TEUcapacity(TEU) Multiporting Hub&Feedering

2000 69.29 60.66

3000 43.78 38.15

4000 31.63 27.46

5000 24.59 21.29

6000 20.02 17.29

Table 180: Number of ships required to transport 1 million TEU in both directions The hub-feeder in Rotterdam reduces the number of ships from 69 to 61 for a 2,000 TEU capacity ship, and from 20 to 17 for a 6,000 TEU ship. The impact of hub-feeder on both ends of the service, will increase this number proportionally.

Cost(US$/TEU))

Nevertheless, the costs per TEU for one trip, including stevedoring costs, remain lower for the multiporting situation, as shown in Figure 720: Total costs per TEU per voyage, including stevedoring costs. The cost difference is approximately US$ 25 - US$ 40 per TEU. 450 430 410 390 370 350 330 310 290 270 250 2000

3000

4000

5000

6000

TEUcapacity

US$/TEUMtrip

US$/TEUH&Ftrip

Figure 720: Total costs per TEU per voyage, including stevedoring costs

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Conclusions The hub-feeder calling pattern is in many instances more expensive per TEU than the current multiporting calling patterns. There are basically two variables that determine the future competitiveness of the hub-feeder alternative: x x

The share of containers that has the hub port as their final destination; The stevedoring cost of the deepsea and transhipment moves of containers. A reduction in cost will be necessary to challenge the multi-porting situation. The big volumes that are handled in the hub-feeder alternative should make it possible to lower these handling costs per TEU.

The value added in a hub port, increases substantially. From a macro economic perspective, the port charges in the hub port could be further reduced, as the value added by the more than doubling of container handling volumes and revenues will compensate this loss of revenue easily. It should be born in mind that this first calculation model was based on a container ship capacity range of 2,000 - 6,000 TEU. The model was finalised in the spring of 1999 when the Malacca-max container ship project was still underway. It is self-evident that the economies of scale of the 18,000 TEU ship will have an important impact on the above calculations. In 2000 a case-study of a real world situation was made for the container operator P&O Nedlloyd. The results of that study will be summarised below and this will add a new dimension to the findings of the theoretical cost model, discussed above.

29.3. Feedering between Rotterdam and UK Based on the multi-porting versus hub-feedering model described in the previous section, a real-world case-study was made for the container operator P&O Nedlloyd (PONL, in 2006 absorbed by Maersk Line). The study was made in 2000 by Marieke Boer. At the time it was confidential, but given the fact that the company does not exist anymore, and eight years have elapsed since, the interesting results are included in the this chapter. The research question was: “Can the current multi-porting strategy of PONL to and from the United Kingdom and Ireland be made more cost efficient through the introduction of a hub-feeder strategy out of Rotterdam, in view of the advent of the Malacca-max containership?”

Current Setup of PONL UK multi-porting system PONL’s set-up was based on trades calling in four main UK ports, i.e. Felixstowe, Thamesport, Tilbury and Southampton. These calls were not in any sense related to the inland final destinations/origins, which means that inland transport distances are substantial. Most of the containers go via Southampton, for the simple reason that PONL was a member of the Grand Alliance and thus not the only company to decide in on the actual port calls. Another factor of influence was that P&O Ports was a main shareholder in the Southampton Container Terminal. On top of that, inland transport links were more orientated north-south than east-west and there were long terms contracts for container trains from the port of Southampton. The total annual flow in number of containers in the year 2000 was 219,786 TEU, divided as shown in Table 181:

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Port Felixstowe Southampton Thamesport Tilbury Total

Share(%) 9% 62% 4% 25% 100%

Volume(TEU) 19,781 136,267 8,791 54,947 219,786

Table 181: Distribution of container flows through UK ports

Basis for the new setup (hub-feeder) The objective of the new setup was to reduce expensive land transport of containers by allocating container flows to the closest regional port in the UK that can be served out of main hub Rotterdam. A centre of gravity model for the current flows was made, based on the existing grid of the UK and the origin-destination matrix. The optimal outcome is the minimisation of the transport production, defined as TEU-miles (TEU carried multiplied by transport distance measured in nautical miles). The inland centres of gravity were determined based on the position within a grid and the number of containers transported to/from this grid. The result of this approach was a list of inland grid-codes (all grids are divided into 99 grid/postal-codes) and flows. For visualisation towns were coupled to these codes. Based on this calculation optional feeder ports were chosen evenly spread over the UK coastline, i.e. Grangemouth, Tynemouth, Hull, Felixstowe, Tilbury/Thamesport, Dover, Southampton, Bristol and Liverpool. Existing infrastructure was at this point left out of the examination. The best combination of centres of gravity and optional feeder-ports was determined by choosing feeder ports in such a way that transport production, and thus indirectly costs, are minimised (Table 182). The list of ports does not contain the two western ports, Bristol and Liverpool. Based on the calculation it was proven that routes to/from inland locations through these ports of call are too long to be competitive. Town Aberdeen Andover Blackburn Bristol Carlisle Christchurch Clydebank Coltishall Cupar Dumfries Durham Eastbourne Edinburgh Goole

Gridcode NJ90 SU44 SD71 ST47 NY13 SZ19 NS56 TG21 NO31 NX57 NZ34 TV69 NT16 TA12

TEU 628 15,943 11,446 7,241 1,850 116 11,528 34 3,586 662 6,317 21 804 3,026

SUMTEUͲmiles 326,149 4,179,017 3,571,742 2,191,056 755,926 32,870 5,007,625 6,728 1,607,683 291,507 2,077,120 3,956 340,639 711,523

Bestportoption GRA DOV HULL TIL TYN STH GRA FLX GRA TYN HULL DOV GRA HULL

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Part IV – Ship Design and Case-Studies Greenloaning Heanor HerneBay Holyhead King'sLynn Llanelli Ludlow Neath Northwich Peterhead Royston Rugby Sidcup Wakefield Woodbridge Yelverton

NN80 SK44 TR16 SH28 TF52 SN50 SO76 SS79 SJ67 NK14 TL33 SP46 TQ47 SE32 TM25 SX46

44 14,372 735 22 2,521 159 7,048 1471 35,771 8 5,618 24,622 39,814 21,362 1,943 1,074

18,705 4,127,972 112,151 8,841 507,817 59,556 2,383,862 533,356 11,529,432 4,132 1,147,012 6,679,769 7,402,415 5,594,469 260,855 426,131

GRA HULL DOV HULL FLX TIL TIL TIL HULL GRA FLX TIL TIL HULL FLX STH

Table 182: Calculated optimal port allocation

Newsetup

Figure 721 summarises the results in TEU-miles for the two modalities used in this new setup, road and sea transport (rail transport has been eliminated). From the graph it can be concluded that the total transport production in the new setup would be around 60 million TEU-miles, of which 30% by road and 70% by sea.

0

20

40

60

80

Transportproduction(millionTEUͲmiles)

Sea

Road

Figure 721: Total transport production for new setup

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Benchmark with existing setup In order to compare the new setup with the existing setup, the transport production for the existing setup had to be calculated. In the existing setup depots are used for transhipment from rail to road. Because of the use of contract trains these are not fixed for a container to/from a certain inland grid location. Therefore the most often used depots on route to/from an inland grid location were determined. As can be seen in Figure 722, most of the transport production is done by rail.

Existingsetup

The graph also includes the deep-sea transportation between Rotterdam and the UK. It has to be noted however, that these numbers were estimated on the assumption that all trades call at Rotterdam first. These assumptions were made because of the complexity of the rotation schedules and the fact that those are not fixed. In addition it has to be noted that they were only used to emphasise the fact that sea legs in a shortsea-system also should be seen as a replacement for deepsea legs in the existing setup. In a later stage the rotation of the mainliners was evaluated, in order to make an accurate cost evaluation.

0

20

40

60

80

100

Transportproduction(TEUͲmiles)

Rail

Road

Deepsea

Figure 722: Total transport production for existing setup Figure 723 shows a comparison of the results of the existing and new setup. The following can be concluded: x x

x

The inland transport production of the new setup amounts to only 43% of the inland transport production in the existing setup; 57% of the transport production over land is replaced by additional sea transport. In other words a large part of the transportation is done in an environmental friendlier way than in the existing Setup. Total transport production in the new setup is 44% higher than in the existing Setup, caused by the additional shortsea transportation. However, if in the existing setup the deepsea-leg is added, than the additional shortsea and feeder transportation also replaces a large part of the deep-sea leg distances. Overall, the new setup is more efficient than the existing setup. 766

Part IV – Ship Design and Case-Studies

Existingsetup

Newsetup

Inland transportation in the new setup has been based on road transportation only and therefore results in a much more TEU-miles by road. The cost review, which was made in a later stage, should point out that if this increase would result in higher inland transportation costs, or if this number is low enough to keep the total transportation costs under the current level. Extra container handlings in the port, and especially in Rotterdam (from feeder to mainliner), has so far not been included. Further analysis on times and costs will show whether the increase in handlings makes the setting up of a hubfeeder network out or Rotterdam feasible after all.

0

20

40

60

80

100

Transportproduction(TEUͲmiles)

Rail

Road

Sea

Figure 723: Comparison between new and existing setup

Further development of the new setup Before constructing the feeder network, ports were considered on facilities and throughput. The only port without container facilities was Dover, which was subsequently eliminated from the list, and destinations linked to the port were connected to the second-best feeder port instead. Next, possible roundtrip schedules were composed. Direct feedering to each individual UK port from Rotterdam was not considered. Five shortsea feeder schedules were constructed and evaluated on utilisation and transportation times, i.e.: Schedule 1:

Schedule 2:

Schedule 3:

Schedule 4:

A single loop roundtrip with the following rotation: Rotterdam - Southampton - Tilbury - Felixstowe - Hull - Tynemouth - Grangemouth Rotterdam, sailed either North or Southbound. A two-loop-roundtrip schedule sailed North/Southbound or a combination of those: First loop: Rotterdam - Southampton - Tilbury - Felixstowe - Hull - Rotterdam. Second loop: Rotterdam - Tynemouth - Grangemouth - Rotterdam. A two-loop-roundtrip schedule sailed North/Southbound or a combination of those: First loop: Rotterdam - Southampton - Tilbury - Felixstowe - Rotterdam. Second loop: Rotterdam - Hull - Tynemouth - Grangemouth - Rotterdam. A two-loop-roundtrip schedule sailed North/Southbound or a combination of those: 767

Part IV – Ship Design and Case-Studies

Schedule 5:

First loop: Rotterdam - Southampton - Tilbury - Rotterdam. Second loop: Rotterdam - Felixstowe - Hull - Tynemouth - Grangemouth - Rotterdam. A three-loop-roundtrip schedule sailed North/Southbound or a combination of those: First loop: Rotterdam - Southampton - Tilbury - Rotterdam. Second loop: Rotterdam - Felixstowe - Hull - Rotterdam. Third loop: Rotterdam - Tynemouth - Grangemouth - Rotterdam.

Table 183 gives an overview of the results from reviewing these schedules on utilisation, maximum vessel capacity needed and distances sailed.  Schedule

Loop1 Totalschedule1

Loop1 Loop2 Totalschedule2

Loop1 Loop2 Totalschedule3

Loop1 Loop2 Totalschedule4

Loop1 Loop2 Loop3 Totalschedule5

Vesselcapacity NBͲ[TEU]

Averageutilisation

SBͲ[TEU]

NBͲ[%]

SBͲ[%]

Distance

132,620

142,249

78%

82%

1,326









1,326

127,776 14,267

127,064 15,185

84% 54%

74% 75%

875 873









1,748

66,846 65,774

66,134 76,114

82% 70%

81% 86%

626 871









1,497

60,856 71,764

60,144 82,104

87% 76%

75% 82%

608 942









1,550

60,856 66,920 14,267

60,144 66,920 15,185

87% 83% 54%

75% 70% 75%

608 491 873









1,972

Table 183: Evaluation of selected schedules

Transportation times Next, a roundtrip time exploration model was constructed to decide on the best feedering schedule. One of the most important critical success factors for a shortsea shipping system is the total door-todoor transportation time. Since the new setup has to compete with the existing setup the service level should at least be the same as in the existing setup, which means a daily calling interval is a prerequisite. Starting values for the calculations are summarised in Table 184. First the sailing times in the new setup were calculated, for all loops of all schedules. Then a manual selection was made of the optimal combination of loops, based on minimum sailing times and door-todoor transport time. Table 185 gives an overview of the selected loops. For all schedules total transportation times were calculated. The transportation calculation was split into separate components: inland transit time, transhipment time in ports, shortsea sailing times and possible delays. Figure 724 shows the results for all grids and schedules. The axis shows the total transportation time. 768

Part IV – Ship Design and Case-Studies  Vesselspeed(knots) Truckspeed(km/hour) Trainspeed(km/hr) Cranespeed(moves/hour) Numberofcranes

Newsetup 16 80 60 25 2

Existingsetup 18 80 60 40 5

Table 184: Input variables by setup Schedule Schedule1 Schedule2 Schedule3 Schedule4 Schedule5

Loop1 Northbound Southbound Southbound Southbound Southbound

Loop2  Northbound Northbound Northbound Northbound

Loop3     Northbound

Table 185: Selected loops

TM25

NJ90 SX46 70.0

SU44

SD71

60.0

SE32

ST47

50.0

TQ47

NY 13

40.0

SP46

SZ 19

30.0 TL33

NS56

20.0 10.0

NK14

TG21

0.0 SJ67

NO31 NX57

SS79 SO76

NZ 34 TV 69

SN50 TF52

NT16 SH28

TR16

NN80

TA 12

SK44 Sc hedule 1 Sc hedule 4

Sc hedule 2 Sc hedule 5

Sc hedule 3

Figure 724: Transportation time per schedule This figure shows that schedules 3, 4 and 5 give the best results. total transportation time in the existing setup depend on the inland transit-times, the transhipment times in ports and the sailing times.

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Part IV – Ship Design and Case-Studies A delay factor for sailing loops is of course left out of this calculation and the sub-components of the time components are slightly different. Figure 725 shows the minimum, maximum and weighed average transportation times for the existing setup. Because throughput of the various grids is spread over four UK main ports, Felixstowe, Thamesport, Tilbury and Southampton, and container volumes vary by trade, transportation times vary as well. Transportation times were calculated for all containers from the various trades to their final inland grid destinations. This resulted in the transportation times of trade-related boxes per grid. The transportation times were weighted on trade shares.

Figure 725: Total transport times (hours): minimum, maximum and weighted average The outcomes for the existing and new setup were compared; this resulted in the number of grids per schedule for which the new transportation times did not comply with the current transportation times. Schedules 3 and 5 give the highest performance. The results are shown in Figure 726, compared with the existing situation.

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Part IV – Ship Design and Case-Studies 100

Evaluation New Setup - Current Setup 90 80

70

hrs

60

50

40 30

20 10

0 0

1

2

3

4

5

6 7

8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

grid Current Setup - M A X

Current Setup - M IN

New Setup - S1

New Setup - S3

New Setup - S4

New Setup - S5

New Setup - S2

Figure 726: New setup versus existing setup Schedule 3 and 5 perform equally on the aspect of time, when compared to the existing setup. However, considering the number of vessels required, schedule 3 appears to be the best overall option. A calculation of roundtrips results in the following specifications: x

The first loop is sailed Southbound, the rotation is Rotterdam - Felixstowe - Tilbury Southampton - Rotterdam. The distance sailed is 626 nm, the accumulative roundtrip time is 46 hours and the average utilisation percentage is 81%. This fits in a two-day roundtrip, which means that there are 2 vessels needed for sailing this loop to achieve a daily service.

x

The second loop is sailed Northbound, the rotation is Rotterdam - Hull - Tynemouth Grangemouth - Rotterdam. The distance sailed is 871 nm, the cumulative roundtrip time is 62 hours and the average utilisation percentage is 70%. Three vessels are required to arrive at a daily interval.

Figure 727 shows this schedule schematically.

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Figure 727: Roundtrips schedules If the maximum vessel capacity is based on 100% utilisation, the required vessel capacities are 181 and 182 TEU respectively. However, considering a utilisation ratio of 70%, five vessels of 260TEU capacity are needed.

Transportation costs To get an impression of the difference in transportation costs between the existing and the new setup, a cost calculation model was made. The success of the new setup depends directly on transportation costs. The transportation costs in the new setup consist of: x x x x

Costs for road transportation; Costs for handlings in UK feeder ports; Costs for feedering the boxes from Rotterdam; Costs for the extra handlings from mainliner to feeder in Rotterdam.

The transportation costs in the existing setup consist of: 772

Part IV – Ship Design and Case-Studies x x x x

Costs for road transportation; Costs for the use of inland depots; Costs for rail transportation; Costs for handlings in UK main ports.

The results of these calculations are summarised in Figure 728. It has to be noted that the port costs for the mainliners in the UK in the Current Setup and for calling in Rotterdam in the New Setup were left out at this time. By taking these figures into this calculation, the main differences, in terms of changing the logistics by transportation to ports nearer to the inland destinations and origins, could not be visualized anymore. Therefore the influence on the rotation schedules of the mainliners, in times and costs and the savings which could be made on port calls were calculated separately. £60,000,000.00 £50,000,000.00

GBP

£40,000,000.00 £30,000,000.00 £20,000,000.00 £10,000,000.00 £0.00 NS

CS

UK inland road transp.

Depot costs

UK inland rail transp.

UK port handlings

Feeder transportation

Extra handlings RTM

Figure 728: Transportation costs for existing and new setup Total transportation costs for the new setup are £10 million higher than in the existing setup. However, if hinterland costs are included, around £9.4 million is be saved. The costs for feeder transportation and additional handlings in Rotterdam would in that case be left out of the cost review. The main conclusion is that the new setup, with the extra handlings in Rotterdam and the feedering, would result in an increase in total transportation costs of £19.5 m. However, in this comparison benefits from shortening the rotation of the mainline vessel and decreasing the number of port calls are not included. As mainline vessels are no longer calling at UK ports, significant savings can be made, at the same time achieving shorter transport times. Leaving ports out, saves days on the roundtrip schedule. In reality this would mean there is more time to go from A to B and thus the vessel speed can be decreased, decreasing bunker cost, or reducing the number of vessels deployed on a loop. 773

Part IV – Ship Design and Case-Studies Saved days were translated into saved money on the basis of charter rates. This way total savings calculated turned out in the order of £30 million (Table 186 and Table 187).

ANZECS EAT EPIC FETͲLp1 FETͲLp2 FETͲLp3 FETͲLp4 GULFͲLp5 LATͲEECSA LATͲEurosal LATͲCarol MEDͲEuris MEDͲEurolev NATͲNAX NATͲSAX SAF WAF

Newrotationorder ͲLISͲRTMͲHAMͲ ͲHAMͲRTMͲ ͲRTMͲHAMͲ ͲRTMͲ ͲLeHͲRTMͲBREͲ ͲRTMͲHAMͲ ͲRTMͲHAMͲLeHͲ ͲRTMͲHAMͲ ͲRTMͲHAMͲLeHͲ ͲRTMͲHAMͲLeHͲ ͲHAMͲRTMͲLeHͲ ͲRTMͲHAMͲ ͲRTMͲ ͲHAMͲRTMͲ ͲRTMͲHAMͲLeHͲ ͲLeHͲRTMͲBREͲ ͲHAMͲRTMͲLeHͲ

Roundtrips/year 52 52 52 52 52 52 52 52 52 36.4 52 104 104 52 52 104 52

Savings Days/roundtrip Days/year 3 156 2 104 2 104 1 52 2 104 2 104 1 52 2 104 2 104 1.5 54.6 1 52 2 208 1 104 1.5 78 1 52 1 104 1 52

Table 186: Roundtrip time savings Another major change caused by the hub-feeder setup is the reduction in the number of port calls in a rotation by the mainliners. It was assumed calls at UK main ports and Antwerp were replaced by an extended call in Rotterdam. Considering this does not influence the total number of transhipments, port costs would only be affected by the number and size of the vessels. For this calculation the actual port costs were used for the various trades and vessels. However, in the new setup all services call at Rotterdam, which means there are four services for which the new port costs in Rotterdam should be calculated. Table 187 gives an overview of the number of port calls eliminated in the new setup. Table 188 gives the savings calculated based on these eliminations. The absolute number of port calls eliminated comes to a total of 1,648. However, at the same time there will be additional calls in the UK in the order of 208 a year. The total savings in number of calls will thus be 1440. The current number of calls a year in the ports in the UK, Rotterdam and Antwerp is 2,470. This means the savings in number of port calls is 58% on a yearly basis. In addition to this it has to be noted that the number of port calls made by the feeders was left out of this review for the reason that the costs for these calls are included in the feeder-rates. The feeder ports will be called at daily, which comes to a total number of feeder-calls of: 364 x 6 = 2184.

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Part IV – Ship Design and Case-Studies Trade ANZECS EAT EPIC FETͲLp1 FETͲLp2 FETͲLp3 FETͲLp4 GULFͲLp5 LATͲEECSA LATͲEurosal LATͲCarol MEDͲEuris MEDͲEurolev NATͲNAX NATͲSAX SAF WAF Total

Felixstowe

Thamesport

Tilbury 52

52 52

52 36.4 52 104 104

104 52 400

52

208

Southampton    52 52 52 52 52      52 52   364

Antwerp

52 52 52 52

52

104 104 52 52 52 624

Table 187: Number of port calls eliminated in the New Setup 

ANZECS EAT EPIC FETͲLp1 FETͲLp2 FETͲLp3 FETͲLp4 GULFͲLp5 LATͲEECSA LATͲEurosal LATͲCarol MEDͲEuris MEDͲEurolev NATͲNAX NATͲSAX SAF WAF Subtotal Total Savings

TEU

2400 1400 2600 6700 6700 6700 6700 4000 2500 2500 2500 3500 3500 2900 2900 3000 1100   

numberof roundtrips ayear 52 52 52 52 52 52 52 52 52 36.4 52 104 104 52 52 104 52

Totalport costs CurrentSetup £2,277,912.00 £1,117,694.62 £2,085,965.58 £3,648,045.58 £2,553,965.58 £2,602,080.00 £2,602,080.00 £2,602,080.00 £2,298,538.27 £885,794.00 £1,265,420.00 £3,300,181.07 £3,300,181.07 £2,657,697.84 £2,657,697.84 £4,306,640.00 £860,982.79 £41,022,956.25 £41,022,956.25

Port PortcostsNewsetup costs Changefrom NewSetup ANTtoRTM £847,912.00 £0.00 £10,520.00 £0.00 £21,040.00 £1,094,080.00 £0.00 £21,040.00 £1,094,080.00 £1,094,080.00 £1,094,080.00 £615,420.00 £430,794.00 £615,420.00 £1,094,080.00 £1,094,080.00 £683,800.00 £683,800.00 £1,914,640.00 £0.00 £7,890.00 £12,356,266.00 £60,490.00 £12,416,756.00 £28,606,200.00

Table 188: Port cost savings

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Part IV – Ship Design and Case-Studies Savings on the number of port calls account for about £28 million. This is a reduction of 70%. However, it should be noted that port cost for Rotterdam also depend on the number of loaded and discharged containers per call. Since the number of transhipment moves in Rotterdam increases, the port costs are likely to increase as well, however at this time this influence on the rates could not be estimated. The total savings on a larger scale for PONL would be a total of £58.7 million. Figure 729 gives an overview of these savings in relation to the earlier additional cost calculation for the New Setup. The costs for feedering and the extra handlings in Rotterdam were regarded as additional costs to go from the Current to the New Setup; these costs amount to £19.5 million. The resulting savings from a wider perspective are thus £39.2 million. On the inland transportation already £9.4 million was already saved, this adds up to a total of £48.6 million. These results were schematically shown in Figure 729 and Figure 730.

Conclusions It is possible to set up a competitive feeder-network for the UK out of the hub port of Rotterdam. However setting up a feeder-network for the flows to/from Ireland would not be feasible compared with the current services. Schedule 3 would give the best results on all critical success factors. Comparing the results of the current multi-porting system with the hub-feeder system from Rotterdam the following could be concluded: x

x x x

x

x

x

In the hub-feeder system more road kilometres but less train-kilometres shall be made. As a result the total inland kilometres will decrease considerably, because of a more efficient way of transportation which is based on an extensive shortsea system that will deliver the boxes nearer to their inland destinations. The extensive shortsea shipping system will also replace a major part of the deep-sea leg transport distances, which are sailed by the mainline vessels in the Current Setup. A hub-feeder system would however result in an increase in transhipment moves because of the extra transhipment in Rotterdam from mainliner to feeder. The increase in number of handlings and the slower vessel speed of the feeders also result in higher transportation times in a hub-feeder system. However the effect on the final delivery times is minimal when a daily calling interval is maintained. Comparing the new hub-feeder system with multi-porting on transportation costs results in the conclusions that the costs on inland transportation in the UK would decrease with £9.4 m. However, because of the extra feeder transportation and handlings in Rotterdam an increase of £19.5 m could be expected. The hub-feeder system would thus result in an increase in total transportation costs of £10.1 m. The implementation of the hub-feeder system however also has a large impact on the deepsea rotation, in the sense of shorter rotation schedules and fewer port calls. This results in the savings in days, expressed in money about £30.0 m and the savings in port costs, about £28.6 m. In total the savings based on a hub-feeder system could add up to £48.6 million.

x

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£30,000,000.00 £20,000,000.00 £10,000,000.00 £0.00 GBP

-£10,000,000.00 -£20,000,000.00 -£30,000,000.00 -£40,000,000.00 -£50,000,000.00 -£60,000,000.00 -£70,000,000.00 NS add.costs

NS savings

Feeder transportation

Extra handlings RTM

Savings on port costs

netto result in costs

results Savings rotation

Figure 729: Additional transportation cost and savings for the new setup £50,000,000.00 £40,000,000.00

GBP

£30,000,000.00 £20,000,000.00 £10,000,000.00 £0.00 -£10,000,000.00 -£20,000,000.00 New Setup UK inland road transp. UK inland rail transp

Cur Setup UK port handlings savings

Results UK depot costs

Figure 730: Inland transportation cost and savings for the new setup In other words a hub-feeder would result in a slight increase in costs on distribution, however on the other hand result in enormous savings on deepsea rotations and port costs. Other conclusions are: x

Because of the fact that the volumes per UK port in the feeder-network in this project were even higher than the volumes on which feeder rates were based, additional savings could be made on the feeder-legs. 777

Part IV – Ship Design and Case-Studies x

x

x

Additional benefits could come from the over-capacity of the feeders, in the sense of selling slots on board the feeders to third parties, when the feeders would be chartered and operated by P&O Nedlloyd itself. With regards to the implementation of ultra-large container carriers it appears that, creating a New Setup for all trade-related flows to and from the UK could save P&O Nedlloyd a lot of money. Implementing a hub-feeder system could have other benefits such as qualification for subsidy grants from the UK Government as well as from European Union sources as it creates a substantial modal shift.

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30.

THINKING OUT OF THE BOX

The expression “Out of the box” thinking has become a management buzzword, like brainstorming used to be. Mike Vance (Vance, 1995, p. 216) started using the expression in the 1970s, but it actually is nothing more than the existing creativity techniques developed since the 1950s wrapped in an attractive visual analogy. The name comes from a puzzle in which one has to draw 4 straight lines through 9 dots. The solution can only be found if one draws a line outside the square of the 9 dots (Figure 731).This chapter attempt to look into the future of shipping - out of the box - or better, outside the straightjacket of what there is today. It starts with a very stimulating analogy from the aeronautics industry. ACARA54 is a European Technology Platform55 for the aeronautics industry. In October 2006 it organised a major “Out of the Box” workshop with a high-level group of industry experts in order to think out of the box about the concepts, processes and technologies that may offer benefits to future aviation.” The introduction to the workshop, the ideas generated and some visual results will be presented here, based on the “Report on Phase 1” (Truman & Graaff, December 2006) of the project.

The future of air transport The title for the programme "Out of the Box" is intended to characterise the approach to facilitate thinking out of the box about the concepts, processes and technologies that may offer benefits to future aviation. This is a revolutionary kind of thinking and needs to be seen as an adjunct to the more conventional air transport system, process and design evolution. In many instances evolutionary extension, or extrapolation, of system and technological capabilities will be very suitable, will be more secure and will offer the best choice. What we have seen, however, is that revolutionary approaches seem to get less effort, less attention and are granted less importance than more conventional developments. The risk, where this is true, lies in important new concepts and technologies coming as a surprise, substantial waste and to missed opportunities for delivering the best customer and business benefits possible. This programme is focused specifically upon these "disruptive concepts and technologies", "discontinuities", "revolutions" and other terms that together make up the approach of thinking outside the box of convention. The results of the project will be used to upgrade the Strategic Research Agenda of ACARE and to identify research topics for the aeronautics research part of the 7th Framework Program of the European Commission. What characterises change and discontinuity? Figure 732 summarises the past six innovation cycles which each last on average 16 years. These are the S-curve shifts.

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Figure 731: Out of the box

?

1903

1919

1934

1952

1970

1985

2000

Figure 732: 16-year development cycles in air transport systems The following are simple examples from the past of step changes. x

System innovation by Low Cost carriers (LCC) By carefully analysing the cost structure of networked carrier operations, entrepreneurs discovered that substantial savings could be made in the cost of air transport. Using the same 780

Part IV – Ship Design and Case-Studies aircraft as the traditional carriers, LCC were able to substantially lower the cost of air transport and make a profit as well. By for example only to allow internet bookings, by using aircraft 14 instead of 8 hours a-day, by having toilet facilities replaced by seats on short haul flights, by offering onboard service on demand, LLs were able to create a completely new business model in aviation. x

Process innovation by introducing the tilt rotor aircraft The basic innovation of the helicopter dates back to the 1920s. By combining the characteristics of an airplane and a helicopter the advantages of both could be exploited in a single vehicle. Tilt rotor demonstrators have been built already a long time ago but the technology became available only recently to create a usable aircraft. Tilt rotors may make door to door travel feasible if these vehicles prove to be efficient and environmentally friendly. In this sense tilt rotors could mean a revolution in air traffic in the future.

x

Process innovation by plasma aerodynamics During the past 100 years scientists and researchers have tried to understand the flow phenomena of flying objects. And they have come a long way. Even today a lot of effort is devoted in reducing drag of airplanes and achieving laminar flow over the wing surface and aero-elastic tailoring. During the 1980s Russian scientists had a fresh look at aerodynamics. Rather than trying to further optimise the shape of wings and accepting the effects of the law of diminishing returns on investments in aerodynamics research, they decided that, instead of optimising the airfoil whilst flying through the air, they wanted to modify the medium in which aircraft are flying. This led to the idea of modifying the incoming flow-field by introducing plasma in the air-stream in front of the aircraft. The effect could be a dramatic drop in supersonic and subsonic aircraft drag (by as much as 30% or more).

What lessons and pointers for the future can we discern from such simple examples? Four lessons spring to mind. x x x

x

Existing routes to meeting a need will often not be the well-spring of new ideas for radical change; Change is sometimes provoked by a new technology for which the need being considered is but one application - even if that application requires immense effort to get right; Change is often only made possible by the combining several branches of technology into a small cluster that makes the application work (often in a manner that would not have been possible previously); Identifying the conceptual route to meeting the need is an imaginative and creative process that often owes little to particular knowledge or previous experience.

The Out of the Box project is schematically summarised in Figure 734.

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• Invention vs. innovation

• Basic innovation vs. improvement innovation • Product innovation vs. process innovation • Step changes vs. incremental change Figure 733: Some definitions

Figure 734: The Out of the Box project At the end of the workshop it was concluded that the 100 ideas could be allocated in 3 categories (Figure 735): 782

Part IV – Ship Design and Case-Studies x x

x

System of systems issues: These issues would impact upon the whole concept of the air transport system and inevitably lead to widespread changes in the system. System conceptual issues: These include new important and radical concepts for important parts of the air transport system, but without the need for a complete revision of the total system. Subordinate concepts: Concepts that could be considered for application within each subsystem of the air transport system (aircraft, AIM, airports) without the necessity of widespread introduction.

Airborne Metro

Reduced A/C Mass

Next Generation Propulsion

Airline Elements

Ground Power Augmentation

Future Airport Systems

Modular, Morphing

Airport Elements

Passenger Experience

Personal Transport Systems

Globalised ATC

Aircraft Elements

Future Airline Systems

New A/C Technologies

Space

ATC Elements

Figure 735: Categories of ideas

System of system ideas Airborne metro: A concept in which large cruisers fly non-stop circling paths around the globe and are intercepted by feeder liners from local airports. A number of major challenges are identified for further study but the benefits of less climate impact and lower noise and congestion at airports are explored.

Figure 736: The Metro liner Ground Power Augmentation: The whole question of why aircraft need to lift and carry such great weights is faced in this concept. It addresses the question by suggesting ways in which the use of

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Part IV – Ship Design and Case-Studies ground installed power might be used to reduce the aircraft weight with benefits to fuel consumption and thereby to global warming.

Figure 737: Ground power augmentation Future Airport Systems: This large view of potential future concepts for airports presents a number of the ideas and examines the ways in which aviation can (a) reduce its global impact, (b) provide a better passenger experience and (c) provide for the expected needs of more capacity. Personal Transport Systems: Although not a new idea the Report takes a more encompassing view of the future for personal transport systems (PTS) and draws attention to the challenge of control and training rather than the design of the air vehicle.

Figure 738: Personal transport system

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Figure 739: Out of the Box examples 785

Part IV – Ship Design and Case-Studies Airline Business Models: The business models of the firms that supply the aviation services of tomorrow will be crucial to their impact. A number of ideas are examined, some quite radical, to explore what links there are between government aims for the climate, airport services, air operators and the passenger.

Waterborne technology The aeronautics European technology platform ACARE has a maritime equivalent, the Waterborne Technology Platform56, which published at the end of 2005, the Vision 2020 document, and in May 2006 its Strategic Research Agenda, and at the end of 2007 its Implementation Plan. The priorities for research, development and innovation are linked to three themes: x

x

x

Safe, sustainable and efficient waterborne operations o Implementing goal-based/risk-based frameworks for cost efficient safety o The “zero accidents” target o The “crashworthy” vessel o “Low-emission” vessels and waterborne activities o Enhanced waterborne security A competitive European maritime industry o Innovative vessels and floating structures o Innovative marine equipment and systems o Tools for accelerated innovation o Next generation production processes o Effective waterborne operations o Technologies for new and extended marine operations o Management and facilitation of growth and changing trade patterns Accelerated development of new port and infrastructure facilities o Interoperability between modes o More effective ports and infrastructure o Intelligent transportation technologies and integrated ICT solutions o Understand environmental impact of infrastructure building and dredging o Traffic management strategies

In this book various chapters have dealt directly or indirectly with the topics under these three headings, e.g. sustainable shipping and innovation, chemical tanker design, and ballast-free ship design. This last chapter considers the subject that will be the long-term driver behind fundamental change in the global economy and thereby also in shipping: Energy. At the time of writing, the barrel of oil taken the psychological US$ 100 barrier and seems to be on its way to new highs. Finding fossil fuels will dominate the innovation agenda’s, in particular in the offshore industry, for the decades to come, but a consensus is building around the world that sustainable or renewable energy is the only long-term solution for our planet. Germanischer Lloyd (GL) celebrated in 2007 its 140th anniversary and published on the occasion a high quality book Technological horizons - and the sea; The future, present and past of Germanischer Lloyd 2147 - 2007 - 1867 (Germanischer Lloyd, 2007). It starts with a discussion of the major divers

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Part IV – Ship Design and Case-Studies of future change, among which energy. That chapter starts with a hindsight view from the year 2147 on Nostalgic trips to the fossil fuel age. “Will our descendents in the next century travel to Fossil Fuel Age theme parks?” This is by no means an unrealistic scenario.” In Limits to Growth, published in 1972, this scenario was already included and raised outrage with the fossil fuel producers around the globe. A lot can change in the perception of industry leaders in the span of a view decades. So in what direction should the world go now to address the energy challenge? In GL’s book, a powerful diagram from the Greenpeace report “Energy Revolution: A sustainable pathway to a clean energy future for Europe”57 (Greenpeace, 2005) points the way. All renewable energy sources together provide 3,078 times the current global energy needs, of which solar energy 2,850 times, wind energy 200 times, biomass 20 times, geothermal 5 times, wave-tidal energy 2 times, and hydropower 1 time (Figure 740). There seems to be an “embarrass du choix” in which there is not just one correct strategy, but a portfolio based on a combination of the six sources of renewable energy.

SolarEnergy 2,850times Hydropower 1time

Windenergy 200times

WaveͲtidalenergy 2times

Geothermalenergy 5times Bio

mass 20times

Figure 740: Potential renewable energy sources The emphasis should be on the development of solar power and a J.F. Kennedy’s “Man-on-the-moonlike” ambition level could do wonders as once direction is set for the industry and politicians are committed to stay on course. Such a solar power perspective has been developed by Jeremy Rifkin in The Hydrogen Economy. Below a H2 scenario is used for an out-of-box exploration for shipping.

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The hydrogen economy: Setting the scene The publication of Limits to Growth in 1972 triggered a host of future related books and studies which all attempted to emulate Thomas Robert Malthus and his Essay on the Principle of Population (Malthus, 1798)58. But before that landmark study, a number of individuals had broached the subject, like Paul Ehrlich and his book The Population Bomb (Ehrlich, 1968)59 and Alvin Toffler60 with “Future Shock” (Toffler, 1970), “The Third Wave” (Toffler, 1980) and “Power Shift” (Toffler, 1990). Jeremy Rifkin fits in this line of thinkers about the future. He became well-known in Europe when he published “The European Dream” and is an advisor to the European Commission in particular on future energy policy. His vision on the hydrogen economy is the key element for this advisory position. In the “Hydrogen Economy” (Rifkin, 2003), he explains The dawn of the hydrogen economy, why this radical change is a logical extension of the past trends towards decarbonisation.

Decarbonisation Hydrogen is the most abundant element in the universe. It makes up 75 percent of the mass of the universe and 90 percent of its molecules. Effectively harnessing it as a source of power would provide humanity with a virtually unlimited source of energy-the kind of energy elixir that has long eluded alchemists and chemists alike. In a way, Jules Verne's premonition of a hydrogen future was already becoming apparent by the last quarter of the l9th century. In less than a century fuel wood had given way to coal, and coal was being challenged by a new upstart, oil. The decarbonisation of energy that would inevitably lead to a hydrogen future was already well under way. Decarbonisation is a term scientists use to refer to the changing ratio of carbon to hydrogen atoms with each succeeding energy source. Fuel wood, which for most of history was humanity's primary energy fuel, has the highest ratio of carbon to hydrogen atoms, with ten carbon atoms per hydrogen atom. Among fossil fuels, coal has the highest carbon-to-hydrogen ratio, about one or two carbon atoms to one hydrogen atom. Oil has one carbon atom for every two hydrogen atoms, while natural gas has only one carbon atom to four hydrogen atoms. This means that each successive energy source emits less CO2, than its predecessor. Nebojsa Nakicenovic, of the International Institute for Applied Systems Analysis in Vienna, estimates that the carbon emission per unit of primary energy consumed globally has continued to fall about 0.3 percent per year over the past l40 years. Of course, because of the sheer volume of coal and oil being burned, CO2 emissions have nonetheless continued to rise during that time, increasing the earth's surface temperatures. While the current shift from coal and oil to natural gas promises to reduce the amount of CO, emissions per unit of energy burned even further, the volume of natural gas used will continue to mean more CO2 emissions and rising temperatures on earth, but not as much as would be the case if we were still relying primarily on coal or oil. The trend toward decarbonisation is at the heart of understanding the evolution of the energy system. Hydrogen completes the journey of decarbonisation. It contains no carbon atoms. Its emergence as the primary energy source of the future signals the end of the long reign of hydrocarbon energy in human

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Part IV – Ship Design and Case-Studies history. Hydrogen, the power source of the sun, (it makes up 30 percent of the mass of the sun), is being increasingly looked to as the great hope for humanity's continued advance on earth. It is the lightest and most immaterial of all forms of energy and the most efficient when burned. The steady progression from heavy to light and from material to immaterial in our forms of energy has paralleled, at every step of the way, the increasing weightlessness of industrial activity, from the onset of heavy steam-age technologies of early industrial capitalism to the light and virtual information-age technologies of the 21st century. Indeed, dematerialisation of energy and dematerialisation of economic activity invariably go hand in hand. Decarbonisation has meant not only the steady elimination of carbon atoms but, with it, the dematerialisation of energy-from solids (like coal) to liquids (oil) and now to gases (both natural gas and hydrogen). The shift in energy from solids to liquids to gases makes for a faster and more efficient energy throughput-oil travels faster through pipelines than coal is transported over rail, and gas travels even faster and more lightly through pipelines than liquid oil-and gives rise to like-minded technologies, goods, and services that are increasingly fast, efficient, light, and virtual. Hydrogen is ubiquitous here on earth and is found in water, fossil fuels, and all living things. The hydrogen in water and organic forms comprises 70 percent of the earth's surface. However, it rarely exists free-floating and alone, as do coal, oil, and natural gas. It is an energy carrier, a secondary form of energy that has to be produced, like electricity.

Producing hydrogen energy There are a number of ways to produce hydrogen. Today, nearly half the hydrogen produced in the world is derived from natural gas via a steam-reforming process. The natural gas reacts with steam in a catalytic converter. The process strips away the hydrogen atoms, leaving carbon dioxide as the byproduct. Coal can also be reformed through gasification to produce hydrogen, but this is more expensive than using natural gas. Hydrogen can also be processed from oil or biomass. While using steam to reform natural gas has proven the cheapest way to produce commercial hydrogen, natural gas is still a hydrocarbon and emits CO2 in the conversion process. Proponents argue that, in the future, the CO2 that is generated in the conversion process could be isolated and sequestered in underground storage sites, including depleted oil or gas fields and deep coal beds, although they acknowledge that this would increase the costs of producing the hydrogen. The feasibility of sequestration technology is still in doubt, and even proponents say that at best the commercial application is at least ten years away. Most industry analysts are convinced that, in the foreseeable future, natural gas and, to a lesser extent, other fossil fuels will be the primary sources of hydrogen. However, their analysis hinges on the risky assumption that enough cheap natural gas exists to meet not only the increasing demands for hydrogen but also the increasing demands of the electrical power industry in which a new generation of gas-fired plants is coming on line and is expected to provide much of our new electricity, at least in the U.S., in the coming decades. If, however, global peak production of natural gas occurs by 2020, as some geologists are now forecasting, then other ways of producing hydrogen will need to be found. Even the Electric Power Research Institute (EPRI), the think tank for the American Utilities Industry says in its own internal study that it may not be possible to generate enough natural gas at cheap prices to sustain the projected increases in electrical generation being projected, even before factoring in a significant increase in the use of natural gas to produce hydrogen. 789

Part IV – Ship Design and Case-Studies The EPRI study forecasts that natural-gas generation will increase from 15 to 60 percent over the next twenty years with the introduction of hundreds of new gas-fired generation plants. Despite the fact that power companies are already locked into gas-fired generating plants, EPRI's Dr. Gordon Hester says that, based on their study, "reliance on natural gas for electricity generation could not be maintained at such a high level for an extended period of time." Increasing demand for electricity, according to the institute, will likely cause the price of natural gas to rise, encouraging the shift to less-costly fuels that produce fewer emissions. The result, according to the EPRI study, would be that the use of natural gas to generate electricity would decline significantly after 2025. If natural gas will not be available in sufficient volume to meet the demands for electricity twenty years from now, then relying on it as a source of producing freestanding hydrogen seems misplaced. There is, however, another way to produce hydrogen without using fossil fuels in the process. Electrolysis uses electricity to split water into hydrogen and oxygen atoms. The process has been around for more than 100 years. Here is how it works: Two electrodes, one positive and the other negative, are submerged in pure water that has been made more conductive by the addition of an electrolyte. When electricity -direct current- is applied, the hydrogen bubbles up at the negatively charged electrode (the cathode) and oxygen at the positively charged electrode (the anode). Industrial electrolysis plants exist in a number of countries. The equipment includes the basic tank as well as an electric power converter to change alternating current to direct current, pipes to carry hydrogen and oxygen away from the cells, and equipment to dry the gases after they are separated from the electrolyte. Electrolysis has not been widely used - only 4 percent of the hydrogen produced annually is derived from electrolysis of water because the cost of the electricity used in the process makes it uncompetitive with the natural-gas steam-reforming process. The electricity can cost three to four times as much as steam-reformed natural-gas feedstock. This last point needs to be emphasised, because many observers have come to believe that the electrolyser process itself is expensive and inefficient, when in fact it is the cost of generating electricity in large, centralised power plants that makes the process so costly. The Institute of Gas Technology reports that most commercial electrolysers available today are capable of electricity-to-hydrogen efficiencies above 75 percent, while their capital-cost potential is far less than that of power stations that would be required to run them. The real question, then, is whether it is possible to use renewable forms of energy that are carbon free, like photovoltaic, wind, hydro, and geothermal, to generate the electricity that is used in the electrolysis process to split water into hydrogen and oxygen. A growing number of energy experts say yes, but with the qualification that the costs of employing renewable forms of energy will need to come down considerably to make the process competitive with the natural gas steam-reforming process. To harness the sun directly and turn it into useful energy has long been the dream of scientists and engineers. The amount of energy potentially available from the sun's rays is truly incredible. John Houghton tells us that "as much energy arrives at the earth from the sun in forty minutes as we use in a whole year." Capturing that sun was only a far-off vision l00 years ago. All over the world, no longer photovoltaic devices (PVs), using semiconductor material to convert sunlight into electricity, are being installed, and, while they are still expensive, their costs are coming down. The cost of solar cells has dropped 95 percent since the l97Os. PVs are already being used commercially as power sources for watches and calculators. Spacecraft use solar panels or possess solar arrays covered by PV cells, providing electric power for astronauts working in outer space. PV efficiency is between l0 and 20 percent, and a one-square-meter panel of cells produces between 100 and 200 watts of 790

Part IV – Ship Design and Case-Studies electrical power. The first successful large-scale harnessing of solar energy for electricity generation came in the 1980s. Nine solar thermal power plants using parabolic trough mirrors to capture the sun's rays were built in the Mojave desert between Las Vegas and Los Angeles. They provide 354 megawatts of electricity to homes and industry in the region.

Hydrogen and fuel cells Fuel cells have been briefly discussed in this book. Suffice it to say that hydrogen is the primary fuel for the fuel cell. The fuel cell power plants are being developed, also for maritime applications. Many companies are working to improve the fuel cell technology and to increase its output. At the European level, there exists a European Hydrogen and Fuel Cell Technology Platform61 like the ones for aeronautics Acare and Waterborne. They are also involved in the research for hydrogen production, but for the time being most of their efforts seems to be directed toward hydrogen production based on fossil fuels. In this out-of-the-box discussion of the hydrogen economy, the focus is not so much on the fuel cell technology and hydrogen production, but rather on the implications from large scale hydrogen production around the world for the shipping and ports sectors.

Hydrogen characteristics Hydrogen exists in nature in gaseous form and it is colourless, odourless, tasteless, non-toxic, lighter than air, flammable, and one suffocates in a confined space. It can be liquefied by compressing it to 800 bar, or cooling it to -253 C (20 Kelvin). Hydrogen is difficult to store because it has a very low volumetric energy density. It is the simplest and lightest element, even lighter than helium. Hydrogen gas is 3.2 times less energy dense than natural gas and 2700 times less energy dense than gasoline. Hydrogen contains 3.4 times more energy than gasoline on a weight basis. Hydrogen must be made more energy dense to be useful for transportation. There are three ways to do this. Hydrogen can be compressed, liquefied, or chemically combined. The laws of thermodynamics dictate the amount of energy it takes to compress a gas. The physical properties of hydrogen make it the most difficult of all gasses to compress. Hydrogen compressed to 800 bar occupies 3 times more volume than gasoline for the same energy. It is necessary to reach this density if a vehicle is to carry enough hydrogen to be practical. A pressure of 800 bars works out to 6 tons, or 12,000 lbs, per square inch. It is very difficult to contain such pressures safely in a lightweight tank. Catastrophic tank failure releases as much energy as an equal weight of dynamite. A tank made of high strength steel weighs 100 times more than the hydrogen it contains. A truck or an automobile using a steel tank would be impractical as the tank would weigh nearly as much as the vehicle. Liquid (cryogenic) hydrogen also occupies 3 times more volume than gasoline for the same energy. Paradoxically, there is more hydrogen in a gallon of gasoline than there is in a gallon of liquid hydrogen. The advantage of hydrogen liquefaction is that a cryogenic hydrogen tank is much lighter. Hydrogen's physical properties means hydrogen is harder to liquefy than any other gas except helium. There are significant and inevitable energy losses when hydrogen is liquefied. Energy losses depend strongly on plant capacity. Losses are 30% in the best case.

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Part IV – Ship Design and Case-Studies Hydrogen has one of the highest gravimetric energy densities of all available fuels, which means it has very high energy content per unit weight. As one of the lightest fuels available, one liter of hydrogen weighs only 0.07 kg. That is a density of 70.8 kg/m³ (at 20 K). Liquid hydrogen is colder than any other substance except liquid helium. The advantage of liquid hydrogen is that it can be stored in relatively lightweight tanks. A tank for cryogenic hydrogen is like a thermos bottle, but it must work much better. It consists of a tank within a tank with a vacuum between the two. The inner tank must be supported without conducting heat from it. A complicating factor is that hydrogen will leak into the chemical structure of the containment system and weaken it (hydrogen embrittlement). The third way of transporting hydrogen is as chemically combined hydrogen. Certain alkali metal hydrides release hydrogen when exposed to water. These metal hydrides hold enough hydrogen to make them useful for transportation. However, 70% of the energy is lost in the creation of the hydrides, making them unacceptable for widespread use. In short, hydrogen poses extreme challenges to develop an integrated logistic supply chain. If these challenges are not addressed, and solved, than the hydrogen economy as envisioned by Rifkin, will remain a pipedream. It will be evident that “out of the box” thinking and creativity of many “experts” will be required to address these challenges. The ambition of this chapter is to stimulate readers to start thinking about it, and hopefully develop new products, processes, services that can help solve this puzzle.

Very Large Hydrogen Carrier (VLHC) A hydrogen economy in the year 2050 will mean first of all an S-curve shift in seaborne fossil fuel shipping of crude oil, oil products, liquefied petroleum gas, liquefied natural gas, and the likes. So the first observation is that in the next forty years one of the largest segments in shipping may disappear if the scenarios about peak oil and gas become a reality. Forty years seems a long way off, but things might go even faster when the current increase in the price of fossil fuels continues to rise. Forty years is not very long for addressing and solving the large scale maritime transportation challenges of hydrogen. Those who find the “holy grail” first can be sure that they will find “a pot of gold at the end of the rainbow”. So the race is on. What are the main challenges from a shipping point of view? In the first place, liquefied hydrogen is very cold, -253 degrees Centigrade. That requires cryogenic techniques beyond the current LNG (-162 C) technology. But that can be done with some effort. A more difficult problem is that hydrogen molecules will embrittle the chemical structure of the containment system. Thus, new materials are required to solve that problem. A third challenge is very low density of liquefied hydrogen: 70.8 kg/m³ (- 253 C). Comparing it with LNG62, which has a density of 465 kg/ m³ (-162 C), shows that hydrogen is 6.5 times lighter. To relate this to the world of today, an LNG carrier of 150,000 m³ transports theoretically about 70,000 tons of liquefied natural gas. A hydrogen carrier with the same tank capacity in cubic meters transports only just over 10,000 tons. Hydrogen contains 3.4 times more energy than gasoline on a weight basis. This means that 10,000 tons of H2 should be equivalent to 34,000 tons of gasoil which has a specific gravity of about 800 kg/m³ or 42,500 m³. Although this is certainly not exactly correct, as a first approximation, one can 62

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Part IV – Ship Design and Case-Studies say that a Very Large Hydrogen Carrier (VLHC) - if it exists - of 150,000 m³ is from an energy content point of view equivalent to a product tanker of 42,500 m³. Thus, it take 3.5 times more ship capacity in volume terms to transport liquefied hydrogen than to transport gasoline. This is good news for shipowners, as a hydrogen economy would require a fleet of at least 4 times more VLHC than the present oil (products) tankers. To get an idea of the size of the dimensions of a large hydrogen carrier, the dimensions of a membrane type LNG of 137,100 m3 is shown in Figure 741. This LNG carrier, with a length of 263 metres, a breadth of 43.4 metres, and a draft of 11 metres, has a deadweight capacity of 76,000 tons, while the hydrogen carrier only transports 10,000 tons. This means that there should be huge ballast water capacity in the VLHC or the hull and ship should look completely different. Let us consider the alternatives that may reduce some of the constraints. For example a catamaran type of twin hull platform, in combination with an independent set of cryogenic tanks. The dimensions of the twin hulls can be adjusted in a way that no ballast water is required for fully laden and empty conditions.

Figure 741: 137,000 m3 LNG carrier A variation on the storage system could be tanks, or better containers, which can be transferred from the ship to shore, and even on to smaller shortsea vessels for coastal distribution to small ports, which this way do not need to invest in a cryogenic infrastructure. The boil-off of the liquid hydrogen will be used as a fuel in the fuel cells that drive the ship’s propeller. Reinhold Wurster and Dr. Werner Zittel, presented in 1994 a barge carrier ship for the transport of liquefied hydrogen (Figure 742).

Figure 742: Liquefied hydrogen carrier design63

63

http://www.hyweb.de/Knowledge/EcnͲh2a.html

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Part IV – Ship Design and Case-Studies Researchers from the three major Japanese shipbuilding and engineering conglomerates presented in 1996 innovative conceptual designs for a liquefied hydrogen carrier, using a twin hull to adept to the extremely light cargo characteristics of liquid hydrogen (Figure 743).

Figure 743: Conceptual twin-hull liquefied hydrogen carrier design64 We look forward to see creative solutions to those challenges!

Niko Wijnolst

64

Tor Wergeland

http://www.enaa.or.jp/WEͲNET/ronbun/1996/e1/ishikawa1996fig.html

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Chapter Notes

31.

CHAPTER NOTES

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805

Chapter Notes

31.2. Figures Figure 1: Seaborne trade, billion ton-miles (Fearnleys) ......................................................................... 8 Figure 2: Export, GDP and seaborne trade (Fearnleys), (World Bank, 2008) ....................................... 9 Figure 3: Volume/value relationships ni international trade (Fearnleys) (WTO) ................................ 10 Figure 4: GDP versus export growth 1970-2007 ................................................................................. 11 Figure 5: GDP versus export growth in the 1970s ............................................................................... 11 Figure 6: GDP versus export growth in the 1980s ............................................................................... 12 Figure 7: GDP versus export growth in the 1990s ............................................................................... 12 Figure 8: Correlation between GDP and export growth 2000-2007 .................................................... 13 Figure 9: GDP versus seaborne trade 1970-2007 ................................................................................. 13 Figure 10: GDP versus seaborne trade 1970s....................................................................................... 14 Figure 11: GDP versus seaborne trade 1980s....................................................................................... 14 Figure 12: GDP versus seaborne trade 1990s....................................................................................... 15 Figure 13: GDP versus seaborne trade 2000-2007 ............................................................................... 15 Figure 14: World exports versus seaborne trade 1970-2007 ................................................................ 16 Figure 15: World exports versus seaborne trade 1970s........................................................................ 16 Figure 16: World exports versus seaborne trade 1980s........................................................................ 17 Figure 17: World exports versus seaborne trade 1990s........................................................................ 17 Figure 18: World exports versus seaborne trade 2000-2007 ................................................................ 18 Figure 19: Shares of value of world exports for main aggregates, selected years (WTO) ................... 19 Figure 20: Shares of value of world exports for main aggregates 1980-2006 (WTO) ......................... 19 Figure 21: Indices of value development for selected commodity groups 1990-2006 (WTO) ............ 20 Figure 22: Comparison of value of total export vs. share of transport, 1986 (WTO) (UN, 1989) ....... 21 Figure 23: Seaborne trade development 1962-2007 (Fearnleys).......................................................... 22 Figure 24: Seaborne trade development 1962-2007, market shares (Fearnleys).................................. 23 Figure 25: Share of exports versus ton-miles 1986 (Wijnolst & Wergeland, 1996) ........................... 23 Figure 26: Share of imports versus ton-miles 1986 (Wijnolst & Wergeland, 1996)............................ 24 Figure 27: Ton-miles per US$ of trade 1986 (Wijnolst & Wergeland, 1996)..................................... 25 Figure 28: Crude oil seaborne trade 1962-2007 (Fearnleys) ................................................................ 27 Figure 29: Average length of haul in crude oil trades 1965-2007 (Fearnleys) (BP, 2008) .................. 27 Figure 30: Number of 250,000 dwt VLCCs required to carry 1 mbd .................................................. 28 Figure 31: Development of oil products shipments 1962-2007 ........................................................... 28 Figure 32: Development of oil world steel production 1991-2007 (Clarksons, 2008) ......................... 29 Figure 33: Development of iron ore shipments 1962-2007 (Fearnleys) .............................................. 30 Figure 34: Average length of haul (ALH) in iron ore trades (Fearnleys)............................................. 31 Figure 35: Quarterly import of iron ore in China 1993-Q1- 2008-Q3 (Clarksons, 2008) .................... 31 Figure 36: Development of coal shipments 1962-2007 (Fearnleys) .................................................... 33 Figure 37: Average length of haul in coal trades, 1962-2007 (Fearnleys) ........................................... 34 Figure 38: The development of grain trades (Fearnleys) (World Bank, 2008) .................................... 35 806

Chapter Notes Figure 39: The commodity distribution in seaborne trade in tons 1987 (Clarksons, 2008) ................ 43 Figure 40: The commodity distribution in seaborne trade in tons 2007 (Clarksons, 2008) ................. 43 Figure 41: Growth in dry bulk commodities 1986-2007 (Clarksons, 2008) ....................................... 45 Figure 42: Growth in liquid bulk commodities 1986-2007 (Clarksons, 2008) .................................... 45 Figure 43: Growth in selected commodity groups 1986-2007 (Clarksons, 2008) ............................... 46 Figure 44: Political events and earnings of Panamax vessels 1947-2007 ............................................ 47 Figure 45: World shipbuilding output 1947-2002 ................................................................................ 49 Figure 46: Shipbuilding output by country 1961-2002 ........................................................................ 50 Figure 47: Shipbuilding output by country 1961-2002 ........................................................................ 52 Figure 48: Shipbuilding output by country 1961-2002 ........................................................................ 54 Figure 49: World shipbuilding output ranking in GT .......................................................................... 55 Figure 50: World shipbuilding output ranking in number of ships ...................................................... 55 Figure 51: World shipbuilding 1996-2006 (CESA, 2007) ................................................................... 57 Figure 52: European shipbuilding 1996-2006 (CESA, 2007) .............................................................. 57 Figure 53: Shipbuilding value 1996-2006 ............................................................................................ 58 Figure 54: Share of CGT (%) ............................................................................................................... 59 Figure 55: World shipbuilding output (share of GT) ........................................................................... 60 Figure 56: World Shipbuilding capacity (million CGT) ...................................................................... 60 Figure 57: World completions versus estimated shipbuilding capacity (JAMRI, 1995) ..................... 61 Figure 58: Indicative newbuilding prices for selected ship types 1970-1993 ...................................... 62 Figure 59: Production of fast ships versus the number of active yards ................................................ 64 Figure 60: Simplified industry cost curve ............................................................................................ 65 Figure 61: Cost structure for a producer under perfect competition .................................................... 66 Figure 62: Cost structure for four producers ........................................................................................ 67 Figure 63: The counting unit problem .................................................................................................. 67 Figure 64: The industry cost curve for the shipbuilding industry 1993 ............................................... 72 Figure 65: Demand and supply picture - world shipbuilding 1992-1993............................................. 72 Figure 66: Possible price dynamics in the shipbuilding market ........................................................... 73 Figure 67: The industry cost curve for the VLCC shipbuilding segment 1993 ................................... 75 Figure 68: Price component development 1985-1988 for VLCCs in Japan......................................... 75 Figure 69: Total investments by vessel type ........................................................................................ 77 Figure 70: Tanker newbuilding prices.................................................................................................. 77 Figure 71: Scheduled output by region ................................................................................................ 78 Figure 72: Order book as percentage of existing fleet ......................................................................... 78 Figure 73: World merchant fleet .......................................................................................................... 81 Figure 74: Newbuilding versus demolition .......................................................................................... 82 Figure 75: Increase in international registers 1948-2002 ..................................................................... 86 Figure 76: Top-9 major flag states of 1948 against the rest of the world............................................. 88 Figure 77: Maritime zones ................................................................................................................... 90 Figure 78: Paradigm 1: Freedom of the seas ........................................................................................ 90 807

Chapter Notes Figure 79: Paradigm 2: Ship design and operations ............................................................................. 91 Figure 80: Paradigm 3: Protection of marine eco systems ................................................................... 92 Figure 81: Paradigm 4: Security of the seas ......................................................................................... 92 Figure 82: Paradigm 5: Common maritime space ................................................................................ 93 Figure 83: The context for shipping policy making (Roe, 2002) ......................................................... 95 Figure 84: Direct, indirect and other economic impacts (Wijnolst, Jenssen, & Sødal, 2003) .............. 97 Figure 85: Four dimensions of industry delimitation ......................................................................... 100 Figure 86: The five forces determining industry attractiveness, adapted from (Porter, 1985) ........... 102 Figure 87: Three generic strategies (Porter, 1985) ............................................................................. 107 Figure 88: The BCG Advantage Matrix (Boston Consulting Group, 1970) ...................................... 107 Figure 89: Strategic types of shipping ................................................................................................ 108 Figure 90: Examples of shipping segments as strategic types............................................................ 109 Figure 91: The dynamics of innovations in shipping ......................................................................... 110 Figure 92: Focus, orientation and skills for strategic types of shipping ............................................. 111 Figure 93: Tanker development 1970-2008 ....................................................................................... 113 Figure 94: Double-hull shares of fleet 1992-2008 ............................................................................. 114 Figure 95: Age profiles of crude and products tankers, 2008 ............................................................ 114 Figure 96: R/P ratio and reserves and production 1983-2006 ............................................................ 118 Figure 97: Production cost as a function of available oil (IEA, 2006) ............................................... 119 Figure 98: OPEC production and oil price development 1965-2007 (BP, 2008)............................... 119 Figure 99: World energy consumption 1965-2006 ............................................................................ 120 Figure 100: Energy consumption per capita 1965-2006 (BP, 2008) .................................................. 121 Figure 101: Net importing/exporting regions for oil until 2030 (IEA, 2008) .................................... 123 Figure 102: Oil consumption and crude oil seaborne trade 1965-2006 ............................................. 125 Figure 103: Average distances and OPEC market shares .................................................................. 126 Figure 104: The structure of demand and supply in the tanker market .............................................. 127 Figure 105: Freight rate development in selected tanker segments 1990-2008 ................................. 128 Figure 106: Recent trends in crude trades and tanker fleet forecast ................................................... 129 Figure 107: Fleet productivity and freight rates 1965-2007 ............................................................... 130 Figure 108: No economies of scale in tanker operations ................................................................... 132 Figure 109: Tanker industry attractiveness (indicated with arrows) .................................................. 134 Figure 110: Second-hand values of a 1975-built VLCC 1982-2001 .................................................. 134 Figure 111: Second-hand values for 5 year old VLCCs 1976-2007 .................................................. 135 Figure 112: Cruise market expansion ................................................................................................. 138 Figure 113: Cruise fleet development 1996-2008 (Clarksons, 2008) ................................................ 140 Figure 114: Turnover of top-3 cruise operators (ShipPax, 2007)....................................................... 142 Figure 115: Profitability of top-3 cruise operators (ShipPax, 2007) .................................................. 143 Figure 116: Cost comparison of RCL and Carnival (ShipPax, 2007) ................................................ 143 Figure 117: Evolution of North American and European cruise markets .......................................... 146 Figure 118: European cruise passengers by destination (ECC, 2007) ............................................... 148 808

Chapter Notes Figure 119: Consolidation path of the big three ................................................................................. 152 Figure 120: Current order book by year of delivery as percentage of total fleet (ShipPax, 2008)..... 153 Figure 121: Scrapping, losses (CTL) and conversions 1996-2006 .................................................... 153 Figure 122: Yearly growth rates of cruise demand and supply .......................................................... 154 Figure 123: Fulfilment of 2006 forecast regarding new orders (forecast vs real orders) ................... 155 Figure 124: Cruise industry attractiveness ......................................................................................... 156 Figure 125: Ferry market definition problems ................................................................................... 158 Figure 126: Hierarchy of ferry demands ............................................................................................ 164 Figure 127: The diversity of the top-5 ferry operators (ShipPax, 2008) ............................................ 166 Figure 128: The typical life of a Baltic ferry (Wergeland & Osmundsvaag, 1997) ........................... 173 Figure 129: Ferry industry attractiveness, from a route perspective .................................................. 176 Figure 130: The complex match of demand and supply for a ferry route .......................................... 176 Figure 131: Oil Creek, Allegheny River 1860 ................................................................................... 179 Figure 132: Atlantic ........................................................................................................................... 179 Figure 133: Zoroaster ......................................................................................................................... 179 Figure 134: Crude oil seaborne trade 1885 (Newton, 2002) .............................................................. 180 Figure 135: Glückauf ......................................................................................................................... 181 Figure 136: Murex .............................................................................................................................. 182 Figure 137: World oil production 1900-1940 .................................................................................... 182 Figure 138: Tanker fleet size .............................................................................................................. 183 Figure 139: Isherwood design ............................................................................................................ 185 Figure 140: World oil production 1940-1980 .................................................................................... 186 Figure 141: Suez Canal ...................................................................................................................... 186 Figure 142: Super tanker Universe Apollo and its designer............................................................... 187 Figure 143: From T2 tanker to ULCC................................................................................................ 187 Figure 144: Seaborne crude oil trade flows 1973 (Newton, 2002) .................................................... 188 Figure 145: Suez Canal development ................................................................................................. 188 Figure 146: Development of crude oil tankers ................................................................................... 189 Figure 147: Crude oil port facilities ................................................................................................... 190 Figure 148: Development in crude oil tanker dimensions.................................................................. 190 Figure 149: Crude carrier size ............................................................................................................ 191 Figure 150: Hellespont tanker series .................................................................................................. 191 Figure 151: Transport production in ton-miles .................................................................................. 192 Figure 152: Seaborne oil transport (million tons) .............................................................................. 192 Figure 153: Double hull versus single hull ........................................................................................ 193 Figure 154: Stena V-max ................................................................................................................... 194 Figure 155: Mid-deck tanker .............................................................................................................. 194 Figure 156: Rescue tank ..................................................................................................................... 194 Figure 157: Number of VLCCs delivered by year ............................................................................. 195 Figure 158: Single-hull versus double-hull 2008 ............................................................................... 195 809

Chapter Notes Figure 159: Seaborne crude oil trade flows 2000 (Newton, 2002) .................................................... 196 Figure 160: Seaborne oil trade ........................................................................................................... 197 Figure 161: World energy production ................................................................................................ 198 Figure 162: World Energy demand (million ton oil equivalent) ........................................................ 198 Figure 163: Reduction of North Pole Ice between 1979 and 2000 .................................................... 199 Figure 164: Double-acting tanker....................................................................................................... 199 Figure 165: ULCC - 442,470-dwt Hellespoint Fairfax ...................................................................... 200 Figure 166: VLCC - 310,000-dwt double-hull crude oil carrier Yufusan .......................................... 200 Figure 167: Suezmax - 150,000-dwt crude oil carrier Equator .......................................................... 201 Figure 168: Aframax - 115,000-dwt oil tanker Fucsia ....................................................................... 201 Figure 169: Panamax - 71,010-dwt crude oil tanker Sanko Commander .......................................... 202 Figure 170: Post-Panamax - 106,000-dwt product oil carrier Ruby Express 106,000 dwt ................ 202 Figure 171: Panamax - 74,999-dwt product oil carrier Summit America .......................................... 203 Figure 172: 47,000-dwt product tanker Jasmine Express .................................................................. 203 Figure 173: Oil and Asphalt Carrier - 7,146-dwt Tasco Amata ......................................................... 204 Figure 174: Grab for unloading bulk cargoes..................................................................................... 205 Figure 175: Liberty ship type bulk carriers ........................................................................................ 206 Figure 176: Ole Skaarup’s M/S Cassiopeia - ..................................................................................... 207 Figure 177: Sloped wing tanks ........................................................................................................... 207 Figure 178: Bulk carrier fleet 1954-1960 ........................................................................................... 208 Figure 179: Share of bulk carriers in the principle bulk market ......................................................... 209 Figure 180: Ore carrier Edmund Fitzgerald ....................................................................................... 209 Figure 181: Iron ore import to Japan, share per ship size category .................................................... 213 Figure 182: Development in bulk carrier dimensions ........................................................................ 214 Figure 183: Seaborne bulk trade production (ton-miles) ................................................................... 216 Figure 184: World dry bulk shipments (tons) .................................................................................... 216 Figure 185: World dry bulk shipments of minor bulks (Clarkson) .................................................... 217 Figure 186: World dry bulk trade in 2007 .......................................................................................... 217 Figure 187: Dry bulk demand trend ................................................................................................... 218 Figure 188: China’s steel industry...................................................................................................... 219 Figure 189: Capesize supply and demand balance to 2016 ................................................................ 219 Figure 190: Dry bulk terminals .......................................................................................................... 221 Figure 191: Self-unloading bulk carrier ............................................................................................. 221 Figure 192: Self-unloading cement carrier ......................................................................................... 222 Figure 193: Known or possible structural failure of <20,000 dwt bulk carriers ................................ 222 Figure 194: Structural bulk carrier failing .......................................................................................... 223 Figure 195: Optimum 2000 design ..................................................................................................... 223 Figure 196: Capesize bulk carrier - 176,882-dwt NSS Grandeur....................................................... 224 Figure 197: Ore Carrier - 229,045-dwt Gaia Celebris ........................................................................ 225 Figure 198: Panamax bulk carrier - 75,777-dwt Ikan Bayan ............................................................. 225 810

Chapter Notes Figure 199: Handymax bulk carrier - 52,454-dwt JBU Orient .......................................................... 226 Figure 200: Handysize bulk carrier - 28,447-dwt Shimanami Star .................................................... 226 Figure 201: Wood chip carrier - 3,900,000-cu.ft Mimosa Africana................................................... 227 Figure 202: Bulk carrier/Open-hatch type - 48,000-dwt Star Osaka .................................................. 227 Figure 203: Self-unloading bulk carrier - Bahama Spirit ................................................................... 228 Figure 204: Cement carrier - 4,576-dwt Hiraozan Maru .................................................................... 228 Figure 205: Ideal X ............................................................................................................................ 230 Figure 206: Hawaiian Merchant ......................................................................................................... 230 Figure 207: A-frame container crane ................................................................................................. 231 Figure 208: Ms Fairland unloading in Rotterdam, 3 May 1966 ......................................................... 231 Figure 209: Cost per cu.ft between Europe and Far East by conventional liner ................................ 233 Figure 210: Nedlloyd Dejima ............................................................................................................. 233 Figure 211: Roundtrip time ................................................................................................................ 234 Figure 212: Generations of container ships ........................................................................................ 235 Figure 213: Development of the container fleet ................................................................................. 236 Figure 214: Evolution of container ship size...................................................................................... 236 Figure 215: First post-Panamax container ship .................................................................................. 238 Figure 216: 22 container-wide gantry crane ....................................................................................... 239 Figure 217: Three spreaders handling container simultaneously ....................................................... 240 Figure 218: Ratio between container under deck and on deck ........................................................... 240 Figure 219: Accident with on-deck containers ................................................................................... 241 Figure 220: The lashing of containers ................................................................................................ 241 Figure 221: Container ships cross sections compared ........................................................................ 242 Figure 222: Bell Pioneer, the first hatchless container ship ............................................................... 242 Figure 223: Nedlloyd open-top container ship ................................................................................... 242 Figure 224: Modern open-top container ship ..................................................................................... 243 Figure 225: Full containers shipped worldwide ................................................................................. 244 Figure 226: (Dis)-economies of scale ................................................................................................ 244 Figure 227: Post-Panamax containership - 6,500-TEU NYK Atlas ................................................... 246 Figure 228: Panamax containership - 4,700-TEU MOL Efficiency .................................................. 246 Figure 229: Container ship - 2,800-TEU OOCL Xiamen .................................................................. 247 Figure 230: Feeder container ship - 1,000-TEU Hyundai Concord ................................................... 247 Figure 231: Petrobas Oeste................................................................................................................. 249 Figure 232: Boiling points of gases .................................................................................................... 251 Figure 233: Semi-membrane tank ...................................................................................................... 251 Figure 234: Cylindrical cargo tanks ................................................................................................... 252 Figure 235: Bi-lobe cargo tank ........................................................................................................... 252 Figure 236: Methane .......................................................................................................................... 254 Figure 237: Methane Pioneer ............................................................................................................. 254 Figure 238: Methane Princess and Methane Progress ........................................................................ 256 811

Chapter Notes Figure 239: Kværner-Moss ................................................................................................................ 257 Figure 240: SPB Tank ........................................................................................................................ 258 Figure 241: National gas hydrate transport system ............................................................................ 258 Figure 242: CNG carrier..................................................................................................................... 259 Figure 243: LNG FPSO...................................................................................................................... 259 Figure 244: Anthony Veder LNG/LPG/Ethylene carrier ................................................................... 260 Figure 245: Arctic Discover ............................................................................................................... 260 Figure 246: Evolution of LNG carriers .............................................................................................. 261 Figure 247: LNG tanker (Moss tank type) - 135,000-m3 Pacific Notus............................................. 261 Figure 248: LNG Tanker (membrane tank type) - 137,100-m3 Puteri Mituari Satu .......................... 262 Figure 249: LNG tanker (pressure type) - 2,500-m3 Shinju Maru No. 1............................................ 262 Figure 250: LPG tanker - 78,000-m3 Leto Providence ....................................................................... 263 Figure 251: LPG/NH3 (ammonia) tanker - 59,000-m3 Berge Nice .................................................... 263 Figure 252: LPG tanker: - 22,779-m3 Mado ...................................................................................... 264 Figure 253: Stolt parcel tanker 1959 .................................................................................................. 266 Figure 254: Effect of chemical cargo characteristics on ship design ................................................. 267 Figure 255: Chemical tank arrangements ........................................................................................... 268 Figure 256: Modern chemical tanker ................................................................................................. 269 Figure 257: Inside of a stainless steel tank ......................................................................................... 269 Figure 258: Millennium Explorer....................................................................................................... 270 Figure 259: Difference between a chemical parcel and a chemical product tanker ........................... 270 Figure 260: Chemical products terminal ............................................................................................ 271 Figure 261: Cylinder tanker ............................................................................................................... 272 Figure 262: Development of seaborne trade in chemicals 1982-1994 ............................................... 273 Figure 263: Chemical seaborne trade composition 1994 ................................................................... 273 Figure 264: Edible oils ....................................................................................................................... 274 Figure 265: Vegetable oil trade - Vessel types ................................................................................... 274 Figure 266: Retrofit juice tanker ........................................................................................................ 275 Figure 267: Chemical tanker - 46,383-dwt Caribbean Spirit ............................................................. 276 Figure 268: Chemical tanker - 25,452-dwt Ginga Tiger .................................................................... 276 Figure 269: Chemical tanker - 8,626-dwt Sunrise Rosa..................................................................... 277 Figure 270: Conventional heavy-lift ship ........................................................................................... 280 Figure 271: Semi-submersible............................................................................................................ 280 Figure 272: Dock lift with heavy cranes ............................................................................................ 280 Figure 273: Modern cargo ro-ro vessel .............................................................................................. 281 Figure 274: Passenger ro-ro vessel ..................................................................................................... 281 Figure 275: Frictional resistance ........................................................................................................ 281 Figure 276: Lift triangle ..................................................................................................................... 282 Figure 277: Monohull......................................................................................................................... 282 Figure 278: Catamaran ....................................................................................................................... 283 812

Chapter Notes Figure 279: Wave-piercing catamaran ............................................................................................... 283 Figure 280: Trimaran ......................................................................................................................... 283 Figure 281: Hydrofoil......................................................................................................................... 284 Figure 282: SWATH .......................................................................................................................... 284 Figure 283: Hovercraft ....................................................................................................................... 284 Figure 284: Surface Effect Ship (SES)............................................................................................... 285 Figure 285: Ekranoplane .................................................................................................................... 285 Figure 286: Hydrofoil/swath .............................................................................................................. 286 Figure 287: Wave-piercing trimaran .................................................................................................. 286 Figure 288: Ropax trimaran ............................................................................................................... 286 Figure 289: Twin M-Hull ................................................................................................................... 286 Figure 290: Pure car and truck carrier (PCTC) .................................................................................. 287 Figure 291: Conventional reefer ship ................................................................................................. 289 Figure 292: Development of reefer capacity ...................................................................................... 289 Figure 293: Side-loading .................................................................................................................... 290 Figure 294: Reefers ship with deck reefer capacity ........................................................................... 290 Figure 295: Livestock carrier ............................................................................................................. 291 Figure 296: Barge carrier ................................................................................................................... 292 Figure 297: Tug Barge system ........................................................................................................... 292 Figure 298: Supply and demand for cruise vessel capacity (actual and forecast) .............................. 293 Figure 299: Ship capacity by time ..................................................................................................... 294 Figure 300: 5,400-passenger ship Genesis ......................................................................................... 294 Figure 301: 10,000-passenger ship Princess Kaguya ........................................................................ 294 Figure 302: Suction hopper dredger ................................................................................................... 295 Figure 303: Semi-submersible drill ship ............................................................................................ 295 Figure 304: Seismic survey vessel ..................................................................................................... 296 Figure 305: Pipe-laying vessel ........................................................................................................... 296 Figure 306: Rocket launcher .............................................................................................................. 296 Figure 307: Harbour tug ..................................................................................................................... 297 Figure 308: Anchor handling tug supply vessel with Ulstein X-Bow ................................................ 297 Figure 309: Ice-breaker ...................................................................................................................... 298 Figure 310: Submarine ....................................................................................................................... 298 Figure 311: Frigate ............................................................................................................................. 299 Figure 312: General cargo ship - 32,300-dwt IVS Nightjar ............................................................... 299 Figure 313: Multipurpose cargo ship - 17,913-dwt Coral Islander II ................................................ 300 Figure 314: Conventional heavy-lift vessel - 12,744-dwt Beluga Efficiency .................................... 300 Figure 315: Heavy-lift dock ship - 8,727-dwt Enterprise................................................................... 301 Figure 316: Heavy-lift semi-submersible - 35,030-dwt Transshelf ................................................... 301 Figure 317: Ro-ro cargo vessel - 6,389-dwt Musashi Maru ............................................................... 302 Figure 318: Ro-ro container vessel - 4,000-dwt Himawari 2 ............................................................. 302 813

Chapter Notes Figure 319: Ropax - 4,428-dwt European Highlander ....................................................................... 303 Figure 320: Pure car and truck carrier (PCTC) - 6,600-CEU Torrens ............................................... 303 Figure 321: Pure car and truck carrier (PCTC) - 2,000-CEU Toyofujimaru ..................................... 304 Figure 322: Reefer vessel - 199,618-cu.ft Antilla .............................................................................. 304 Figure 323: Reefer vessel - 626,011-cu.ft Lombok Strait .................................................................. 305 Figure 324: 13,462-dwt livestock carrier ........................................................................................... 305 Figure 325: Suction dredger - 3,028-dwt Hakusan ............................................................................ 306 Figure 326: Drilling vessel - Hikyu .................................................................................................... 306 Figure 327: Crane vessel - 21,858-dwt Saipem 3000......................................................................... 307 Figure 328: Pipe layer - 73,800-dwt Audachi .................................................................................... 307 Figure 329: Towing/salvage tug - Fairmount Alpine ......................................................................... 308 Figure 330: Transport performance EU-25 by mode ......................................................................... 309 Figure 331: EU transport network ...................................................................................................... 310 Figure 332: Number of ships by year of built .................................................................................... 311 Figure 333: Number of ships by deadweight class ............................................................................. 312 Figure 334: Average deadweight per age class, for selected ship types............................................. 313 Figure 335: General cargo ships ......................................................................................................... 314 Figure 336: Product tankers ............................................................................................................... 314 Figure 337: Ro-ro ships ...................................................................................................................... 315 Figure 338: Container ships ............................................................................................................... 315 Figure 339: Chemical tankers............................................................................................................. 316 Figure 340: LPG tankers .................................................................................................................... 316 Figure 341: Swedish coast line ........................................................................................................... 320 Figure 342: Artist impression ............................................................................................................. 321 Figure 343: General arrangement ....................................................................................................... 321 Figure 344: Ship’s (un)loading system .............................................................................................. 322 Figure 345: 38-knot container ship .................................................................................................... 323 Figure 346: TTS fully-automated loading and terminal concept ....................................................... 323 Figure 347: Automated guide vehicle cargo-handling system ........................................................... 323 Figure 348: Automated container handling for inland ships .............................................................. 324 Figure 349: Automated container handling for inland ships .............................................................. 325 Figure 350: Sea-river ship .................................................................................................................. 325 Figure 351: Sea-river fleet size .......................................................................................................... 326 Figure 352: NorthSea Rhine Express ................................................................................................. 326 Figure 353: Three transport markets .................................................................................................. 327 Figure 354: Shortsea car carrier ......................................................................................................... 328 Figure 355: Tug barge car carrier ....................................................................................................... 328 Figure 356: Midship section of tug barge car carrier ......................................................................... 329 Figure 357: River and coastal car carrier .......................................................................................... 329 Figure 358: Transport of paper reels .................................................................................................. 330 814

Chapter Notes Figure 359: Logistical costs ............................................................................................................... 331 Figure 360: “Reels on Wheels” .......................................................................................................... 331 Figure 361: Alternative tank configurations ...................................................................................... 332 Figure 362: Ship depreciation calculation .......................................................................................... 335 Figure 363: Calculation of interest costs ............................................................................................ 336 Figure 364: Cash flow in shipping ..................................................................................................... 337 Figure 365: Main capital cost treatment options ................................................................................ 337 Figure 366: Value of Euro versus Dollar ........................................................................................... 338 Figure 367: Number of officers by country (Drewry, 2007/08) ........................................................ 342 Figure 368: Development of seafaring populations by time (Drewry, 2007/08) ............................... 343 Figure 369: Product tanker manning costs per month (Drewry, 2007/08) ......................................... 344 Figure 370: Maintenance and repair ................................................................................................... 345 Figure 371: Trend in price averages 1997 versus 2006 (Drewry, 2007/08) ....................................... 346 Figure 372: Indexed hull insurance premium and forecast (as from 2007)........................................ 348 Figure 373: Administration functions and cost areas (Drewry, 2007/08) .......................................... 348 Figure 374: Management activities (Drewry, 2007/08) ..................................................................... 349 Figure 375: Operating costs of bulk carriers, forecast as from 2006 (Drewry, 2007/08)................... 349 Figure 376: Bunker price development (HFO 380 Cst) ..................................................................... 350 Figure 377: Division between owner’s and charterer’s costs (Drewry, 2007/08) .............................. 352 Figure 378: S-Curve ........................................................................................................................... 354 Figure 379: Generations of benchmarking ......................................................................................... 354 Figure 380: Traditional versus reverse engineering design process ................................................... 355 Figure 381: Double-hull tanker designs ............................................................................................. 357 Figure 382: Deadweight as a function of the year of built ................................................................. 360 Figure 383: Speed as a function of the year of built........................................................................... 360 Figure 384: Heavy fuel oil consumption as a function of year of built .............................................. 361 Figure 385: Charter rate as function of age ........................................................................................ 362 Figure 386: Charter rates: Business cycles......................................................................................... 363 Figure 387: Charter rate index: Business cycle eliminated ................................................................ 364 Figure 388: Cost and fuel consumption versus year of built .............................................................. 368 Figure 389: S-curve shift in aviation .................................................................................................. 369 Figure 390: S-curve in cycling ........................................................................................................... 369 Figure 391: Egyptian heavy-lift vessel ............................................................................................... 370 Figure 392: Trireme ........................................................................................................................... 370 Figure 393: Viking long ship.............................................................................................................. 371 Figure 394: Hanseatic Cog ................................................................................................................. 371 Figure 395: Ships of world discoverers Columbus (left) and Zhen He (right)................................... 371 Figure 396: Cutty Sark ....................................................................................................................... 372 Figure 397: Thomas W. Lawson ........................................................................................................ 372 Figure 398: Steam engine ................................................................................................................... 373 815

Chapter Notes Figure 399: Jouffrey d’Abbans’ steam ship ....................................................................................... 373 Figure 400: Sail-assisted paddle steamer ........................................................................................... 374 Figure 401: Wooden screw propeller ................................................................................................. 374 Figure 402: SS Great Britain .............................................................................................................. 375 Figure 403: 3-cylinder compound engine in SS Christopher Columbus ............................................ 375 Figure 404: Rudolf Diesel’s diesel engine ......................................................................................... 376 Figure 405: First diesel engine powered motor ships ......................................................................... 376 Figure 406: Development of the number of turbine tankers delivered............................................... 377 Figure 407: S-curves in propulsion technologies ............................................................................... 378 Figure 408: Nuclear powered ............................................................................................................. 379 Figure 409: Sail power ....................................................................................................................... 379 Figure 410: Solar power ..................................................................................................................... 379 Figure 411: Different propulsion technologies compared .................................................................. 380 Figure 412: Revolutionary pentamaran design................................................................................... 381 Figure 413: The technology S-curve .................................................................................................. 381 Figure 414: Holders of the Blue Riband ............................................................................................ 383 Figure 415: Sea-Land’s SL-7 class of container ships ....................................................................... 384 Figure 416: Fuel consumption as a function of speed ........................................................................ 384 Figure 417: Lift triangle ..................................................................................................................... 386 Figure 418: Winged Air Induction Pipe (WAIP) ............................................................................... 386 Figure 419: Suez Canal maximum draught ........................................................................................ 388 Figure 420: Expansion of the Panama Canal locks ............................................................................ 388 Figure 421: NOx emissions in g/kWh................................................................................................. 391 Figure 422: Energy efficiency ............................................................................................................ 392 Figure 423: Power turbine for waste heat recovery............................................................................ 392 Figure 424: Ballast-free ship .............................................................................................................. 393 Figure 425: Ship measurement ........................................................................................................... 393 Figure 426: Turret ship ....................................................................................................................... 394 Figure 427: Tonnage measurement .................................................................................................... 395 Figure 428: Approximate relation between gross volume and gross tonnage .................................... 396 Figure 429: Fuel cells ......................................................................................................................... 398 Figure 430: Fuel cell machine ............................................................................................................ 398 Figure 431: S-Curves in design methodology .................................................................................... 399 Figure 432: Innovation triggers .......................................................................................................... 401 Figure 433: Limits to economies of scale of crude carriers ............................................................... 402 Figure 434: Rotterdam oil imports - Market share HLH range .......................................................... 402 Figure 435: Rotterdam iron ore imports - Market share HLH range.................................................. 403 Figure 436: Relationship between length and draught of three ship types ......................................... 404 Figure 437: Hub port draught limits ................................................................................................... 405 Figure 438: Multi-porting versus hub-feedering ................................................................................ 406 816

Chapter Notes Figure 439: Maasvlakte alternatives................................................................................................... 407 Figure 440: Four stages in national competitive development ........................................................... 410 Figure 441: The linear model and the market model ......................................................................... 411 Figure 442: Two extreme models of the innovation process.............................................................. 412 Figure 443: Interactive model of the innovation process ................................................................... 412 Figure 444: Schmookler’s model of demand-led invention ............................................................... 413 Figure 445: Hessen’s model of technology and demand-led science ................................................. 413 Figure 446: Diagram of Schumpeter’s model of entrepreneurial innovation (I) ................................ 413 Figure 447: Diagram of Schumpeter’s model of firm-managed innovation (II) ................................ 414 Figure 448: Network model ............................................................................................................... 415 Figure 449: Definition of reasearch.................................................................................................... 417 Figure 450: Overall innovation performance: the EIS Summary Innovation Index .......................... 419 Figure 451: Convergence in Innovation Performance........................................................................ 420 Figure 452: Innovation efficiencies .................................................................................................... 420 Figure 453: The product life-cycle - four-phase model...................................................................... 421 Figure 454: Product and process innovation ...................................................................................... 422 Figure 455: Schematic overview of the Kondratiev waves ................................................................ 423 Figure 456: Stages in a dry market cargo cycle ................................................................................. 430 Figure 457: Demand-technology-product life cycle........................................................................... 431 Figure 458: Demand-technology-product life cycle........................................................................... 432 Figure 459: Filtering process of management information ................................................................ 433 Figure 460: Mentality and turbulence ................................................................................................ 434 Figure 461: The value system ............................................................................................................ 435 Figure 462: The generic value chain .................................................................................................. 435 Figure 463: Categories of risky situations .......................................................................................... 437 Figure 464: Process-based innovation model ..................................................................................... 439 Figure 465: Conceptual model of the diffusion process of innovation .............................................. 441 Figure 466: Graphical representation of the diffusion process........................................................... 443 Figure 467: Car circulation in Europe ................................................................................................ 444 Figure 468: The virtuous circle .......................................................................................................... 444 Figure 469: The virtuous circle broken .............................................................................................. 445 Figure 470: The new business model of open innovation .................................................................. 446 Figure 471: The cash curve ................................................................................................................ 448 Figure 472: Taylor’s theory of creativity based on the actualisation theory ...................................... 452 Figure 473: Structure-of-Intellect model ............................................................................................ 453 Figure 474: Two visual gestalts or paradigms .................................................................................... 461 Figure 475: Mind mapping ................................................................................................................. 468 Figure 476: Categories of idea generation.......................................................................................... 469 Figure 477: Three types of problems ................................................................................................. 470 Figure 478: Four approaches to creativity .......................................................................................... 471 817

Chapter Notes Figure 479: Distinction between creativity and innovation................................................................ 471 Figure 480: The waiting problem ....................................................................................................... 473 Figure 481: Osborn’s 1953 seven-stage CPS process ........................................................................ 474 Figure 482: Osborn’s 1963 three-stage CPS process ......................................................................... 475 Figure 483: Isaksen and Treffinger’s six-stage model of CPS ........................................................... 476 Figure 484: Factors creating a stimulating business environment (Porter, 1990) .............................. 480 Figure 485: Clusters and their effect .................................................................................................. 484 Figure 486: Leader firm impact on a cluster, adapted from (Langen & Nijdam, 2003) .................... 490 Figure 487: Structure of Norwegian maritime cluster, based on (Benito, 2000) ............................... 494 Figure 488: Value creation in the maritime industry of Norway ....................................................... 497 Figure 489: Share of value creation ................................................................................................... 498 Figure 490: Value creations by sector, average 2002-2004 ............................................................... 499 Figure 491: Number of employees by region, Average 2002-2004 ................................................... 499 Figure 492: Maritime share of total wage costs ................................................................................. 500 Figure 493: Share of maritime firms with no or weak linkages to other maritime firms ................... 501 Figure 494: R&D invents and level of innovativeness ....................................................................... 502 Figure 495: Percentage of companies investing <1% of revenues on competence building.............. 502 Figure 496: Share of national firms versus policy index (Jakobsen & Mortensen, 2003) ................. 503 Figure 497: Danish maritime cluster .................................................................................................. 505 Figure 498: Gross earnings from Danish shipping in the balance of payments ................................. 508 Figure 499: Main types of company integration ................................................................................ 516 Figure 500: Classification of ships in relation to R, D&I intensity .................................................... 524 Figure 501: Definition of ship dimensions ......................................................................................... 533 Figure 502: Definition of ship dimensions ......................................................................................... 534 Figure 503: Plimsoll mark .................................................................................................................. 535 Figure 504: Block coefficient (Dokkum, 2003) ................................................................................. 536 Figure 505: Water lines (Dokkum, 2003) .......................................................................................... 536 Figure 506: Lines plan (Dokkum, 2003) ............................................................................................ 537 Figure 507: General arrangement ....................................................................................................... 538 Figure 508: Static forces acting on the ship’s hull (Dokkum, 2003) .................................................. 538 Figure 509: Dynamic forces (Dokkum, 2003) ................................................................................... 539 Figure 510: Centre of gravity and buoyancy ...................................................................................... 539 Figure 511: Vessel stability ................................................................................................................ 540 Figure 512: Fundamentally different views of a ship (Levander, Jahkola, & Raouta) ...................... 541 Figure 513: Cost formulas by speed ................................................................................................... 543 Figure 514: Basic design spiral .......................................................................................................... 546 Figure 515: Reefer capacity as a function of length ........................................................................... 548 Figure 516: ISO lines related to the ship’s length and block coefficient ........................................... 549 Figure 517: Deadweight carriers and capacity carriers ...................................................................... 558 Figure 518: Initial sizing of double-hull tankers ................................................................................ 559 818

Chapter Notes Figure 519: Initial sizing of cruise ships ............................................................................................ 559 Figure 520: Swedish ship measurement from 1723 (Lessenich, 2002) .............................................. 560 Figure 521: Relation between gross tonnage and gross volume ........................................................ 561 Figure 522: DWT/Displacement ........................................................................................................ 561 Figure 523: Speed and power ............................................................................................................. 562 Figure 524: Lightweight density ........................................................................................................ 562 Figure 525: The ship-design process .................................................................................................. 563 Figure 526: Payload and ship functions ............................................................................................. 563 Figure 527: System-based ship design ............................................................................................... 564 Figure 528: The 40 ft and 20 ft ISO containers .................................................................................. 566 Figure 529: Containers stacked on top of each other ......................................................................... 567 Figure 530: Up to 10 layers of containers can be stacked on top of each other ................................. 567 Figure 531: Stacking of containers onboard....................................................................................... 568 Figure 532: Shore-based container cranes.......................................................................................... 568 Figure 533: The crane spreader attaches to the corner fittings of the container ................................. 569 Figure 534: Transport of containers to and from the quay-side cranes in port .................................. 569 Figure 535: Straddle carrier (left) and reach stacker (right) ............................................................... 569 Figure 536: Rubber-tired gantry crane for container transfer to road vehicles or rail wagons .......... 570 Figure 537: Container stackers used to load deck containers on a small feeder vessel...................... 570 Figure 538: Shipboard cranes for container handling ........................................................................ 571 Figure 539: Containers stowed in the holds, on hatches and on deck ................................................ 571 Figure 540: Cell guides and corner fittings are used to support containers in the cargo .................... 572 Figure 541: Lashing the containers on hatch covers or on deck ........................................................ 572 Figure 542: Lashing of containers stowed on deck ............................................................................ 573 Figure 543: 2,500-TEU container vessel ............................................................................................ 573 Figure 544: Finite element calculation of the hull stresses in a container vessel ............................... 574 Figure 545: Mid-ship section showing the double hull and box structure under the narrow side decks ............................................................................................................................. 574 Figure 546: Open top container vessel ............................................................................................... 575 Figure 547: Container rows and stack heights in the holds and on deck for vessels ......................... 576 Figure 548: Panamax container vessel, 11 rows in the hold, 13 rows on deck .................................. 577 Figure 549: Panama new lock limits compared to Suez Canal .......................................................... 577 Figure 550: Mission description for a 3,000-TEU container vessel ................................................... 579 Figure 551: Payload function and ship function for container ships .................................................. 580 Figure 552: Containers carried in the cargo holds and on deck ......................................................... 582 Figure 553: Cargo hold, transverse section ........................................................................................ 583 Figure 554: Cargo hold, longitudinal section ..................................................................................... 583 Figure 555: Open and closed spaces in Gross Tonnage calculation................................................... 584 Figure 556: Volume of cargo holds in relation to total TEU capacity ............................................... 584 Figure 557: Number of crew on container vessels ............................................................................. 587 819

Chapter Notes Figure 558: Propulsion and auxiliary power ...................................................................................... 589 Figure 559: Power in trial and service condition................................................................................ 589 Figure 560: Container ship statistics .................................................................................................. 593 Figure 561: Container ship statistics .................................................................................................. 593 Figure 562: Lightweight and deadweight main groups ...................................................................... 594 Figure 563: Statistical data for lightweight calculation ...................................................................... 596 Figure 564: Statistical data for lightweight calculation ...................................................................... 597 Figure 565: Statistical data for lightweight calculation ...................................................................... 598 Figure 566: Lightweight distribution ................................................................................................. 599 Figure 567: Container vessel weight statistics ................................................................................... 600 Figure 568: Building cost distribution................................................................................................ 600 Figure 569: Main dimensions for container vessels ........................................................................... 602 Figure 570: Main dimensions for container vessels ........................................................................... 603 Figure 571: Main dimensions for container vessels ........................................................................... 603 Figure 572: Recommended hull form coefficients ............................................................................. 604 Figure 573: Recommended hull slenderness ratio.............................................................................. 604 Figure 574: Recommended position of the LCB ................................................................................ 605 Figure 575: Recommended section area curves for different block coefficients ............................... 605 Figure 576: Lay out of hull, container holds and deckhouse ............................................................. 606 Figure 577: Variation of hull block coefficient and water plane area coefficient .............................. 608 Figure 578: Hull is divided in horizontal layers by each deck, from double bottom to upper deck .............................................................................................................................. 610 Figure 579: Influence of length and breadth on power demand for 24 knots .................................... 612 Figure 580: General arrangement of 1,200-TEU open-top container vessel ...................................... 614 Figure 581: General arrangement of 3,000-TEU Panamax container vessel, with hatch covers ....... 614 Figure 582: Shortsea ro-ro Vessel ...................................................................................................... 615 Figure 583: Two-level drive ramp...................................................................................................... 616 Figure 584: Floating link span for ports with high tidal water level variation ................................... 616 Figure 585: Quarter stern ramp for deepsea ro-ro vessel ................................................................... 616 Figure 586: Deepsea ro-ro vessel with quarter stern ramp ................................................................. 617 Figure 587: Ro-ro port terminal ......................................................................................................... 617 Figure 588: Road vehicles are well-suited for ro-ro vessels .............................................................. 618 Figure 589: Intermodal cargo units .................................................................................................... 618 Figure 590: Truck and semi-trailer ..................................................................................................... 619 Figure 591: Terminal tractors used for loading and unloading the semi-trailers on ro-ro vessels ..... 619 Figure 592: Truck and full trailer ....................................................................................................... 620 Figure 593: Rail gauges and rail wagon max dimensions .................................................................. 620 Figure 594: Covered rail wagons with swap bogies for 1435/1524 mm rail gauge ........................... 621 Figure 595: Road vehicles are the main cargo for ro-ro vessels ........................................................ 621 Figure 596: Semi-trailer transfer to rail wagon .................................................................................. 622 820

Chapter Notes Figure 597: Reloading containers into a feeder vessel ....................................................................... 622 Figure 598: Terminal tractor with detachable gooseneck for roll trailers .......................................... 623 Figure 599: Terminal tractor with lift-trailer for the wheel-less cassettes ......................................... 623 Figure 600: Double-stacked containers on cassette............................................................................ 624 Figure 601: Cassette dimensions and axle loads ................................................................................ 624 Figure 602: Terminal tractor with lift trailer for cassette handling .................................................... 625 Figure 603: Ro-ro ship with several cargo decks ............................................................................... 626 Figure 604: Double stern ramps ......................................................................................................... 626 Figure 605: Payload and ship function for ro-ro vessels .................................................................... 627 Figure 606: Payload distribution on different decks .......................................................................... 631 Figure 607: Enclosed and open cargo spaces ..................................................................................... 631 Figure 608: Crew and service spaces ................................................................................................. 632 Figure 609: Machinery spaces, tanks and voids ................................................................................. 632 Figure 610: Relation between cargo lane-metres and gross tonnage ................................................. 634 Figure 611: Main dimensions and deadweight for ro-ro vessels ........................................................ 635 Figure 612: Vessel with diesel-mechanical main propeller and electric contra-rotating pod ............ 636 Figure 613: Vessel with diesel-mechanical main propeller and electric contra rotating pod ............. 637 Figure 614: Ro-ro vessel with 2600 lane-metre cargo capacity ......................................................... 638 Figure 615: Fast ro-ro vessel .............................................................................................................. 639 Figure 616: Sea keeping test in head seas .......................................................................................... 639 Figure 617: Macro cassette cargo handling ........................................................................................ 640 Figure 618: Ro-ro for macro cassettes ............................................................................................... 640 Figure 619: Wood chip carrier ........................................................................................................... 641 Figure 620: Open-hatch bulk carrier .................................................................................................. 641 Figure 621: Timber carrier ................................................................................................................. 642 Figure 622: Log carrier....................................................................................................................... 642 Figure 623: Side loader ...................................................................................................................... 642 Figure 624: Paper reels and clamp truck ............................................................................................ 643 Figure 625: Lift-on/Lift off ................................................................................................................ 644 Figure 626: Roll-on/Roll off............................................................................................................... 644 Figure 627: Logistical costs set out against covered distance ............................................................ 645 Figure 628: Ideal solution: Logistical costs against the covered distance .......................................... 646 Figure 629: Giant reel compared to container .................................................................................... 647 Figure 630: Stora Enso giant 80-ton container ................................................................................... 648 Figure 631: Cradle for giant reels....................................................................................................... 648 Figure 632: Floating warehouse on heavy-lift ship ............................................................................ 649 Figure 633: Can dispenser .................................................................................................................. 651 Figure 634: Implementation of the can dispenser .............................................................................. 651 Figure 635: Cross section of a “reel on wheels” ................................................................................ 652 Figure 636: Road train for “reels on wheels” system ......................................................................... 652 821

Chapter Notes Figure 637: Loading and unloading process of “reels on wheels” ..................................................... 653 Figure 638: Rolling reels ship ............................................................................................................ 654 Figure 639: Hold with multiple rails, without transversal stiffeners .................................................. 655 Figure 640: “Reels on Wheels” .......................................................................................................... 656 Figure 641: Total reduction in transhipment costs ............................................................................. 657 Figure 642: Potential S-curve shift in forest products shipping ......................................................... 657 Figure 643: Vessels by speed ............................................................................................................. 664 Figure 644: Development of speed of oil tankers .............................................................................. 664 Figure 645: Average fuel consumption of ships built ........................................................................ 665 Figure 646: The NOx emission level in g/dwt and day for oil tankers ............................................... 665 Figure 647: Sulphur emissions forecasts made by the Swedish Administrations in 1995 ................. 667 Figure 648: Sulphur emission from seaborne traffic in Sweden ........................................................ 668 Figure 649: The SCR presented by DEC ........................................................................................... 669 Figure 650: The Humid Air Motor arrangement ................................................................................ 671 Figure 651: The HAM technique ....................................................................................................... 671 Figure 652: Principal design of the exhaust gas scrubber .................................................................. 672 Figure 653: Cost of generating electrical power including taxes as per 2006 .................................... 674 Figure 654: Energy generating costs 2008 ......................................................................................... 675 Figure 655: The working principle of the dual fuel engine ................................................................ 675 Figure 656: Lean burn gas engines..................................................................................................... 676 Figure 657: Cross section of a Dual-fuel engine fuel injection system .............................................. 677 Figure 658: Relation between the size of a vessel in GT and installed engine power ....................... 679 Figure 659: Ship’s actual fuel consumption by route ......................................................................... 680 Figure 660: Ships' location in the English Channel read by the AIS-Live system ............................. 681 Figure 661: information broadcasted by the ship ............................................................................... 681 Figure 662: Principal method to assess the emission from the monitored ship ................................. 682 Figure 663: Area under study: Port of Rotterdam .............................................................................. 682 Figure 664: Actual ship locations ....................................................................................................... 683 Figure 665: Response of the recording............................................................................................... 683 Figure 666: Emission factors from database of engines ..................................................................... 683 Figure 667: Example of reading from Register of ships .................................................................... 684 Figure 668: Sum of deadweight of the ships record ........................................................................... 685 Figure 669: Emissions from sea transports in port of Rotterdam ....................................................... 685 Figure 670: Emission statistics bulk carriers ...................................................................................... 687 Figure 671: Emission statistics container ships .................................................................................. 688 Figure 672: CO2 emission by vessel category .................................................................................... 689 Figure 673: Empty ship ...................................................................................................................... 691 Figure 674: Ballasting of ships ........................................................................................................... 692 Figure 675: Dispersion of sea creatures ............................................................................................. 693 Figure 676: Overview of National Ballast Water Management Regulations ..................................... 694 822

Chapter Notes Figure 677: Ballast water management methods (Peikert, 2007) ....................................................... 695 Figure 678: Sediments in bottom tanks .............................................................................................. 696 Figure 679: Capsize of the Cougar Ace ............................................................................................. 697 Figure 680: Ballast water treatment equipment.................................................................................. 698 Figure 681: Approval procedure Ballast Water treatment systems .................................................... 699 Figure 682: Vela International Marine Ltd. Overflow Concept ......................................................... 700 Figure 683: U-M ballast-free flow-through concept .......................................................................... 701 Figure 684: NOBS Concept compared with traditional hull .............................................................. 701 Figure 685: MonoMaran wet area surface ......................................................................................... 703 Figure 686: Three-stage approach ...................................................................................................... 703 Figure 687: Initial conceptual design ................................................................................................. 704 Figure 688: Monomaran ..................................................................................................................... 704 Figure 689: The MonoMaran design in the test basin ........................................................................ 705 Figure 690: General arrangement of the vessel .................................................................................. 707 Figure 691: Model testing in ice conditions ....................................................................................... 708 Figure 692: Model testing in different wave-heights ......................................................................... 709 Figure 693: Cargo heating of a 40,000-dwt ship ................................................................................ 711 Figure 694: Standard chemical tanker design ................................................................................... 713 Figure 695: Cylinder chemical tanker design..................................................................................... 714 Figure 696: Cross section of the cylinder chemical tanker ................................................................ 715 Figure 697: Tank, load line and tank cleaning installation ................................................................ 716 Figure 698: Design process ................................................................................................................ 725 Figure 699: Overview of major concept options ................................................................................ 727 Figure 700: Conceptual design alternatives ....................................................................................... 728 Figure 701: Malacca-max design ....................................................................................................... 730 Figure 702: Support mechanism deck containers ............................................................................... 733 Figure 703: Midship extrapolation of steel weight............................................................................. 734 Figure 704: Malacca-max container crane ......................................................................................... 736 Figure 705: Malascca-Max container crane ....................................................................................... 737 Figure 706: Transverse strength ......................................................................................................... 741 Figure 707: Longitudinal cross section .............................................................................................. 743 Figure 708: Slot costs and time charter equivalent of large container sips ........................................ 752 Figure 709: Transport between Rotterdam and Singapore (Deepsea leg only) .................................. 752 Figure 710: Multi-porting versus hub-feedering ................................................................................ 753 Figure 711: Service speed as a function of TEU capacity.................................................................. 755 Figure 712: Fuel consumption as a function of TEU capacity ........................................................... 755 Figure 713: Gross tonnage as a function of TEU capacity ................................................................. 756 Figure 714: Charter rates per TEU per day as a function of TEU capacity........................................ 757 Figure 715: Charter rates per day as a function of TEU capacity ...................................................... 758 Figure 716: Port costs per port ........................................................................................................... 759 823

Chapter Notes Figure 717: Cost model ...................................................................................................................... 760 Figure 718: Costs as a function and value added of container ship capacity ..................................... 761 Figure 719: Total cost per call per TEU ............................................................................................. 761 Figure 720: Total costs per TEU per voyage, including stevedoring costs ........................................ 762 Figure 721: Total transport production for new setup ........................................................................ 765 Figure 722: Total transport production for existing setup .................................................................. 766 Figure 723: Comparison between new and existing setup ................................................................. 767 Figure 724: Transportation time per schedule .................................................................................... 769 Figure 725: Total transport times (hours): minimum, maximum and weighted average ................... 770 Figure 726: New setup versus existing setup ..................................................................................... 771 Figure 727: Roundtrips schedules ...................................................................................................... 772 Figure 728: Transportation costs for existing and new setup ............................................................. 773 Figure 729: Additional transportation cost and savings for the new setup ........................................ 777 Figure 730: Inland transportation cost and savings for the new setup ............................................... 777 Figure 731: Out of the box ................................................................................................................. 780 Figure 732: 16-year development cycles in air transport systems...................................................... 780 Figure 733: Some definitions ............................................................................................................. 782 Figure 734: The Out of the Box project ............................................................................................ 782 Figure 735: Categories of ideas .......................................................................................................... 783 Figure 736: The Metro liner ............................................................................................................... 783 Figure 737: Ground power augmentation .......................................................................................... 784 Figure 738: Personal transport system ............................................................................................... 784 Figure 739: Out of the Box examples ............................................................................................... 785 Figure 740: Potential renewable energy sources ................................................................................ 787 Figure 741: 137,000 m3 LNG carrier ................................................................................................. 793 Figure 742: Liquefied hydrogen carrier design .................................................................................. 793 Figure 743: Conceptual twin-hull liquefied hydrogen carrier design................................................. 794

824

Chapter Notes

31.3. Tables Table 1: Influence of shipping on political power and trade .................................................................. 7 Table 2: Five main commodities in seaborne trade (Fearnleys) ........................................................... 21 Table 3: Crude oil seaborne trades 2006, million tons (Fearnleys) ...................................................... 26 Table 4: Iron ore trade flows, million tons (Fearnleys) ........................................................................ 30 Table 5: A simplified classification scheme for coal (World Coal Institute) ....................................... 32 Table 6: The structure of coal trades 2006, million tons (Fearnleys) (Wijnolst & Wergeland, 1996)............................................................................................................................... 32 Table 7: The structure of grain trades 2006, thousand tons (Fearnleys)............................................... 34 Table 8: Main bauxite trades 2006, thousand tons (Fearnleys) ............................................................ 35 Table 9: Main alumina trades in 2006, thousand tons (Fearnleys) ....................................................... 36 Table 10: Main phosphate rock trades in 2006, thousand tons (Fearnleys) ......................................... 36 Table 11: Selected minor bulk trades 2005/06, million tons (Fearnleys) ............................................. 37 Table 12: Selected minor bulk trades 2006, million tons (Fearnleys) .................................................. 38 Table 13: World container traffic and its components, million TEUs (Drewry, 2007) ........................ 40 Table 14: Development of empties and transhipment handling 1990-2006, million TEUs (Drewry, 2007) ............................................................................................................... 40 Table 15: Container trades on the East-West route 2006, thousand TEUs (Drewry, 2007) ................. 41 Table 16: Container trades on the North-South route 2006, thousand TEUs (Drewry, 2007) ............. 41 Table 17: The inter-regional container trades 2006, thousand TEUs (Drewry, 2007) ......................... 42 Table 18: Growth in container lifts in various regions of the world, 1998-2007 (Clarksons, 2008)............................................................................................................................... 42 Table 19: Correlation of growth for dry bulk commodities 1963-2007 (Fearnleys) ............................ 44 Table 20: European shipyard labour force 1975 and 2002 ................................................................... 48 Table 21: Shipbuilding output by country 1962-2002 .......................................................................... 56 Table 22: Shipbuilding nations in 1961 ................................................................................................ 56 Table 23: Complexity of ships built, per country ................................................................................. 58 Table 24: Correlation coefficients among newbuilding real prices (Haddal & Knudsen, 1996) ......... 63 Table 25: Average price correlation coefficients 1970-1994 ............................................................... 63 Table 26: The cost composition of representative vessels.................................................................... 68 Table 27: Wage rate and productivity compaction in world shipbuilding ........................................... 69 Table 28: The composition of a general cost index for world shipbuilding ......................................... 70 Table 29: Estimate of realistic shipbuilding capacities ........................................................................ 71 Table 30: Composition of a cost index for VLCC production ............................................................. 74 Table 31: Major shipbuilding country output (million CGT) ............................................................... 79 Table 32: Order book by country (million CGT) ................................................................................. 80 Table 33: Major flag states in 1948 and 1980 ...................................................................................... 83 Table 34: Development of major flag states 1948-1980 (million GT) ................................................. 84 Table 35: Development of major flag states 1981-1991 (million GT) ................................................. 85 Table 36: Top-30 ship registers 2002 ................................................................................................... 86 825

Chapter Notes Table 37: Top-30 shipowning countries 2007 (million dwt) ................................................................ 89 Table 38: Regulation issues in international maritime transport .......................................................... 94 Table 39: Main elements of an industry analysis ................................................................................. 99 Table 40: The 7-factor framework of industry attractiveness ............................................................ 106 Table 41: Tanker fleet composition, 1 January 2008 ......................................................................... 113 Table 42: Age profile of tanker fleet, 1 January 2008 ........................................................................ 115 Table 43: Tanker order book by size category, early 2008 (million dwt) .......................................... 115 Table 44: Tanker fleet scrapping potential (million dwt) ................................................................... 115 Table 45: Fearnleys’ estimate of future tanker fleet (thousand dwt) .................................................. 116 Table 46: Top-20 oil tanker owners ................................................................................................... 117 Table 47: Distribution of energy consumption ................................................................................... 121 Table 48: World oil demand and supply 1980-2030 (mbd) ............................................................... 122 Table 49: Seaborne crude oil trade flows 2006 .................................................................................. 124 Table 50: Crude oil origins 2006 (%) ................................................................................................. 124 Table 51: Crude oil destinations 2006 (%) ......................................................................................... 124 Table 52: Examples of structural changes in crude oil trades since 1972 .......................................... 124 Table 53: Average distances in crude trade and extra ships needed to lift 1 mbd new exports ......... 126 Table 54: Tanker segment concentration measures ............................................................................ 131 Table 55: Passenger growth in selected countries (CLIA, 2008) ....................................................... 137 Table 56: Top cruise shipowners ........................................................................................................ 140 Table 57: Other large cruise operators ............................................................................................... 140 Table 58: Top cruise vessels builders (Clarksons) ............................................................................. 141 Table 59: Order book for cruise vessels, 2008 ................................................................................... 141 Table 60: Market segmentation of the cruise industry ....................................................................... 145 Table 61: Demand by length of cruise (% of passengers) .................................................................. 145 Table 62: World cruise passengers, by nationality and destination (ShipPax, 2007) ......................... 147 Table 63: Distribution of capacity between cruise regions (ShipPax, 2008)...................................... 148 Table 64: Ships in the ShipPax databases, including ships on order (ShipPax) ................................. 159 Table 65: Traffic volumes and regional distribution in the ferry market 2007 (ShipPax, 2008) ....... 161 Table 66: Growth in ferry traffic from 2006 to 2007, (ShipPax, 2007) and (ShipPax, 2008) ............ 161 Table 67: Number of routes and competitors in selected ferry regions (ShipPax, 2007) ................... 162 Table 68: European ferry routes with 3 or more competitors ............................................................. 162 Table 69: Ferry traffic in the Greek archipelago in 2005 (ShipPax, 2007) ........................................ 163 Table 70: Ranking of European ferry operators by passenger capacity of ships (ShipPax, 2008) ..... 165 Table 71: Average passenger capacity of the fleets of the top 10 operators (ShipPax, 2008)............ 166 Table 72: Market shares of top 20 ferry operators (ShipPax, 2008)................................................... 167 Table 73: Route basis of top-10 operators with % of passenger capacity (various sources) .............. 168 Table 74: Countries of build for ferries (Lloyds Fairplay Research, 2008) ....................................... 170 Table 75: Subjective ranking of technologies, adapted from (Wergeland T. , 1993) ......................... 171 Table 76: Number of new ships delivered in 2007 and 2008 by operator (ShipPax, 2008) ............... 172 826

Chapter Notes Table 77: Development of market shares on the Dover-Calais route (ShipPax, 2008) ...................... 174 Table 78: Gradual shift in ownership ................................................................................................. 184 Table 79: Bulk carrier types 1960 ...................................................................................................... 208 Table 80: Bulk carrier economies of scales ........................................................................................ 214 Table 81: Bulk carrier owners ............................................................................................................ 220 Table 82: Existing fleet and order book for bulk carriers, January 2008 ........................................... 224 Table 83: Container ship economies of scales .................................................................................... 234 Table 84: Classification on ship type ................................................................................................. 235 Table 85: Characteristic Panamax container ships ............................................................................. 237 Table 86: Post-Panamax container ships compared ........................................................................... 238 Table 87: Ports with 22+ wide container cranes................................................................................. 239 Table 88: Top-20 container carriers ................................................................................................... 245 Table 89: Existing fleet and order book for container ships, early 2008 ............................................ 245 Table 90: Gas properties ..................................................................................................................... 249 Table 91: Existing fleet and order book for LPG ships, early 2008 ................................................... 253 Table 92: LNG containment systems ................................................................................................. 256 Table 93: Ship types ........................................................................................................................... 278 Table 94: Intra-EU container transport (1,000 TEU) ......................................................................... 310 Table 95: Age profile by ship type (number of ships) ........................................................................ 312 Table 96: Major ship-owning countries.............................................................................................. 317 Table 97: Number of ships older than 25 and 35 years ...................................................................... 317 Table 98: ITF uniform “TCC Collective Agreement” (US$ per month served) ................................ 340 Table 99: Sample tanker wage rates for selected countries (US$ per month served)......................... 340 Table 100: Average crew size by ship type ........................................................................................ 341 Table 101: Seafaring population by region 2005 (Drewry, 2007/08)................................................. 341 Table 102: Number of seafarers by country 2005 (Drewry, 2007/08) ............................................... 341 Table 103: Manning costs (Drewry, 2007/08).................................................................................... 343 Table 104: Main stores and supplies budget elements ....................................................................... 346 Table 105: Representative insurance Costs, US$ 1,000 (Drewry, 2007/08) ...................................... 347 Table 106: Comparison of conventional double-hull VLCC with alternatives .................................. 358 Table 107: Oil tanker types compared ................................................................................................ 389 Table 108: Fuel cell types................................................................................................................... 397 Table 109: Overview of triggers ......................................................................................................... 400 Table 110: Weekly calls by port ......................................................................................................... 406 Table 111: EIS 2007 Indicators .......................................................................................................... 418 Table 112: Evolution of management systems ................................................................................... 425 Table 113: Turbulence scale ............................................................................................................... 426 Table 114: Matching aggressiveness to turbulence ............................................................................ 427 Table 115: Matching responsiveness to turbulence ............................................................................ 428 Table 116: Matching triplest that optimise a firm’s return on investment ......................................... 429 827

Chapter Notes Table 117: Contrasting principles of closed and open innovation...................................................... 445 Table 118: Creativity techniques ........................................................................................................ 466 Table 119: Examples of areas for co-ordinating institution (Isaksen & Hauge, 2002, p. 40) ............ 488 Table 120: Possible cluster policy instruments, adapted from (Isaksen & Hauge, 2002, p. 45) ........ 489 Table 121: Typical innovation system barriers and possible policy instruments (Isaksen A. , 2001)............................................................................................................................. 489 Table 122: Key figures for the maritime cluster 2002 ....................................................................... 506 Table 123: Direct and indirect production and employment 2002 ..................................................... 507 Table 124: The Danish Fleet (thousand dwt) ..................................................................................... 508 Table 125: Summary SWOT analysis ................................................................................................ 510 Table 126: R, D&I intensity as percentage of total ship costs............................................................ 522 Table 127: Innovation in Dutch shipbuilding compared to EU .......................................................... 525 Table 128: Dutch shipbuilding order book at November 2004 (>100 GT) ........................................ 526 Table 129: Development of innovation .............................................................................................. 526 Table 130: Average contract related R, D&I expenditure per unit of work (CGT)............................ 528 Table 131: Estimated contract related expenditure in R, D&I ........................................................... 528 Table 132: Estimated contract-related expenditure in R, D&I for mega-yachts ................................ 529 Table 133: Summary of estimated R, D&I expenditure ..................................................................... 530 Table 134: Estimated contract-related expenditure using detailed and average factors ..................... 531 Table 135: System-based design steps ............................................................................................... 578 Table 136: Operational description for the intended route ................................................................. 579 Table 137: Payload capacity ............................................................................................................... 581 Table 138: Cargo spaces and space for cargo handling and cargo treatment ..................................... 585 Table 139: Calculation of crew spaces ............................................................................................... 586 Table 140: Service spaces................................................................................................................... 588 Table 141: Technical facilities ........................................................................................................... 590 Table 142: System design summary ................................................................................................... 591 Table 143: Lightweight and deadweight calculation .......................................................................... 595 Table 144: Building cost estimate (Prototype vessel) ........................................................................ 601 Table 145: Calculation of areas and volumes in the hull and deckhouse ........................................... 609 Table 146: Calculation of ship centre of gravity and stability............................................................ 611 Table 147: Design summary ............................................................................................................... 613 Table 148: Operational description for the intended route ................................................................. 628 Table 149: Payload capacity and operation for a ro-ro vessel ............................................................ 629 Table 150: Calculation of ro-ro cargo spaces ..................................................................................... 630 Table 151: System summary for ro-ro vessel ..................................................................................... 633 Table 152: Evaluation of cross sections ............................................................................................. 656 Table 153: The current fleet of ships and average equipment/performance (I) .................................. 659 Table 154: The current fleet of ships and average equipment/performance (II) ................................ 660 Table 155: Tanker types ..................................................................................................................... 661 828

Chapter Notes Table 156: Dry bulk carrier types....................................................................................................... 662 Table 157: Unitised cargo carrier types .............................................................................................. 663 Table 158: Diesel engine emissions ................................................................................................... 666 Table 159: Marine SCR - key figures ................................................................................................. 669 Table 160: Summary of reduction factors .......................................................................................... 673 Table 161: The three different types or modes of gas engines ........................................................... 676 Table 162: The performance of dual fuel engines running of different fuels ..................................... 677 Table 163: Advantages and disadvantages of exchange methods ...................................................... 696 Table 164: Comparison between conventional and NOBS ship design ............................................. 702 Table 165: Comparison between standard vessel and cylinder tankers.............................................. 712 Table 166: Costs calculation............................................................................................................... 719 Table 167: Cost overview ................................................................................................................... 722 Table 168: Comparison of container ship designs .............................................................................. 727 Table 169: Container capacity for different design concepts ............................................................. 729 Table 170: Propulsive power of Malacca-max container ship ........................................................... 731 Table 171: Propulsive power Malacca-max container ship ................................................................ 732 Table 172: First stability check Malacca-max design ........................................................................ 732 Table 173: GM value at different load conditions .............................................................................. 732 Table 174: Lightship weight calculated with various methods .......................................................... 735 Table 175: Longitudinal bending stresses in the midship section ...................................................... 740 Table 176: Stresses due to transverse bending ................................................................................... 741 Table 177: Large container ships compared ....................................................................................... 751 Table 178: Roundtrip sailing distances .............................................................................................. 754 Table 179: Elements of port costs ...................................................................................................... 758 Table 180: Number of ships required to transport 1 million TEU in both directions ......................... 762 Table 181: Distribution of container flows through UK ports............................................................ 764 Table 182: Calculated optimal port allocation.................................................................................... 765 Table 183: Evaluation of selected schedules ...................................................................................... 768 Table 184: Input variables by setup .................................................................................................... 769 Table 185: Selected loops ................................................................................................................... 769 Table 186: Roundtrip time savings ..................................................................................................... 774 Table 187: Number of port calls eliminated in the New Setup .......................................................... 775 Table 188: Port cost savings ............................................................................................................... 775

829

Chapter Notes

31.4. Symbols Name

Definition

Symbol

Unit and formula

Length

Length

L

m

Length over all

LOA

LOA

m

Length between perpendiculars

LPP

LPP

m

Length waterline

LWL

LWL

m

LWL| × LPP

Length submerged

LOS

LOS

m

including bulb, etc.

Breadth

B

B

m

hull breadth

Breadth waterline

BWL

BWL

m

Breadth maximum, extreme

Bmax

Bmax

m

Depth

D

D

m

hull depth

Depth to upper deck

DUD

DUD

m

weather deck watertight bulkheads below

Breadth

Depth

Draught

Volume

Depth to bulkhead deck

DBD

DBD

m

Draught

T

T

m

Draught at (design) waterline

TWL

TWL

m

Draught at design waterline

TdWL

TDWL

m

Draught at aft pp, mid, forward pp

TA,M,F

Gross volume of all enclosed spaces

Tonnage

Gross Tonnage

Displacement

Archimedes' Law Displacement weight in sea water

Weight

m

GV

m³

GV

| 3,4 x GT

for GT < 75 000

GV

|3,2 x GT

for GT> 75 000

GT

= ( 0,2 + 0,02 × log GV ) ×GV

'

Displ

ton

 ȡ × ’

'

Displ

ton

 1,025 × ’

Displacement volume

’

Vol

m³

Mass density of water

ȡ

ton/m³

Deadweight

DWT

ton

Lightweight

LWT

ton

Steelweight

SWT

ton

Forward perpendicular

F.P.

(m)

After perpendicular

A.P.

(m)

Payload Perpendicular

between perpendiculars

Sea water = 1,025 ton/m

ton

Area, midship section

AM

AM

m²

Area, waterplane

AW

AW

m²

Hull

Block coefficient

CB

CB

 ’(LPP × B × T)

coefficient

Midship section coefficient

CM

CM

= AM / (B × T)

Waterplane coefficient

CW

CW

= AW / (L × B)

Prismatic coefficient

CP

CP

 ’$0˜LPP

Slenderness

Slenderness ratio

M

L/’

Froude

Froude number

Fn

Fn

Area

3

1/3

1/3

= LWL / ’ =

v/

g u LWL

830

Chapter Notes

Name

Definition

Symbol

Unit and formula

Stability

Longitudinal centre of buoyancy from LPP/2

LCB

m

Vertical centre of buoyancy above keel

VCB

m

Resistance

Power

Propulsion

Efficiency

Hull factors

Fluids

Speed

Occupancy

Transverse metacentric height above keel

KMT

m

Longitudinal metacentric height above keel

KML

m

Centre of buoyancy above keel

KB

m

Metacentre above centre of buoyancy

BM

m

Metacentric height (Initial stability)

GM

m

Righting arm or lever

GZ

m

Longitudinal centre of gravity from LPP/2

LCG

m

+ foreward of LPP/2

+ foreward of LPP/2

Vertical centre of gravity

VCG

m

Centre of gravity above keel

KG

m

Total resistance

RT

kN

Wetted surface of ship hull

S

Total resistance coefficient

CT

m

2

RT = 1/2×ȡ×v ×S×CT

2

CT = CF + CR + CA

Effective power

PE

PE

kW

PE = RT × v

Delivered power at propeller

PD

PD

kW

PD = PE / KD

Brakepower of engine

PB

PB

kW

PB = PD / KS

Propeller diameter

D

m

Propeller trust

T

kN

Rate of revolution

n

1/s, 1/min, r/s, r/min

Efficiency in general

K

Propeller efficiency in open water

Ko

Hull efficiency

KH

Relative rotative efficiency

KR

Propulsive efficiency

KD

KD = K0 × KH ×KR = PE / PD

Transmission efficiency

KS

KS = PD / PB

Total efficiency

KT

KT = K0 × KH ×KR x KS = PE / PB

Wake

w

w = ( V-VA ) / V

Thrust deduction

t

t = ( T - RT ) / T

Fuel Oil, Heavy Fuel Oil, Diesel Oil

FO, HFO, DO

T = RT / (1-t)

KH =

Lubricating Oil

LO

Fresh Water, Ballast Water

FW, BW

Speed

v

m/s

Speed, knots

V

kn

Service Speed, Trial Speed

VS, VT

kn

Number of passenger

Pax

Number of lower beds | Double occupancy

L-Beds

Number of crew

Crew

D.O.

1 t 1 w

1 kn = 1 nm/hour = 0,5144 m/s

Two persons per cabin

831

Chapter Notes

832