Tanker repair yards are thriving on the back of BWMS and scrubber retrofits. And demand will only increase as the fleet heads towards the next Special Survey
There are three main demand drivers in the tanker repair fleet: the demand for repairs after incidents; legislation, notably the fitment of ballast water management system (BWMS) and scrubbers; and the need to drydock for a Special Survey.
The tanker fleet is relatively young, with an average age of 13 years. Of course, that is relatively young compared to the historical norms of scrapping at the age of 30 years. Nowadays, the expense of a BWMS or scrubber retrofit makes the operation of older tankers uneconomical. The average age of VLCCs sold for scrap in the first six months of 2018 was just 19 years old, or around the point of the fourth Special Survey. Thus, a significant portion of the VLCC fleet, and the rest of the tanker fleet, could be removed from further trading before reaching the retrofit stage.
This level of demand can be roughly quantified by looking at the expected Special Survey dates for tankers below the average age of being sold for scrap. To narrow the field, the table below shows tankers 15-years old or younger.
The table shows the peak years of forthcoming Special Surveys to be 2021 and 2022. This is after the 2020 Sulphur Cap cut off, so it is reasonable to expect some tankers to enjoy an early drydocking to fit scrubbers. If that is the case, the repair yards will be in for a bumper few years of retrofit business. Only time will tell.
One of the main tanker repair yards in the Atlantic Basin to benefit from potential VLCC retrofits is Lisnave in Portugal. The 1.5M m2 yard has nine repair yards and 20 travelling cranes, including a gantry crane with a capacity of 500 tonnes. The yard has undertaken repairs and retrofits on all manner of tankers from VLCC downward.
In 2017, Lisnave repaired 78 vessels from 45 clients across 21 countries, the most significant markets being Singapore (12 vessels), Greece (10 vessels) and Germany (seven vessels). By its own estimates, Lisnave was the most active European repair yard in 2017.
“The tanker fleet is relatively young, with an average age of 13 years. Of course, that is relatively young compared to the historical norms of scrapping at the age of 30 years”
Moving west and standing between the Atlantic and Mediterranean Sea is Gibdock, the ship repair yard on the famous rock of Gibraltar. Gibdock managing director Richard Beards attributes the upturn in inquiries to the yard’s enduring advantages of location, quality of work and on-schedule redelivery.
“We have undertaken significant ballast water work over the last 18 months and in the first half of 2018 we had more enquiries than ever before,” said Mr Beards. “At present, it is fair to say that there are more conversations around ballast water retrofit installations than scrubber retrofits, but both are fast becoming areas of focus for customers. Some of the discussions relate to turn-key projects, but others are more about preparations on board before installation.”
In Turkey, Gemak has just completed major repair work on the AET Aframax tanker Eagle Toledo. The scope of the project involves upgrading ballast tanks, steel renewal, piping and mechanical works. This is the 13th AET tanker to be repaired at Gemak.
Big changes are afoot in the Middle East. Saudi Arabia state-owned tanker operator Bahri has committed to a fleet repair framework agreement for its assets to be repaired and drydocked at the Bahrain-based maritime repair and fabrication facility, Arab Shipbuilding and Repair Yard (ASRY) into 2019.
“ASRY has been a long-term partner of Bahri, having repaired many of its vessels successfully. We are pleased to take this next step with them and we look forward to this agreement allowing our fleet to be repaired with even greater ease and in greater numbers in the future,” said Mideast Ship Management president Abdel Aziz Sabri, from Bahri’s shipmanagement arm.
Meanwhile, Bahri is in a joint venture with Saudi Aramco, Hyundai Heavy Industries, and Lamprell to build a giant new Saudi Arabian shipyard, International Maritime Industries (IMI). It is expected to begin operating by 2020 and will be responsible for building future Bahri ships.
The Oman Drydock Company is situated in Duqm, on the Indian Ocean, close to the main tanker trade route through the Gulf of Oman. The new chief executive, Said bin Homoud Al Mawali, aims to take advantage of the passing trade and triple its revenue and double its current repair and conversion traffic through a US$60M investment in new facilities.
The current facilities are hardly old, having been developed by Daewoo Shipbuilding and Marine Engineering (DSME) and opened in 2011. The yard is part of the DSME Global Network of repair yards.
The main particulars are a 600,000 dwt graving dock measuring 410 m long by 95 m wide, and a 500,000 dwt graving dock with a length of 410 m and a width of 80 m. In theory, both graving docks could fit the two largest tankers still sailing, Oceania and TI Europe.
Said bin Homoud Al Mawali (Oman Drydock): Plans to triple income for repair and newbuildings
The docks face a 2,800 m long quay and hoisting around the facility includes one 100-tonne capacity crane, one of 80-tonnes capacity, and a further 12 jib cranes of 40 tonnes capacity. The current facilities also include a floating dock, undercover fabrication and the shipyard’s own freshwater pumping station and a sewage plant.
Speaking to Tanker Shipping and Trade at Posidonia 2018, Mr Al Mawali referred to the seven-year-old repair and conversion shipyard’s investment plans. “The investments we will do in order of priorities are as follows: floating dock, new hydro-blasting machinery, new winching and railing systems to increase the efficiency of the graving docks, and a 3,000-tonne floating crane.”
These investments are earmarked to take place over the next three years, with the target of doubling traffic to the yard by 2020. The aim is to triple the drydock’s revenue by 2021.
“There is an element of industry disruption in all of this, but a change to the way in which ship repair and retrofit projects are executed is long overdue”
The company is looking to enter the oil and gas fabrication market. “In a 300 km radius, there are about 30 oilfields,” said Mr Al Mawali. This includes the onshore and offshore markets.
“In the case of every single one of these new revenue streams, we will be working with specialist partners. We will be bringing our ability to finance,” he said. As a sovereign entity of the Sultanate of Oman, Oman Drydock Company has access to funds and collateral to speed up the development process, he noted.
The yard has worked on several ballast water management system and scrubber fitments. “We work with Alfa Laval, and [are] in talks with Hyundai on scrubbers,” he said. “We are trying to have at least five different suppliers within the next two months.”
The ambitions do not stop there. Newbuildings are on the horizon. The company is bidding to build some small sub-80 m long vessels, which could be the start of something bigger.
The reason behind the establishment of Oman Drydock Company, and the current plans, is the Sultanate of Oman’s diversification programme away from a reliance on oil revenues.
New finance options
Newport Shipping offers more than just tanker repair and conversion: it will finance the project, too. A key element of the company’s new service portfolio is a unique ship repair financing proposition, whereby shipowners opting to repair their ships at one of Newport Shipping’s 13 drydocks can stagger 60% of their drydocking payments into 12 or more equal monthly instalments.
Erol Sarikaya (Newport Shipping): Repair costs amortised over the subsequent trading period
With only 40% of total maintenance costs due upon the vessel returning to service, the company’s financing solution is an undeniably attractive proposition to shipowners and shipyards alike, as Newport Shipping newly appointed chief executive Erol Sarikaya explained.
“With only 40% of total maintenance costs due upon the vessel returning to service, the company’s financing solution is an undeniably attractive proposition”
“We offer a comprehensive ship repair service enabling shipowners to minimise working capital outlays and take advantage of our global network across the Pacific and Atlantic trading zones. The benefits are clear as 60% of total drydocking and associated maintenance costs are paid through subsequent vessel operations.”
Traditionally, when a vessel drydocks, up to 50% of drydocking costs are paid over a two or three-month period. Sometimes, shipyards may require all drydocking costs be paid before the vessel returns to service, while spare parts suppliers and equipment manufacturers may not be able to extend such credit terms.
Newport Shipping cites the example of a typical Supramax vessel, which may have total maintenance costs of US$600,000, but Newport Shipping’s system frees about US$360,000 of this expense through subsequent monthly instalments of US$1,000/day over 12 months.
“We also arrange for the timely delivery of equipment and spares to the yard,” added Mr Yap. “Since any delays in the supply chain increases drydocking time, resulting in increased costs for the owner, we provide shipowners with an effective, cost-efficient and reliable approach. By procuring the delivery of spare parts prior to vessel arrival, we help shipowners eliminate unnecessary off-hire or unbudgeted cost variations.”
Newport Shipping chief risk office, Colin Manchester, added: “I see our product having excellent value for our customers across all shipping segments. By deferring the majority of ship repair costs, we reduce cost pressures that often limit otherwise needed repair works during weak freight-rate environments, preserving liquidity for other needs.”
Mr Sarikaya concluded: “There is an element of industry disruption in all of this, but a change to the way in which ship repair and retrofit projects are executed is long overdue. It is Newport Shipping’s mission to provide shipowners and ship repair yards with a comprehensive service that allows them to benefit in what remains a difficult and competitive market.”