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The publication at the start of the month of the always excellent annual shipping and shipbuilding review by Paris-based brokerage BRS Group sparked considerable debate among Splash readers. Tim Jones, chairman of BRS Group, writing the foreword to the 122-page report, suggested the lifecycle of ships is set to get a whole lot shorter. He warned that the likely shorter life of merchant ships going forward will mean higher costs, albeit with the added bonus that shipping drops its speculative tendencies. Less risk, higher costs Jones, who this year celebrates 40 years with the French broking house, wrote: “The useable life of an asset can no longer be the standard 25 to 30 years which owners used to amortize their assets, as like technology and consumer goods, it will shorten significantly.” Jones noted that financing already is generally limited to seven to 10 years with the leasing houses who are now responsible for the lion’s share of financing in the maritime world. “Shorter shelf life, means less risk, but higher costs. Combine this with ‘sustainable lending’ and we should see a far less speculative industry and one that requires end users and financial leases or charters to guarantee a return on ever more expensive technologically advanced vessels,” Jones wrote. Jones said owners will only undertake fleet upgrades going forward if there is a guaranteed payback or penalty for not adopting a certain technology. This point of view was something brought up at last year’s Maritime CEO Forum in Hong Kong where tanker owners polled were adamant that the next swathe of newbuilds – likely LNG-fuelled at greater expense – would only be ordered with firm long term charters attached. Nearly two-thirds of Splash readers in a recent poll suggested the proportion of the global fleet on long-term charter will increase as more expensive, alternatively fuelled ships are ordered. Concluding his introduction to the BRS markets review, Jones, wrote: “We are starting to leave the boom and bust shipping cycle to concentrate on innovation, technology, data and financial tools where returns can be foreseen and anticipated. Accordingly, shipping and the environmentwill be better off as a result.” Dr Roar Adland, shipping professor at the Norwegian School of Economics, takes issue with this last point from the BRS boss that suddenly everything is predictable. “Shipping has behaved in a cyclical and unpredictable manner for hundreds of years, through multiple periods of rapid innovation,” Adland says from Oslo. “The fundamental reasons for that are twofold: Firstly, it takes time to build ships, and supply can therefore never adapt perfectly to changes in the demand side and, secondly, the demand for raw materials and goods is inherently volatile and unpredictable. No amount of data science and technological innovation will change that.” Early obsolescence Basil Karatzas, who runs his own eponymous ship finance consultancy in New York, agrees with Jones’s thoughts on vessel lifespans. In conversation with Splash Extra, the Greek national says that while ships might have a design life today of 25 years, their economic life - what those in the appraisal business tend to focus on - is determined by other matters, including commercial factors and technology, often with vessels becoming obsolescent earlier than owners would like. It’s hard to believe that vessels delivering today will have the full benefit of a full design life of 25 years when we do not know many variables for future designs Karatzas recounts how a few years ago there were containerships that were sold for scrap as young as seven-years-old. Their commercial prospects were bad at that time, and also these panamaxes were technologically obsolete with a narrow beam design, big engines, high speed and high fuelconsumption. “In strong freight markets like in 2005- 2008, the average age of ships scrapped was almost 29-years-old, as it made sense to tolerate high opex and maintenance costs as the freight market was high enough to makesuch vessels profitable; now the average age is closer to 23-years-old,” Karatzas says. For accounting and for appraisals and valuations for banks and quarterly reports, Karatzas’s company has been using 20 or 22 years these days, depending on the type of vessel. “It’s hard to believe that vessels delivering today will have the full benefit of a full design life of 25 years when we do not know many variables for future designs, even what would be the fuel of the future, and, this is before we start considering real technology and automation that can affect entirely how ships operate,” Karatzas believes. Oil companies do not officially charter tankers older than 15-years-old, which puts pressure on shipowners on how old ships they can own if they want to do business with prime charterers like oil companies. Likewise, most banks and financiers want to ensure that any financing does not extend beyond the 15th anniversary of the vessel, past the third special survey and dry dock. “It has to be a shortened life when calculating cost of capital, payback period, depreciation per annum, etc and other financial calculations,” Karatzas concludes, a point of view backed strongly by Antoon Van Coillie, a director at Belgium’s Blue Line Logistics. “Do we drive trucks that are 30 years old?” Van Coillie asks. “If shipping is to be efficient the ships’ shelf life should be lower than 20 years. Then we can incorporate the necessary innovations far quicker and make the industry respond better to a changing world.” Upgrade, not scrap Many involved in the green design of ships however strongly disagree with this stance; vessels ought to be retrofitted, not scrapped prematurely, as that is better for the planet goes the argument. Greg Atkinson, chief technology officer at Japan’s Eco Marine Power, reckons that if ships can be relatively easily upgraded in a cost effective way then there is no reason why their useable life should decrease. “Certainly I can’t think of too many engineering reasons if the ships are well built and well maintained,” Atkinson says, alluding to US Navy nuclear-powered aircraft carriers as good examples of how ships can operate for decades. Gavin Allwright, who heads up the International Windship Association, concurs with Atkinson, arguing vessels need to move towards more modular design with a focus on an upgradeable platform to ensure longevity. Also, this model would lend itself to leasing of equipment meaning that capex costs could be kept down. The debate continues.

Shorter shelf lives

Ships might have a design life of 25 years today, but what is their realistic economic life?

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