The shipbuilding industry currently sees the Chinese financing phasing out the western one, smaller ship owners opting for alternative financial schemes with shipping companies requiring state support for introduction of green fuels. Meanwhile, the world trade centre is gradually shifting from China to other Asian countries and ship owners are looking into ways towards autonomous shipping. Those issues were discussed by the market experts at the German Maritime Forum and SMM Digital.
Germany has the 4th largest merchant fleet; is the 3rd largest exporter (50% by sea); German shipping banks finance 13% of the world's shipping bank debt; German ship owner account for 2% of the global orderbook only; Only 24 ships run on alternative fuels (#11 in the world).
Participants of the Annual German Maritime Forum and the SMM Digital discussed the current market situation and the key trends.
Among the trends in shipbuilding financing is the growing share of Chinese banks and the shift of smaller ship owners to alternative ways of raising funds, such as high yield bonds, convertible debts, capital and operating leases.
Capt. Alfred Hartmann, President – German Shipowners Association; Chairman – Hartmann Group, stated the decline of state financing in Germany over the recent years.
“Traditional banks involved in financing shipping sector have exited the sector due to the financial crises after 2008. Following the reduction of traditional financing, German shipowners have tuned to alternative financing sources. This was particularly difficult decade for majority of small and midsize shipowners as traditional lenders are generally focusing on large shipping clients due to regulatory management requirements. As a result, shipowners are increasingly interested in considering structures as high yield bonds, convertible debts, capital and operating leases”, he said emphisizing that almost 80% of German shipowners are small and medium size entities.
Mr. Jens Dose, Head of International Shipping - M.M. Warburg & Co., comments: “German Ship Finance has seen a dramatic change over the past few years. Many banks have left the market; the volume of ship finance has decreased substantially”.
According to Dr. Marco Albers, Head of Transport & Export Finance - DekaBank Deutsche Girozentrale, Chinese leasing is a partial solution to bridge the funding gap which resulted also from the exit of some (German) shipping banks. However, involvement of Chinese capital brings certain risks. Dr. Marco Albers shared his thoughts about challenges of dealing with Chinese leasing companies. “First of all, instead of a shipping company you get a Chinese leasing company which is usually being backed by a Chinese bank. We have the opportunity to apply regulatory base to use Chinese rating to the transaction... swap a shipping company rating to the Chinese bank rating. Have to look at the project behind a Chinese leasing structure. So the project has to stand on its own. It has to be a strong, sound company. Then we put it all together”, he explained.
Asian shift is observed not only in the financial sphere but also in logistics with the “center of balance” moving from China to other fast growing economies such as India, Indonesia and Vietnam. That should be attributed to the growing standard of living in China and, consequently, to production cost increase there.
Otto Schacht, Executive Vice President of Global Sea Logistics, Kuehne Nagel International AG, said that “the pandemic has proved, especially after the first lockdown in China, that some companies’ production is too dependent on only China”. According to him, we see a trend towards India, besides Vietnam and Indonesia. “Some companies start focusing also on India. Not 90% China but 60% China and 20% India”, he said adding that Indian trade would definitely grow.
Cargo flows are also influenced by geopolitics. According to Mark Frese, CFO, Hapag-Lloyd AG, “one aspect was in before the Covid crisis - trade restrictions amid the conflict between US and China which caused some movements to Vietnam”. The expert also says that “over a couple of years we might see some trends to higher stock levels and that will have an effect on logistical structures”. Yet he believes that Far East trade lane from China to the west coast of America and from Asia to Europe will be a big part of the total network and that will stay for a very long period.
According to Christian Koopmann, Managing Director of PWL Group; President of German Shipbrokers Association (ZVDS), “There has been quite a shift to Vietnam because the standard of living has gone up in China, the cost of production has gone up. That is one of the reasons why the certain portion of production has moved to other areas”, he said adding that Asia is still the biggest and growing market.
Among the trends of global shipping is the focus on reduction of emissions from ships through transition to green fuels. That means an additional financial load on ship owners and also requires additional time for testing of new technologies.
According to Alfred Hartmann, “Decarbonizing of shipping is a very big issue. We have to know that volume, quantity of cargo increased by 20% between 2008 and 2018 and the emission increased by 10%. EU ships are better than the previous ships with our companies having reduced carbon emissions by 25%.”
Since introduction of alternative fuels is expensive, the speaker emphasized the need for state support. “We need to have the fuel worldwide and take that fuel in any part of the world. As shipowners we are very serious, we look for that, we investigate, we invest a lot of money in that in new technology, but for the time being there's not sufficient alternatives. So what we need: we need to invest in research and development. Not only companies but also goverments worldwide should invest in new distribution systems, availability in subsidies. When it comes to payments, the willingness is not very high to pay additional money in green shipping. We know we'll have to decarbonize as sooner as better. But it has to come from the goverments, the society.
When speaking at the online opening press conference for SMM DIGITAL, Knut Ørbeck-Nilssen, CEO of GL – Maritime, referred to gas a bridging fuel ensuring a transition to carbon free fuels.
““Gas is certainly a bridging fuel. That is really quite a long bridge but it brings us forward to … decarbonization through bringing in e-fuels which later on will give a lot of flexibility. So gas, although not in itself the perfect solution, it certainly can be a really good pathway to decarbonization especially when you bring in the e-fuels”, said the speaker adding that exploration of different opportunities should be continued at this stage.
According to him, “methanol and ammonia has quite a bit of potential and something that certainly needs to be followed closely”.
“Hydrogen, although maybe not suitable for the deep-sea shipping segment because it takes a lot of volume, could be a source of producing more suitable fuels to be brought onboard», said Knut Ørbeck-Nilssen.
He emphasized the need to explore a lot of different pathways as there are lots of opportunities. The expert says we should not forget that, although doing energy efficiency measures makes a lot of sense as well as being able to have the vessels in place at the right time without overspeeding to meet the contractual requirements to be at a certain port at a certain date and then sit outside at the port waiting for cargo to be loaded, there are many things to be worked on. Knut Ørbeck-Nilssen believes that in the overall context of digitalization and increased transparency there is a lot to do towards increasing the efficiency within the industry.
“My bet would be on gas, on methanol and ammonia and then we should continue to explore a lot of other alternatives", concluded the expert.
To man or not to man
One more trend is the development of autonomous and unmanned shipping which is also a great challenge.
When speaking at SMM Digital, Oskar Levander, SVP Business Concept, Kongsberg Maritime, told about various systems intended to help the crew and assist the captain. He mentioned automatic crossing, autopilot, situational awareness system, etc.
According to the speaker, “autonomy does not necessarily mean unmanned but at the same time there will be manned vessels with a certain amount of autonomy”. There can be ships with full manning that will use a certain level of advisory system to help make the ship more safe and efficient. There can be reduced manning or periodically unmanned bridge with the crew still onboard. “The next step is that you bring some shore operation into this and take this remote operation and basically give an additional advisory level to the ship or run it part time from a shore but you still have the crew onboard”, tells Oskar Levander adding that it can be applied for cargo vessels or ferries remotely operated from a shore while having crew onboard taking care of the passengers and doing the value-added activities onboard. “And then the next step is an actually unmanned ships. You can have a remote operated vessel or one with remote supervision. There are different levels of autonomy. Here we usually say that constraint autonomy is the maximum level that we see as attractive”. The expert believes that full autonomy with no crew ashore or onboard is not very likely.
Oskar Levander emphasized that the right solution depends a lot on ship type and a business case. According to him, around one third of the vessels have an economical driver to make them unmanned.
Considering the pathways to the remote and autonomous shipping, he said it is reasonable to proceed quite quickly to a high level of autonomy but start with smaller applications like tugs, ferries and smaller vessels where we already from the beginning have a very strong business case to do it. The vessels size can be gradually increased when the technology becomes more proven and reliable. “So we start locally with small vessels where we have a good business case for it.
I think this pathway will be quicker if you have an economical incentive behind it”, said Oskar Levander.
Among the current projects in this area he named a small USV sounder, a development project Autoship for a transition to the next level of vessels size (an EU project). Kongsberg Maritime is developing a remote and autonomous Ro-Ro vessel for Asko that will transport trucks across the fiord. “Basically, there intention is to make that voyage faster, take off congestion from the road but at the same time to reduce emission. This is a full zero emission vessel which is battery powered”, told the speaker.
As Andreas Schell, CEO, Rolls-Royce Power Systems, told IAA PortNews, the autonomous shipping is a trend which is expected to intensify.
“It will not come overnight. It will rather come in phases and we have a lot of activities going on in regard of autonomous shipping. We concentrate right now to make ships ready for this. One example is an Artificial Chief Engineer on a vessel. Another aspect is a remote service as an enabler of getting into this remote activity. Another example is equipment health monitoring and we have a running prototype already”, said Andreas Schell adding that we also need a link from bridge to propeller when it comes to autonomous shipping. “This is a part of our strategy and in December we did make an important acquisition – we announced that we acquired Servowatch Systems which is basically a company that will allow us have the latest technology in the bridge technology available”, he explained.
Cost makes all the difference
Ultimately, all these are economic issues. Introduction of alternative fuels is certainly expensive and therefore it requires state subsidies. Autonomous shipping will come at a price at least at the phase of technology development although it will later allow for cost and risk reduction. Therefore, availability of financing is an acute issue. As of today, financial institutions of China win the race supported by the entire economic strength of the country interested in attraction of customers for loading of their own production facilities. Meanwhile, China is gradually approaching the middle income trap while losing the momentum in Asia.