Shipowners and Crew Alike Find the Regulatory “Tsunami” a Big Problem

“Have we placed the mariner in a no-win situation?” asked Captain Anuj Chopra at yesterday’s Mare Forum conference in Washington, DC.  Chopra, the President of Anglo-Eastern LLC describes a frustrating situation unfolding offshore as mariners are drowning in a sea of paperwork.

Some call it a Regulatory Tsunami.

He notes that in a recent poll that 100% of the mariners polled agree that documentation is needed, however that same group also believe that this documentation needs to be simple, brief, and effective.  Which it currently isn’t.

Another issue is a lack of OPEX for training.  As new technologies and regulations are delivered to the ship, a mere 1 to 2 percent of a shipowner’s budget is allocated to training.  For many companies, the percentage is likely less than 1 percent.  Meanwhile, shipowners have seen insurance rates increase 15 to 20 percent, mostly attributed to problems stemming to a a “failure of basic seamanship” according to Chopra.

From the mariner’s perspective, it’s easy to point fingers at “the office,” but what the mariners perhaps don’t see is the fact that most shipowners suffer from a serious lack of cash and are finding these issues equally difficult to deal with.  Adding more regulations such as Ballast Water Treatment and more stringent emissions standards is an incredibly expensive undertaking, in many cases the technology isn’t proven yet, and the enforcement of these rules is unclear.

The bottom line is, shipowners could be put at a serious competitive disadvantage by investing in new technology to meet requirements, while others could sneak by under the radar and cash in on the fact the issue of enforcement hasn’t been sorted out yet.

Putting this in perspective, retired USCG Rear Admiral Bob North commented in his presentation yesterday that it costs at least $1 million per ship to outfit it with ballast water treatment, and GENCO Shipping has 53 ships.  It’s a huge investment, but one that they are currently evaluating for their fleet.

Meeting air emissions requirements is another huge hurdle.

Kenneth Vareide, Director of Operations for DNV noted yesterday that Particulate Matter, SOx and NOx emissions from the maritime sector will become a much greater piece of the national emissions contribution from mobile sources over the next 20 years.  He referenced the following graphs from the Environmental Defense Fund as an example of the regulator’s perspective and background for their focus on shipping.

The IMO has come down with extremely tight restrictions to be implemented over the next 7 years, ones that have their own host of significant issues and potential solutions including Ultra-Low Sulfur Fuel, LNG-newbuilding, LNG-conversion, scrubbers, and all the other factors to go along with this such as training, unit costs, maintenance, and enforcement.

Philip Brooks, Director of the EPA’s Air Enforcement Division commented yesterday that planes might even be used to fly through the plumes of smoke emitted from ships to determine the sulfur content of the fuel they were using as a method of enforcing standards inside Emissions Control Areas (ECAs).

And other non-GHG regulations are on the horizon notes Vareide such as hull biofouling, black carbon emissions, and underwater noise.

On top of all this, across many regions around the world, demand for oil is increasing faster than refineries can produce it according to Gary Morgan, Head Analyst at Clarkson’s.  With the majority of refinery expansion happening east of the Suez, and pressure to close refineries in key refining centers West of Suez, this combination is helping to generate longer product tanker voyages and is one of the factors supporting the current newbuildings of product tankers, notes Morgan.

Higher fuel prices are clearly not good for shipowners however, and combined with low freight rates and new, costly regulations, many owners face the very real prospect of bankruptcy.

The good news is, we’re likely at the bottom of the cycle according to C.R. Weber’s Basil Mavrolean and 2014 looks to be a growth year for the dry cargo sector which has been hit extremely hard in recent years.

Regulatory compliance remains however, an extremely costly, and unavoidable issue, one that will likely only be solved by extraordinary cooperative efforts by owners, regulators, state and regional stakeholders, and environmental agencies.