Driving economic efficiency in maritime operations

Over the years I’ve seen huge changes in the industry. Apart from consolidation and changing trade patterns, the technological advances in the industry have been huge and with many benefits. In particular, the steps towards efficiency have been impressive. Whether by regulation or class or by the mindset of the more progressive owners like Seaspan, vessel design has been much more targeted towards that vessel’s purpose and intention, resulting in much improved efficiency, fuel consumption, capacity and safety on many levels. We have also seen basic design changes considering the unknown effects of size. Back in the day we had issues with large tankers exploding, or Capesize bulk carriers disappearing without even a mayday. In the container segment we had issues such as hull buckling and fires. As these vessels got bigger and bigger, they sometimes ended up being outside of a tried and trusted design envelope, which sometimes created challenges.

This has been achieved by looking at the entire operating cycle of a ship. Taking into account things like speed and loading, we worked out that by making structural and shape changes, we could reduce the overall energy consumed through the life cycle of a ship and the loadability of vessels. We’ve made huge strides in these areas at an accelerating rate, especially over the last 10 years. Owners and operators now have to be much smarter than before. They have to be much more inquisitive about the impact of changing regulations, and this requires forethought. This is now mainly driven by decarbonization, which is a game changer, a real paradigm shift across the industry. Because of changing requirements related to this, it is crucial for shipowners to be able to maintain the competitive feasibility of a vessel throughout its life cycle.

Back in 1999, Seaspan started developing a fleet of Panamax vessels, and within about two years we realized the extent of the China effect. As China became a major manufacturing and economic hub we knew that we would need greater economies of scale. We were first out of the gate with the post-8,000 TEUs and I remember the ire of many in the industry saying that Seaspan had lost its mind. However, you did the maths and you could see the extent of the efficiency gains – double digit – by, for example, running an 8,500 TEU unit instead of two 4,250 TEU units. This caught on quickly and by the end of that year – 2005 – there were over 80 units on order, and not just by Seaspan. What we saw then has happened continuously since and today it is very common to have 12,000, 14,000, 24,000 TEU vessels. Essentially now, liners will adopt the largest tonnage that the route can effectively accommodate. This is something that we’ve always been aware of at Seaspan when ordering new tonnage and is integral to our discussions with customers when developing new tonnage concepts. This also goes beyond containerships: in a couple of years, Seaspan will have the world’s largest pure car and truck carriers (PCTCs). As with everything, this is driven by customer demand and not speculation.

Great strides have been made in the overall design of vessels, especially in the past 10 or 15 years. The most significant advancements have been a result of the pursuit of the economic efficiency of ships. That comes primarily from three elements: size, technology and how you operate them. This has really been the fabric of how we have looked at things in the operations of Seaspan, related to concept, design and construction. For example – outside of containerships – we have seen the rapid growth of cruise ships, where we now see these massive vessels being constructed. This is for the purpose of economy of scale and to meet the huge increase in demand in the cruise industry. The same can be said of tankers, bulkers and PCTCs. Shipowners are looking at the life cycle of the vessel – typically 25 to 30 years – with the ultimate aim of building in the best economy possible for that vessel. The same goes for technology. Now that we have emissions abatement pressure, owners have to be much more considerate when adopting new technologies, developing new ships and retrofitting existing ones.

In collaboration with DNV, Seaspan was one of the first to design around the full operating profile, meaning speed profile, draft profile, cargo profiles and other parameters. We called this the ‘SAVER’ concept, and it brought about a number of benefits. For example, we’ve been able to reach almost 100% loadability of ships, meaning both in terms of the max draft that you can go to and the TEU capacity. Combined with much-improved fuel consumption, we’ve been able to significantly bring down the amount of fuel we use per container, resulting in both economic and environmental benefits. The use of data has also been key, and this has really taken off across the industry. Many of the measures that I’ve mentioned above can only come from analysing previous operations and taking a view of the future, with a focus on trade volumes, container weights, speeds etc. And this can be done if you’ve been measuring and recording those. Fortunately, at Seaspan we took that step around 18 years ago so we have loads of meaningful data on several aspects of our vessels and their operation. Collaboration with DNV has been a big part of this, helping us to understand how to sanitize the data, identify and eliminate the outliers, and make sure we have reliable figures. This enabled us to analyse key factors like speed, cargo and trade routes and then design our next ships with these parameters in mind. This has been a fundamental part of the SAVER concept, and I would say that owners who don’t do this will pay the price in the future.

This starts with fundamentals. From the very start, we positioned ourselves as a partner to our liner customers. Apart from being a willing solutions provider, we knew that our focus would have to be on service delivery at a level equal to or better than what they can do internally themselves. When we leased vessels to some of the largest liner majors in the world, we covered not just the obvious charter rate, but also the quality and reliability of the vessel itself, its performance in the way it was operated by our crews, and how it was managed by the vessel management team. Seaspan has purpose-built nearly all of its fleet with this approach in mind. For this reason, within the first two years, we were able to take the essential steps to become a fully capable owner/manager of our vessels. To support this, we developed our capable ship design development team and construction team. Additionally, we provided our own crew through an in-house crewing function, and we also provided our own in-house vessel management team. This is something that our customers have really valued.

In addition to other aspects like procurement, quality control, finance, accounting teams, legal and other functions, we have been able to provide our clients with full service. That was a considered and determined decision very early in the day. Being able to handle all aspects of our performance in respect to customer service delivery really got us ahead of the curve. We got our first ship in 2001, and I’d say we were fully up and running in all aspects by the end of 2002. Whilst Seaspan was not the cheapest option, we had developed the trust and respect of our customers to be able to develop, deliver and reliably put in service strings of ships. That takes reputation, commitment and self-realization, and of course the necessary financial muscle. That’s how we achieved the position, and that in essence was the secret sauce.

There is a lot to be proud of from my time at Seaspan. From the initial competitive ridicule in the early days starting in 2001 to being the largest supplier in the container industry by around 2012, we obviously did a lot well that enabled us to attract and retain customers. Most of this has been built around the principle of understanding our customers. This has meant really talking to them, getting to know them, collaborating and partnering with them, and having the curiosity to seek novel solutions. Achieving this required real excellence among our staff. How they operate, and how they have aligned with our goals and values, have been crucial to our success and I’m really proud of the team that we assembled in the early days at Seaspan, and that has continued to this day. Finally, the inquisitiveness of our vessel design development team, combined with strong collaboration with our customers and other industry partners, has led time and time again to improvements in our ships. As already mentioned, this enabled us to achieve the paradigm shift of achieving greater efficiency through the transition to bigger vessels, and this has been an extremely important competitive advantage for Seaspan over the years.

For me, the main question is, where do you get the juice from? At Seaspan, we have invested a lot in LNG over the past half-decade. When we looked into the LNG supply chain – including bunkering infrastructure – five or six years ago, we could see that it was developing but nowhere near where it is today. However, we had done a lot of analysis, and this gave us the confidence that this was being built out and would eventually reach the point we are at today, where it is a reliable source of fuel for ships. Over the past two or three years we have spent a lot of time on methanol and ammonia as well. However, unlike LNG, the oil majors that we have been used to dealing with in the past are not greatly involved in these new fuels. Therefore, we are talking with names that were not previously engaged with the maritime industry, and it is clear that all of the supply chains for these fuels need to be built out. And this is costly and takes time. This time last year there was a cacophony of discussion going on but now it has all quietened down. People have realized what the cost is and we see that there is an unwillingness to pay, as well as caution in regard to commitments by producers and offtakers. We see that most of the major cargo owners want greener solutions, but there’s a premium on green freight over standard freight and there seems to be a reluctance at this time to pay for it. This is also manifesting on the supply side. If owners are unwilling to pay this premium, how do you persuade manufacturers of these fuels to go and invest billions in a production facility for methanol or ammonia? So, the horses are lined up but nobody is pulling the trigger to open the gate and I think that it is going to come down to the forces of regulation to make it happen at scale.

When we think about targets, I would say that the 20% reduction by 2030 will be relatively easy to reach with some newbuilds, some retrofitting of existing vessels, and operational management of speed and loading, especially since this reduction is against a 2008 baseline. This means that there’s no great pressure on the gas pedal right now and limited incentive for greater efforts. However, I think that 2040 is going to be a lot more difficult and, certainly, full decarbonization by 2050 is a serious challenge. At the moment we are in a phase where we need to develop courage for adoption. When this happens and you get some reasonable commercial agreements going, the question then is whether we will see commitments to go and develop all of these supply chains, including production. Ultimately, for this to happen, it’s going to come down to regulation to force it. Equally, the right thinking needs to be adopted, whereby ultimately the consumer of the shipped goods is going to have to pay for it.

Even before I worked with Seaspan, I worked a lot with DNV and I have always found it a good company to collaborate with. Over the years we’ve done a number of conceptual developments, we’ve looked at data, we’ve examined a range of novel solutions and concepts, in particular how to be ready early in preparation for the many different challenges of the day – known and unknown – coming towards shipowners. It is very important for a capital-intensive asset owner to avoid making mistakes – they are too costly. With DNV, we have taken part in many novel and constructive engagements and developments to give us sufficient, reliable information to make decisions on which way we’re going to go.