27-02-2017

Charter fees and freight rates may rise as smaller lines struggle with costs of Ballast-Water Convention

Charter

An international convention regulating ballast water, which ships with little or no cargo take on or discharge to maintain stability, takes effect in September. The treaty could be costly for owners of large freighters, among others, as they will have to install expensive equipment to filter out unwanted marine life.

The International Convention for the Control and Management of Ships’ Ballast Water and Sediments, which will enter into force Sept. 8, aims to establish standards and procedures to prevent the spread of aquatic organisms from one region to another. Environmentalists have long complained that the unregulated discharge of ballast water promotes the spread of invasive species, damaging ecosystems around the world.

The ballast-water treaty was adopted by the International Maritime Organization, a United Nations agency, in 2004. As of Feb. 1, 54 countries have acceded to the convention. Even vessels from nonparticipating countries are required to comply with the convention when entering the exclusive economic zones of member countries.

However, not all ship owners are required to install ballast water treatment equipment before the convention takes effect. Owners of existing vessels are required to install ballast-water treatment equipment within five years from the ship’s last regular inspection before the convention comes into force.

Although treatment equipment could cost tens or hundreds of millions of yen per vessel, shipping companies are installing equipment steadily, as “Shippers would choose vessels with equipment, even within the moratorium,” a Mitsui O.S.K. Lines representative said.

As of the end of March 2016, about 20% of Nippon Yusen’s vessels had installed ballast-water treatment equipment. Mitsui O.S.K. Lines has installed such equipment in a little more than 30% of its ships as of the end of January.

Smaller shipowners who are short on cash have put off installing such equipment; The U.S., which has not signed up to the convention, has more stringent standards than the convention requires. Only three equipment makers are compliant with U.S. rules. The U.S. adopted its own ballast-water regulations earlier this year.

“Ideally we want to bring our vessels into compliance with U.S. standards, but we cannot secure enough vessels from now,” said a midsize Japanese shipowner.

Cost-sharing

The new regulations may raise charter fees and freight rates for overseas bulk carriers, as a growing number of companies are expected to scrap older ships on which it is not economically feasible to install new equipment, before the convention takes effect.

In 2015, many ships were docked to qualify for the moratorium on installing ballast-water treatment equipment. As a result, charter fees and other freight charges rose in some places, due to a fall in the supply of vessels. A representative of a shipping company believes that in Asia, where there are many docks, is likely to attract more such vessels.

A key focus will be how to share the cost of installing the gear. This is usually borne by shipowners, but the shipping companies which rent vessels, say they are prepared to bear part of the cost, if necessary.

In addition to ballast-water, the shipping industry is tightening other environmental regulations, such as sulfur concentrations in fuel oil. Given that the higher costs cannot be borne by shipping companies alone, they may pass them along to their customers in the form of higher freight rates, a Nippon Yusen representative said.

Source: Nikkei

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