A Leading Shipbuilding Company's Perspective on the Global Shipping Industry in 2020

What will happen in the shipping industry in 2020 for shipowners and shipyards? Will low order backlogs and low shipbuilding prices stimulate the recovery of the newbuild market? In addition, what impact will the ship pollution reduction standards, which will come into effect in 2020, have on shipowners? Is it appropriate to invest in more fuel-efficient ships given low oil prices and rising fuel costs?

Mr. Bjarne Foldager is the Vice President of Sales and Promotion at MAN Energy Solutions, a global leader in marine engines. He joined MAN in 2016, succeeding Mr. Ole Grøne, an industry veteran who served MAN for 40 years. Bjarne Foldager is currently directly responsible for the sales and marketing of MAN's two-stroke engines, including two-stroke engines for marine and power generation use, as well as marine generator sets. Recently, Mr. Bjarne Foldager discussed his views on the development trends of the shipping market during a media interview.

Positive signs appear in the newbuild market

Currently, the shipbuilding market is still in a downturn, and shipowners have more say. Many shipyards are eager to secure orders due to relatively low order backlogs. The same applies to engine manufacturers. Therefore, shipowners currently have greater leverage.

For shipyards, we need to ensure support throughout the shipbuilding process. If there are technical issues with the engine, it will cause delays, which means significant losses for the shipyard. Therefore, we must support shipyards with the best engine technology, and this support must extend throughout the entire shipbuilding process.

Many areas in the shipping market are currently facing challenges. MAN's two-stroke engines primarily target commercial vessels: bulk carriers, oil tankers, container ships, and general cargo ships. In the latter half of 2016, commercial vessel contracts were very few. However, in early 2017, MAN saw positive signs in the bulk carrier and oil tanker sectors, and the company signed many letters of intent, especially for bulk carriers, which have now converted into new orders. However, the container ship sector has not seen much improvement.

Regarding the two-stroke low-speed engine sector, we expect the market to remain stable with moderate growth. Although there is currently overcapacity in some shipping segments, overall, there won't be major changes across various sectors. The global shipbuilding centers will still be in South Korea, China, and Japan, with no new major shipbuilding centers emerging.

Fleets in different regions globally may vary. Container shipping has consolidated, and subsequently, the bulk and oil tanker markets will also consolidate. New shipowners will emerge in the Middle East and China, while some small specialized shipping companies will continue to be active in niche sectors.

What changes will the shipping industry see in 2020?

For many shipowners, their biggest question is what will happen in 2020? Low order backlogs and low shipbuilding prices will, to some extent, stimulate interest in newbuilds. Additionally, new ship pollution reduction standards will come into effect in 2020, which will give shipowners much to consider.

Shipowners are also considering alternative fuels. LNG is clearly an option, as are ethane and methanol. The world's first ethane carriers have used MAN's two-stroke ethane technology, operating for over 3,000 hours. Compared to LNG, methanol is relatively easier to handle. MAN's two-stroke engines can also maintain the same energy efficiency using methanol. MAN's propulsion fuels also include LPG; the first two-stroke LPG-fueled engine is currently under development and is expected to enter service in 2018 or 2019. MAN has also invested in Aspin Kemp, a leading marine battery technology company, to integrate batteries with large two-stroke engines.

Legislation and regulations will be decisive factors in the technological development of the shipping industry. We have already seen the development of nitrogen oxide and sulfur oxide removal technologies, carbon dioxide control technologies, etc., all of which will affect ship speed and power installation. Sulfur emissions, in particular, will, along with carbon dioxide and greenhouse gas emissions, become an important means to combat global warming. This will guide the shipping industry towards using low-carbon fuels such as natural gas, methanol, and LPG. With the installation of waste heat recovery systems, more and more efficient systems will be developed, allowing engine management systems to operate better and more efficiently. However, heavy fuel will not disappear and will still dominate; its sulfur content will only decrease, and more sulfur oxide scrubbers will appear. Furthermore, there are methods to remove sulfur content from heavy fuel before it is sold.

What is the impact of low oil prices and rising fuel costs?

Fuel cost is the biggest cost in ship operations. Fuel costs will rise in 2020, and I believe shipowners are currently evaluating their fleets to confirm their competitiveness, or to decide if now is the right time to invest in new, more fuel-efficient fleets.

Low oil prices do not seem to have significantly impacted the newbuild market and its engine market, and freight rates have also decreased accordingly. I believe these are temporary; world trade will continue to grow, and shipping will still be needed. However, market instability will lead to a wave-like development in the shipping industry, so we will experience a period of pain, but it will pass. In addition to the economic factors mentioned above, political factors in some sensitive regions globally will also affect the shipping and engine industries, but the overall impact is not significant.

The licensed production system is a good system

The licensed production system is an attractive model. We primarily focus on R&D, design, and engineering, but we don't actually manufacture any two-stroke engines. Licensed production enables true global production through a direct manufacturing model. However, it's important to remember that our customers are not just shipowners; licensed manufacturers are also our customers because they pay us royalties. Shipyards and ship design companies are also our customers. These are our four customer segments, and to succeed, we must serve these customers well.

Big data is a future development trend

R&D centered around two-stroke engines will continue to focus on reducing the impact of greenhouse gas emissions, and the optimization of engine operating performance will move towards digitalization.

The future trend is to better utilize big data to improve engine operations. Decarbonization and digitalization are the two major drivers of future development. The use of big data opens up new business models, which involve data extraction and usage. Therefore, the shipping industry needs a big data platform that can transmit data between ships, onshore facilities, and service providers, but all of this depends on solving cybersecurity issues.