Vard issues profit warning

Singapore-listed shipbuilder Vard Holdings has issued a profit warning on its financial results for the third quarter that ended in September and full year ending on 31 December.
The Norway-headquartered company is due to announce its third quarter result on 11 November 2015 before market opens,
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Health Care Costs Highlight MLC Risk

By Wendy Laursen 2015-10-14 21:40:32

The Japan P&I Club recently issued a notice to shipowners giving an analysis of why U.S. health care is so expensive. The high cost of U.S. healthcare is not new, but with the Maritime Labour Convention (MLC) now coming into its third year there could now be an elephant in the room making it more pertinent than ever before.

The MLC came into force internationally in August 2013. One of its aims is to extend the duty of care that shipowners are required to provide sick or injured seafarers. In the past, seafarers working for less vigilant owners might find themselves treated on board but then replaced at the next port and subsequently left to manage their problems without support.

The high cost of health care in the U.S. has become an issue of greater relevance to shipowners and their P&I Clubs as they are required to now manage crew members back to “maximum medical improvement.”

The Japan P&I Club cites an information paper by U.S. medical services coordinator Sphere MD. The key message is this:

Medical care in the U.S. is more expensive than in any other country in the world. This is because U.S. health care pricing is not set by the government. In fact, in most cases, hospitals and doctors in the U.S. are allowed to charge ANY amount they wish for their services. As most U.S. hospitals and doctors are private enterprises, they charge higher pricing to maximize profits.

Because hospitals and doctors set their own pricing, situations exist where hospital charges for identical medical services, may differ substantially from port to port. In fact, port-to-port cost variation can be 10 x or more. An appendectomy may cost $300,000 in New York, while the same surgery may cost $30,000 in Washington State.

Medical services coordinators around the world offer services to help shipowners minimize costs, particularly in the U.S.

Christina DeSimone, CEO of Future Care, Inc., has this to say: “The U.S. has the most expensive healthcare system in the developed world. Medical bill review along with pre-certifying care and cost at the time your crew member is admitted to a hospital is the only way to ensure that your crew members are receiving quality care in the right timeframe for the right cost.”

Future Care’s bill review services have found that 90 percent of all hospital bills contain overcharges. “It is critical to have a precertification of care process and a bill review system in place when your crew members are scheduled to receive medical care in the U.S. Savings from bill review can be enormously effective, saving the shipowner 50-70 percent of medical charges when a nurse case manager and a medical bill review specialist work together prospectively during the actual course of the crew member’s care.”

DeSimone’s views are echoed by Andy Tibbets, Vice President at International Medical Group, Inc. (IMG). Through its subsidiary, AkesoCare Global, IMG offers services globally for insurance, claims administration, case management and cost containment.

“Shipowners are realizing that health care in the U.S. is extraordinarily expensive, and what we’ve seen happen in the U.S. for the last 40-plus years is that most land-based industries have built up many different strategies for mitigating these costs,” he says.

“Now shipowners are assuming additional responsibilities similar to those land-based industries. A lack of experience in fiscal management and medical care management could see shipowners and P&I Clubs writing checks without any real idea about how to manage costs.”

It’s Tibbets that sees the elephant in the room when it comes to the MLC. He says that historically it takes attorneys two or three years to realize the litigation opportunities that new regulations make available. “Litigation is a challenge everywhere, and especially in workers’ compensation. We have seen it in other industries. A law comes in and the attorneys follow. Shipowners, as employers, need a sound strategy.”

IMG claims to have something currently missing in the MLC and also the maritime insurance industry. That is the protocols to help shipowners ensure they have sound processes and documentation in their dealings with sick or injured crew members. Tibbets claims IMG’s protocols are based on sophisticated processes, suitable worldwide, that are already tested in court.

“Documentation is not a panacea, but in in its absence litigation risks increase. That’s the elephant in the room with the MLC: There is no clear guidance set forth to really demonstrate what steps have to be taken by vessel owners to fulfill its requirements,” says Tibbets.

As Sphere MD warns: “U.S. law is unique for both domestic and foreign crew members when it comes to medical care. In many cases, liability for medical care is unlimited, and medical bills are not subject to any insurance adjustments. In fact, U.S. courts have ordered vessel owners to pay 100 percent of medical invoices. Therefore, even in the event of overtreatment shipowners may be required to pay the full invoice amount.”

The Japan P&I Club notice is available here.

The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.

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Black Market Refrigerants Pose Shipping Risk

By MarEx 2015-10-14 18:25:59

In 2011, several refrigerated, reefer containers exploded, killing three port workers. While there have been no further tragedies since then, counterfeit refrigerants remain in circulation and still represent a significant safety risk.

Counterfeit refrigerant cylinders typically consist of a dangerously unstable cocktail of gases, blended to roughly mimic the most common refrigerant, R-134a. These cylinders are often loaded with rogue gases such as R-40. Though similar to R-134a, R-40 reacts with aluminum to form trimethylaluminum, a highly volatile substance that, when exposed to air, can explode. At best, these fake refrigerants perform poorly, are energy-inefficient and are likely to damage hoses, seals and compressors. At worse, they are highly toxic, and in the case of the fatal accidents in Vietnam, China and Brazil in 2011, highly volatile.

According to international insurer TT Club, R-40 contamination accounts for 0.2 percent of the world’s reefer container fleet, affecting about 2,500 reefers. However, other counterfeit refrigerant mixtures, such as those containing R-50, R-744, R-22 or R-170, are also considered unsafe, so the number of reefers affected could be far higher.

Disposables a permanent problem

Some operators may be unaware of the potential risk of using counterfeit refrigerants, while others may be seeking to cut costs. However, the main reason these refrigerants continue to circulate is because of the continued existence of disposable cylinders. According to Svenn Jacobsen, Technical Product Manager, Refrigeration, Wilhelmsen Ships Service, the absence of a worldwide ban has created a robust market for counterfeiters. “These cylinders are the container of choice for the counterfeiter,” he says. “Cheap and untraceable, no counterfeiter is ever going to get any complaints from their customers using this type of packaging.”

Jacobsen explains that counterfeiters offer what appear to be authentic, trademarked refrigerants. Despite the efforts of leading manufacturers such as Honeywell, Linde and Dupont, which have taken legal action to crack down on counterfeiters and changed packaging to discourage fakes, counterfeit refrigerants remain an industry menace. Even elaborate precautions, such as holographic seals or cylinder stamps, are easily copied in days rather than months. For Jacobsen, the only way to put an end to this illegal and dangerous market is to ban disposable cylinders.

“If the legitimate refrigerant suppliers no longer provided refrigerants in disposable cylinders, the counterfeiters would be out of business,” he says, noting that WSS does not offer refrigerants in disposable cylinders. “We don’t support their use and we believe a worldwide ban is far overdue.”

Whether or not a global ban on disposable cylinders will come into force anytime soon is unclear. In 2007, the E.U. banned disposable refrigerant cylinders in the E.U. and on E.U. flagged vessels. Similar bans are also in place in Canada, India and Australia. However, disposable refrigerant cylinders are still in use elsewhere in the world.

Unintended consequences

More recently new E.U. legislation, introduced in January of this year, may only exacerbate the issue. The new E.U. regulation applies to the use of hydrofluorocarbon (HFC) R-134a. HFCs are fluorinated greenhouse gases (f-gases) with a relatively high Global Warming Potential (GWP). So while R134-a is an ozone-friendly, chlorine-free, energy-efficient, low toxicity refrigerant, its use accelerates climate change. The E.U. regulation (EC517/2014) calls for the total supply of HFCs across the E.U. to be reduced to just 63 percent of the 2009-2012 baseline quantity by 2018, measured as the total tons of carbon dioxide equivalent (CO2e). This sustained reduction in capacity will continue until it reaches just 21 percent of the original baseline figure by 2030.

While Jacobsen applauds the E.U.’s bold move to reduce the environmental impact of R-134a refrigerants, he cautions that these regulations may inadvertently create a strong market for suppliers of counterfeit refrigerants. “It is likely that the reduction in the supply of E.U. HFCs will lead to shortages and a sharp spike in costs, meaning some operators will be tempted to purchase lower-price refrigerants,” he says. “This regulatory change will create an ideal market for counterfeiters. Despite numerous warnings, accidents and fatalities, many operators will be more willing to take a chance on gases packaged in disposable cylinders by unregistered suppliers. We anticipate that the counterfeiters of R-134a are going to be very busy in the years ahead.”

In the absence of a global ban, it is up to operators to use common sense, coupled with a healthy dose of skepticism. Because fake refrigerants are found exclusively in disposable cylinders, Jacobsen recommends that operators only purchase refrigerants supplied in refillable, re-usable, traceable cylinders. For operators who insist on using disposable units, they should make sure a reputable company, which has been audited and approved by a licensed manufacturer, is supplying their refrigerants.

Jon Black, Global Head of Chemicals and Refrigerants, Linde Gases, suggests that operators only source refrigerants from well-known providers or companies who distribute the products for these main manufacturers. “If a new distributor appears on the market, we recommend operators conduct a thorough audit before making a purchase,” he says.

Finally, if the price quoted for gases is way below the market average, it is likely to be a counterfeit.

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Software Vital to Emissions’ Compliance

By Wendy Laursen 2015-10-14 17:52:08

The European Commission’s Monitoring, Reporting and Verification (MRV) rules to collect emissions data officially entered into force on July 1, 2015.

MRV Regulation 2015/757 is a first step towards cutting CO2 emissions from maritime transport and requires operators of ships exceeding 5,000 gross tons to monitor and report their carbon emissions on all voyages to, from and between E.U. ports from 2018.

MarEx spoke to Eniram’s Maritime Director, Melvin Mathews, about his views on compliance and technology in the face of increasing emissions regulation:

Will the MRV really make a difference?

Compared to an earlier scenario devoid of regulation, MRV will certainly make a difference. When MRV reports start being publically made available for scrutiny, it will also bring a certain amount of transparency, which was non-existent. This means it will be possible to draw comparisons between vessels on their environmental impact and to a certain extent on operational efficiency (which is greatly lacking in the shipping industry today).

However, verification of just documentation is not likely to ensure total compliance of any regulation in its full spirit. The IMO regulation on SEEMP is one such example, where at the moment only verification of documentation is expected.

Will MRV drive the use of fuel efficiency software in new directions?

I believe the MRV is the first step in enforcement of emission control. In its current form it will mostly be verification of reporting documentation and perhaps stricter enforcement through scrutiny of bunker delivery notes, log book entries, etc. However, at a later stage for MRV verification, certain fuel efficiency software capable of continuous monitoring, are expected to play a vital role to establish compliance at all times during a voyage.

Will digital developments be wasted on authorities looking for bits of paper?

As with any new regulation, the initial requirements are easier to implement for wider acceptance. As of now it certainly appears that the authorities are chasing bits of paper – for example, early indications can be seen from the SECA compliance. Most shipowners are diligent in following the regulation and switch to the appropriate fuel prior to entry into the SECA area. They willingly incur the extra cost of fuel to ensure compliance.

However, there are a few unscrupulous shipowners who carry out a low-sulfur fuel changeover just before the point of entry to the port rather than at the entry to the SECA area. This means that they willfully create a paper trail of a fuel changeover without actually switching to a low-sulfur fuel prior to the designated point of SECA entry.

Such shipowners, whose vessels come from outside the SECA area and call ports deep within the Baltic Sea, make illegal profits of tens of thousands of dollars every trip. If they switch fuel at the last moment just before arrival at port in the Baltic Sea and their documentation is in order, the chances of being caught are little. Even if caught, the fines imposed are so measly compared to the profits that it is still extremely lucrative to continue the practice.

However, regulations do get tighter with time and enforcement gets stricter too. A group of leading shipowners who want proper enforcement to ensure a level playing field are now lobbying for continuous monitoring. If successful, it will mean continuous monitoring all the time in the SECA so that regulations are complied with by one and all.

The best way to do this is by collecting incorruptible digital data continuously from vessels transiting the SECA area. Another deterrent is to increase the fines for non-compliance so significantly that it discourages any illegal practices completely. I believe strongly that continuous monitoring is the way forward, and it is going to be enforced sooner rather than later.

Will the level of accuracy possible be undermined by the practicalities of, say, the accuracy with which fuel is loaded?

Continuous monitoring and digital measurement of fuel, using precision mass flow meters at the delivery / receiving vessel, will ensure accuracy of the fuel loaded. In the absence of this, some shipowners are fully aware of the loss of fuel at delivery and have no choice but to somehow factor the loss into their business. However, the proactive ones have gone ahead and installed the required measuring equipment to prevent the loss.

How can you make terms such as “big data” and the “Internet of things” real and reachable to the average shipowner just wanting to make a profit and meet new regulations?

An average shipowner who toes the line of bare minimum compliance, perhaps also just makes average profit. The shipowners who have consistently outperformed their peers are those who have constantly innovated and rapidly changed to meet the changing marketplace. These outperformers have almost always gone beyond compliance.

However, there is a cost associated with opting for technology or solutions beyond compliance. They are the ones who have struck the right balance through foresight, appropriate leverage and mitigated risk. ROI forecasts with accurate cost-benefit analysis have ensured profit optimization. Additionally, there is always learning from past mistakes, wrong decisions, incorrect actions, etc.

Shipowners who use data, especially in real time, have an edge. Insights from data allow companies not just to correct past mistakes but also prevent erroneous and unnecessary deviations quicker and much more effectively. The real-time, plan–do–check–act (PDCA) cycle is considerably short, allowing rapid and continuous improvement. This is the reason that almost all leading shipowners either already have or are developing “War-Room style” Fleet Operations Centers, which monitor their ships and suggest corrections to operations in real time. The average shipowner not engaging in such advances brought by technology will be very quickly left behind.

Will newbuilds of the future have a different design process/outcome as a result of the use of smart sensors, data warehousing, third-party (or inhouse) data analysis, etc.?

In the past, a ship – once designed – got built and went into routine operation. Thereafter, the original designers got very little feedback on the performance of the vessel. Part of the reason was the difficulty in quantifying the performance of the vessel and the rest was the lack of transparency in the lifecycle of the vessel. Likewise, many ships of similar design got built long before improvements or new designs were made.

However, latest technology, reliable data and accurate analytics have changed that. It is possible not just to accurately quantify performance but also to transfer that knowledge quickly to all the stakeholders of the ship lifecycle. We now live in an era when, due to rapid feedback, ship designs, engine performance, etc. are improving at a much faster pace.

The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.

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TOTE Sued for El Faro Sinking

By MarEx 2015-10-14 14:40:19

A lawyer representing the family of a missing crewmember who was aboard the lost M/V El Faro cargo ship has filed a $100 million lawsuit against TOTE Service Inc. and TOTE Maritime Puerto Rico. The vessel sank off the Bahamas on October 1 and search and rescue efforts continued over the following eight days. U.S. Coast Guard officials recovered the body of one the vessel’s 33 crewmembers on October 5.

The lawsuit was filed Wednesday on behalf of the estate of Lonnie Jordan, one of the 33 crewmembers who are now presumed dead, by attorney Willie E. Gary.

Gary has accused the company of negligence and putting profit ahead of the lives of its employees.

“We hope to get to the bottom of this,” Gary said. “We are at war now.”

Jordan worked on the ship for 13 years as a cook.

The 790-foot El Faro issued a distress call about 36 hours into its journey, saying it had lost propulsion and was taking on water as it sailed into the path of Hurricane Joaquin.

Tote told reporters in Jacksonville the vessel was undergoing engine room work before it sank. But company officials have said they do not believe the work was related to a propulsion problem reported by the captain before the El Faro sank.

“The contractors were on board doing some work in the engine room space, they were not performing any work on the engines,” said Philip Greene, who heads the ship management subsidiary Tote Services.

“They were doing preparatory work in order for the ship to be converted for service in the Alaska trade,” Greene said.

Last week, Tote Maritime stated that it would create a relief fund to support the families of the lost crew. There were 28 Americans and five Polish nationals aboard the vessel.

A National Transportation Safety Board investigation is under way and is coordinating a salvage team to retrieve the ship’s voyage data recorder.

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TOTE Facing Lawsuit for Lost EL Faro

By MarEx 2015-10-14 14:40:19

A lawyer representing the family of a missing crewmember who was aboard the lost M/V El Faro cargo ship has filed a $100 million lawsuit against TOTE Service Inc. and TOTE Maritime Puerto Rico. The vessel sank off the Bahamas on October 1 and search and rescue efforts continued over the following eight days. U.S. Coast Guard officials recovered the body of one the vessel’s 33 crewmembers on October 5.

The lawsuit was filed Wednesday on behalf of the estate of Lonnie Jordan, one of the 33 crewmembers who are now presumed dead, by attorney Willie E. Gary.

Gary has accused the company of negligence and putting profit ahead of the lives of its employees.

“We hope to get to the bottom of this,” Gary said. “We are at war now.”

Jordan worked on the ship for 13 years as a cook.

The 790-foot El Faro issued a distress call about 36 hours into its journey, saying it had lost propulsion and was taking on water as it sailed into the path of Hurricane Joaquin.

Tote told reporters in Jacksonville the vessel was undergoing engine room work before it sank. But company officials have said they do not believe the work was related to a propulsion problem reported by the captain before the El Faro sank.

“The contractors were on board doing some work in the engine room space, they were not performing any work on the engines,” said Philip Greene, who heads the ship management subsidiary Tote Services.

“They were doing preparatory work in order for the ship to be converted for service in the Alaska trade,” Greene said.

Last week, Tote Maritime stated that it would create a relief fund to support the families of the lost crew. There were 28 Americans and five Polish nationals aboard the vessel.

A National Transportation Safety Board investigation is under way and is coordinating a salvage team to retrieve the ship’s voyage data recorder.

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U.N. Says Shipping Sector Lacks Competitiveness

By Reuters 2015-10-14 14:13:28

Shipping mergers are leaving an increasing number of countries serviced by too few suppliers to ensure a competitive market, the U.N. trade and economic thinktank UNCTAD said on Wednesday.

Globally, there is now an average of 15.7 companies offering regular container shipping services to each country, a number that has declined steadily from 22.1 in 2004, UNCTAD said in its annual Review of Maritime Transport.

“I don’t see any reason why this trend would not continue,” said Jan Hoffmann, head of trade facilitation at UNCTAD and coordinator of the report.

The three biggest firms — Maersk Line A/S, Mediterranean Shipping Company, and CMA CGM S.A. — have 35 percent of the world market, the report said. At the start of this year, the top 20 firms controlled 83 percent of container shipping capacity globally, and all their new orders were for bigger vessels.

“The average vessel size per country will continue to grow and so we expect there will be fewer companies in individual markets, and this is an increasing challenge for the smallest players,” Hoffmann said.

When a country has fewer than four suppliers, it risks getting squeezed because there is less pressure on shippers to compete by cutting costs, he said.

There were now 32 such countries, up from 22 in 2004. Most are small island states such as Kiribati, Micronesia and Samoa. But the list also includes Iceland, Qatar, Iraq, Latvia, Eritrea, Montenegro and Cambodia.

“It’s getting more challenging for the smallest players. For the big ones – China, Europe – whether you still have 20 countries competing or 15, it doesn’t matter, you still have a choice. But when it goes down from three to two, or from two to one, then you have a critical situation.”

There was no “government of the seas” with powers to protect small states against such monopolies, and it was a tricky problem to solve, he said.

But small island states – many of which are seen to be at risk from global warming and rising sea levels – could push for tighter environmental standards, which would force many older ships to be scrapped and help to curb the cost pressure that was contributing to the shrinking number of shipping firms.

“It would be good for the shipping industry and for the environment if we had more stringent environmental regulations that would encourage ship scrapping,” he said.

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