The Maritime Executive Magazine - November/December 2009 by Maritime Executive Magazine

Executive Achievement Wanted: Short Sea Shipping Marine Coatings Foss Maritimeâ&#x20AC;&#x2122;s Gary Faber Dead or Alive? Hull Protection Defined November-December 2009

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Executive Achievement

8 | Gary Faber

CEO, Foss Maritime n o vem b er / d ecem b er 2 0 0 9

by MarEx Staff

Washington Insider

10 | Congress, Executive Branch and Courts Navigate the Rocks and Shoals of Key Maritime Issues by Larry Kiern

MarEx OP-ED

14 | Issue Is Power, Not Legal Interpretation Robert Vosbein weighs in on CBP’s Jones Act interpretations.

18 | WORKBOAT STOCKS: Movin’ On Up?

Depends on oil prices. And Big Oil’s 2010 budgets. by Jack O’Connell

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36 | DYNAMIC Commitment: POSITIONING for the Future High-tech operations / U.S. capabilities. by joseph keefe

43 | Careful Considerations: Coatings & Cost Preparation is everything.

Case Study:

Dockwise

MarEx explores how Dockwise makes the impossible possible in more ways than one. By Joseph Keefe

Executive Interview:

THE MARITIME EXECUTIVE

Upgrades and Downgrades

André Goedée

A conversation with Dockwise CEO André Goedée, who tells MarEx readers how Dockwise is quickly developing into much more than the world’s leading heavy marine transport company. by Joseph Keefe

By barry parker

50 | Short Sea Shipping: Still at the Dock, But Getting Ready to Sail Signs of life.

by joseph keefe

58 | Going Green – The Cost of Emissions Compliance by Christopher petrie

Contents

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For subscriptions please visit www.maritime-executive.com The Maritime Executive (ISSN 1096-2751) is published bi-monthly by The Maritime Executive, LLC, 3200 S. Andrews Avenue, Suite 100, Fort Lauderdale, FL 33306, Tel. (866) 884-9034. SUBSCRIPTIONS: Domestic subscription rates are $36, per year. International subscription rates are $86, per year. Application to mail at periodicals postage rates is pending at Fort Lauderdale, FL and additional mailing offices. For single copies of the magazine or reprints of articles appearing in this magazine, contact The Maritime Executive at (866) 884-9034. COPYRIGHT: © Copyright 1996 by The Maritime Executive. All rights reserved. The Maritime Executive is fully protected by copyright law, and nothing that appears in it may be reproduced, wholly or in part, without written permission. We cannot be responsible for the claims of manufacturers in any of the items. Editorial manuscripts and photos will be handled with care but no liability is assumed for them. POSTMASTER: Please send address changes to The Maritime Executive, 3200 S. Andrews Avenue, Suite 100, Fort Lauderdale, FL 33316. Change of address notices should be sent promptly with old as well as new address and with ZIP code or postal zone. Allow 30 days for change of address.

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www.kvh.com/marexecutive KVHIndustries,Inc.•50EnterpriseCenter•Middletown,RI02842-5279U.S.A.•Tel:401.847.3327 ©2009 KVH Industries, Inc. KVH, TracPhone, and the unique light-colored dome with dark contrasting baseplate are registered trademarks of KVH Industries, Inc. 09_V7miniVSAT_Comm_Mowinckel_MarExec “What broadband at sea was meant to be” and “mini-VSAT Broadband” are service marks of KVH Industries, Inc. ArcLight is a registered trademark of ViaSat, Inc.; all other trademarks are the property of their respective companies. Patents Pending.

editorial

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Blue Chip Mariners and Brown Water Workboats: A Perfect Match

Joseph Keefe Editor in Chief

THE MARITIME EXECUTIVE

Joseph Keefe can be contacted at jkeefe@maritimeexecutive.com with comments, input and questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes your participation in our editorial content.

In the summer of 1984 I can distinctly remember leaning over the rail and looking down from my chemical tanker as we loaded umpteen grades of nastiness in Smith’s Bluff, TX. Across the berth from us sat a gleaming white pushboat, sitting low in the water, loading both drums of lubricants and bulk cargo via hose. I can also remember that most of us onboard the so-called blue water fleets at that time looked down upon our brown water, lower tonnage counterparts. To be sure, it wasn’t a healthy attitude, but back then most of us were better educated, we made more money – and we additionally thought we were that much smarter because of it. Assuming any of that to be true in the first place, the metric is certainly no longer in play. An increasingly large number of these “lower” tonnage jobs now arguably involve far more sophistication – and training, for that matter – than that required to ride the typical 10,000-TEU container vessel on a milk run to the same six ports over and over again. Indeed, today’s typical brown water Masters, Mates and Engineers now demand top dollar for exceptionally difficult assignments, ranging from tricky DP stationkeeping all the way to keeping up with the demands of the latest diesel electric engines and auxiliary equipment. Likewise, the workboats of today bear little resemblance to their relatively uncomplicated predecessors. In fact, brown water work today demands blue chip mariners to run some of the most sophisticated equipment ever designed to be launched on the water. Workboats come in all shapes and sizes, however, as evidenced by the Dockwise business model. Using mammoth, specialized tonnage and facilitating ocean transport of just about every conceivable item capable of being lifted onto a ship, and a few more that just don’t seem possible, Dockwise sets the global standard for heavy lift work and has few peers in the business of yacht transport as well. Gracing our cover for the first time, they also weighed in with some of the most spectacular action photography that I have ever seen, anywhere and at any time. As entertaining as those images may be, however, they can also obscure the depth of this global service provider. Dockwise is much more than ocean transport. Inside this edition of MarEx, you will find out why. Within the workboat industry itself there is much happening. A new Customs and Border Protection proposal has ignited a tug-of-war between U.S.-flag operators of OSVs and other DP-capable tonnage and their foreign-registered counterparts in the GOM oil patch. At issue are who can do what, when, and where and the Jones Act interpretation of all of that. An increasingly bigger U.S.-flag presence in the hi-tech subsea industries is therefore creating some interesting discussions and causing some oil and gas firms to take a second, more critical look at the domestic, brown water fleet. Add to that the “green” regulatory tsunami that is forcing a sometimes-reluctant marine industry to “green up or else,” and you have the makings for an exciting 2010 indeed. The global workboat industry manifests itself in many shapes, sizes and types of vessels. Someday, and only if the U.S. Congress can wake up to the fact that the Harbor Maintenance Tax (HMT) serves no real purpose except to dampen the prospect for a domestic coastwise fleet revival, we may even see an entire generation of fit-for-purpose – dare I say it – U.S. flag cargo workboats plying our waters. No matter what happens, however, the demand for blue chip mariners to sail on these interesting vessels will continue to be strong. As someone who recently felt very much like a dinosaur on the bridge of the high-tech, DP- and subsea-capable Harvey Discovery, I’m glad that today’s workboat mariners are up to the task. This isn’t your father’s workboat, and it is increasingly apparent that blue on brown is very much the color scheme of the new millennium. Mar Ex

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EXECUTIVE ACHIEVEMENT

ExecutiveAchievement

GaryFaber

By MarEx Staff

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CEO, Foss Maritime

THE MARITIME EXECUTIVE

The greenest CEO in the maritime industry is also producing another kind of green – for all the right reasons. Exactly one year ago, as the maritime industry was mired in the worst downturn since the Great Depression, Foss Maritime CEO Gary Faber gave the keynote speech at a convention in New Orleans. Looking back, his message – not unlike his environmental record with Foss – was crystal clear: “Stay aggressive, get green and do it for the right reasons.” Since then, a lot of water has passed under the keel of his groundbreaking, ultra-green Hybrid Tug. In a year when most find it hard enough to keep out of the red, Faber has quietly kept Foss in the “green.” How that happened in the face of a brutal shipping economy is simpler than you might think. Faber could have taken the easy way out in 2009, basking in the glow of a raft of environmental achievements in 2008. After all, the Coast Guard had just months before awarded Foss its most prestigious environmental honor, the 2008 William M. Benkert ‘Gold’ Award for marine environmental protection. Less than a month earlier, the maritime industry’s first EPA partner in the Smartway Transport Program also won the Clean Air Excellence Award for development of its low-emission ‘Green Dolphin’ hybrid tug, the first time a maritime operating company has ever received the EPA honor. Foss also received a Commendation – Environmental Award from BP Shipping and Honorable Mention for the Port of Seattle’s 2008 Marine Environmental Business of the Year Award.

Green and Energy-Efficient Too

Not content with a twelve-month collection of environmental accolades that some firms couldn’t assemble in a lifetime, Faber instead launched into a rigorous energy audit and developed an energy management plan for Foss vessels. Although already one of the greenest marine operators in the world, Faber insists the initiative revealed there was much more to do. “What it told me was that management – myself included – was doing a poor job of communicating the urgency of energy management to employees. And that boiled down to the same thing we experienced two years ago on the safety side.” In the months that followed, Faber reports a culture

change at Foss that extended to every employee in the firm, ashore and afloat. He continued, “Bottom line, if every Chief Engineer every day saves me 10 gallons of fuel, ten watts of energy, or the galley recycles one more can, then I will start to see that on the bottom line.” Faber is confident the energy audit will pay for itself one hundred times over. His operating style remains pragmatic. The Kings Point graduate assessed Foss’s 2009 performance by saying, “The economy has helped us focus with even more urgency on the energy and safety management aspects of our mission. We’ll come out of this, after the inevitable recovery, more agile and a better company. In a robust economy, anyone can keep the lights on. In a down economy, you have to manage more aggressively to protect your core values – not letting those get away from you. Those that can’t manage through won’t make it.” A year ago, Faber had more than a few doubters. Today, his faith in “green” is producing another kind of green. The premium on the boat, originally thought to be as much as 40 percent over other technologies, is actually closer to 30. Beyond that, Faber had more good news to report: “The buydown on that is about five years’ return – getting better, not worse – which is nice for a change. We always anticipated the fuel savings: The hybrid is running about 35 to 40 percent of what her conventional sister boats would do. The unanticipated benefit is in maintenance. We just don’t get the hours on the main engines, and we are seeing much less wear and tear. We also didn’t anticipate the level of efficiency we are getting with the Rolls Royce thrusters in the hybrid electric mode. During non-heavy, duty-assist work, we’re running in that mode – and that’s about 65 percent of our time.” With an entire fleet that already runs on ultra-low-sulphur diesel – a requirement not set to come into force until 2012 – Foss’s operations are yielding substantial environmental dividends. Under Faber’s steady hand, the focus is now firmly on energy and resource management. According to the Foss CEO, the initiative was a no-brainer. “The switch to low-sulphur diesel was an easy and identifiable goal. How do you not do that? The double-hull barges and Hybrid Tug fall under that category too. But those are all

EXECUTIVE ACHIEVEMENT mechanical, technical things. We took 30 tons of pollutants out of the air last year. We should do that. What I’m trying to do is take us to that next level of cultural shift in terms of both safety and energy management. That’s what my past twelve months have been spent on.”

A Culture of Safety

The Arthur Foss assisting a tanker in the Bay Area.

vironment are always in play. It’s extremely difficult to put a price tag on it, but the more we are engaged, the more we understand that it is just good business.” Indeed. Exactly one year after telling the industry what’s good for them, Gary Faber and Foss are living that advice. That’s leadership: for Foss and the industry alike. And it’s hard to argue with success. Mar Ex

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THE MARITIME EXECUTIVE

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Also on Faber’s radar, along with the environment and bottom line, is a commitment to safety that rivals the other two targets in its tenacity. At Foss, safety comes from the top down – not the other way around. Faber insists, “The boss has to be committed and engaged. But more importantly, the boss has to have personal ownership. If not, the sailors will do whatever they want from previous experience.” Now fully engaged in what Faber coins “Behavioral Based Safety Training,” Foss has embarked on a disciplined process of “near-miss-reporting,” coupled with job safety analysis (JSA). Faber adds, “We did 14,000 of these JSAs last year. In other words, every time you go out to do a task – could be 45 minutes, could be 30 seconds – here’s what we’re going to do, how and why. If anyone deviates from that, put your hand up. It’s all the time, every time.” Foss has been working on the effort for about two and a half years. Just three months ago, they put the full program into effect – in the shipyard and marine department. Faber promises, “We’ll have measurable metrics in six months – data that will show we have the rank-and-file engaged.” With all of that in mind, Faber is also only too aware that if Foss doesn’t make money, there’s no point in any of it. On the waterfront, most firms “green up” only because they have to, not because it makes them money. Faber, on the other hand, has a different slant on staying safe and green. “There is no premium for being green just yet. Right now, it’s only a little bit better than a novelty. But it will come. We do get work based on our way of doing business. With Horizon Lines, Chevron and Evergreen Lines (for example) – it is a key decision factor. So we win business that we might not otherwise have, but not necessarily at a premium to a price they might pay someone else. Safety and the en-

washington insider

Written by Larry Kiern, Winston & Strawn LLP

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WashingtonInsider

THE MARITIME EXECUTIVE

Congress, Executive Branch and Courts Navigate the Rocks and Shoals of Key Maritime Issues Amid the front-page attention accorded Afghanistan policy and health care reform, the federal government has been deciding important maritime issues, signaling significant changes ahead. Congress incorporated important maritime provisions in the Department of Defense Authorization Act of 2010 (DoD Act) and the Fiscal 2010 Interior - Environment Appropriations Act (DoI-E Act). The House of Representatives also passed the Coast Guard Authorization Act of 2010 (H.R.3619), packed with scores of maritime provisions, and the Senate Commerce Committee reported out its companion bill, S.1194. U.S. Customs and Border Protection (“CBP”) sparked a major controversy in the coastwise trade. And the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) reversed a lower court decision and restored the Coast Guard’s interpretation of its own regulations implementing the Jones Act’s limits on foreign rebuilding of coastwise vessels.

Congress Enacts Maritime Measures

On October 28, 2009, President Obama signed into law the DoD Act containing important maritime provisions. First, it restored language from the Merchant Marine Act of 1936 reaffirming U.S. policy to maintain a merchant marine “sufficient to carry its domestic waterborne commerce and a substantial portion of the waterborne export and import foreign commerce of the United States.” This powerful language manifesting congressional intent got lost during the 2006 recodification of Title 46. Second, it included congressional findings bolstering the Title XI ship-building program. Congress found that Title XI “has a long and successful history,” “strengthens our Nation’s industrial base,” “enhances the commercial sealift capability of the Department of Defense,” and that “a revitalized and effective” program will produce a “modern and larger fleet of commercial vessels.” Third, the DoD Act establishes two new maritime development programs, one NEW NAME, ENHANCED SERVICE! for ports and the Whether you need $450,000 or $45 million or more, we are at your service. other for short Term Financing & Refinancing. sea shipping, adFreighters - Tankers • Oil Field Service Vessels ministered by the Tugs - Barges • Ferries - Fishing • Specialty Vessels New Construction - Used • Lease Financing Department of CALL US NOW! Transportation. Contact: Capt. Bill Anderson (Ret) Importantly, the Toll Free Voice & Fax: 866-286-6061 Email: DominionMarine@aol.com short sea shipMarine Financing Specialists ping program

provides the Secretary grant authority of up to 80 percent. Fourth, in response to a Housepassed measure to protect American seafarers from piracy, the DoD Act mandated specific actions. It required the Secretaries of Defense and State to report on actions by their departments to (1) “eliminate or reduce restrictions . . . on the carriage of arms and use of armed security teams on United States-flagged commercial vessels for purpose of self-defense,” (2) “negotiate bilateral agreements” so U.S.-flag vessels can enter foreign ports while carrying firearms, and (3) “establish common standards” for “the training and professional qualifications of armed security teams.” For U.S.-flag vessels enrolled in the Maritime Security Fleet Program, the Act required they be “equipped with . . . appropriate non-lethal defense measures” as determined by the Secretary of Defense and the U.S. Coast Guard. The importance of implementing these provisions is underscored by further Somali pirate attacks on U.S.-flag vessels. On October 30, 2009, the President signed into law the DoI-E Act, which granted a limited reprieve to Great Lakes carriers and their key customers – American steel producers – from the impending rulemaking of the Environmental Protection Agency (EPA) that would have forced the carriers to stop using residual fuel oil on their 13 oldest steamships. On August 28, 2009, EPA proposed the new Emission Control Area (ECA) long anticipated un-

washington insider

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reprieve and the possibility of a hardship waiver for the remaining fleet. No doubt the strongest argument the carriers advanced to their congressional supporters was that, in the current economic downturn, the EPA’s rule would cause further devastating consequences. However, pointing to an economy in recession will not likely prove an enduring argument to block the EPA’s effort to enforce the Clean Air Act.

Congress Advances Coast Guard Authorization Bill Laden With Maritime Measures

On October 23, 2009, the House of Representatives again passed the authorizing legislation for the U.S. Coast Guard by an overwhelming vote of 385 to 11. Key provisions of H.R.3619 remain from the version passed by the House during the 110th

THE MARITIME EXECUTIVE

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Administrator of the Environmental Protection Agency to issue a final rule that includes fuel sulfur standards applicable to existing steamships that operate exclusively within the Great Lakes, and their connecting and tributary waters. Thus, for fiscal year 2010, Congress thwarted EPA’s proposal to apply low-sulfur fuel requirements to the fleet of 13 remaining Great Lakes steamships. Additionally, the report language admonished the EPA to “include waiver provisions” for Great Lakes Category 3 diesel engines that burn residual fuel “if lower-sulfur residual fuel is not available” or “upon a showing of economic hardship.” This language aims to protect the remaining diesel-powered vessels in the Great Lakes fleet. While Great Lakes carriers hailed the “rider,” the provision grants the oldest 13 steamships only a one-year

n o vem b er / d ecem b er 2 0 0 9

der MARPOL Annex VI to require the use of low-sulfur fuel by ocean-going vessels in coastal waters surrounding the United States and Canada. The carriers protested EPA’s proposal to include the Great Lakes. They emphasized that the EPA proposal would increase pollution by shifting transportation to railroads and trucks. However, fearing the EPA would not be deterred in the rulemaking, they moved to block legislatively the EPA’s proposal to include the Great Lakes. They enlisted powerful congressional leaders, including House Appropriations Chairman David Obey (D-WI) and House Transportation Committee Chairman James Oberstar (D-MN), who sponsored a legislative “rider” to the appropriations measure that states simply: None of the funds available for the Environmental Protection Agency in this Act may be expended by the

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washington insider

THE MARITIME EXECUTIVE

Congress, including important new protections from crime for passengers on cruise ships, fishing vessel safety enhancements, reform of the Coast Guard marine safety program, and a mandate for double-hull-equivalent protection for vessel bunker tanks to avoid oil spills like the Cosco Busan incident in San Francisco. Following the Senate’s refusal to adopt the Cummings Amendment to temporarily provide DoD-embarked security teams on U.S.-flag vessels on high-risk transits, the House adopted a limitation-of-liability provision to protect seafarers from lawsuits arising from actions taken to combat piracy. Other new provisions in the bill included legislation addressing Coast Guard acquisition reform, authorization of a new $153 million Great Lakes icebreaker, a maritime workforce-development grant program, extension of the small commercial vessel exemption from the EPA’s vessel general permit, and a new congressional appointment process for the Coast Guard Academy. Additionally, on November 2, 2009, the National Transportation Safety Board (NTSB) issued its report on the sinking of the Alaska Ranger. The report offers a sober reminder of the need for legislative provisions to improve fishing vessel safety and emphasizes that the repeated recommendations of the NTSB and the Coast Guard for legislation requiring inspection of fishing vessels and licensing of operators have gone unheeded by Congress for decades.

CBP Sparks Controversy Over Jones Act Interpretation On September 15, 2009, CBP withdrew a controversial notice that it had issued on July 17, 2009, announcing its intent to modify interpretation of the meaning of vessel “equipment” in the coastwise trade. In summary, under a line of interpretive rulings, foreign-flag vessels could perform certain operations, e.g., pipe-laying and other repair and undersea con-

struction work, without running afoul of the Jones Act’s prohibition on the transportation of merchandise in the coastwise trade by unqualified vessels. Responses to the July 2009 notice highlighted deep divisions within the offshore community and sparked divergent comments. The Offshore Marine Services Association (“OMSA”) and its coastwise-qualified vessel operators hailed the July 2009 CBP notice as promising to restore cabotage protections to U.S.-flag interests. OMSA criticized the decisions that CBP proposed to modify as inconsistent with the Jones Act and contributing to unwarranted intrusions by foreign-flag vessels into the coastwise trade. Contrarily, the American Petroleum Institute (“API”) and its allies criticized the July 2009 CBP notice as overturning decades of agency rulings without providing a reasoned explanation or affording adequate time to respond to such a major change. They highlighted the injustice of overturning rulings upon which good faith commercial commitments had been made. Additionally, they identified operational safety and practical considerations, e.g., the lack of qualified coastwise vessels to perform the work. Faced with such conflicting comments, CBP apparently thought that discretion was the better part of valor and withdrew its July 2009 notice. The agency promised, however, to issue a new notice in the “near future,” thereby signaling that it was not abandoning its proposal. It appears likely that CBP will take into account the comments it received, conduct further research on the issues to bolster its legal position, and issue a new proposal to address critics’ concerns.

Federal Court Reverses Seabulk Trader Decision

On August 21, 2009, the Fourth Circuit reversed a lower court ruling that had overturned a Coast Guard decision to issue a coastwise endorsement

for the Seabulk Trader. After shipyard work was preformed on the vessel in China, the Shipbuilders Council challenged the vessel’s coastwise endorsement in federal court. The lower court ruled the agency’s decision unlawful and rejected the Coast Guard’s interpretation and application of its own regulations as unpersuasive. The Coast Guard appealed the lower court’s decision and the Fourth Circuit agreed with the agency, holding that its interpretation of its own regulations warranted deference because it “offers a holistic vision of the regulation that gives effect to its provisions, and the Coast Guard’s interpretation comports with the plain language of the regulatory and statutory schemes.” This ruling is the most significant of the recent court challenges to the Coast Guard’s decisions regarding foreign shipyard work for coastwise-qualified vessels, coming as it does from a federal court of appeals, and strengthens the agency’s position by according it greater discretion.

Outlook

Hidden behind the headlines, all three branches of the federal government are working through important maritime issues. Maritime executives should keep a careful eye to “weather” as the signs point to even more important developments ahead. Mar Ex

Larry Kiern is a partner at Winston & Strawn LLP, an international law firm of 900 lawyers. His practice concentrates on maritime issues, including legislative, regulatory, and litigation matters. Before joining Winston & Strawn, he was a Captain and law specialist in the U.S. Coast Guard who served as the Legislative Counsel and Deputy Chief of the Coast Guard’s Congressional Affairs Office.

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oped Vosbein

MarEx OP-ED:

Issue Is Power, Not Legal Interpretation

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Robert Vosbein weighs in on CBP’s Jones Act interpretations.

By Robert Vosbein Despite heated debate and uncertainty stemming from this summer’s proposed ruling by U.S. Customs and Border Protection (“CBP”), the “Jones Act,” the common reference for U.S. coastwise merchandise laws,1 is relatively simple and straightforward: Vessels that transport merchandise between points or places in the United States must be owned by Americans and built in America. Congress’ underlying policy is also simple:

THE MARITIME EXECUTIVE

1 46 U.S.C. §55102

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Preserve a strong merchant marine and shipping industry to secure the homeland. So enforcement of the Jones Act is not about complex legal analysis, it’s about political power. Congress has taken an expansive approach with the Jones Act and its restriction on foreign vessels, including their support of subsea oil and gas. This was clearly articulated in the Outer Continental Shelf Lands Act (“OCSLA”), wherein Congress extended federal laws, including the Jones Act, to the subsoil and seabed of the Outer Continental Shelf (“OCS”) and artificial islands and to all installations and other devices permanently or temporarily attached to the seabed that support oil and gas exploration and production.2 Congress also broadly defined merchandise to include “goods, wares and chattels of every description….”3 So with Congress’ clear intent and consistent approach, foreign vessels are simply not allowed to transport equipment and material to well sites on the OCS and install it onto the federally regulated seabed, right? Not so fast. Under pressure from foreign vessel interests, the CBP4 issued a plethora of rulings that have eroded the Jones Act to where it resembles Louisiana’s coastline. The gates opened in 1976, when CBP permitted foreign vessels to lay pipelines and repair offshore installations.5 Instead of focusing on the foreign vessel’s majority role in transporting the merchandise to its final resting place on the OCS, the CBP reasoned that the “pipe was not landed but only paid out….” Foreign vessels repairing subsea structures were found not to be engaged in coastwise trade, and their transportation of goods was necessary for the vessel’s mission. The underlying premises were presumptuous, if not circular. Empowered, foreign vessel interests became aggressive and requested approval for more and more OCS work. CBP, little by little, gave way, expanding work permitted on the OCS based on tenuous analyses and previously expansive interpretations. But the balance of power may be changing. On July 17, 2009, CBP pushed back issues of a proposed revocation and modification of its prior rulings.6 CBP recognized that 2 OCSLA of 1953, 43 U.S.C. §133(a), emphasis added. 3 19 U.S.C. §1401(c), emphasis added. 4 CBP is charged with enforcing the Jones Act.

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5 CBP reference T.D. 78-387, subparagraph (1) (October 7, 1976) 6 Customs Bulleting and Decisions, Vol. 43, No. 28 (July 17, 2009).

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oped Vosbein

THE MARITIME EXECUTIVE

foreign vessel transportation of merchandise to the OCS cannot be permissible simply because that same vessel does the installation. It also clarified that the “vessel equipment” exception is limited to equipment needed to safely operate the vessel and does not include additional equipment to complete its work. Shocked, but unshaken, foreign vessel interests lobbied hard against the ruling. Without statutory law or precedent, other than the rulings to be revoked, they claim the rulings create uncertainty and take away a critical supply of vessels that will paralyze the oil and gas industry. The irony of claiming uncertainty as the basis to stop CBP’s revocation of prior rulings permitting OCS work by foreign vessels based on hyper-technical, skewed interpretations of the Jones Act cannot be missed. Congress has been clear and unwavering in its efforts to limit vessel support operations on the OCS to American vessels. It is the rulings to be revoked that created the confusion and the weakening of the Jones Act. If foreign operators seek clarity, let’s get back to the basics and implement the laws as Congress intended them. Otherwise, they should be thankful for any ambiguity that remains. Indeed, it is only the residuum of confusing exceptions permitting foreign operators to transport mer-

chandise for the oil and gas industry on the OCS. The alleged lack of supply is equally unfounded. Currently there is an oversupply of American-flag vessels capable of performing subsea support. Many are under long-term charter to construction companies actively seeking to work them. Some are without charter seeking work. Still others have left the U.S. Gulf of Mexico for work abroad. And without addressing each vessel function claimed to be unsupported by American vessels, waivers are available to address any such needs. The use of waivers to address these demands not only upholds the integrity of the law but also encourages American operators to build American vessels in American shipyards to meet those demands in the long run. This intended result is important now more than ever when many shipyards and vessel operators are struggling to keep qualified workers and mariners, and Mar Ex others are struggling to survive. Robert A. Vosbein is General Counsel and Chief Administrative Officer of Harvey Gulf International Marine, LLC. MarEx Editor’s Note: Parties representing foreign-flag operators were also given the opportunity to provide their point of view in this edition of MarEx. They declined.

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JackO’connell JACKO’CONNELL

THE MARITIME EXECUTIVE

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WORKBOAT STOCKS: Movin’ On Up? The last time we looked, the stocks of companies like Tidewater, Bourbon and Seacor were riding high. And for good reason. Oil prices were above $140 a barrel with predictions of $200 and higher. Demand for crude was rising, along with drillers’ budgets. Rigs were everywhere, looking for more “black gold,” and every rig needed two or three workboats to transport food, fuel and supplies and keep the behemoths – and their occupants – fully stocked and operational. But that was a long time ago – eighteen months, to be exact. Then the world as we knew it ended, and everyone packed their bags and went home. A form of nuclear winter ensued with frozen credit markets, declining economic activity and collapsing world trade. Crude prices fell to $30 a barrel and natural gas dipped below $2.50 per mcf (from a high of $15). The rigs – and workboats –

Chart 1: Workboat Stocks COMPANY (Symbol)

Recent Price

€28 $24 6 81 28 44

Bourbon SA (GBB:FP) Hornbeck Offshore (HOS) Trico Marine (TRMA) Seacor Holdings (CKH) Gulfmark Offshore (GLF) Tidewater Inc. (TDW) Sources: Barron’s, Bloomberg

€15 $10 2 53 16 31

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were silent. “Customer activity levels began to fall a year ago,” noted Dean Taylor, Tidewater’s Chairman and CEO, in a recent conference call, and – judging from third quarter earnings reports – they probably touched bottom this summer. Particularly hard hit were the Gulf of Mexico and North Sea. Taylor, for one, is “not convinced the recession is coming to an end” and allows as how he’s “more pessimistic about the rest of 2009 than he was three months ago.” This coming

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Depends on oil prices. And Big Oil’s 2010 budgets. Yet, to paraphrase Rodney Dangerfield, workboat stocks “don’t get no respect.” Why is that? Well, for one thing, they are all “small cap” when compared with the Transoceans and Chevrons of the world, with market caps ranging from just over $100 million (Trico) to over $2 billion (Tidewater). They come pretty far down on the food chain, for another, meaning they are often the last to see the benefits of an economic recovery or uptick in E&P activity. That’s because you have Big Oil at the top, controlling the dollars; the drillers in the middle, as the main subcontractors; and the boat companies last, feeding off the drillers. That’s the economic reality. But the investing reality is another story. Based on year-to-date performance, these stocks have done much better than Big Oil and compare favorably with the drillers. They deserve a closer look. “We have been able to maintain margins in the trough of the recession,” noted Tidewater’s Taylor, mainly through aggressive costcutting and the cold-stacking of idle vessels. “Our strategy is to grow earnings capacity during downturns and conserve cash for investment during upturns,” he added. Tidewater earned $98.2 million or $1.90 a share in its latest quarter, not bad for a company in the “trough of the recession.” Gulfmark Offshore, a major operator in the Gulf of Mexico and North Sea, saw revenues fall by nearly a third from a year ago due to depressed activity and lower freight rates. Gulfmark, which a year ago acquired Rigdon Marine’s modern fleet, reported that operating margins in the GOM fell to four percent in the latest quarter from 33 percent a year earlier. Similarly, North Sea margins declined to 28 percent. Yet Southeast

Asia continued to perform extremely well with operating margins of 69 percent, which gives you some idea of how profitable this business can be. Through it all, Gulfmark managed to earn $12.7 million or $0.50 a share in the third quarter, a testament to management’s ongoing costcontainment program. The company also accelerated the drydockings of a number of idle vessels in anticipation of better times to come – a tactic employed by Tidewater and others as well. Seacor’s operating income from offshore operations declined by $14 million compared to the previous quarter, yet it still earned $30 million. It had 26 vessels cold-stacked, particularly in the GOM. Seacor, a diversified marine holding company, derives the largest percentage of its earnings from offshore marine services.

Salvation in 2010?

Bourbon’s CEO Jacques de Chateauvieux correctly predicted back in August that in the second half of 2009 “growth won’t be as strong as in the first half.” Bourbon is the world’s second largest operator of offshore support vessels with a dominant position in the West African market. Its stock is up 47 percent this year. De Chateauvieux also noted that “From what we are hearing from oil companies there will be a pickup in activity in the first half of next year.” And that seems to be the general consensus. A quick look at oil prices shows why. After starting the year around $50 a barrel and falling to $30 in early March, they have steadily risen and now hover around $80 a barrel, well above the breakeven level for even the most expensive deepwater drilling projects. With oil demand forecast to rise in 2010 for the first time in three years and as the world

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n o vem b er / d ecem b er 2 0 0 9

chart 2: Crude Oil Prices

THE MARITIME EXECUTIVE

Courtesy: WSJ Online

economy slowly pulls out of its steepest decline since the Great Depression, prices are likely to continue on an upward path. Oil prices are one thing. E&P budgets are another. But they usually go hand-in-hand. High oil prices mean more exploration, more drilling, more searching for new prospects. Low oil prices mean retrenchment and stagnation. On this basis, the prognosis is good. Further confirmation

comes from listening in on the earnings calls of a number of drilling companies. As Tidewater’s Taylor put it, “Most are advertising better budgets for next year.” That’s good news for the workboat companies. Gulfmark’s Streeter chimes in, “Recent indications of a bottoming of jackup demand, improved posthurricane season activity in the U.S. Gulf, and potential budgets based on higher oil prices are all suggestive of potential improvements in demand going forward.” So the stage is clearly set for a rebound in 2010. OPEC and the International Energy Agency have both raised their oil demand forecasts for the year ahead, another good sign. And unlike the dry bulk and

tanker markets, there is no specter of a looming supply overhang in the workboat market. Of the roughly 2,200 AHTSs and PSVs worldwide, 840 are over 25 years old and expected to be retired, more than offsetting the approximately 600 new vessels currently under construction. And if the new CBP proposal discussed elsewhere in these pages takes effect in the GOM, that would mean additional work for U.S.-flag vessels. Who knows, a year from now we could all be celebrating! MarEx Jack O’Connell, the senior copy editor of this magazine and a former maritime executive, is a private investor who may own shares in some of the companies mentioned in his columns. The views expressed in this column are his and his alone and are not in any way to be construed as investment advice.

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DOCKWISE

Dockwise:Making Making the When Dockwise CEO André Goedée tells MarEx that “a picture is worth NO V E M B E R / D E C E M B E R 2 0 0 9

a thousand words,” he is, at least

on the surface, referring to one of many exceptionally exciting photographs which tell the Dockwise story within the pages of this magazine. To anyone who sees these incredible images, the scale of what Dockwise vessels and employees attempt and complete on a regular basis becomes clearer. What these

THE MARITIME EXECUTIVE

action shots don’t provide is the bigger picture of how all of this happens and, more importantly, how Dockwise is quickly developing into much more than the world’s leading heavy marine transport company. By Joseph Keefe Becoming Dockwise… Dockwise is largely the product of a 1993 merger between two companies, Wijsmuller Transport and Dock Express Shipping. The combined assets of the two formed the world’s largest and most versatile heavy transport shipping company. United Yacht Transport became Dockwise Yacht Transport, and the merger was completed on January 1, 1994. Because Wijsmuller and Dock Express had previously specialized in different fields, the majority of their respective operations were complementary. The new group would begin with a combined fleet of seven semi-submersible vessels, focused primarily on the oil and gas industry, three Stakhanovets-type vessels and four dock-type vessels. These were active primarily in the crane and dredging industries and in the submarine cable-laying market. Over the next three years, the Dockwise fleet would shrink and swell, evolving from acquisitions of newer tonnage designed to better fit their business mix and shedding those that did not. In 1997, Dockwise was notably the first heavy transport shipping company to be awarded ISM Code certification by the Netherlands Shipping Inspectorate. The ensuing years were exciting ones with more fleet additions (and existing tonnage refits). In 2001, Dockwise again merged with another firm (Offshore Heavy Transport ASA), adding two heavy transport vessels to the

fleet. Dockwise then moved its headquarters to Breda in the Netherlands. In 2004, the firm broke new ground again with the conversion of the Blue Marlin, which was widened by 21 meters and reentered service as the world’s largest heavy transport vessel. Widely acknowledged as a leader in heavy transport shipping, the firm’s activities also include design, engineering, planning and logistics in addition to the transport of cargoes. These cargoes range from small yachts of just 10 tons to large, ultra-heavy and fully-integrated production and drilling platforms that could weigh up to 73,000 tons.

Dockwise Today Now fully evolved, Dockwise Ltd. is holding company of the Dockwise group. Listed on the Oslo Stock Exchange and trading under the ticker symbol DOCK, the Dockwise group of companies provides specialty services primarily in the heavy marine transport and oil and gas services industries. The four companies are Dockwise Shipping B.V., Dockwise Yacht Transport LLC, Offshore Kinematics Inc. and Ocean Dynamics LLC. As an oil and gas service provider serving global clients with logistical management of large and heavy structures, Dockwise operates a modern fleet of 20 semi-submersible vessels of different types and designs, including 15 open-deck

DOCKWISE

Impossible Possible NO V E M B E R / D E C E M B E R 2 0 0 9

THE MARITIME EXECUTIVE

heavy transport vessels, one dock-type vessel (primarily used for transporting port and industry-related cargo) and another four vessels, all permanently deployed as luxury yacht carriers. The company’s head office is located in Breda, the Netherlands, and a worldwide presence is maintained through sales and marketing offices throughout the world. André Goedée’s passion for reliable transport has, in a very short period of time, set Dockwise apart from the competition and established it as a premier single-source marine transport provider. How that came about is even more exciting than the visual imagery that depicts some of the most complicated, dangerous and innovative tasks in the maritime industry today.

Heavy Marine Transport: The Big Picture Behind Spectacular Imagery Focusing on its core strengths, the Dockwise philosophy revolves around taking the weight off its clients’ shoulders so they can concentrate on their own core business. This vision has evolved Dockwise into a full transport service provider focusing on delivering more complex transportation projects and solutions, anywhere and at any time. Hence, tasks that at one time were considered totally inconceivable have become daily events for Dockwise.

Drawing on 30 years of proven experience, Dockwise takes on some of the world’s most onerous transport tasks and delivers with enviable results. Just a few examples of the hundreds of logistical challenges executed every year include the transport and floatover installation of the MDPP-CPOC platform utilizing Dockwise’s major, multi-disciplined engineering teams around the world and the logistical coordination of modular components for the LNG terminal in Hammerfest, Norway. The company has also been busy with non-energy related transports like the floating drydock for the Australian Marine Complex, pipelaying barges for the construction of desalination plants, dredging cargoes for the port and marine infrastructure, river vessels and ferries. Consistent with a policy of seeking best solutions, Dockwise uses innovative technology aboard its vessels like the Octopus Ocean Monitoring System used to measure wave-induced motions and acceleration forces on the cargo by collecting data about the motions of the vessel, which are relayed to a central database server, enabling the operations and engineering departments to monitor the journey precisely and remotely. Clients are updated online, and in real time motion response data are provided for assessment of their valuable cargoes. The Dockwise portfolio of large and heavy structure assignments include offshore drilling rigs and production structures, modules for onshore industrial

NO V E M B E R / D E C E M B E R 2 0 0 9

DOCKWISE QHSES: Looking Back, Moving Forward and Leading the Way The most complicated work on the waterfront is not without risk. In December of 2006, the semi-submersible vessel Mighty Servant 3 sank off the Angolan coast near Luanda. Remarkably, no personnel injuries or environmental damages were incurred and the cargo, a semi-submersible rig, was safely discharged. With the vessel submerged in about 50 meters of water, Dockwise contracted SMIT to salvage the vessel. Choosing SMIT Salvage out of four competitors, perhaps using the same vetting process as their own clients, who usually choose Dockwise for the same reasons, Dockwise cited SMIT’s experience and the fact that they had equipment ready and in close proximity to where the vessel was located. With characteristic efficiency and innovative thinking, Dockwise rebuilt the entire vessel from top to bottom. The company remarkably completed a reinstatement project of a magnitude that had never

THE MARITIME EXECUTIVE

projects, military equipment, port and marine infrastructures (cranes or dredging material), and other miscellaneous floating and non-floating cargoes. And because ultra-large structures are increasingly being built far from the installation or offshore location, the Dockwise transportation link from the fabrication site to the final destination is becoming a more common – if not an essential – part of the industrial supply chain. Arguably, the Dockwise flagship, Blue Marlin, defined the next phase in heavy marine transport with the move of the 59,500-ton BP Thunder Horse offshore production platform from Korea to the Gulf of Mexico. For this transport Dockwise actually enlarged the Blue Marlin, transforming it into the world’s largest semisubmersible, heavy marine transport vessel, to better serve the customer’s needs. In the future, this type of movement will therefore be considered increasingly routine, at least for the company that defined how to get the job done, with equipment designed specifically for the task. No less important than its highly visible and groundbreaking heavy marine transport arm, Dockwise Yacht Transport (DYT) has established itself as the world’s leading yacht logistics company, offering yacht and boat transport to the most desirable cruising grounds of the world. Serving customers with a global network of 10 offices, with a fleet of four semi-submersible dedicated yacht carriers, DYT also partners with BBC Chartering and Logistics. The pact allows DYT to manage safe lift-on/lift-off boat transport service aboard BBC’s fleet of 140 vessels. The service is for yacht transport clients who need additional scheduling flexibility or the ability to get to destinations not normally serviced by semisubmersible ships. Since 1987, the company has transported over 9,000 yachts to various destinations around the globe.

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DOCKWISE cies agreed in conjunction with clients’ operational staff that reduce the risk of delays and/or loss of cargo. The Dockwise commitment to protecting the environment is also anything but hollow. A strong focus on (ballast) water management – a key facet of submersible heavy-lift operations – goes hand-in-hand with ensuring that all Dockwise wastewater flows are treated and monitored as necessary in order to meet any relevant regulations. And the latest Dockwise newbuild, Yacht Express, is equipped with advanced common rail diesel engines reducing the amount of soot in the exhaust gases to almost zero. The leader in heavy ocean transport and logistics is also unmatched anywhere in terms of its stringent safety programs. Dockwise maintains a zero-accident policy that fosters Hazid/Hazop meetings for high risk operations. The Dockwise Management System is certified to ISO 9001:2000, ISO 14001: 2007 and OHSAS 18001:2008 certifications. All Dockwise vessels are in full compliance with ISM safety codes, flag state legislation and class requirements.

Not Just Transport: A Turnkey, Global Approach to Logistics and Installation Transporting cargo is the most visible but only one part of the Dockwise story. As an oil and gas service provider serving global clients with logistical management of large, heavy structures, a unique, turnkey approach is employed to handle all facets of modular project transportation. In this regard, Dockwise has few true competitors. Ensuring on-time, first production, Dockwise provides a central logistical director to ensure integrated decision-making after consultation with all com-

NO V E M B E R / D E C E M B E R 2 0 0 9

been performed before – taking a vessel submerged in 50 meters of sea water for five months and bringing it back into service. With Dockwise completing yet another “first” in the marine industry, CEO André Goedée added, “The Mighty Servant 3 will be available to serve customers to the highest operational and safety standards for transport, installation and logistical management projects in the future. The return of this vessel to the fleet is a turning point in reinstatement history.” At Dockwise, the commitment to safety, risk mitigation and preservation of the environment is more than just an empty metaphor. Wrapped in their Quality, Health, Safety, Environment and Security (QHSES) policy, Dockwise layers many initiatives designed to enhance the quality of its services. Within those parameters, for example, are included specific precautions against piracy that include vessel route planning and poli-

THE MARITIME EXECUTIVE

NO V E M B E R / D E C E M B E R 2 0 0 9

DOCKWISE

mitted partners. Focusing on the mitigation of schedule risks during fabrication, transportation and on-site assembly, the Dockwise involvement with fabricators during schedule coordination leads to timely assembly and commissioning of large building blocks. Selectively choosing its industry partners, Dockwise creates a quality, integrated team for each project. In the end, André Goedée insists, “Mitigating schedule risk ultimately enables projects to be completed on time and within budget.” Dockwise has been developing its innovative float-over solutions as a reliable means of carrying out installations, especially in harsh and remote environments. With the additions of OKI and ODL, Dockwise has expanded its engineering and innovation strength to become a prequalified marine installation contractor. Using its proven project management and subcontracting skills, Dockwise is able to organize all aspects of logistical solutions using float-over installation technology.

Dockwise: More Than Pretty Pictures THE MARITIME EXECUTIVE

The full suite of Dockwise services – sometimes obscured by dramatic imagery –

is nevertheless at the heart and soul of this dynamic firm. Oil and gas operators are starting to wake up to the fact that the integrated use of semi-submersible, heavy-lift vessels, in-house engineering capabilities, float-over deck installation and complete logistical transportation and installation management can and will dramatically reduce integration costs. For the Dockwise group of four, unique global operating companies, that’s good news indeed. Dockwise also delivers extended scope solutions that include feasibility studies, tug assistance and control/management during load-out and discharge, contracting loading and discharge locations, assistance with cargo insurance and much more. In other words, a turnkey service which allows customers to concentrate on their own core business without worries over complex transport and engineering problems. It is an attractive package. Since 1993, Dockwise has been developing innovative float-over solutions by utilizing semi-submersible, self-propelled, heavy transport vessels for float-over and deck-mating operations. What comes next might be “inconceivable” today. Tomorrow, Dockwise will very likely make it happen. MarEx

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ANDRÉGOEDÉE

EXECUTIVE INTERVIEW

THE MARITIME EXECUTIVE

2 28 8

Member, Board of Directors and CEO, Dockwise By Joseph Keefe n this Global Workboat edition of MarEx, we can think of no more exciting a company to feature on our cover than Dockwise and its dynamic CEO, André Goedée. Goedée, for one, enjoys nothing more than to tell anyone who will listen about the “inconceivability” of Dockwise. With a long history of achieving industry milestones and world’s firsts under his steady hand, Dockwise is well poised for the challenges to come. Follow along as he brings us all up to speed. MarEx: You have been CEO of Dockwise since 2003 and a member of the Board of Directors since 2007. Well-known in shipping circles overseas, you are perhaps not so familiar to our North American readers. Can you update them on your journey to the top? André Goedée: I have been involved in the global shipping, drilling and heavy marine transport industries for over 40 years. I spent eight years with Nedlloyd Lines and twelve years with Neddrill Drilling Contractors and served as a Vice President for Heerema. Before my appointment as CEO of Dockwise, I served as the CEO of the European specialty staffing division of Vedior. MarEx: Dockwise is known for exciting and very large, specialized transport jobs, but there is much more to the total company. Talk a little about each of your four businesses. Goedée: Dockwise is the world leader in the marine transport and installation

of extremely large and heavy structures. We offer our international array of customers a full range of transport, installation and logistical management services to provide seamless solutions. Dockwise serves clients in the oil and gas, port and marine, military and yacht industries. To further expand our services, Dockwise acquired Offshore Kinematics (OKI) and Ocean Dynamics (ODL) in 2007. Both companies are Houston-based, highly skilled experts in the engineering and installation of offshore structures. Their established engineering and project management capabilities integrate seamlessly with Dockwise’s along with their extensive marine transport expertise. Dockwise Yacht Transport (DYT) is the leader in transporting yachts around the world, which would otherwise be unable to navigate the challenges of openocean voyaging. DYT has a fleet of four semi-submersible vessels, which are all actively involved in the yacht transport market.

ANDRÉGOEDÉE Dockwise’s strategy to grow into a full-service provider offering complete transport and installation services is enhanced by the synergy between Dockwise, OKI and ODL, which significantly increases the Company’s capabilities. Units (LMU) and Deck Support Units (DSU), which are mega-sized shock absorbers and critical elements in the execution of floatover operations. Floatover deck installations are considered the most reliable means of installing assets, especially in remote locations and harsh environments such as West Africa and Western Australia. ODL contributes expertise and experience in different engineering areas, which allows Dockwise to take a proactive role in the design of large offshore structures. ODL also offers front-end engineering, conceptual designs and

NO V E M B E R / D E C E M B E R 2 0 0 9

MarEx: Give us some indication of the synergy between each of the business units. Is there much in the way of crossover between the physical assets and ships of each group? Goedée: Dockwise’s strategy to grow into a full-service provider offering complete transport and installation services is enhanced by the synergy between Dockwise, OKI and ODL, which significantly increases the Company’s capabilities. Specifically, OKI specializes in the design and fabrication of many innovative offshore solutions such as customized load transfer systems like Leg Mating

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In addition to owning the largest heavy-lift fleet, we also own the world’s largest heavylift vessel, Blue Marlin, which has transported the world’s heaviest and largest semisubmersible drilling and production platform, the BP Thunder Horse, and the largest military semi-submersible radar defense system, SBX-Seabased X-Band Radar system, among a few examples.

THE MARITIME EXECUTIVE

detailed structural designs for offshore structures. The integration of Dockwise’s experience with the engineering and project management support of OKI and ODL in the realm of offshore structural installations is moving Dockwise into the next phase. We are becoming a competitor with existing front-end engineering and construction companies in the offshore industry, moving up one level in the chain. MarEx: You say that your company “follows a strategic vision that sets clear directives for its operating companies and that Dockwise is dedicated to creating superior value by realizing the inconceivable.” Give us a good example of how Dockwise “realized the inconceivable.” Goedée: I appreciate your asking this question because there is nothing more I enjoy talking about than the inconceivability of Dockwise. Yes, we do have a few “inconceivables” under our belt. Dockwise has a long history of achieving industry milestones and world’s firsts. In addition to owning the largest heavy-lift fleet, we also own the world’s largest heavy-lift vessel, Blue Marlin, which has transported the world’s heaviest and largest semi-submersible drilling and production platform, the BP Thunder Horse, and the largest military semi-submersible radar defense system, SBX-Seabased X-Band Radar system, among

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a few examples. Dockwise’s mission is always to come up with solutions to the most “impossible” voyages. These include moving the 220-meter-high (722 ft.) Maersk Innovator, performing the first float-over in challenging West African swell conditions, performing the first quayside skid-on of a complete, full-size jack-up rig, and transporting three rigs all onboard one vessel. MarEx: Let’s talk about your strategy of offering increasingly differentiated services to ensure the company’s growth through good and bad economic and market cycles. We’re certainly in one of those downcycles now. How has Dockwise weathered the storm and, more importantly, how did you do it? Goedée: We continue to balance new ventures with the foundation we have built over the last 20-plus years. One of the pillars of Dockwise’s strategy has been our track record. Furthermore, positive strategic choices have positioned us so that we are able to maintain a steady course, providing customers with safe and flexible delivery. MarEx: You were recently quoted as saying, “We are observing an underlying reduction in commercial activity levels in oil and gas-related

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transportation markets. We believe this to be a short-term development rather than a structural trend.” That’s an optimistic look at the current situation. Why do you feel this way, and what percentage of your total business mix is dependent on the oil and gas sectors? Goedée: Our core business is the ocean transport of the world’s largest and heaviest structures, and yes, more than 50 percent of the demand for this service does come from the oil and gas industry. Although the economic downturn resulted in less demand for oil, the long-term fundamentals are robust. A stillgrowing consumption, mainly driven by the developing countries, and depletion of the current production fields create a demand for new projects. Next to the oil and gas upstream industry, we serve the downstream industry with the transportation and installation of modules for refineries, LNG terminals and power units. For the port and marine industry, we transport floating drydocks, dredging equipment, desalination plants, ferries, cargo barges and river vessels. MarEx: The Dockwise business mix is a curious, highly technical range of transport to oil and gas subsea work. Was there any particular reason this mix was chosen or did it evolve over time? Goedée: Dockwise’s strategy aims at complete interface management. We not only want to maintain our presence in core heavy marine transports but also in all services surrounding transport. That means full marine installations and growing onshore modular installations. On-time production, controlled risks, cost optimization and the highest safety standards are the guarantees Dockwise offers as we expand and grow. MarEx: As CEO of such a large and diversified company, it is difficult to micromanage any one part of it. That said, tell our readers what you think is your most important contribution to the company’s bottom line? Goedée: Despite the importance of our vessels, they are a tool. Our operations are increasingly a people business. Continuing commitment to a philosophy of reliable and safe operations and to the Dockwise strategy of adding value to our core operations is the key to our success. I consider it my main task to support this commitment and to show leadership through my own commitment. MarEx: DOCK has more than doubled this year from a low of 4 kroner to above 9. To what do you attribute this impressive gain? Do you pay a dividend? Goedée: We understood from our shareholders that the debt situation is an issue that puts pressure on the share price, especially when combined with an unstable economic environment. A drop back in profits could lead to covenant breach. Getting further into the year 2009, the investment community got a clearer view on the development of Dockwise’s results and especially cash flow. The risk of breach mitigated after two good quarters, and endeavors of Dockwise to reduce debt and keep performing within covenants were rewarded with increasing confidence. The dividend policy will be on the agenda of the Board in 2010. MarEx: You’ve reduced your net debt by about 10 percent this year and stated your intention to “continue in our efforts to strengthen the balance sheet.” What do you consider an ideal debt level, and how do you intend to get there? Goedée: As this article is published, we have announced a capital raise to reduce debt levels. That should bring gearing more towards 50 percent equity versus 50 percent debt. For net debt to EBITDA, it should bring us close to 2.5, the level we think is acceptable in the current environment. MarEx: Your first-half results have been very strong in a difficult global economic environment. How do you plan to maintain this performance going forward?

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Goedée: Meanwhile, we have also released Q3 numbers for 2009. Compared to the first half of 2009, activity in our markets was lower and so were our results. When compared to the same quarter in 2008, however, they were higher. The lower activity in our markets we experienced in Q3 2009 extends into Q4 2009 and, we assume, also into 2010. Our backlog for 2010 currently is filled for some 40 percent of last year’s revenues. For the longer term, we see more activity but it is difficult to assess when exactly this will show in Dockwise’s operations. The shift to more installation work and logistical management should give more visibility on Dockwise’s revenues into the future. MarEx: Describe for our readers the “stringent cost discipline” you talk about in your earnings statements. Is there still a freeze on the hiring of new personnel? Goedée: In late 2008 we launched the program “Costwise.” This program was focused on reduction of direct and indirect costs. We have created substantial savings already during the current year on all possible expenditures. Our ambitious growth strategy concurs with the cost-reduction targets. We adopted a very selective approach in the HR Department. All crucial positions and relevant vacancies to support our ambitions are definitely filled, but all other hiring is frozen for the time being. MarEx: Let’s talk a little more about finances. Which of your services is the largest and which is the most profitable? Goedée: Heavy Marine Transport contributes some 70 percent to revenues. Some 10 percent relates to Yacht Transport. Over time there will be more balance between activities with some 50 percent coming from Heavy Marine Transport and some 50 percent from transport and installation and logistical management projects. Looking at margins, the heavy marine transports show somewhat higher margins but on a lower revenue base. They, however, have higher costs of capital. Therefore we introduced the EVA (Economic Value Added) assessment where profitability is measured against average cost of capital. Each project we embark on is valued on the basis of its EVA contribution. MarEx: With such a varied workload and fleet, the recruitment of qualified staff has to be at least somewhat more difficult than for the average ocean-shipping company. Is there much movement of personnel between the divisions and is this even possible, given the specialized nature of each business unit’s workload? Goedée: In recent years, Dockwise especially recruited project management and engineering skills and experience. This was realized by not only expanding the organization in the Netherlands but also by building the organization in China and acquiring the businesses of OKI and ODL. Cooperation between the centers

of competence has taken off but still has room for efficiency improvement. The recruitment of new staff is supported by the reputation of Dockwise as the company embarking on inconceivable projects. MarEx: Let’s talk about your fleet. How many vessels do you count today? Five years from now, do you envision that either (a) the mix of vessels or (b) total numbers will change appreciably? What about any newbuild projects you might have going on and others you might be contemplating? Goedée: As I mentioned before, Dockwise owns a fleet of 20 semi-submersible, heavy-lift vessels of different concepts and designs – the largest of which can transport loads of up to 73,000 tons. In 2008 Dockwise finished an extensive capital expenditure program. We acquired six Suezmax single-hull tankers, which were converted into heavy-lift vessels, adding capacity to our closed-stern vessels. Recently we sold two older Docktype vessels. Herewith we optimized the mix of our fleet. This year, the fully restored Mighty Servant 3 also rejoined our fleet. For the time being we are happy with the size and composition of the fleet, but we are, however, aware of the trend to build bigger and explore harsher environments. That could challenge Dockwise to discuss options for larger assets with the industry. We aim to maintain our market leadership both in size of the fleet and the vessels. MarEx: Heavy-lift, special project, and oil and gas work are all dangerous endeavors. Tell us about your long-term safety record. What about the past six months? What drives your safety policies and who is responsible or carrying them out? Goedée: The driving factors behind our safety strategy are zero-accidents and safety beyond compliance. We pride ourselves in going beyond the standards to effectively create a “Dockwise Standard” – our robust Quality, Health, Safety, Environment and Security Department supervises, monitors, calculates, identifies and facilitates risk-mitigation on every level. The safety and well-being of everyone involved in a Dockwise project is part of our company’s culture, and safety is a priority for every single person involved in the Dockwise global organization. The recent transport and floatover installation of the CPOC project was executed without any Lost Time Incidents. Dockwise performed a complete audit of all subcontractors assigned to the Black Marlin’s outfitting, which not only mitigated risks but, by communicating lessons learned with the local staff, Dockwise was able to effectively improve the safety culture. MarEx: This is fascinating stuff – and exciting imagery, as our readers will discover as they read the Case Study of your fine company. Thank you for your time. MarEx

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By Joseph Keefe

THE MARITIME EXECUTIVE

DYNAMIC Commitment: POSITIONING for the Future When Harvey Gulf International and Bisso Marine announced in October their ambitious new Harvey Bisso Subsea alliance, more than a few industry insiders took notice. The new venture, intended to provide subsea services to the offshore energy sector, harnesses the combined expertise and resources

of both outfits. The move also sends a clear message to those who don’t think U.S.-flagged assets can handle the tough, deepwater tasks necessary to operate in the Gulf of Mexico. The centerpiece of the venture is a new 12-man Saturation Diving System with a working depth of 1,000 feet (300 meters). Fully classed by

ABS and IMCA-compliant, the portable SAT system will be deployed from the Harvey Discovery, a 265x58-foot, DP-2 certified, multipurpose support vessel outfitted with a 65-ton crane and moon pool. The refitted vessel went to work immediately. Chairman and CEO Shane Guidry told MarEx in October, “We do have some work

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lined up for it but the vessel wasn’t ready and fitted out until the first part of November.” “This SAT system expands our working depth and fully maximizes our productive bottom time. Combined with Harvey Gulf’s dynamically positioned vessel, we can provide maximized safety and an even greater level of diving services to our clients worldwide,” said W.A. “Beau” Bisso IV, President and CEO of Bisso Marine. According to Kongsberg Maritime, a leading provider of dynamic positioning systems, seagoing vessels are subjected to forces from wind, waves and current as well as those generated by the propulsion system. The vessel’s response to these forces is measured by the position-reference systems, the gyrocompass and the vertical reference sensors. Reference system readings are corrected for roll and pitch using readings from the vertical reference sensors. Wind speed and direction are measured by the wind sensors. A dynamic positioning control system calculates the forces the thrusters must produce in order to control the vessel’s motion in three degrees of freedom - surge, sway and yaw - in the horizontal plane. The DP system is designed to keep the vessel within specified position and heading limits and to minimize fuel consumption and wear-and-tear on the propulsion equipment. In addition, the DP system tolerates transient errors in the measurement systems and acts appropriately if a fault occurs in the thruster units.

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More than a showcase for the combined strengths of Bisso and Harvey Gulf, the Harvey Discovery also provides industry – around the globe – with guidance on just how things should be done. Like every other asset in the Harvey Gulf fleet, the highly versatile vessel goes beyond the base requirements needed to achieve class approvals from ABS. That’s because Guidry’s commitment to DP technology also extends beyond being able to offer his potential

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DP technology leads Harvey Gulf Marine into the top tier of U.S. Gulf of Mexico operators with high-tech equipment and strategic partnerships. But installing the equipment is only the beginning of a successfully run, DP-capable business.

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DYNAMIC POSITIONING

benefit from highly accurate readings and fast propulsion response. According to Guidry, Harvey Gulf invests in these technologies not only for safety but also to keep insurance premiums down. He adds, “We didn’t stop there. We also put oversized bow thrusters on our boats and, before the RADius systems were available, we were among the few using the Kongs-

berg predecessor to that. We have always gone the extra mile to make sure that our vessels did not cause any damage. I don’t think any other company can say that. We continue to get favorable rates for our equipment.” Underscoring all of that in October was Harvey Gulf’s spotless accident injury record for all of 2008 and through ten months of this year.

THE MARITIME EXECUTIVE

clients mere DP capabilities. Guidry explains, “All of our vessels are DP-2, ABS-notated. All have upgraded gyros and a third gyro. We also put a RADius system (satellite reference system built by Kongsberg) onboard each vessel – both at an additional cost. Neither upgrade is required by DP-2 standards, but these things give us an extra margin of safety in case anything goes wrong.” Developed by Kongsberg, RADius is an advanced relative position reference system for use in various applications including vessel-to-vessel and vessel-to-FPSO applications, specifically in the offshore sector. Based on solid-state technology and featuring no moving parts, the system consists of transponders that are installed on targets (platform/FPSO) and interrogators that are equipped on the supply vessel. Close quarters operations such as alongside loading and unloading

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DYNAMIC POSITIONING Table 1: Observed Human Factors

in DP Simulator Training

adding, “It’s not cheap – 1. Poor Operational Planning… but it is worth it, especially 2. Reactive vs. Proactive System Operation… compared to the savings we 3. High-Speed Operation of Console Switches achieve in our insurance or Trackball Mouse… premiums. We can get this 4. Failure to Read, Interpret or Properly Redone right here in St. Rose, spond to Alarms… LA. It is very convenient.” In 5. Failure to Properly Communicate… 6. Poor Decision-Making Skills… October, Kongsberg Maritime 7. Pressure From Clients… announced that its Polaris DyCourtesy: Converteam namic Positioning simulator was the first to achieve DNV approval to the stringent Class of-the-art solutions in electrical A standard. The purpose of the DNV propulsion, automation and dynamic Class A approval is to ensure that the positioning for merchant shipping simulations include an appropriate and, in particular, cruise liners, gas level of physical and behavioral realism in accordance with recognized training carriers, and other merchant vessels/ operations. It also provides sophisand assessment objectives. ticated DP simulator training to DP vessel managers and onboard operatDP Simulation Training Defined ing personnel such as vessel masters and DP supervisors. In particular, inKongsberg isn’t the only provider in structors at the Converteam Technical the DP game, of course. Converteam is also a major player offering stateTraining Center in Houston special-

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In 2008, Harvey Gulf was one of just two companies that met Goal Zero. Guidry explains, “This means no accidents to assets or people, nobody going to the hospital or any insurance claims.” Today, it is literally “no accident” that Harvey Gulf exclusively uses Kongsberg DP equipment on all its vessels. Guidry adds, “When we first got into this, we looked at the other systems available and hired a consultant who was doing accident investigations for the insurance companies in the Gulf. He determined that the Kongsberg systems at that time were the most reliable.” Even as Shane Guidry touts the value of his high-tech DP equipment, he also knows that the best equipment in the world is useless unless those operating it are properly versed in its use. “All of our people go through Kongsberg DP training,” he says,

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ize in planning initial, refresher and advanced training programs as well as operational and watchstanding procedures. What they have discovered as they develop their own programs will be of interest to those engaged in DP operations at any level. According to Douglas C. Olson, a Converteam Technical Training Manager, although personnel who operate DP systems may not have quite the same degree of responsibility as an airline pilot, certainly death, injury, major pollution, or high cost due to equipment destruction and downtime can be the result of human intervention or the lack of it. Senior Converteam instructors have catalogued seven major adverse human factors as observed during simulator training. Olson reports those factors in Table 1. For example and according to Olson, poor operational planning may not involve significant risk to person-

nel or equipment, but it does cause loss of income due to downtime. As part of the Converteam training process, students are required to produce, check, and have instructors review and evaluate the operational plan and diagram. Because clients may pressure (even inadvertently) masters and/or DPOs to commence or continue operations under questionable conditions – especially after a vessel may have endured considerable downtime – Converteam specifically addresses this and other aspects of DP operations at its training facility. Successful operation of DP control systems requires more than knowledge and experience. Human factors will always play a major role. Olson adds, “We must not only recognize that these factors exist, but train operators in how to deal with them.” He continues, “DP vessel managers and supervisory personnel would be well advised

to incorporate human factors as part of an onboard training program as well as in establishing operational and watchstanding procedures.”* Sophisticated DP training centers such as Converteam’s can and do expose operators to many of the major adverse human factors in a limited amount of time through simulator training. Training regimes based around simulators permit all types of offshore personnel who are associated with DP operations to become familiar with the equipment and with realistic offshore scenarios and to gain valuable experience and insight into the nature of their human response to real-life events.

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tion (CBP) proposal to strengthen the Jones Act in the U.S. Gulf has two trade organizations at loggerheads with one another. CBP rulings had long allowed foreign vessels to carry cargo to subsea oil and gas locations as long as that vessel also installed it, and the practice was welcomed by oil companies looking for a turnkey job utilizing a minimum of vessels and achieving a low price. A change in those regulations – which could come

by the end of the year – could alter the business mix in the Gulf forever. With or without changes to the CBP regulations, Harvey Gulf this year will begin to realize the benefits of partnering with The Jordan Company as its capital strength. Through the partnership, Harvey Gulf has access to more than $200 million of additional capital to use in connection with the design and construction of new vessels for deepwater operations. Shane Guidry

isn’t sitting on the money. As MarEx goes to press with this edition, Harvey Gulf announced plans to build four fully modern, DP-compliant vessels at, of course, a U.S. Gulf shipyard. The 310-foot-long vessels, at a cumulative cost of $250 million, will each have about 18,000 barrels of liquid mud capacity and much more usable deck space. Retrofitting one of the hulls in a similar fashion to the Harvey Discovery is also a real possibility. The announcement sent a clear message to oil and gas operators in the U.S. Gulf: Quality American tonnage to do all types of work in the GOM is available. More is coming. Harvey Gulf’s commitment to safety and quality is unquestionable. Underscoring all of that, the four new boats will also be double-hulled and “ES+”-certified – environmentally green. Guidry explains, “In other words, the components that you put into the vessel itself, one day when the vessel is dismantled, are going to be environmentally safe to dismantle.” He adds, “We’re building our vessels a little bit more computerized – not only DP, but 100 percent of our offloading and loading is computerized. Cargo-tracking management by computer, all laser-driven measurement systems.” For Guidry and Harvey Gulf, the phrase “dynamic positioning” carries with it more than just a little double entendre. And both definitions portend good news for this privately held, family-operated and globally compliant firm. Anyone who doubts that hasn’t been onboard a Harvey Gulf vessel lately. MarEx *Read Douglas Olson’s full article, entitled “Observed Human Factors in DP Simulator Training,” on the MarEx Web site by clicking: http:// media.tmmarket.com/marex/media/pdf/Observed_Human_Factors_ in_DP_Simulator_Training.pdf.

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In tough markets – like today’s, for example – ship managers look relentlessly at every aspect of their costs. Decisions regarding coatings on vessels and offshore structures require careful analysis. Very often, the business case for going in a particular direction is driven by the estimated costs over many years. Increasingly, however, the costs of regulatory compliance and a view toward environmental sustainability – both very much executive issues for today’s ship operator – also figure into decisions. In the end, the basics still apply, augmented by more than just a few new variables.

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THE MARITIME EXECUTIVE

Anni, Marketing Director for SpongeJet in Portsmouth, NH, explained: “People have a hard time relating surface ‘prep’ to the life of a vessel. Put very simply, one can save (or make) millions by maximizing the working life of any marine structure or vessel with the careful application and maintenance of protective coatings.” Indeed, fully 75 percent of all coating failures come from faulty surface preparation; hence the type and quality of surface preparation is absolutely critical to coating life. Anni explained that Sponge-Media, an abrasive applied as an alternative to sand blasting, enables dramatic savings compared to conventional grit because it can be recycled. According to Anni, Sponge-Media can be reused up to eight times, lowering the cost per application. With each application, there is less material to dispose of and lower disposal costs. In describing a job where a 40,000-squarefoot surface is being prepared for coating application, Anni told MarEx that waste is reduced ten-fold, to 20 tons instead of 200 tons. At a nominal disposal cost of $80/ton,

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savings exceeding $14,000 can be realized. In another example, where the fuel tanks of a containership were blasted down to a “near white metal blast,” the higher initial cost of the Sponge-Jet abrasive (compared to conventional sand grit) was more than offset by savings in disposal and manpower. In this complex job where work was done with other trades including welders and electricians, Anni estimated the job’s overall time requirement to be three days

Careful Considerations less than conventional blasting.

Insulating Against Inefficient Work Flows and Higher Costs

In the chemical tanker business, Advanced Polymer Coatings (APC), producers of MarineLINE coatings, are proud of a lengthy list of references. Customers who have used the well-known MarineLine 784 include Clearwater Tankers (Netherlands), Lukoil, Latvian Shipping and Malaysian International Shipping Corp. Don Keehan, Chairman of APC, says: “Our coatings offer much better performance and versatility for product and oil tanker operators than conventional phenol epoxy or zinc silicate linings, which have limitations along parameters of chemical resistance, temperature resistance, abrasion and absorption.” APC, with roots in the demanding aerospace business, says that traditional carbon steel, coated with its new MarineLINE X, costs only 15 percent as much as stainless and resists dete-

THE MARITIME EXECUTIVE

In the Tank: Different Cargoes, Different Coatings…

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Boat builders are increasingly faced with challenges in decisions about insulation, which, in turn, impacts noise, heat and development of condensation. Houston-based Mascoat Products therefore asks, “Why paint and insulate?” Mascoat, founded in the mid-1990s, provides its own answer in the form of coatings which are also sound dampeners and thermal insulators. The business case for Mascoat products, which can be sprayed on, turns on quick application times and weight savings. George More, Mascoat’s President, told MarEx, “Our coatings can be applied on any metal without a primer, except for carbon steel. There we would need a primer to inhibit flash rusting and ensure a strong bond. We like to talk to each customer on a one-on-one basis to find out what would work best given the exact application surface.” Mascoat projects run the gamut from anchor handlers and crewboats to aircraft carriers. In the offshore oil support business, dramatic temperature differentials between outside weather and interior accommodation spaces often lead to condensation issues. Galliano, LA-based Edison Chouest Offshore solved such problems on its Casey Chouest with Mascoat’s Delta T, a composite ceramic insulating coating that addresses two problems found in harsh environments: the need for thermal insulating and anti-condensation protection. Mascoat points to its light weight, with savings particularly noticeable in applications around “difficult” areas such as stiffeners and other obscured fittings. Chouest estimated a three-week time savings (compared to foam or blanket insulation), which translated into their boat generating revenues that much faster. An in-house painting crew was able to apply the Delta T, eliminating the need for an outside contractor (with a 20-man crew).

Careful Considerations MarineLINE X vs. Phenol Epoxy

THE MARITIME EXECUTIVE

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In an example provided to MarEx, APC’s Don Keehan shows the cost of coating 27,000

rioration from many more of the cargoes square meters (m2) of cargo tank surface with two coats of MarineLINE X, coming to commonly carried in the chemical trades. $540,000, or $20/m2. At first glance, this initial cost exceeds the $443,000 cost for the Keehan explains that another potential requisite three coats of phenol epoxy tank coating (at $16.42/m2). Closer examination savings for the new MarineLineX is its tips the balance in favor of MarineLINE, when the extra cost of a spray application for reduced curing time. After application the third coat (at $2.50 /m2) is considered, along with four days of vessel off-hire, worth (always under the supervision of an APC $25,000/day, required for drying. representative conducting continuous Source: Advanced Polymer Coatings quality measurements), the coating can be cured with non-forced air. But in doublehulled vessels, it’s also possible to get a full cure by taking a heated cargo (for example, vegetable list of deep sea owners that includes Maersk, Clipper and oil carried at temperatures of 60 to 80 degrees centigrade) PDV Marine, and oil majors such as Shell, Chevron and for 20 days. In the chemicals business, biofuel demand BP Amoco. Hempel also has a large presence in the inland is expected to grow in coming years. Vessels coated with river trades throughout the Americas. According to HempMarineLINE X and MarineLINE 784 (which does require el, “Barges are usually coated with epoxy systems such as forced air) are subject to fewer restrictions than those with Hempadur Mastic 45880 above the waterline,” topped off conventional coatings. This will become more important with a polyurethane. Below the waterline, barge and supply with the growth in transportation of methanol, bioethanol vessel surfaces are coated with Hempadur Multi-Strength and FAME (a family of chemicals derived from vegetable 45751. Where barges are employed in the chemical trades, oils), to name just a few. When vessels switch from dirty to the Hempadur line also includes a phenolic epoxy. Supclean cargoes, Keehan points to a time savings of four days ply vessels are treated with an anti-fouling system from versus a phenol epoxy, worth around $20,000/day for a Hempel’s Olympic line and Hempathane (an enamel prodtypical MR1 vessel. uct) above. For a recent barging project serving the Parana Hempel, another major global player, has an account Paraguay waterway, a fleet of 80 barges for the ore trades

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Careful Considerations received a zinc silicate prime coat underneath two coats of Hempadur epoxy. Finally, a top coat from the Hempathane line was applied.

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Rick McRae, the Global Market Director (Marine and Offshore) for Sherwin Williams (S-W), recently told MarEx, “We are a leading supplier in the marine and offshore markets based on strength with the U.S. Navy and a growing commercial business. Our vast network of companyowned stores allows us to be where our customers and shipyards need us to be. When they want something, they want it quickly, and we can meet their needs.” McRae stressed the importance of company representatives working with customers well in advance of their actual projects (and making sure that S-W is on their approved vendor lists). “We have business development managers focusing on every aspect of the marine and offshore business.” In particular, S-W’s Euronavy ES 301 epoxy product (originally marketed by a Portuguese manufacturer acquired by S-W in December 2008), is a solvent-free (low VOC) product widely used on offshore equipment and in other segments where corrosion protection is of paramount concern. McRae insists, “It’s a problem-solving product that’s

formulated for instances where you can’t achieve proper surface preparation. It’s unique surface-tolerant properties even allow it to be applied to wet or damp surfaces.” Coatings for interior and living spaces in the cruise, ferry, workboat and oil sectors are the focus of Gary Hayes, the Global Marine Business Development manager handling Epmar’s Syndeck line of decking systems. Hayes told MarEx in October that Epmar (part of the Quaker Chemical Company) is now building on its naval application successes (with their exacting milspec standards for lightweight “underlayment” and top coats) and is now actively penetrating the commercial markets. Though unseen after installation, Hayes stressed the importance of the underlayment in leveling out surface irregularities, grades and contours while being nonporous and waterproof. Like McRae, Hayes travels extensively, meeting and counseling customers on marine flooring and decking solutions.

Throughout the business, innovative uses of technology are playing a role. Hempel’s Hempasil X3, a newly developed anti-fouling hull coating, cuts fuel consumption – according to the manufacturer – by four to eight percent through

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THE MARITIME EXECUTIVE

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reduced drag. Chemical technology, in the form of nonreactive polymers (establishing a layer between paint and sea water) is one part of the equation. Taking its service to a new dimension, Hempel makes a computer program available to customers that enables them to monitor performance of the coating and maximize fuel savings. For Sherwin Williams, Sher-Release, a silicone-based foulant release material originally developed by the U.S. Navy, fits the bill. McRae explains, â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s so slick that it resists

THE MARITIME EXECUTIVE

all types of hard and weed fouling.â&#x20AC;? According to McRae, Sher-Release, without biocides, can result in fuel-consumption savings that range from six to ten percent compared to conventional anti-foulants and has been proven to work over drydock cycles of 60 months, even at speeds as low as 10 knots. He added, â&#x20AC;&#x153;We have a number of workboat customers evaluating this product for use in their business.â&#x20AC;?

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short sea shipping

Short Sea Shipping: Still at the Dock, But Getting Ready to Sail

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By Joseph Keefe

THE MARITIME EXECUTIVE

First, the good news: The global recession and financial crisis are at long last showing signs of easing. On this side of the pond, a growing consensus of shipping executives, legislators and more than a few others are banking on the development of a robust short sea shipping sector to lead the domestic, Jones Act sector of the maritime industry out of the woods. Nevertheless, after twenty years of talking about it, and with the obvious benefits of such a strategy plain enough to see, the full development of America’s Marine Highway has yet to be realized.

Defining Short Sea Shipping

Short sea shipping makes a lot of sense for domestic carriers and shipyards. Not too many people in the heartland or, for that matter, in Washington care very much about that. In truth, there are countless good reasons to get the job done, but unless the value of taking the cargo off the roads and putting it back onto ships can be conveyed to a wider demographic, it just is not going to happen. In Connecticut alone, according to the Connecticut Maritime Coalition, as many as 19 million tons of cargo, 2.6 million people and 850,000 vehicles are moved over water by private operators each year, and waterborne transport keeps 950,000 trucks off Connecticut’s roads annually. Those impressive numbers, unfortunately, represent isolated pockets of what could be a wider strategy to reduce traffic congestion and wear and tear on the nation’s highways and, in the process, remove tons of particulate matter and pollution from the air we breathe. Through the use of a few “super” ports on each coast, there is real potential for millions of tons of cargo to be moved on small feeder ships to other, smaller, shallowdraft “niche” ports. America does not need thirty ports each dredged to 60 feet. Those resources are probably better spent on maintenance of existing berths, intermodal port infrastructure and waterways. Eventually, through short sea shipping, we’ll spend less on highway maintenance and thereby make the tax dollars that we do have go

further. This isn’t rocket science.

Short Sea Shipping: Reality Check

Leading congressional proponents of short sea shipping, including Senator Frank Lautenberg (D-NJ) of the Senate Commerce Committee and Representatives Elijah Cummings (D-MD) and James Oberstar (D-MN) of the House Transportation and Infrastructure Committee, have sponsored key legislation providing (1) relief from the Harbor Maintenance Tax (HMT) for intermodal cargoes in the coastwise trade and on the Great Lakes and (2) a grant program administered by the Department of Transportation. The latter measure was enacted into law in the Department of Defense Authorization Act of 2010. Now Congress must provide funding for these grants and repeal the HMT for short sea shipping to flourish. But even that won’t be enough. Virtually everyone knows that a domestic short sea shipping program is “going nowhere fast” without the elimination of the HMT, which derives absolutely no revenue from short sea shipping because no one is stupid enough to be taxed twice on the same cargo when that box or commodity can be shipped overland without the added expense.

Why Not Short Sea Shipping?

Short sea shipping will foster and perpetuate domestic maritime activity in the form of shipbuilding, maritime-related employment, reduced emissions, sealift capabilities in time of war and, yes, increased tax revenues. Reading about it in MarEx won’t make that happen any sooner. There are, however, a few people who could. That’s going to take leadership from industry, Congress and other centers of power. One person who shares the passion for short sea shipping is Wayne McCormick, the owner and Webmaster of a relatively new Web site aptly dubbed www.AmericasMarineHighways.com. McCormick’s site is devoted to all things “short sea shipping,” and he has compiled an enviable stockpile of information. Just nine short months after kick-

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short sea shipping

America’s Leaders Weigh In

McCormick’s informal survey netted responses from a diverse group of folks with differing interests in short sea shipping. What they had to say is, perhaps, far more important than what MarEx could tell you. Follow along as MarEx, with McCormick’s permission, outlines some excerpts from an impressive list of industry insiders and maritime executives:

Stephen Flott, Chairman, SeaBridge USA, Inc. “…domestic bulk commodities and international containers, which comprise the largest majority of the freight moved by existing US marine operators, are not the primary cause of highway and railway congestion along the coastal corridors that marine highway projects are expected to relieve. It is beyond argument that congestion on these systems is created overwhelmingly by domestic freight moving by highways in 53’ trailers and by railway in 53’ domestic containers. The current economic recession has reduced transportation demand, but the long term trend lines are set toward greater and greater congestion which will get worse as the economy improves.” Read Mr. Flott’s full remarks by clicking: http://tinyurl. com/flott-amh U.S. Secretary of Transportation Ray LaHood “There is not only growing commercial interest in using the Marine Highway to move freight by water, but Congress has also addressed this issue. The Energy Independence and Security Act of 2007 included a ‘Short Sea Transportation’ section that directs the Secretary of Transportation to ‘establish a short sea transportation program and designate

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ing off the site, he has also generated renewed excitement about the possibility of short sea shipping. When he recently asked readers to weigh in on three Wayne McCormick questions related to America’s Marine Highway, he also attracted the attention of the very people in a position to make a difference. In a nutshell, McCormick reached out to industry stakeholders, regulators and national legislators and asked three simple questions: 1 Is there the potential for a Marine Highway Program in the United States? 2 What are some of the barriers to making MH a reality on a larger scale? 3 Is MH a part of a National Transportation System?

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short sea shipping

THE MARITIME EXECUTIVE

short sea transportation projects to be conducted under the program to mitigate landside congestion.’ In response to this legislation, the Department issued an Interim Final Rule in October 2008 and will Ray LaHood issue final regulations to implement the program later this year. Additionally, the Maritime Administration’s reauthorization gives the Agency the authority to implement a Marine Highway Grant program and the President’s budget for 2010 through 2012 includes funding for such a program. While it is yet to be seen if these funds will be appropriated by Congress for 2010, this clearly represents a move by both the Administration and Congress toward such a mechanism to expand our use of Marine Highways where it makes sense. Properly implemented, this program can help reduce landside congestion. For example, a single vessel can shift over 450 trucks or 225 rail cars from costly and capacity constrained road and rail corridors to our underutilized waterways Marine Highways can also help reduce oil use. One study shows that inland towing moves each ton of freight nearly three times farther than by truck and almost 40 percent farther than rail on a gallon of fuel. This can also result in environmental benefits. Because inland towing consumes

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73 percent less fuel than truck and 28 percent less than rail, it emits proportionally less greenhouse gases. We are dedicated to systematically removing barriers in order to make better use of the Marine Highway. We will issue a report to Congress in the near future that describes some of these barriers and offers options to address them. Our approach is to integrate Marine Highways into the overall Surface Transportation System as we implement the new program. Several regions of the country offer particular opportunity in that there are landside corridors with some of our worst congestion with corresponding water routes that could offer some relief.” Read Secretary LaHood’s full response by clicking: http:// tinyurl.com/lahood-amh Congressmen James L. Oberstar, Chairman of the House Committee on Transportation and Infrastructure “The federal government has an important role in promoting the expansion of the commercial waterways and making them a more integrated component of the nation’s transportation system. Policy initiatives currently being considered by Congress could help address some of the logistical, operational and financial constraints of short sea shipping. Capital investment in vessels and infrastructure is anoth-

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short sea shipping

THE MARITIME EXECUTIVE

er hurdle preventing a more robust marine highway system. Building vessels and infrastructure to accommodate short sea shipping requires considerable capital investment. In the current economic environment, it is difficult for shipping start-ups, as well as established companies, to secure the financing they need to build ships. Traditional sources of lending are unwilling to provide capital to develop the infrastructure the system requires, and the market for short sea shipping has not yet developed.” Read Rep. Oberstar’s full remarks by clicking: http://tinyurl.com/oberstar-amh Rep. John Mica (R-FL), Ranking Member, House Committee on Transportation and Infrastructure “There is great potential and untapped capacity for marine highways in the United States, and the answers to the first and third questions go hand in hand. Congestion plagues most modes of transportation in the United States. Highway congestion, for example, costs Americans nearly $90 billion every year in wasted time and fuel. The nation would clearly benefit from the greater use of coastwise trade on our nation’s marine highways as part of a national transportation strategy. One 15-barge tow can remove 1,050 tractor-trailers from the highways. Just

a gallon of diesel fuel can move one ton of cargo 576 miles on a barge. A rail car using the same amount of fuel moves that ton of cargo 413 miles, and a truck only 155 miles. By 2035, freight volumes are expected to almost double. Marine highways are energy efficient and can yield positive environmental benefits. Despite these factors, the maritime sector represents only about 6 percent of total freight tonnage transported within the U.S. each year. We must work to dramatically increase this number.” Read Rep. Mica’s full response by clicking: http://tinyurl. com/mica-amh Jim Pugh, Director, Marine Highways & Passenger Services, Maritime Administration, USDOT “Congress recognized that the expansion of water transportation for freight and passengers could offer significant public benefits, and passed the Energy Bill in 2007 that directed the Secretary of Transportation to formally establish a short sea transportation program to reduce congestion and improve air quality. The Maritime Administration has implemented a program called America’s Marine Highways to meet this requirement. The purpose of the America’s Marine Highways program

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short sea shipping

THE MARITIME EXECUTIVE

is to build coalitions of public and private sector interests to address congestion and air quality in major freight corridors. It is difficult to generalize about barriers because most marine highway markets are niche markets. Certainly, there are some institutional barriers like the Jones Act and Harbor Maintenance Tax that preclude some new services from being offered. However, from my perspective, the major barrier to developing new services is the lack of purpose-built vessels to serve the largest market segments in a cost effective manner. Water transport is a very efficient mode for freight and passengers, but other factors related to terminals add costs that are difficult to absorb and still offer competitive rates in many instances. There is also a lack of door-to-door service offerings, which is the key to integrated transportation solutions for major shippers. The current economic climate may not be conducive to new business ventures, thus limiting the expansion of marine highways in the near term. But it must be said that the operating environment may change as a result of fuel price increases and traffic restrictions in the future that will make water transport even more attractive in some markets.” Read Mr. Pugh’s full response (and these are his opinions, not necessarily those of MARAD) by clicking: http://tinyurl. com/pugh-amh

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Looking Forward: Building on Renewed Momentum

With the fourth quarter of 2009 now in full swing, things might just be looking up. DOT Secretary Ray LaHood announced more than $42 million in grants to improve ferry service and build new docks and other facilities in 15 states and Puerto Rico. This brings the total number of grants to $110 million for the year, with another $100 million also doled out in the form of small shipyard grants in August. The good news is tempered by the fact that these funds represent only a tiny fraction of the stimulus dollars to be spent on other transport modes. Ultimately, the road to a successful marine highway system has to go through Washington, where conditions to alter several key laws and provisions have arguably never been better. If key leaders such as Rep. Oberstar and Secretary Lahood can back up their rhetoric with real action on the Hill, the commercial viability of this important concept will take off. In fact, there may very well be no better way for Washington to make a relatively minor investment today in exchange for a ten-fold return in tax revenues, reduced pollution and highway congestion, and increased domestic employment. But then, we’re preaching to the choir here, aren’t we? MarEx

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ance li p m o C s n io s is m E f o t By Christopher Petrie Going Green – The Cos

The clock is ticking. New limits on noxious emissions ratified at the International Maritime Organization in 2008, commonly referred to as Tier II and Tier III of IMO MARPOL 73/78, apply to vessels with keels laid from January 1, 2011 and 2016, respectively. In theory, this gives industry two more years to develop its IMO Tier IIcompliant engines. In reality, the deadline is much closer. Follow along as MarEx identifies just some of the technologies needed to achieve IMO Tier II and III compliance as well as the costs involved. And there will be costs. All the major manufacturers have launched their IMO Tier II programs and are working feverishly on Tier III options. This will be reflected in new (and higher) engine prices, notwithstanding current economic conditions. Can engine manufacturers recover the costs associated with developing emission-compliant engines? That’s the $64,000 question.

THE MARITIME EXECUTIVE

A Complication

Since the marine engines emissions debate started some 20 years ago and IMO Tier I was introduced 12 years ago, a new emissions focus has emerged: greenhouse gases. Since almost all combustion engines run on fossil fuels, they produce emissions of the greenhouse gas, carbon dioxide (CO2) and in very large quantities. Although each cylinder of even a medium-sized ship’s engine displaces as much as 50 passenger cars, the efficiency of these large engines is so much higher than automotive engines that they easily undercut road transport in terms of fuel consumption per ton of goods transported per mile. “Fuel consumption-neutral emissions reduction” therefore remains the ideal for IMO Tier II. Whether engine builders can recoup their associated R&D investment under current conditions is, however, still very much

up in the air. That said, one engine builder is still quoting a familiar €400 per kW as a pricing rule-of-thumb for medium-speed engines. Looking ahead to IMO Tier III, there are encouraging signs that these emissions levels can be achieved without fuel consumption penalties, or even bettered at reduced fuel consumption, but what is certain is that IMO Tier III will cost more.

IMO Tier II – NOx Aforethought

The main focus of development to meet these regulatory stages is reducing the formation of oxides of nitrogen (NOx) in the engine. Another widely legislated emission from engines is oxides of sulphur (SOx) emissions, which are dependent exclusively on the level of sulphur in the fuel and hence fall outside the engine builders’ sphere of influence. Engine builders by January 1, 2011 are required to comply with IMO Tier II to reduce NOx emissions by 20 percent compared to the Tier I limit. Tier II compliance, according to published technical data of engine builders, will come at a marginal increase in fuel consumption of perhaps one or two percentage points. Tier II is not, in fact, so stringent in terms of NOx emissions that it cannot be met using “primary measures,” which involve changes to the standard parts of any engine. These variables include combustion chamber geometry, gas exchange, fuel injection, turbocharging, charge air cooling and controls. Moreover, while Tiers II and III were at the negotiating table for some time, engine technology progressed substantially. The results included incremental changes like high-pressure, common rail fuel injection; higher efficiency/ higher pressure turbocharging; enhanced combustion chamber geometry, and revised gas exchange technology.

going green

n o vem b er / d ecem b er 2 0 0 9

So Far, So Good

Most of the Tier II NOx reduction measures involve advances that aim to eliminate areas of high temperature in the combustion chamber. Such temperature peaks are responsible for over 90 percent of NOx emissions. This is done either by better mixing of the fuel and air in the combustion chamber and/or by cooling of the combustion air, which entails improved charge air coolers and the socalled Miller Cycle, based on revised valve timing. However, these measures are not enough, so Tier II engine builders have still reverted to the “classic” way of reducing NOx emissions – injecting the fuel into the cylinder later. This cools diesel combustion and reduces NOx emissions but also lowers fuel efficiency, a phenomenon known as the NOx-fuel consumption tradeoff, or “Diesel Dilemma.” In its brochure advertising the benefits of its advanced VTA turbocharging, MAN Diesel quantifies savings of over $100,000 annually, based on a 7860 kW two-stroke engine operating for 6,000 hours per year at 72 percent load on HFO costing $700 per ton. Assuming a mean fuel savings of 2.2 g/kWh, these figures could indicate extra annual fuel costs of around $6-$7 per additional g/kWh of fuel consumption.

THE MARITIME EXECUTIVE

IMO Tier III

Significantly, IMO Tier II forms the basis of IMO Tier III compliance: Ships constructed beginning in 2016 need to comply with Tier II limits when on the high seas but must achieve a massive 80 percent reduction in NOx emissions when operating in designated “Emission Control Areas” or

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going green alleviate this problem and are already offering retrofit packages for operation on standard HFO grades. The reducing agent required is ammonia, and this is transported and stored in the form of urea, which breaks down into ammonia when injected into a diesel engine’s exhaust gas stream. Obviously, this is an extra consumable that has to be bought, transported and stored, with associated tanks taking up additional space aboard ship, as do SCR’s other components. Anyone following the onhighway emissions debate in Europe will know that SCR has long been the NOx emissions technology of choice for most of Europe`s truck builders. In terms of costs, a rule of thumb for SCR is between €4,000 and €5,000 per MW of engine output for the installed hardware, while the consumable urea is estimated at €25 per hour for every MW of engine power.

Fallback Solutions

At a minimum, SCR represents a secure position from which engine builders can pursue other NOx-reduction technologies. Among these are solutions involving advanced primary measures to achieve a so-called strong Miller Cycle, humidification of intake air and exhaust gas recirculation (EGR), the latter especially on low-speed, two-stroke en-

THE MARITIME EXECUTIVE

“ECAs.” Logically, ECAs are waters close to areas of population or other environmentally sensitive locations, including straits, port approaches and landlocked seas like the Baltic. Not everyone is waiting until 2016 to designate ECAs. For example, the North Sea, the Baltic and the English Channel are already designated, and individual countries are already imposing penalties (Norway) or offering tax breaks (Sweden) to ships based on their Tier III compliance. Currently, the only reliable way to meet NOx emissions limits more stringent than Tier II is with selective catalytic reduction (SCR). In fact, with NOx conversion rates of up to 85 percent, SCR represents a quick fix for NOx problems, and demand is already growing for retrofits on vessels wishing to ply the first ECAs or take advantage of incentives and tax breaks. The technique involves the injection of a reducing agent into the exhaust stream of a diesel engine in the presence of a catalyst, which converts oxides of nitrogen back into harmless nitrogen and water. The only drawback is that it works better with low-sulphur fuels since fuel sulphur content can form sulphates, which mask the catalyst and reduce its performance at the lower exhaust gas temperatures associated with low-load engine operation. However, engine builders are working with turbocharger bypasses to

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going green

THE MARITIME EXECUTIVE

gines. All of these technologies aim to eliminate the notorious temperature peaks in the combustion chamber. Humidification of intake air involves evaporating water into the charge air to cool the intake air while EGR uses the engine exhaust gases as a source of inert gases, which are cleaned and cooled and fed back into the combustion chamber where they cool combustion. The humid air technique also requires a consumable – water – but the system can operate on untreated sea water. Its disadvantages include high capital costs, although these costs should be fairly constant irrespective of engine size, a high space requirement, and the fact that engine exhaust heat needed to accelerate the evaporation of the sea water is not available for fresh water production. This factor is very important in applications like cruise ships, with their high demand for fresh water.

Validation

All these techniques are being tested. The saturated air technique is known as the Humid Air Motor (HAM) at MAN Diesel and the Saturated Air Motor (SAM) at Wärtsilä. HAM has been tested for several years on the Viking Line ferry, Mariella. EGR is under test on the two-stroke MAN B&W main engine aboard the container feeder Alexander Maersk, notably as part of a Danish government-sponsored

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“Green Ship of the Future” program. The strong Miller Cycle is part of the Hercules program of marine emissions reduction research sponsored by the European Union. The present NOx reduction performance of these technologies is such that they do not yet represent stand-alone solutions to Tier III compliance. Charge air humidification stands at around 65 percent NOx reduction; “Green Ship” publicity cites EGR’s potential as 50 percent, and the highest figure so far published for the strong Miller Cycle is fuel consumption-neutral 35 percent. Against this background, Juha Kytola at Wärtsilä’s newly established Ecotech unit for ecological technologies noted that his company was looking at using combinations of available technologies, which would vary from application to application. This view was echoed by Nigel Parkinson, Managing Director, Caterpillar Marine Power Systems in Hamburg, who stresses the “horse for courses” approach, which takes account of the economics of the marine sector involved. Hence we may see a number of technology permutations on the same engine, such as EGR and saturated air Variable Miller, and IMO Tier II engine plus SCR.

Variable Miller

Of all the Tier III packages, the Miller Cycle is worth look-

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going green

THE MARITIME EXECUTIVE

ing at in closer detail because of the promise it reportedly holds and the fact that it uses only the primary measures the engine builders prefer. The most likely configuration to find its way onto marine engines is Variable Miller Cycle, which uses a package of flexible primary measures and electronic controls. What is noteworthy here is that the technique promises substantial gains in fuel consumption and specific engine output as well as lower NOx. At the heart of the system is two-stage, high-pressure turbocharging. The Miller Cycle uses early inlet valve closure to induce the incoming combustion air to expand, but without countermeasures this reduces the amount of air which can enter the cylinder and hence engine power. The solution is to increase the pressure of the air ahead of the inlet valve so that as much (or more) air can enter the cylinder in the shorter time available. For this purpose, two turbochargers are placed in tandem to increase the pressure of the charge air from around five bars to eight. The first results of trials with this technology are the choice between a 35 percent reduction in NOx or an eight percent decrease in fuel consumption (due to the tradeoff) but also a 10 to 15 percent increase in engine power. The potential costs of this system include an extra turbocharger as well as an additional intermediate charge air

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cooler placed between the turbochargers, a variable valve timing system to avoid problems with the shorter valve timing when the engine is running at low load, and electronic controls in addition to those inherent to common rail fuel injection. Using a rule of thumb of €100,000 per turbocharger and €50 for a charge air cooler, a ballpark figure for Variable Miller would be €200,000 to €250,000 per engine to be set against the potential fuel savings.

Radical Cure

The radical cure that cruise lines in particular are looking at involves engines operating on natural gas, which comply with IMO Tier III NOx limits without further measures. Natural gas is a “no sulphur fuel,” and engine builders and shipyards already have advanced electric propulsion concepts based on gas engine generator sets and the technology to store the necessary gaseous fuel. Interestingly, all of this work is good preparation for the day that fuel cells become a feasible alternative. Marine engines are indeed going “green.” The cost of all of that is sure to hit the bottom line of the world’s ocean carriers. MarEx Christopher Petrie is a freelance writer specializing in engines and propulsion technology.

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