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Classification Societies: Maritime Employment: Innovative Products: New Products / New Focus

People & Partnerships

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22

case study:

siNOpaciFic shipBUildiNG GrOUp the Power of a global Vision BY TONY MUNOZ

28

executive interview:

siMON XiaOlei liaNG Chairman & CEo, sinopacific shipbuilding group BY TONY MUNOZ

16 strategic partnerships for the Tough Times & Good Times BY MareX sTaFF

34 sTaTe OF The iNdUsTrY worldwide shipyards: new Challenges and Creative responses BY BarrY parKer

40 ensuring hull integrity Just a click away BY paTricia KeeFe

44 a different classification society Model BY JOseph KeeFe

52 sTOp leaving pollution in Your Wake BY JOseph KeeFe

58 shipboard Fire Fighting BY MareX sTaFF

64 shipyard directory

Marex departments executive achievement

8

The Mcclendons

ContEnts

cONTeNTs thEMccleNd0Ns

Volume 13, Edition 9, May/June 2009

the McClendon Executive team launches seaark’s second half-Century BY MareX sTaFF

Washington insider

11 piracy and Maritime safety Top america’s 2009 Maritime agenda BY larrY KierN

Marex Op-ed

14 investing in hard Times BY GarY laGraNGe

Upgrades & downgrades

18 Vessel Financing and leasing: Outlook and sources of capital BY JacK O’cONNell

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pUBlisher tony Munoz :: tonymunoz@maritime-executive.com ediTOr iN chieF Joseph a. Keefe :: jkeefe@maritime-executive.com seNiOr cOpY ediTOr John J. o’Connell, Jr. :: harvardjo@maritime-executive.com arT direcTOr Evan naylor :: enaylor@maritime-executive.com assisTaNT arT direcTOr daniel Bastien :: dbastien@maritime-executive.com seNiOr Vice presideNT sales & MarKeTiNG Brett Keil :: bkeil@maritime-executive.com adVerTisiNG sales MaNaGer Elizabeth Johnson :: ejohnson@maritime-executive.com sales assOciaTe irena ortlani :: irena@maritime-executive.com sales assOciaTe tom darr :: tdarr@maritime-executive.com sales assOciaTe Marci ryan :: mryan@maritime-executive.com sales assOciaTe - GerMaNic eUrOpe hansjorg Brans :: jbrans@maritime-executive.com direcTOr OF sales - asia Philipho Yuan :: fyuan@maritime-executive.com iNTerNeT serVices MaNaGer steven gonzalez :: sgonzalez@maritime-executive.com circUlaTiON MaNaGer danielle Phillips :: dphillips@maritime-executive.com the Maritime Executive, llC (issn 1096-2751) 3200 s. andrews avenue, ste. 100 Fort lauderdale, Fl 33316 telephone: +1 954 848 9955 toll-Free: 866 884 9034 Fax: +1 954 848 9948 www.maritime-executive.com For subscriptions please visit www.maritime-executive.com the Maritime Executive (issn 1096-2751) is published bimonthly 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: Š 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. 4 | M aY / J U N e 2 0 0 9

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Editorial

Touching Bottom, Not Hard Aground

Joseph Keefe Editor in Chief

Joseph Keefe can be contacted at jkeefe@ maritime-executive.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.

Shipowners, shipyards and the maritime vendors that depend on them are scouring the newswires for even the hint of a sign that would indicate the worst of the global economic crisis is over. If one digs deep enough, there are glimmers of hope that a rising tide might soon bring some stability to the world’s supply chain. But before the collective maritime business can be floated again, there is still plenty of pain to be felt in all sectors. Only when that is over will we know whether the bottom was soft and sandy, or littered with sharp and jagged rocks. In late May, at least two industry analysts suggested the possible end of the global trade slowdown. Weak global first quarter container volumes were slightly improved in March, according to one report. Separately, AXS Alphaliner, a Paris-based firm that tracks worldwide container vessel capacity, also reported weak first quarter volumes that rebounded in March. According to the Alphaliner report, five top container ports showed a 29 percent increase in March liftings. Good news, indeed, but not yet time to pop the cork on the champagne. U.S. container imports for the first half of 2009 are expected to be off by 19 percent compared to the same period in 2008. Beyond this, even if the bottom is really here, UKbased Drewry Shipping Consultants warns that 2009 worldwide liner losses could still reach $68 billion if current rate trends continue. Any shipping executive will also tell you that the global downturn extends to all links in the intermodal supply chain. In North America, there is no better illustration of that metric than a recent traffic report issued by the St. Lawrence Seaway Management Corporation. Seaway traffic results for the period through April 30th show sharply lower cargo volumes and ship transits. Reflecting the turndown in the global economy, total transits were down 40 percent from this time last year, equating to a similar reduction in tonnage of almost 44 percent – or more than 2 million tons. Iron ore and coal traffic fell by about 60 percent while grain shipments remained the sole bright spot with results virtually identical to those in the same period of 2008. For shipyards and those who would like to build a ship any time soon, current events are having an especially chilling impact. With as much as 11 percent of global container capacity idled, it is no wonder that the banks are reluctant to extend credit, even if they had the means to do so. Today, global shipping faces overcapacity and the real potential for an asset devaluation crisis. The redelivery of scores of ships upon completion of time charter terms and, as reported in the March/April edition of MarEx, order cancellations are both commonplace. In this edition, the case study of how one shipbuilder aims to weather the ongoing storm will be of great interest to those readers also focused on being one of the “boats that float” once the downturn ends. Our executive Q&A with Sinopacific’s Chairman & Chief Executive Officer, Simon Xiaolei Liang, sheds even more light on a business model likely to be copied by others as its success grows, even in the face of adverse economic conditions. All this, combined with our annual state-of-the-industry shipyard report, make this an issue not to be missed. In the meantime, bright spots can be found. The reduced traffic volumes have virtually eliminated port congestion and feared longshore and trucker work stoppages have not materialized. Canal operators are even considering toll revisions as weak cargo volumes and bunker prices are causing liner companies to avoid canal passages as a way of reducing costs. But if current conditions are indeed indicative of the bottom, the pressure of anemic freight rates has not yet subsided enough to produce the desired uptick. It is optimistic to hope that “all the boats will float when the tide comes in.” This, of course, won’t be the case. Surviving this one will entail a little bit of luck, an equal part of savvy and, perhaps, a corporate hull that’s just a little tougher than the bottom we’re all resting on. Mar Ex

6 | March/april 2009

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thEMccleNd0Ns executive achievement:

The Mcclendon executiveTeam launches seaark’s second half-century

By MarEx staff

IN THE BLINK OF AN EYE, or so it would seem, SeaArk Marine and its founding family have come a long, long way – 50 years, to be exact. Originally starting as MonArk Boat Company in May of 1959, the firm is well-known for its storied history of custom-built, all-welded aluminum workboats. Not so obvious, perhaps, is how this privately held consortium of two separate boat-building companies navigated the choppy waters of a maritime world that can be anything but kind, and always unpredictable.

arkansas roots

In the beginning, the roots of today’s SeaArk companies can be traced back to a simple garage operation in Arkansas, where John McClendon’s father and grandfather saw the greater potential inherent in Norris Jenkins’ simple construction of flat-bottom aluminum “Jon” boats. The mechanically-inclined Zach McClendon, Sr., John’s grandfather, had previously built cotton gins and, later, the presses to extract the oil from that commodity. Combining this know-how with seed money of just $2,000, and another $2,000 which he loaned to his son, the McClendon team eventually grew the company to where it was building much larger products over the next three decades. Through it all and extending to today’s ultra-modern SeaArk manufacturing processes, one variable has always been present: A McClendon family member in the driver’s seat. Along the way, the company became heavily involved in building military products which – after the collapse of the

oil industry in 1983 – eventually formed the firm’s primary target market. Today, military and government sales are the basis for as much as 80 percent of SeaArk’s revenues. A second company, SeaArk Boats, caters to the recreational markets by building all-welded aluminum Jons, Super Jons, duck-hunting boats, tunnel hulls, and fishing boats. It was formed in 1992 after a four-year noncompete agreement with Brunswick Corporation (which had purchased the original recreational division of the company, including the name MonArk, in 1988) expired. SeaArk Marine President and CEO John McClendon’s sister, Robin McClendon, runs that company.

a long Voyage: coming home

Just 40 years young, John McClendon and his sister Robin collectively represent the third generation of McClendons to run the SeaArk brand. Zach McClendon, Jr., their father, is still involved with the firm as well. Now 72 years old and counting, he serves as Chairman of the Board. It wasn’t always like this. John McClendon agreed to come back in 1994 at a bleak time for SeaArk. When asked why, he replies with a smile, “My dad needed cheap labor.” On a more serious note, he adds, “My dad asked me to come back. The company was struggling a bit and his dad had a lot of balls in the air at once. He needed a couple of people he could trust and, although I was not experienced in the management aspect of boat-building, I had grown up in the business. Robin

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seaark’s 34’ dauntless raM

came back from a good job in Atlanta.” Neither has ever looked back. Before Robin McClendon’s arrival at SeaArk, the firm had been using an outside advertising agency. She explains, “Dad, of course, was hoping that we’d come home and work in the business, but he also had a rule that we had to go out and work somewhere else first. You learn a lot working for others. I also knew that writing technical PR for boats and the marine industry can be difficult.” Armed with a degree in marketing, she came back to work for the company in 1989 as Marketing Director. Eventually, she would be integral in forming a new SeaArk recreational division of her own.

Two companies: Many and Varied customers

Both divisions are privately held. And while the military or workboat division is now twice the size of the recreational division, both in terms of employment and dollar sales, MonArk actually started as a recreational boat company with the workboat division a smaller part of that. “Now, its kind of a flip-flop,” says McClendon. Today, his end of the business employs more than 200 workers. The newer SeaArk Boats – now smaller, more focused on a niche product line – has a few things in common with its predecessor, but caters to a narrower, domestic market. Robin McClendon explains, “Rather than trying to be all things to all people, we feel that our narrower focus allows us to concentrate on building a better product.” John and Robin McClendon might just have the SeaArk brand positioned

in a sweet spot going forward, notwithstanding the tough economy. In a climate where American shipyards find it difficult to sell anything overseas, foreign sales now account for as much as 15 percent of the workboat division’s revenues. McClendon adds, “The Mideast is hot right now. We just finished projects for Oman, Jordan, Kuwait and Egypt.” Beyond this, SeaArk just recently shipped two boats to Djibouti – both of which McClendon claims are excellent anti-piracy boats. “Our product lends itself very well to that mission.” C

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As a company that relies heavily on federal contracts, SeaArk Marine is weathering the current financial crisis well. On the other hand, the credit crunch and flagging tax revenues on the state level have created challenges. As economies – and related tax revenues for municipalities and law enforcement – fall off, the loss of local tax dollars is predictably affecting orders. John McClendon explains, “A new fireboat might get cut out of the budget. That said, we are still doing well in this area.” For Robin McClendon, the sour economy is a real issue. As a manufacturer of primarily recreational boats and equipment, a recession often dries up discretionary income that might otherwise go toward that new family-style fishing boat. On the other hand, SeaArk Boats is finding that those who still have money to spend are now considering an aluminum hull. In some cases, SeaArk is besting the fiberglass hull companies with a less-expensive, albeit not as sexy, CY

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thEMccleNd0Ns but certainly more durable product.

synergy and leadership

Although the companies remain separate units, each with its own employees and set of books, that doesn’t mean the two executives don’t rely on each other. John McClendon explains, “Our plasma-cutting equipment is the same brand and same type for both firms, so if one of our pieces of equipment goes down, one of us can go over to the other shop and cut material at night. We’ve done it before – backing each other up. Employees have the same general skill-sets – for example, welding – and so, yes there is some synergy there.” Robin McClendon took over as President of SeaArk Boats right after 9/11 in 2001. Up until then, the firm had never made money and – perhaps more significantly –had never had a McClendon family member in a leadership role. Robin tells MarEx, “We had tough decisions to make and we made them. This included stopping product lines and reducing headcount.” After going back to what she calls their “breadand-butter” business of big, heavy-duty Jon boats, McClendon reports that the firm has made money in every year since 2002 and, although this year will a tough one, “We will do better than break even.” Robin McClendon’s efforts to reposition SeaArk Boats into a profitable firm speak volumes to her business acumen,

but she prefers to attribute her success to what she calls an “open door” policy. She explains, “I listen to everyone – welders, fitters, it doesn’t matter who. And I try to let people make their own decisions, but I’m perhaps not as good at that as I should be.” From John McClendon’s perspective, his style is 180 degrees out from his sister and father. He insists, “Dad and Robin – they are wonderful entrepreneurs – I am the detail guy. You need both to run any company. I probably shouldn’t be as involved as I am in some operational tasks, but it is a complicated business. But my involvement, at the end of the day, is important.”

looking Forward

In September of 2009, several events are planned to celebrate the 50th anniversary of the business. There is plenty to look back at. The two firms have collectively sent their products to all 50 states and another 72 countries over the years. The current decade, in particular, has been good to the SeaArk companies. And if John and Robin McClendon have anything to say about it, the next fifty years will be just as good. This will certainly require the continued, steady leadership of a McClendon family member. Today, at home, John McClendon’s son is not yet old enough to join his grandfather, father and aunt at work. If history is any indicaMar Ex tor, however, it won’t be too long before he does.

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washingtoniNsider

Build

washingtoninsider written by larry Kiern, winston & strawn llP

Piracy and Maritime safety top america’s 2009 Maritime agenda cONGress aNd The OBaMa adMiNisTraTiON respONd TO The challeNGe OF sOMali piracY AMERICANS UNIFORMLY PRAISED the astonishing rescue of Captain Richard Phillips of the Maersk Alabama by U.S. Navy Seals. But what marked the dramatically successful culmination of a frightening hostage incident on the high seas also signaled the beginning of a more meaningful policy review by the Obama Administration and the Congress of how the United States should confront this serious national security challenge.

The United states Government Must protect americans First The heroism of Captain Phillips and the remarkable precision of the U.S. Navy Seals overshadowed the chronic timidity that for years has characterized America’s response to Somali pirates. Until the April 2009 attacks, U.S.-flag vessels had largely avoided encounters with Somali pirates, who targeted hundreds of foreign-flag vessels for several years. The United States viewed the Somali pirate plague as largely a problem to be addressed by other nations, principally through the United Nations and the European Union. The Maersk Alabama and Liberty Sun attacks, however, signaled a wake-up call for America. No longer could the United States be content to cede leadership to feckless international organizations whose primary policy instrument is to approve the payment of ransom to pirates in the hope that no one will be hurt. Last year alone, this policy of tacitly facilitating ransom payments netted the pirates over $30 million. While the decisive response of the Obama Administration to the recent attacks suggested that the government had found its sea legs amidst the tempest, subsequent events in Washington

revealed an Administration uncertain about how to proceed to craft an effective long-term policy to combat Somali pirates. While the State Department called for emergency diplomacy and declared that the United States bans ransom payments, elements of the Department of Defense (DOD) obstinately resisted calls by American merchant seamen and the U.S.-flag fleet for immediate protection in the form of armed forces security detachments stationed aboard U.S.-flag ships sailing through the pirate gauntlet. This reluctance by DOD to commit the modest forces necessary to prevent future attacks contrasted sharply with the decisiveness of the rescue of Captain Phillips and caused Senator Lautenberg to ask DOD at a congressional hearing why the U.S. response to the threat of piracy was so “timid.” Initially, DOD officials attempted to deflect their responsibility to protect American citizens onto U.S.-flag shipowners who, they suggested, had not done enough. But Coast Guard testimony to Congress praised the crews of the U.S.-flag vessels, who had not only executed their security plans expertly but also creatively implemented enhanced measures to defeat pirates. Oddly, DOD officials asserted that the U.S. Navy did not have the resources to patrol a vast area of 2.5 million square miles offshore Somalia or to protect the 33,000 annual ship transits of the region. But this is a red herring. American merchant seamen sailing on U.S.-flag vessels represent a small number of vessels warranting security. According to congressional testimony by the Under Secretary of Transportation and the U.S. Maritime Administration, there is only on average C

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washingtoniNsider about one U.S.-flag vessel in the region on any given day. Moreover, placing small teams of U.S. military personnel on this discrete number of vessels for the very limited time they transit high-risk areas is well within the capability of the U.S. government. If DOD can’t, then the U.S. Coast Guard should be called into action. Pursuant to the Maritime Transportation Security Act of 2002, the Coast Guard established a specially trained Deployable Operations Group which, according to the law, “shall be trained, equipped, and capable of being employed to rapidly deploy to supplement United States armed forces domestically or overseas” to protect U.S.-flag vessels from “destruction, loss or injury from crime.” Coast Guard forces regularly deploy overseas. If the DOD won’t provide security, then Coast Guard units should be immediately deployed as provided by law to protect U.S.-flag vessels on high-risk transits through the region. Ironically, the supplemental war funding appropriations bill pending before Congress provides $80 million for Somalia, $40 million more than requested by the Obama Administration, and an additional $35 million for U.S. Navy anti-piracy operations, but not one cent to protect American merchant seamen

with armed forces security teams during high-risk transits off Somalia. Without the basic preventative measure of deploying Coast Guard maritime security teams, the American people are destined to witness another frightening episode where American merchant seamen are held hostage.

congress should reaffirm the right of self-defense against Maritime piracy Additionally, to give U.S.-flag shipowners the lawful capacity to protect themselves, Congress and the Obama Administration should swiftly enact desperately needed legislation reaffirming the traditional right of defense against maritime piracy and clearing away legal obstacles that as a practical matter make it difficult to arm U.S.-flag merchant vessels. While the right of U.S.-flag ships to resist piracy has been enshrined in statute since 1819, more recent Department of State arms control regulations have effectively prevented shipowners from doing so. State Department arms control export regulations effectively prohibit U.S.-flag vessels from departing the United States with firearms. Furthermore, key foreign countries prohibit vessels from bringing arms into their ports.

Shipowners also face liability in American courts for injuries and damages that may result from self-defense measures they either take or don’t take. For example, a crewman from the Maersk Alabama sued the shipowner for putting him at risk during the recent events near Somalia. Such lawsuits were unheard of in 1819, but they are a real and present danger today. Most U.S.-flag vessels on international routes are carrying U.S. government-impelled cargoes, including military cargoes. The Maersk Alabama was carrying U.S. government food aid to the region when it was attacked. Likewise, the Liberty Sun carried approximately 47,000 metric tons of food aid, enough to feed over 250,000 Africans for a year. Therefore, the laws that effectively bar U.S.-flag shipowners from hiring armed security teams present a clear and present danger to the U.S. government’s foreign policy program to provide famine relief aid to Africa. Without this critically important food aid, a desperate and already unstable political region will only worsen. In response to calls to hire private security guards to protect their vessels, shipowners and the unions representing American merchant seamen have explained that the laws of the United States

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washingtoninsider and foreign countries effectively prevent them from doing so. In recent testimony before Chairman Bill Delahunt (D-MA) of the Oversight Subcommittee of the House Committee on Foreign Affairs, the Judge Advocate of the Coast Guard acknowledged that that the problem of hiring private armed security guards on U.S.-flag vessels was “complicated” and that the Administration was studying it. But the time for studying the problem has passed. The time is ripe for decisive legislative action to clear away the unintended legal obstacles that block the traditional American right of self-defense against acts of maritime piracy. To that end, key U.S.-flag interests have proposed legislation that will do just that. The time has come for the Obama Administration to exhibit the same decisiveness that it did in the rescue of Captain Phillips and lead the Congress to empower the U.S.-flag fleet and its American merchant mariners to protect themselves.

The Maritime Safety and Security Agenda of the 111th Congress Consistent with the pressing need for legislative action on piracy, key Senate and House leaders have agreed to elevate security and safety measures for the maritime industry to the top of their legislative agenda. The Senate Commerce Committee will take up Senator Kerry’s (D-MA) legislation to promote security and safety for American passengers on cruise ships. The same legislation was introduced in the House of Representatives by Rep. Doris Matsui (D-CA) and enjoys many bipartisan co-sponsors. As proposed, the legislation mandates basic requirements like reporting crimes to the Coast Guard and FBI, requiring preservation of evidence, and providing proper medical treatment to rape victims. It also requires cruise lines to adopt basic safety measures to allow passengers to protect themselves from attacks by cruise ship staff, whom the cruise lines afford unbridled access to passenger cabins that has facilitated brutal attacks on passengers. Additionally, the legislation would require cruise lines to raise safety rails to reduce the frequency of incidents where passengers accidentally fall overboard and to install technology to detect when such incidents occur and to speed rescue. It also provides cruise ship victims the same legal remedies long afforded to passengers on airlines. Beyond cruise ship security and safety, Chairman Oberstar (D-MN) should be expected to reprise his marine safety reform proposals that passed the House of Representatives during the 110th Congress, including overhauling the Coast Guard

administrative law judges program. Despite the Coast Guard’s effort to reform these programs by addressing glaring deficiencies, Congress may see the wisdom of mandating key provisions as a matter of law so they are not abandoned when the current Commandant’s term ends in a year. Additionally, Senator Lautenberg (D-NJ) has again introduced legislation to cure marine safety deficiencies exposed by the Cosco Busan allision and oil spill in San Francisco Bay. The legislation mandates double-hull protection for fuel tanks for U.S.-flag vessels with aggregate fuel capacity of 600 cubic meters or more. It also expressly grants Coast Guard vessel traffic systems the authority to order changes in the course and speed of vessels. Hopefully, this legislation will once and for all end the Coast Guard’s nonsense that it has no authority to intervene in the face of an obvious safety hazard. The Cosco Busan incident plainly illustrated that prompt and assertive action by the Coast Guard vessel traffic system could have avoided the allision.

Recommendations

10:56:06

Operate

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The Obama Administration should provide armed forces security for U.S.-flag vessels and crew on high-risk transits in the pirate-infested waters off Somalia. If the U.S. Navy can’t do it, the U.S. Coast Guard should. And Congress should seize the moment and swiftly act on the proposal to reaffirm the right of self-defense against maritime piracy. By highlighting maritime security and safety as their top shared agenda, the leaders of the House and Senate hope to enact their major priorities more quickly. Whether or not this legislative strategy proves successful for cruise ship and marine safety generally, the safety of American merchant seamen and U.S.-flag ships – and the foreign policy interests of the United States – surely demand swift action on piracy protection now. Mar Ex M

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CM

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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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oPEdlaGraNGe

Marex: Op-ed

investing in hard Times By gary lagrange, President & CEo, Port of new orleans

Why it’s important to Keep spending on infrastructure during the downturn While there is no doubt that the global economic recession is affecting shipping volumes, I remain convinced that we need to continue to make investments in our port and transportation infrastructure during these trying times. If we don’t have the vision to see beyond the current economic cycle and into the future of transportation, shame on us. As we look to find a way out of the current economic morass, three tasks are essential. First, we must keep news about the economy in perspective and not overreact one way or the other. Make a plan and stick with it. Second, we must make strategic investments that will stimulate the economy now and benefit the free flow of commerce long into the future. There is nothing more damaging to economic growth than short-term thinking and planning. And third, we must address some of the fundamental issues that prevent us from properly maintaining our transportation infrastructure, such as the Harbor Maintenance Tax.

Maintain perspective

In a bear market, our consumer confidence seems to wither each time we look at our sagging retirement accounts and 401(k)s. Nevertheless, tough economic times call on us to make rational decisions driven by the confidence that we will overcome this challenge to our financial system. It’s helpful to consider the headlines, but we must keep them in perspective. U.S. Gross Domestic Product shrank

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6.2 percent in the fourth quarter of 2008, and The Economist is predicting that U.S. GDP will drop another 2.2 percent in 2009. Unemployment is up and retail sales are down. Many people have simply stopped spending. It’s no surprise that ports have been hit hard by the economic meltdown. The National Retail Federation, which commissions IHS Global Insight to track inbound container volume, says that overall inbound container traffic was down 7.9 percent in 2008, and it’s been 19 months since monthly container volumes have grown in comparison to monthly volumes from the prior year. The Port of New Orleans’ inbound container volumes grew, but overall container volumes fell by 6.1 percent in 2008. It’s great to beat the national trend, but we’d much prefer to be outpacing a positive trend. We think there is reason for hope and some bright spots on the horizon. The Economist, for example, is predicting that U.S. GDP will grow by 1.9 percent in 2010. When the turnaround, does come, we’ll be ready. At the Port of New Orleans, we try to limit our exposure to tough economic times the same way that a smart investor does, by diversifying. Inevitably, one part of our cargo and business portfolio helps pull the load when times are tough. Right now, that bright spot in our portfolio is the importation of non-ferrous metals, such as copper, aluminum and zinc. Commodities traders would prefer to warehouse these items now and sell them later when commodity prices improve. The port community in New Orleans is more than happy to provide the warehouse space that these commodities traders need.

invest strategically

Despite the economic downturn, there remains a great need to invest in port and transportation infrastructure, particularly on the Gulf Coast. The Port of New Orleans is still pursuing the strategies laid out in our master plan to grow our capacity, and especially as it relates to preparing for the expansion of the Panama Canal. Today, most containerized cargo flows in an East-West direction using either Atlantic or Pacific ports. The real opportunity inherent in the Panama Canal expansion is the

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oPEdlaGraNGe prospect of improving a North-South trade route to distribute cargo to the heartland of America. The United States is blessed with three coasts, and the Panama Canal expansion project gives us the opportunity to better utilize our Gulf Coast ports. A Standard & Poor’s report about Gulf Coast port investment put cargo volume declines in the proper perspective. “Although [expansion projects] may mean increased borrowing at the same time that traffic demand is softening, projects that public U.S. ports have undertaken, in our view, have tended not to be overly speculative. Also, bond covenants and ports’ generally prudent financial management practices work to limit the leveraging of revenue streams.”

in the general fund to offset the federal deficit. Meanwhile, as a coalition called Realizing America’s Maritime Promise (http://www.ramphmtf.org) points out, it’s not uncommon for federal waterways to have navigation restrictions related to inadequate maintenance funding. Why should it be such a struggle to fund maintenance when millions upon millions of dollars are collected for this very purpose? Congress needs to ensure that, going forward, every dollar that is generated by the Harbor Maintenance Tax actually goes to harbor maintenance and that we avoid the mistakes of the past. Four years ago we survived Katrina and are once again a thriving port. We shall survive this economic hurricane as well and eventually emerge stronger than ever.

strengthen the existing port infrastructure

Gary laGrange has served as President and Chief Executive Officer of the Port of New Orleans since 2001. LaGrange’s leadership brought the Port of New Orleans back into operation two weeks after Hurricane Katrina, the most extensive natural disaster in U.S. history. LaGrange serves on the Boards and Executive Committees of the Waterways Council, Inc. and National Waterways Council. He also serves on the Boards of the Gulf Ports Association of the Americas. He has also served as Chairman of the American Association of Port Authorities Before taking leadership at the Port of New Orleans, LaGrange served as the Executive Director of the Mississippi State Port Authority in Gulfport, Miss., and Executive Director of the Port of St. Mary in Franklin, La.

As we continue to make investments to meet our future port infrastructure needs, it’s also important to address some of the fundamental issues that prevent us from properly maintaining the transportation assets at our disposal. Chief among these concerns is an effort that is underway to reform the Harbor Maintenance Trust Fund. The fund is pegged on a 0.125 percent tax on imported goods that is supposed to be used to maintain federal waterways. In FY 2007, the tax generated $1.4 billion, but only $751 million – or a little more than half of it – was actually used for its intended purpose. The rest was deposited

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toUghTiMes goodTiMes

strategic Partnerships for thetoughtimes & goodtimes

By MarEx staff

in an era of massive layoffs and financial uncertainty, forming strategic partnerships with top-tier recruiters can be a way of maintaining organizational competitiveness and securing future business. If you think sitting in a conference room with recruiters would lead to a depressing dissertation on the plight of the economy, the slumping fortunes of maritime corporations, and the growing numbers of unemployed sinking into a chasm of forgotten souls, think again. As a matter of fact, after a few hours of listening to the dynamics of strategic partnerships and what is being done by a multitude of companies to prepare for the future uptick, we actually left the Faststream offices with a sense of optimism about the near and distant future of the maritime industry. As stacks of new résumés pile higher and phone calls to human resources departments go unreturned, you would think that Craig Johnson, President, and Tim Green, Vice President, Commercial Marine, for Faststream U.S. – a leading provider of executive recruitment services to the global maritime industry – would be the last people to whom a reporter hoping to write a positive piece on the state of the industry would want to talk. But there is an old saying: ”When the going gets tough, the tough get going.” And let’s be clear that this is not a boutique article on a particular company. But when scientists want to check the state of the atmosphere, they examine the frog population. And in a dismal and scary economy, MarEx is examining the state of the employment market from the perspective of professional recruiters. Johnson and Green confirm what most of us already

craig Johnson, president, and Tim Green, Vp commercial Marine, Faststream

know: There has been a devastating shakeout in the global maritime industry. If doom and gloom already have your company by the proverbial juggler, then you need to read this. And if your company has downsized and plans to stay in the competitive race as the economy slowly recovers, you really need to read this. Because whether the industry has scraped bottom or not, if you are not strategically planning for the upturn, no matter how slight it may be, you could get left behind real fast.

The Basics: What’s Next?

Johnson draws a pie chart of the recruitment labor force and divides it into thirds: (1) Active Candidates are looking for work and have their résumés everywhere, including CareerBuilder, Monster, and Faststream. They apply for every job possible, and companies with Human Resource Departments most likely already know about them; (2) Passive Candidates are interested in hearing about opportunities but most likely don’t have a résumé assembled because they are not actively looking for jobs. This group is often in the process of considering the next step in their careers due to limitations at their current jobs; (3) Not Looking: This group tends to be the “Jedi” of the recruitment prospects because they are highly sought-after and recruited. They are the diamonds in the rough if recruiters can somehow heighten their interest in an existing opportunity. Green made it clear that there are very good candidates in all three sectors of the chart, but that some business segments have simply dried up and even good candidates were let go and are now searching for work. He added that the hardest-hit segments have been bulk shipping, the lightering business, and container shipping and terminals; the most stable – tankers, LNG, and the deep offshore. Another area of employment stability are the class societies, which tend to reflect trends in shipbuilding. While shipyards have been busy laying off workers, the class societies – though not hiring due to the decline in new deliveries – are also not laying off employees. Additionally, the outlook for the sector will remain positive as the average age of workers is near and above fifty-years-old, and new employment opportunities will arise through the normal process of attrition. On the other hand, shipyards have greatly benefited from strategic partnerships with employment companies due to the nature of their work. Instead of hiring and firing people as work comes through the yards, most have formed part-

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TOUGHTIMES GOODTIMES nerships with the recruitment firms, which offer a stable full of personnel fitting various expertise and job requirements. By placing staffing requirements with recruiters, shipyards can reduce their cost through employment contracts, including payroll, health and welfare benefits, which are taken care of by the recruiter. Instead of spending time calling back and hiring workers when projects begin, a yard manager can simply make a phone call to a recruiter like Faststream with a job listing for a new project.

Rebuilding Good People

Getting laid off and being unemployed can be one of the toughest ordeals humans can endure. The loss of pride and self-esteem and the attendant humiliation after a termination can be devastating. Today, workers around the world are under constant scrutiny and pressure to compromise pay rates and benefits, which will absolutely have a profound impact on their lifestyles. The collapse of the house of cards built by Wall Street and the banks has not only reached Main Street but the global economy as well. Even good companies are being denied credit for liquidity, which translates into force reductions of highly experienced people. The disenfranchised come to companies like Faststream without résumés and often have not had an interview in many years. “It’s hard to have been a vice president or senior manager and go into a company that has been built up from the ground at that level,” Johnson said. “It’s not going to happen overnight, and people have to be prepared and not get desperate because it’s going to take a while.” Johnson also points out there will be equity issues as well, and job seekers are not going to make the money they once did, especially in this type of market. Another factor is a person’s age. No one wants to talk about it, but it can be an issue. “You know that twenty-three-year-old can fly that plane too,” he remarks. “But Captain Sullenberger did put the US Air jet safely into the Hudson River, and that was about job experience. Just because cheaper labor is available doesn’t mean employers are always looking for it. Experience does count.” “For a senior manager, it may take three to six months to find a job,” Green adds. “People should not take the first job offered. Background and experience can be leveraged as a value to a prospective employer.” Recruiters worth their salt not only help with résumés and interview preparations but also with ensuring people realize that change is good. People switch jobs because something changed or something didn’t change. And while being a ”consultant” might reek of being unemployed, the fact is companies hire experienced consultants all the time on an interim basis, which can sometimes lead to a full-time job. An astute employer may already know his company is filled with inexperienced and inexpensive labor, and a top-gun seasoned consultant might be just what it needs for a special project or a tough assignment.

Corporate Staffing – Strategic Partnerships

Having the right people to manage through the current downturn might keep the organization on course in the slow currents, but what happens when business requires sea-speed again? A strategic partnership with a recruiter will allow firms to bid on jobs based on the candidate pool available to them. Evaluating talent takes time, and forming an alliance with recruiters will allow for controlled and profitable growth. “The organizations planning for the future are assessing the availability of quality employees right now, and these firms will be in a position of power,” says Johnson. “The companies sitting on the sidelines waiting for a noticeable uptick in the market are the ones that will get left behind and will scramble to get back in the game.” Two years ago making a profit was as simple as being in business. Today there are still winners, but they are on the sidelines picking up assets cheaply and strategically while planning for the future. “Experience is value” says a friend and former president of an operating company, who is now unemployed. And though we’ve all heard it a million times, people are a company’s greatest asset. For those out there looking for work, find a great recruiter to work with and be flexible. For companies planning for the future, work with a Mar Ex recruiter and be ready for the future now

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JACKO’CONNELL

Upgrades Downgrades

Vessel Financing and Leasing: Outlook and Sources of Capital “Hey brother, can you spare a dime?” The photo on the front page of the “Business Day” section of The New York Times recently said it all: Rows and rows of empty cargo ships anchored stern to bow offshore Singapore in the Strait of Malacca, one of the busiest shipping lanes in the world. Hundreds of them – 735 to be exact, at latest count. One of the largest fleets ever assembled in one place at one time, standing in silent testimony to the collapse of world trade and the dilemma facing the global shipping industry. Similar, if smaller, armadas lie idle offshore Rotterdam and in the Straits of Gibraltar. Less than a year ago some of these ships were earning close to $300,000 a day hauling iron ore or coal to China. Less than a year ago you were lucky to get a ship at any price! Buoyed with optimism and convinced that China’s appetite for commodities was unending, shipowners went on a buying spree, ordering the largest number of new vessels in history. By the end of 2008 the global orderbook totaled more than half of the existing world fleet. In some vessel categories, such as the Capesize carriers that commanded up to $300,000 a day in the good times, the order book for new vessels actually exceeded the existing fleet. Greenfield yards sprang up overnight to meet the burgeoning demand, and prices – along with asset values – soared.

We all know what happened next. The housing crisis and then the credit crisis combined to deliver a lethal one-two punch to the U.S. economy, which quickly sank into what is fast becoming known as The Great Recession. The rest of the world soon followed suit and, to paraphrase the immortal words of Oliver Hardy to his friend Stan Laurel, “It’s a fine mess you’ve gotten us into this time, Stanley!”

Parsing the Global Orderbook

Fortis Bank, a leading lender to the global shipping industry and itself a victim of the credit crunch, estimates that there were more than 9,000 new vessels on order at the beginning of 2009 with two-thirds of them scheduled for delivery in the next two years, meaning it’s unlikely they’ll be canceled or not completed. According to David Kanter, Managing Director at Seabury Maritime Investment Management Group, “The Capesize order book is 104 percent of the current fleet. In the Panamax category, it is about 85 percent. The situation is somewhat less aggravated in the tanker sector,” he continued, “where ‘only’ 45 percent of the current VLCC fleet is on order and about 35 percent in the product carrier category.” How will all this new tonnage find employment in a world where China announced

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JACKO’CONNELL a 23 percent decline in exports in April and global trade is expected to decline anywhere from (take your pick) nine percent (World Trade Organization) to 11 percent (International Monetary Fund) this year with only a slight recovery in 2010? Not to mention the 735 ships sitting idle and waiting for a cargo in the Strait of Malacca. “There’s a good portion of the world orderbook that doesn’t get built,” stated Urs Dur, Senior Vice President, Shipping & Logistics, Lazard Capital Markets, “and many of those that do get built in the next 18-24 months won’t be delivered right away because their owners have defaulted.” According to Dur, the orderbook is already shrinking as a result of cancellations, bankruptcies and lack of financing, and there have been no new orders placed since October of 2008. He estimates that the drybulk orderbook has contracted by 20 percent from its 2008 highs, and the container orderbook by as much as 25 percent. And for good reason: A large number of these vessels lacked financing in the first place, and the prospects of obtaining it were slim. Furthermore, with profits declining or nonexistent, how could shipowners be expected to pay out of their own pockets for tonnage ordered at the top of the market? And how could shipyards, faced with cancellations and a declining payment stream, afford to complete the vessels they’ve already started? According to various estimates, of the more than $500 billion in newbuildings on order at the beginning of 2009 for delivery over the next four years, about $200300 billion currently lack financing, or roughly half the total. Where will this money come from?

The Usual Suspects

Don’t look to the banks. They have their own problems. Many of the shipping industry’s best friends, like Fortis and RBS, have been nationalized and their lending power severely reduced. “I don’t know of any banks that are extending new loans,” flatly states Lazard’s Dur. However, for

those preferred customers with long-time relationships, there is money available – at a price. As David Kanter delicately puts it, “For certain shipowners it’s probably more available than for others.” So deals are getting done, but they are few and far between, and mainly of the bilateral (one lender and one borrower) or club (small group of lenders, one borrower) variety, and not the large-scale syndications of the past. With banks mainly on the sidelines, private equity players and hedge funds have stepped to the fore, attracted by – among other things – the steep decline in vessel asset values. These players – unlike the banks – have money to invest and are ready and willing to do so. With ships available on the cheap, all the ingredients are in place for a surge of investment by asset-hungry firms. There is precedent, of course. Private equity firms have always liked hard assets like airplanes, locomotives, pipelines and power plants. Carlyle, among others, comes to mind. Shipowners and operators, however, may well be more inclined to deal with hedge funds, which can be more flexible in their financing, than with private equity funds, which will demand a large ownership stake and a say in how the business is run. The public debt and equity markets are another source of much-needed capital, although both are essentially closed. Diana and DryShips did do equity deals recently, and there have been some bonds floated, but they were the exception rather than the rule.

Government to the Rescue

David Kanter points out that “In places like Korea and China, governments are helping out to assist shipyards in financing the construction of new vessels.” Indeed, as part of its billion-dollar stimulus plan, China has identified shipbuilding as one of nine critical industrial sectors eligible for loan guarantees and other forms of financial support. Korea no doubt has a similar program, announced or not. And since Korea and China rank

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JACKO’CONNELL one and two in the global shipbuilding trade, this makes all kinds of sense – and helps explain why they rank one and two. Would that the U.S. were so enlightened, and perhaps it will be under the new Administration, which has no hesitancy in doling out funds in other areas of the economy. Come to think of it, since Korea and China together are building two-thirds of the new tonnage on order, and their governments are ready and willing to lend a hand, maybe we don’t have to worry about these ships being financed after all. “It depends on how far governments are willing to go to bail out troubled shipyards,” cautions Urs Dur. And indeed it does, although indications are that, at least in China, the government will go as far as it considers necessary to keep Chinese shipbuilders afloat and paramount in world markets. We shall see. Dur added, reflecting on the broader problem of ship financing and its resolution, “It also depends on how far the banks will go to work with their clients to avoid foreclosure.”

End Game

“What’s the difference between a shipowner and a pirate?” goes a joke currently making the rounds in shipping circles. “A pirate can make money out of a Capesize vessel.” And yet, despite all the bad news, things seem to be working themselves out, however slowly and painfully. The world orderbook is shrinking; scrapping (or, to be politically correct, “recycling”) is on the rise; vessels are being delivered or pushed back, but at least they are getting built. “We are going in the right direction, but we are not out of the woods yet,” warns Dur. “There are other shoes to drop.” What shoes, he wouldn’t say. But the point is clear: This is no time for complacency. There is much hard work to do. We are all in this together, for better or worse, and we are making progress. I asked David Kanter if he had seen anything like this in his more than 20 years in the business, and he said no. “What makes today’s situation unique is that the combination of a massive downturn in the shipping

sector and a financial crisis has never happened before. This is worse than the downturn of the late ‘70s and early ‘80s because so many major shipping lenders have experienced significant problems.” Like wildfires, hurricanes, and other natural disasters, financial and economic crises can have a purgative value. They can have a cleansing effect, getting rid of the weaker players and leveling the playing field. They offer the opportunity for a fresh start. There have been casualties so far, but not too many. There will be more to come. There will also be consolidations and a reordering – a “resetting,” to use the term so much in vogue today. In a reset world, asset values and profit expectations will change, for better or worse. In a reset world, the relation between government and business may change as well. To paraphrase the old Chinese proverb, “We are living in interesting times” – some would say too interesting.

Follow-Up

In my last column I wrote that the Baltic Dry Index could be flashing a buy signal. At that time (mid-March) it was sitting around 2200, up from a December low of 650. After another harrowing drop into the mid-1500s, the Index currently stands above 2600, up nearly 20 percent from where it stood when we last visited. Over that same two-month period the Dow and other U.S. averages staged one of their biggest rallies ever, rising some 40 percent from the March 9th lows. Now the questions becomes: Is this a suckers’ rally in the midst of a bear market, or have we really touched bottom and started to move up again? Opinions vary, but the Baltic Dry continues to flash “buy.” Mar Ex 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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CASESTUDY SINOPACIFICSHIPBUILDINGGROUP

Sinopacific Shipbuilding G The Power of a Global Vision

M AY / J U N E 2 0 0 9

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THE MARITIME EXECUTIVE

22

he rapid emergence of China as a global economic power is being built on the entrepreneurial vision shared by an entire people. From the halls of government to Main Street, China’s growing modern infrastructure can be seen, and its entrepreneurial spirit felt, throughout the country. The ruling Party understands that their people must thrive and prosper or they will become dissatisfied and restless. The resulting evolution of entrepreneurial attitudes among the Chinese people has been a long and sometimes difficult road, but contemporary China is now a force to be reckoned with, and its economic tsunami has yet to be truly felt within the global economy. Dayang yards build bulkers, container vessels, and liquid cargo ships as well as very large offshore support vessels.

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CASESTUDY

SINOPACIFICSHIPBUILDINGGROUP

g Group

Sinopacific Design Associates operates the most sophisticated computer systems and shipbuilding software in China, employing 300 engineers and 90 designers. Moreover, as Liang planned for the future, he began working with local universities and institutes to offer students a path to become shipbuilders. The result was the Sinopacific Technical School in Yangzhou, which today has approximately 2,000 students.

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THE MARITIME EXECUTIVE

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CASESTUDY SINOPACIFICSHIPBUILDINGGROUP

THE MARITIME EXECUTIVE

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IMON XIAOLEI LIANG, CHAIRMAN AND CEO of Sinopacific Shipbuilding Group, is a classic example of a hardworking entrepreneur whose ingenuity and perseverance paid dividends in his personal career. In 1995, with just twentythousand dollars in his pocket, he started a seasonal business selling Christmas decorations to the West. Imagine a young Chinese entrepreneur manufacturing and selling Jesus and angel figures instead of images of Buddha! Bridging cultures and designing and manufacturing Christmas items for Westerners took a lot of courage with such a small investment. Because he had been educated in Europe and at the Sorbonne in Paris, Liang had a bit of an advantage. But he still had to teach his Chinese workers to create seasonal items that foreign companies would purchase. So he hired Italian and French designers to create the products, which were manufactured in China. At the time, the European Union was not completely integrated, and he had to build a number of strategic relationships throughout the region in order to get his products accepted. Eventually, his company sold goods to most of the major distributers in Europe and, not long thereafter, expanded into the U.S. through contracts with Walmart and Home Depot. In 1998, Liang began thinking about building supermarkets in China, although the Chinese people at this time knew nothing about the Western concept of mass distribution. So he put his first supermarket in the center of a medium-sized city, and the people were so enthralled with the idea that he built another and then another. China was changing, and Simon Liang knew that he was standing on the threshold of a new China soon to be globally integrated. A country like that would require, first and foremost, a new and modern infrastructure. IN THE BEGINNING: BUILDING A MODERN COMPANY As a cosmopolitan Chinese industrialist at the forefront of China’s reentry into the global marketplace, Liang determined that shipbuilding would be one of the fastest grow-

ing – and most promising – sectors. In 2003 he purchased, with his associate, Mr. Jacques de Chateauvieux, Zhejiang Shipbuilding Co. Ltd. in Ningbo and Dayang Shipbuilding Co. Ltd. in Yangzhou, which had both been in operation for many years. The yards had been owned by the state and, while the roots of the business were deep, it needed – like a tree – to be pruned and cultivated in order to flourish and bear fruit. This would require a change in the company’s competitive culture and in its philosophy of doing business in a global market. For instance, none of the employees in the commercial business department spoke English, and neither did many senior managers. So Liang hired Englishspeaking key personnel to work in the department and offered all key workers onsite English classes. While not mandated, any employee who took the Wednesday class at the yard and passed that week’s examination would receive an extra $20 in their paychecks. Today, he says with great pride, most key workers embraced the opportunity to learn another language, and English can now be heard throughout the company. Another issue was ship design and engineering. There simply wasn’t enough talent in the regional provinces, where the yards were located, to compete at a global level, so Liang established the company headquarters and design group in Shanghai, where there was an excellent pool of international and domestic naval architects, designers and engineers. Today, Sinopacific Design Associates operates the most sophisticated computer systems and shipbuilding software in China, employing 300 engineers and 90 designers. Moreover, as Liang planned for the future, he began working with local universities and institutes to offer students a path to become shipbuilders. The result was the Sinopacific Technical School in Yangzhou, which today has approximately 2,000 students. The curriculum offers training for future professionals in ship electronics, hull assembly, marine equipment installation and commissioning, and modern welding skills. Additionally, in order for the yards to compete globally, he established the Sinopacific International Trade Company, which works with

Dayang Shipbuilding Co. Ltd., Yangzhou, China.

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CASESTUDY

SINOPACIFICSHIPBUILDINGGROUP marine equipment manufacturers worldwide to leverage purchasing capacity and trade advantages to obtain equipment essential to shipbuilding at the best possible price. In the beginning, many believed Liang was simply going to build infrastructure companies, sell them and move on. Because isn’t that what entrepreneurs do? Since 2003, Sinopacific has built a new yard in Nantong and invested heavily in upgrading the two original yards. While Dayang Shipbuilding has two sites (River and City), Liang considers them to be the same company as they share the same management team and produce the same type of vessels. Last year the three yards of Sinopacific Group boasted over $1.4 billion in revenues.

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THE MARITIME EXECUTIVE

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SURVIVING THE DOWNTURN Peter F. Drucker, the famous economist, said most enterprises will not outlive large downturns in the market, but those that do survive will be winners within their respective industries. Liang is an ardent believer in this philosophy and works tirelessly to create a competitive culture in his company. “From the beginning,” he notes, “our people have been used to transformational change, and they continue to adapt by learning to be more efficient in the multiple processes of building quality ships.” Over the last six years, Liang has concentrated on creating an environment of cooperation, communication and shared responsibility, which has translated into better planning and the systemized standardization of work ethics. As the global economy slumped, Liang realized that the era of opportunity in the industry was over – at least for now. And while the company had not lost contracts, he recognized that a rash of potential shortages in supplies and services could adversely affect the ongoing work at the yards. To prevent such a scenario, he embarked on a series of steps designed to stabilize the corporate structure by (1) maintaining training programs to increase productivity, (2) obtaining support from major Chinese banks to maintain liquidity, and (3) gaining access to the necessary products, equipment, and services essential for building ships. The company’s reputation now extends far beyond main-

M AY / J U N E 2 0 0 9

THE “RISING SUN OF SHIPBUILDING” Today there are over 350 large-vessel and approximately 3,000 small-boat shipyards in China. Many are state-owned yards, but the private yards are constructing half the ships being built in the country. Sinopacific has been called the “Rising Sun of Shipbuilding” in China because of its ability to utilize state-of-the-art technologies and train its more than 20,000 employees to construct vessels in an efficient manner and to an internationally accepted standard. More importantly, Sinopacific has built its various yards to be focused builders of specific vessel types. The Dayang yards build bulkers, container vessels, and liquid cargo ships as well as very large offshore support vessels. Zhejiang Shipbuilding in Ningbo is specialized in offshore vessels and is currently the largest builder of such vessels in the world. On July 30, 2008, a syndicate of major Chinese banks, led by the Export-Import Bank of China, signed a refund guarantee facility for the Dayang Shipbuilding Company in the amount of $3.5 billion. As we interviewed Mr. Liang in Houston earlier this month, the Zhejiang yard had just received another $3.5 billion. The two Sinopacific yards received more than half of the $10 billion total refund guarantee facility set up within the Chinese banking system to support shipyards – a strong show of confidence in Sinopacific from those domestic banks specializing in the shipbuilding and related industries. China considers the Japanese and Korean shipyards to have no competitive advantage in terms of cost and quality issues. So its strategy is to ensure that the country’s yards

are fully supported and assisted in their goal of becoming the center of global shipbuilding. Today China stands #2 in the shipbuilding world with 32 percent of the global orderbook, behind only South Korea (35 percent) and ahead of Japan (16 percent). And while the current global economic crisis continues to impact world shipbuilding, China remains committed to building its infrastructure for the prosperous times to come. In fact, the Ministry of Industry and Information Technology has stated that the world is in a historic period of “2+3,” meaning two more years of continuing crisis followed by three years of prosperity, which will revive the markets. To this point, Liang says, there has been little in the way of contract defaults at Sinopacific yards, and his company can continue its normal production activities without additional orders until 2012.

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CASESTUDY SINOPACIFICSHIPBUILDINGGROUP

THE MARITIME EXECUTIVE

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Top left: Members of Sinopacific Design Associates. Top right: Sinopacific Technical School, Yangzhou. Middle left: Head office in Shanghai. Midde right: Meeting room, head office in Shanghai. Below right: Building offshore vessels in Zhejiang Shipyard.

land China. Last December, the company held a conference in Hamburg and invited approximately 20 strategic partners. Liang said he was overwhelmed by the turnout when more than 70 reputable shipowners and senior executives from 10 international banks showed up for the meeting. He understands that great enterprises need great partners and that forming a strategic cooperation with dozens of the world’s top 500 corporations has generated the support and business needed to minimize the company’s risk in these volatile times. Today, global shipping faces overcapacity and an inability to lower fixed costs, and things might get much worse before they get better. It is estimated that eight times the historical number of new ships will be entering the market in the next two years, and many fear there will be an asset devaluation crisis. Even in China the news was not good as exports were down 22.6 percent in April from a year ago. The World Bank has forecast that China’s economy, which expanded by 6.1 percent in the first quarter, will grow by just 6.5 percent in 2009, the lowest level since 1990. Liang says even the winter has its opportunities. Today is cold and tomorrow may be colder, but soon thereafter it will be warm. And great enterprises and world-class brands will be Mar Ex born therein.

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EXECINTERVIEW SIMONXIAOLEILIANG SIMON XIAOLEI LIANG

M AY / J U N E 2 0 0 9

By Tony Munoz

THE MARITIME EXECUTIVE

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Executive Interview:

Simon Xiaolei

The story of Simon Xiaolei Liang and Sinopacific Shipbuilding is the story of China itself. In just six years, the company has emerged as a leading shipbuilder not only in China but the world. And despite the current severe global downturn, “The Rising Sun of Shipbuilding in China” has a bright future indeed. Read on to discover just how this company – and its intrepid leader – ventured where few had gone before, and how Simon Liang plans to keep Sinopacific at the forefront of the industry. MarEx: It has always been difficult for Chinese people to get passports and travel abroad. However, you were able to travel and go to school abroad. Tell us about that experience. LIANG: I was allowed to study abroad

Chairman & Chief Executive Officer cer, Sinopacific Shipbuilding Group

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and left China to do so in 1987. At that time very few Chinese were able to leave the country, and being allowed to get an education in foreign countries was exciting. But one thing I understood: There were too many engineers in China. So I initially studied science, but then I began to see that what China really needed was marketing people. The ability to understand different cultures would allow me to be a conduit between them. Consequently I studied in Paris with travels to the UK, Japan and the United States for cultural understanding. This experience allowed me to become very tolerant of other cultures and understanding of their ways. Being educated overseas was an invaluable tool that would help me throughout my business career.

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EXECINTERVIEW SIMON XIAOLEI LIANG But one thing I understood: There were too many engineers in China. So I initially studied science, but then I began to see that what China really needed was marketing people. The ability to understand different cultures would allow me to be a conduit between them. Consequently I studied in Paris with travels to the UK, Japan and the United States for cultural understanding. MarEx: You had been very successful in your seasonal manufacturing and real estate businesses, and then you decided to purchase the Zhejiang and Dayang shipyards and enter the global shipbuilding markets. What made you think you could be successful in an industry completely foreign to your business knowledge?

for 38 years prior to our purchase. I believe the company’s reputation for honesty and diligence opened lots of doors, and we secured large contracts with a number of leading shipowning companies worldwide in different sectors, including container vessels, bulkers, liquid product carriers and offshore supply vessels.

neers, pipefitters and shipyard workers do. I am a business

MarEx: Sinopacific has been called the “Rising Sun of Shipbuilding in China,” which is a remarkable statement

Liang: First, I don’t build the ships--naval architects, engi-

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MarEx: While the state-owned yards were entrenched in a fixed style of doing business and many private yards were learning how to do business with the West, what were some of the bottlenecks and issues faced by your organization? Liang: Certainly there were lots of growth issues in the

beginning, but we had many contacts throughout the world and the Zhejiang and Dayang yards had been in business

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considering the company has been in business for just six years. How did the company become so high-profile in such a short time? Liang: Entering the market, we understood a significant

contribution to the Chinese shipbuilding industry had to be made in order for us to gain credibility and customers. So we modernized the older facilities with new technologies, changed the attitudes of management and workers, and hired the best talent to design and construct vessels. Then we built the most technically sophisticated shipyard in China at Ningbo. We changed the way vessels are built in China by focusing on different niche markets and different types of vessels in each yard. By streamlining the process, we gained efficiency in production.

THE MARITIME EXECUTIVE

person who evaluates opportunities with first-hand knowledge of cultures, marketing, and finance. Six years ago when we did our analysis of the shipbuilding industry in China, it was clear that, while having financial stability, the state-owned shipyards lacked flexibility and the strategic vision to participate actively in international markets. Our analysis projected value chains, engineering needs, production philosophy and a marketing strategy. At the time, it was apparent China would build a lot of ships, but we knew the industry could do better in terms of advanced shipbuilding technologies and marketing. We had an opportunity to buy the Zhejiang and Dayang yards and, within a year, our company was operating three yards. China had been open to the West for approximately 30 years, but during the first 20 years the growth was not easily visible outside the country. However, during the last 10 years the country witnessed high growth that was visible to the rest of the world, and we understood shipbuilding would play a major role in the continued global expansion. The country had become a workshop for the world and there were lots of opportunities available and, to put it into perspective, we hit the market perfectly.

MarEx: Explain “niche markets” a bit more for our readers.

Liang: In Dayang, we focus on efficiency in building. To-

day, two years after our investment program, Dayang has become China’s most efficient yard. In the Zhejiang yard, we focus on building for niche markets, for vessels requiring intensive engineering, commissioning and customization (e.g., offshore supply vessels, bitumen carriers, gas carriers, etc.). In Nantong, the yard is focused on oil-andgas equipment specialists (e.g., offshore cranes, process modules, gas tanks, etc.).

MarEx: Sinopacific has built vessels for many well-known companies in Europe, the United States, Korea and Japan. Has this remarkable success been due to good timing or to the firm’s international marketing strategies? Liang: In China there are good and bad shipbuilders just

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EXECINTERVIEW SIMONXIAOLEILIANG SIMON XIAOLEI LIANG

M AY / J U N E 2 0 0 9

In China there are good and bad shipbuilders just like everywhere else in the world. Decisions about building ships are made in long-term cycles. Many of our customers are building in China for the first time.Yes, in part our success is due to our aggressive marketing plan, but it is also because we are proving to be a premier builder with modern facilities.

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like everywhere else in the world. Decisions about building ships are made in long-term cycles. Many of our customers are building in China for the first time. Yes, in part our success is due to our aggressive marketing plan, but it is also because we are proving to be a premier builder with modern facilities. Many of our clients have found that we provide not only a fair price for construction but also new and advanced ship designs. Building a good base of clients is much like building partnerships. It takes trust and integrity and products that provide useful benefits. The current crisis is a good test of our relationships and, more than ever, it is important to have lots of communication with our clients, their banks, and our banks. We are all in the same boat so we must all help each other. MarEx:Has the global financial crisis had an impact on the overall shipbuilding industry in China?

MarEx: Chinese banking syndicates have given Sinopacific $7 billion of the $10 billion refund guarantee credit line they offered the Chinese shipbuilding industry. What is the reason one organization received such a significant contribution?

Liang: My feeling is that because this business is so vola-

tile, the banks do not want to help everyone and decided to support the top three players in the industry. Sinopacific built the most modern facilities in China and has a very strong and proven track record.

MarEx: Last year MarEx had a chance to visit the Zhejiang Yard in Ningbo. It is truly one of the most self-contained and modern facilities we have visited. Please tell us more about the dynamics of this shipyard.

Liang: This yard is the most modern in China, and it focuses on building related vessels for the oil and gas industry. Additionally, we have constructed over 400,000 square meters of new high-rise apartments for our workers as

THE MARITIME EXECUTIVE

Liang: Recently I was at a shipbuilding association meeting in Beijing and believe the situation is difficult. Problems can arise as shipyards cannot stop production and customers have committed heavily during a market peak. There

needs to be mutual support among all parties because the markets will change and, if there is a good partnership relationship among them, all will profit in the future.

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EXECINTERVIEW SIMON XIAOLEI LIANG I was at a shipbuilding association meeting in Beijing and believe the situation is difficult. Problems can arise as shipyards cannot stop production and customers have committed heavily during a market peak. There needs to be mutual support among all parties because the markets will change and, if there is a good partnership relationship among them, all will profit in the future. well as a shopping mall with restaurants, food stores, and general item shops. The reason this facility was designed to be self-contained is that we want to attract and keep the best international talent in China to work there. The production facilities have a floating dock and five building slipways including an covered slipway. The office building is truly a comfortable facility for international executive and administrative personnel. The design for Ningbo was based on production efficiency for cost savings, and we accomplished that here.

LIANG: This year the company targets about $2 billion in revenues and last year we posted $1.4 billion. We are not a small company anymore. We are always open to developing new opportunities. On the international part of the question, I am an entrepreneur and am always reviewing the opportunities in other countries. It is my job as CEO to look 10 years into

MarEx: What will be the strategy for Sinopacific going forward?

LIANG: The biggest hurdle for the Chinese overall will be bridging the various cultures. The Chinese people are very focused and hardworking. Sinopacific has 20,000 employees and it is our job to help them focus on the international way of doing business. China is not strong in creativity yet. And while Chinese engineers may be good engineers, they most likely don’t have a strong knowledge of either operations or marketing. This is why we put our headquarters in Shanghai, which is a very cosmopolitan city with lots of international talent. Sinopacific will challenge, again and again, traditional shipbuilding practices with new processes, new technology, new products, advanced engineering and the bridging of international cultures in order to build the most international shipbuilding group in China. Mar Ex

M AY / J U N E 2 0 0 9

MarEx:The significant investment in the three Sinopacific yards has demonstrated your commitment to be the premier shipbuilder in China. Do you plan to buy other shipyards or expand in different countries?

the future for expansion and growth opportunities. More importantly, as a business person, I must review all opportunities which may be lucrative to me or my company. The oil and gas industry will remain strong globally, especially in the deep offshore markets.

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THE MARITIME EXECUTIVE

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WORLDWIDESHIPYARDS STATE OFTHE INDUSTRY

Worldwide Shipyards: New Challenges and Creative Responses Partnering is the name of the game these days as shipyards scramble for new business and look for innovative ways to finance ongoing projects. And while most vessel categories are suffering, some are thriving – including anything connected with the military. Barry Parker surveys the shipbuilding world as it faces its worst crisis in half a century. DESPITE THE SEVERE ECONOMIC DOWNTURN, shipyards throughout the world are engaged in new construction, maintenance and repair, or some combination of these, while serving a mix of commercial and government customers. And as with all industrial enterprises, business strategy involves a continuous reassessment of strengths and weaknesses in light of shifting opportunities and

By Barry Parker

pitfalls. Yards such as Austal USA, BAE Systems, Besiktas, Bollinger, Cammell Laird Gibraltar, Damen, Kvichak Marine and Trinity Yachts present a microcosm of an industry with supply chains that span the world. And while yards are facing challenges they have seldom faced before, they are responding in unusual and creative ways. The economic cycle has been the dominant driver of business conditions, yet each of the yards has found ways to adjust its strategy and cope with changed conditions. A year ago, in the spring of 2008, it was impossible to secure a building slot for certain vessel types for delivery prior to 2012. Last year, the ability to source components was viewed as a major bottleneck for shipbuilders. With the onset of the worldwide recession, a different set of constraints – mainly finding bank financing to fund payments – emerged.

An Old Yard With a 21st Century Business Plan

Cammell Laird Gibraltar, at what was once the Royal

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WORLDWIDESHIPYARDS

Dockyard and later Gibraltar Ship Repair at the mouth of the Mediterranean, concentrates on the repair and refitting of commercial ships. The present company emerged following a late 1990s investment by a management group. The Gibraltar yard had been part of the well-known Liverpool-based shipbuilder Cammell Laird’s business portfolio but is now a completely separate business. The yard’s CEO, Joseph Corvelli, a Webb graduate, told MarEx that “We service a number of sectors. Ferries are big for us, ranging from aluminum catamarans to old steel vessels. Some serve the Straits, some are on runs to the Canary Islands. Containerships, especially from the German-owned fleets, are also an important vessel type,” noting that “the nearby ports of Algeciras and Tangier have continued to gain in importance as container hubs.” He continued, “We specialize in regular repairs and routine drydocking but with full capabilities including steel work, electrical, plumbing and painting.” Corvelli added that “A lot of the work is driven by class requirements for regular inspections and surveys, but we’ve also done vessel conversions. With our location, we see a great cross section of business. Right now we have two offshore supply vessels in for some work.” Corvelli points out that “Because of our strategic location, our customers’ economics are enhanced with a minimum deviation to come in.”

Market Penetration Through Strategic Partnering

Partnering takes on various forms. Besiktas Shipbuilding in Turkey, which began operations in 2001 with the aim of renewing capacity for regional tanker player Besiktas Likid AS, constructs the hull and accommodation sections of vessels and subcontracts out the rest. But Besiktas maintains tight control of the entire process and handles the purchasing of “everything from steel plate and profiles down to nuts and bolts.” With three yards in the Istanbul/ Tuzla region, the company has delivered 16 tankers – 13 to third-party European and Scandinavian owners. The vessels, all suitable for IMO II cargoes, range from 4,380 dwt up to 26,000 dwt with Ice Class capabilities. Damen Shipyards, headquartered in Gorinchem, Netherlands, is actually an enterprise composed of 33 companies (including joint projects with local yards) spread across six continents. Global scale is achieved through a unique business model, built around standard hull forms for workboats M A Y / J U N E 2 0 0 9 | 35

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WORLDWIDESHIPYARDS and innovative asset-financing programs. Sales Manager (Americas) Hans Von Shuppen told MarEx, “…the great advantage of the Damen Shipyards Group is that we are highly diversified, both geographically and product-wise. For most of our yards we still have work for the rest of the year. For certain products, mainly naval, there is still work for another two to three years. And while sales in Europe may decline, the more ‘remote’ markets (Africa, Latin America) are less affected.” Damen recently announced a joint project with Qatarbased Nakilat at its Ras Laffan Shipyard, where it will be building tugs, patrol boats, and luxury yachts. Closer to home, a Damen design was recently selected as the basis for the U.S. Coast Guard’s Sentinel Class of new 153-foot Fast Response Cutters (FRC), to be built by Bollinger Shipyard. The yard’s CEO, “Boysie” Bollinger, tells MarEx, “The FRC program is on schedule. Design is progressing and we plan to begin construction at the end of 2009.”

The Partnering Approach – From the U.S. Partner’s Vantage Point

There is a precedent here: In the late 1990s both Damen and another European yard, UK-stalwart Vosper, supplied standard designs adopted by Bollinger for the U.S. military’s needs. Boysie Bollinger commented that “We have continually been successful in working with foreign ship-

yards and moving from their proven parent-craft concept to a design which meets the needs of our customers here in the U.S. We began with Vosper’s 33-meter patrol boat, which became the Island Class for the U.S.C.G.” In explaining Bollinger’s business strategy further, he added: “Then we again used the Vosper parent-craft 52-meter for the Navy’s Coastal Patrol Boat program.” Bollinger then mentioned the Marine Protector Class of patrol boat, where a 75th vessel is now being delivered, saying, “Now we have taken the Damen design and very successfully used it as a parent of the USCG Coastal Patrol Boat program.” Looking ahead to the FRC program, he observed, “We’re currently using another Damen design to transition to the USCG FRC program. All of these programs have proven to be very successful for the U.S. Government.” Bollinger also reminded MarEx of the company’s leadership position on the repair side of the business, commenting that “Our ten repair and conversion locations allow us to offer a very diverse customer base a wide range of services, with 35 drydocks ensuring all kinds of capacity.”

Defense Work Borrowing From Commercial Successes

Another example of the successful transfer of foreign designs to the U.S. can be seen at Mobile, Alabama’s Austal USA. Austal’s parent began producing high-speed

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WORLDWIDESHIPYARDS the new vessels will be similar to a vessel that has been on charter to the U.S. Marines since 2001, enabling the movement of troops and vehicles.

High-End Yachts – Profitable but Feeling Some Bumps

aluminum passenger catamarans and then moved into defense work. Austal’s U.S. yard, well-known for its work on the Hawaii Superferry project (with two high-speed catamarans completed so far), is a member of a General Dynamics-led consortium building a second Littoral Combat Ship (LCS) for the U.S. Navy, using a trimaran hull form. Delivery of the first LCS is slated for the third quarter of this year, and construction has started on a second vessel under the Navy’s FY 2010 awards. Austal USA recently gained “Prime” status on another military project, the Joint High-Speed Vessel (JHSV) program, where a new generation of high-speed catamarans will anzeige 15.5.2009 07:08 Seite be used 178x124 jointly by amp:Layout the Navy and1U.S. Army. Austal says that

Luxury yachts are the primary business for another U.S. Gulf-based yard – Trinity Yachts, located in Gulfport, Mississippi. MarEx spoke with John Dane III, CEO and President of the yacht-builder, an avid sailor who bought the business in 2000 after retiring from a top executive position at Friede Goldman Halter, which operated nearly two dozen shipyards in the late 1990s. Dane also runs a nearby yard building naval patrol boats called United States Marine Inc. Dane, with close ties to SNAME and ABS, provided unique insights into the yachting business, acknowledging that “Yes, the yacht business has been affected (by the economic downturn).” He distinguished between the under-130-foot production or semi-production class of boats where, he said, “The business has gone dead,” and the larger custom boats over 140 feet, where “There is still some activity.” In discussing the smaller sector, he noted that “There appear to be so many used boats on the market that until these listed boats get bought, it will be difficult to sell a 1 new boat at a reasonable price.” Conversely, among the big-

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WORLDWIDESHIPYARDS ger boats, 140 feet and above, he stated that “The wealthy usually want new and specific boats for their needs and desires. They can generally afford the custom yachts.” He summed up by saying “Trinity still has 18 boats on order. As for our patrol boat business, it appears to have a robust future with many potential new orders coming.”

Strategies for Coping With the Downturn

Cammell Laird Gibraltar’s CEO Joseph Corvelli told MarEx, “We have seen the effects of the downturn on our regular clients, and many of them have pulled back. However, in spite of that, we continue to keep the docks full with high-value work,” noting that “...we have seen repair budgets tighten up.” He added, “In spite of the downturn, we are still growing our business. With our strategic location, we are a logical choice for many vessels.” Hans Von Schuppen, from Damen, took a philosophical view of the present economic downturn, saying, “…life will be more difficult, but not less interesting.” He revealed that “The slowdown has given us the opportunity to focus on off-standard products that in recent years have been out of favor when all the yards were filled up with standard vessels.” He explained that turnover has been good as the existing orderbook gets worked down, which has slowed work on the engineering side of the business. However, he acknowledged that “The order intake is quite low.” As far as financing strategies are concerned, Cammell Laird Gibraltar’s Corvelli observed that “We are certainly doing more thorough credit checks on new customers and, when in doubt, we are more likely to require full payment prior to departure.” Damen’s van Schuppen reminded MarEx that “Damen offers a buyback guarantee for standard vessels, enabling banks to reduce their risk and easing the financing process. This is not new, but it is becoming more important in the current financial situation.” He also pointed out that Damen has seen very little in the way of cancellations. He said that obtaining financing has been challenging, especially for new contracts, but noted that “…we see that our house banks still have some capacity to finance customers with a good track record.” The yachting side of the business is not immune to the broader financial pressures either. Trinity Yachts’ Dane told MarEx: “Only about 50 percent of our clients now finance their yachts. However, there is a tightening so this has impacted orders also.” But Trinity has worked hard to maintain good banking relationships, and the payoff is evident. Dane says that “Fortunately, we have a great lead bank which has been working with us and we actually redid our entire credit line this past December, after the financial markets’ turmoil had started.” But success also comes down to good old-fashioned business sense. In describing his customer base, more than 30 percent of whom are repeat clients, Dane said, “We feel our customer service and attention to detail give them a great value for what we charge.” Mar Ex 38 | M A Y / J U N E 2 0 0 9

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Ensuring Hull Integrity HULLINTEGRITY

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Do you know whether your assets are shipshape? Can you rely on subjective inspections by an ever-changing crew? If the answer to either of these questions is no, you can save time and money, and improve defect detection, by embracing hull integrity applications. INTEGRITY. There are few concepts that carry more meaning – and have more impact in a business relationship. You can rest assured if your business partner has integrity, you can rely on them. They mean what they say. They follow through on commitments. Your business – and your goals – are safe with them. Integrity means everything in business; it means even more in shipbuilding. More so than a handshake, accurate spreadsheets or safeguarding data. In the maritimes, your

biggest partner is your vessel. If it doesn’t maintain integrity out there in the deep, you’re sunk. Your cargo could be lost or damaged; your crew could be dead, and your business could founder. The starting point, then, for integrity in oceanic ventures is the ship itself. That makes ensuring – and maintaining – vessel integrity big, really big. So much so that classification societies are now offering software packages designed to help shipowners and operators ensure confidence in the condition and safety of their fleets. The appearance of what are essentially tools to manage the structural integrity of ship assets comes at a time when owners are facing a lot of scrutiny on environmental issues – some of it political, some of it economic – says Lloyd’s Register’s Marine Consultancy Services Manager Dan Holmes. “They are spending huge amounts of money to clean up after accidents,” he added. These safety and environmental concerns are driving the need to demonstrate best-practice construction to external organizations

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HULLINTEGRITY such as flag states, port states, charterers and classification societies, insurance companies and, in some cases, the U.S. Senate. Who knows, perhaps if the U.S. Coast Guard had employed such an inspection program it might have been able to spot more quickly some of the design flaws uncovered in recent years in a significant number of vessels constructed as part of its troubled Deepwater fleet modernization project. The 25-year, $24 billion initiative has been plagued with cost overruns and design flaws, including hull cracking. According to Sen. Maria Cantwell (D-WA) in a February 2007 press release, “These mistakes have cost taxpayers hundreds of millions of dollars, while delays have forced the Coast Guard to rely more heavily on outdated equipment that was not built for post-9/11 missions.” The integrity problems are a big part of why the USCG is headed (and the U.S. Navy too) toward building to class standards going forward whenever possible. But even that is not enough to ensure integrity. What is needed are standardization, follow-up and follow-through.

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HULLINTEGRITY Hull Integrity on a Disk

The requirements to run Lloyd’s Register’s Hull Integrity package are simple, and the steps necessary to set up and launch the program straightforward. Here’s how it works: » Given that many ships lack both advanced computer systems and IT personnel on board, Lloyd’s opted to keep it simple. The software requires a Pentium 2-based PC running Windows, and it’s all point and click. The software can also run off a server and has no need to intersect with other shipboard programs. » Training courses for the crew are available on land, over the Internet, or on CD-ROM. Lloyd’s considers the training to be as critical as the application itself. “The quality of the data going in affects the quality of the data coming out,” says Dan Holmes, Lloyd’s Marine Consultancy Services Manager. » The application is customized to each ship. Once the owner determines what they want inspected, the package allows them to also effect efficiency improvements in terms of how conditions are reported. » Once a ship is able to achieve a level of standardization in the “what” and “how” problems are reported, the shore-based counterpart to the application can then be used by technical managers to look for repetitions in the inspection findings. » The program also requires re-inspection upon repair. Certain issues, like a fracture, need to be addressed before drydock, and those repairs need to be checked.

one of those crew members leaves the ship for another post – especially if they are filing paper reports or inputting data into stand-alone, non-integrated programs.

Lloyd’s Register’s Hull Integrity Program This is where software such as Lloyd’s Register’s Hull Integrity Program comes in. Winner of the 2007 Seatrade award for Innovation in Ship Operations, the integrated package is designed to help cost-effectively manage the structural integrity of shipping fleets and to integrate that data into the ship’s management system. The software is comprised of training and support modules, ship- or class-specific inspection guides and a data base that work together to facilitate the inspection process. Since the application is not specific to the classification society, clients are able to create an inspection regime built around their specific class, experience and internal requirements. “A lot of clients don’t necessarily class all their ships with us – they may split their fleet between different classification societies. So our product has to be sold on its technical capabilities,” explains Holmes. While useful to any shipowner, Holmes says it’s the clients with fleets of 50 to 100 ships that can “really see the benefit of having a tool that lets them manage the process and inspect the fleet on the fly.” Of particular value is the ability to reduce the time spent in drydock.

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HULLINTEGRITY One of the primary goals of the Hull Integrity application is to counter the human factors that can undermine accurate ship inspections. Lloyd’s does this in two ways: First, it both trains and walks the ship’s personnel through the process. Second, it allows the owners to dictate checklists that make sure the inspectors are looking at, and recording in a standardized language, what needs to be checked and documented. “Different crews might have a different perspective on what a coating condition looks like, so [this standardization] provides a level of assurance that inspection reports coming in are uniform and consistent,” says Holmes. A typical checklist covers a host of problems, including fractures, general condition of the structure, coating breakdown, pitting, and small corrosive indentations in steel plate –anything, really, that the client wants to check for. The software is set up specifically for each ship and includes a model of the ship’s design and related manuals. The actual inspection notes are not recorded using handheld devices. Shipboard environments are too severe. Instead, crew use inspection books with plasticized or wax paper, inputting the data into the PC later. That data entry is intuitive and standardized, via rules and pulldowns. “So the location of the defect is standard; the defect type is standard, and the tank inspected [for example] is specific,” says Holmes. Users can insert photos or additional notes.

By storing the data online, the client can keep records, document repairs, and track costs – without having to rely on memory, paper records or absent personnel. More important, the stored reports enable back office technical analysts to look for patterns that might point to bigger problems. “They may be able to analyze a pattern and provide remedial answers and a long-term solution,” says Holmes. If the analyst disagrees with a report’s findings, he can note his issues, in effect vetoing it, and send it back. The original finding is maintained in the database as part of an audit trail. “This provides a robust method of audit and verification that the inspections being done are being done consistently and uniformly,” says Holmes. On a higher level, Lloyd’s will work with senior management to address gaps between industry best practices and what the company is actually doing. “We look at where the company might be experiencing a degree of risk and help them ID where they could make improvements by implementing procedures or tools to correct that,” says Holmes. However they get there, hull integrity and standardized inspection regimes can be achieved with minimal sweat and a desktop application. The commitment to adhering to classification specs and getting everyone on the same page seems a small price to pay to be able to boast the best practices that will ensure the integrity and safety of your vessels, Mar Ex crew and business over the long term.

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GERMANISCHER LLOYD

A Different Classification Society Model By Joseph Keefe

One-Stop Shopping: Germanischer Lloyd Combines Quality With Targeted Growth in Specific Disciplines and Geographic Regions Classification societies often conjure up thoughts of ancient maritime history, secretive financials, staid traditions and slow, incremental change. In the case of Germanischer Lloyd, however, the organization’s stellar safety and quality record also immediately comes to mind. The 2007 Annual Report of port state control published by the Paris MOU, detailing data from 2005 to 2007, shows GL to be among the highest in performance in terms of inspections and detentions, a record eclipsed narrowly by only one other recognized classification society. No one among the 26 recognized organizations, according to this table, was inspected more often. This year, the tonnage classed by Germanischer Lloyd (GL) passed the 80-million gross tonnage threshold. More than 6,870 ships are currently surveyed on a regular basis by Germanischer Lloyd, and its fleet in service has grown by 10 million gross tons since September 2007 alone. Beyond this, it is widely expected that in 2010 the GL fleet TTS_MaritimeExec_86x51 27/4/09 6:17 pm Page 1 in service will surpass the

100-million GT threshold. Today, GL is the fourth largest ship classification society in terms of ship numbers and fifth largest in gross tonnage. This, combined with the society’s enviable performance standards, arguably makes GL the classification society to watch in the coming decade – but perhaps not for the reasons that you might think.

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GERMANISCHER LLOYD Over the past 36 months GL has quietly positioned itself to address the most pressing issues of the day in the maritime world through targeted acquisitions and the development of a formidable consulting arm. As a result, global shipowners now find themselves with a turnkey solution to the full range of their technical requirements. GL’s focused business plan couldn’t have come at a better time for all of them.

One-Stop Shopping: Growth Through (Targeted) Acquisitions

Like most other major classification societies, the GL footprint extends throughout the world. Even in places like the United States, where ABS perhaps still reigns supreme, GL is making its presence known. Probably the most prominent manifestation of that is the Hawaii Superferry’s Alakai, a

high-speed ferry curiously classed by Germanischer Lloyd. Delivered from its builder, Austal USA, to Hawaii Superferry in 2007, the U.S.-flagged, vehicle-and-passenger-carrying catamaran is truly one of the world’s most environmentally engineered vessels. Perhaps an even more important signal that GL has arrived at the grownups’ table in North America is the recent, high-profile acquisition of oil and gas giant Noble Denton. Dr. Hermann Klein is the Executive Board Member who is responsible for the maritime services, told MarEx in May, “GL is quite an innovative company, fast-growing in both the maritime and industrial sectors. We have bought several interesting targets, the latest being Noble Denton.” Indeed, the April 2009 acquisition of Noble Denton by GL has cre-

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GERMANISCHER LLOYD ated a global arm that provides a fully integrated technical assurance and consulting company that now serves the worldwide energy industry. The combined workforce of more than 6,400 employees in 80 countries will focus on the entire oil and gas lifecycle: upstream, midstream, and downstream. In particular, Noble Denton adds expertise in marine warranty service and dynamic positioning to the GL quiver. But the Noble Denton acquisition is just one of many involving these two industry giants in the last three years. A few short months before acquiring Noble Denton, GL also absorbed the maritime consulting and software companies Friendship Consulting GmbH and Friendship Systems GmbH. According to Hermann Klein, “The acquisition of the business operations of Friendship Consulting serves to expand GL’s palette of advisory services for shipping companies, yards and the maritime supply industry.” Other acquisitions by GL included the UK-based Advantica Group (doubling GL’s turnover in the oil and gas industry and strengthening its U.S. and Middle East market penetration); Canadian and U.S.-based PV Inspection (oil and gas technical supervision); Montreal-based Helimax (wind power and harsh climate operations); Kuala Lumpur-based Trident Consultants; Houston-based Materials Consulting Services (adding significant expertise in the tubular and downhole equipment sector); and International Refinery

Services in Singapore (adding proven risk management know-how, particularly in the Asia-Pacific region). Meanwhile, Noble Denton also strengthened its portfolio by acquiring Martech Unlimited, BOMEL Consultants, Intelligent Decisions, Poseidon Maritime Ltd., Lowe Offshore International Inc., Standard Engineering and Brevik Engineering. As one entity, the GL/Noble Denton company now arguably represents the most diverse and worldwide consulting arm of any classification society.

Focus on Energy Efficiency at Sea

One of the key areas where Klein’s GL consulting group hopes to make a big impact is energy efficiency for merchant ships. This emphasis led to the acquisition of Friendship Systems GmbH, which supports “computer-aided engineering” (CAE) for ship hulls, propellers, turbines, pumps and other units. Not to be confused with CAD programs, the company’s software development activities facilitate parametric design procedures and use a holistic approach involving the systematic testing and assessment of design variations. As the price of marine fuel continues to rise and anticipated emission limits loom closer on the horizon, it is especially important to explore every possible way to reduce fuel consumption in newbuildings. Due to the great complexity of the relevant systems, mathematical models

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GERMANISCHER LLOYD

are playing a key role. Using Friendship’s CAE – simulation software that can optimize the hull form of the vessel – it is possible to calculate more than 10,000 different scenarios. The software applies functional shape development and optimization to reduce the degree of wave formation and propulsion power required. Shipbuilders can now lower fuel consumption levels in newbuildings at no extra cost in their design, construction and operation. Dr. Klein is emphatic about the possiblitiies: “This is quite new. We are already seeing benefits of three to six percent

in operating costs when this optimization software is used. Based on the estimated fuel oil price, you can calculate for a vessel the speed which will give you the highest profitability. We are talking about engine power, hull form, emissions, emission limits of MARPOL XI (which will lead to a much higher fuel price in 2020).” Klein wouldn’t go as far as to say that this would make for a smoother classification process down the road. Instead, he insists, “I think it is totally independent from the classification process. This is much more parallel: consulting services to reduce the fuel bill.”

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In today’s difficult shipping and financial markets, profitability will depend largely on fleet efficiency. Klein agrees: “I’m quite sure that this will make the difference.” Beyond this, however, it would not be a stretch to say that the shipping company that derives superior economies of scale and operating efficiencies from GL’s consulting arm would also be much more likely to classify its vessels under the GL banner. With an optimized hull, substantial savings in fuel can be achieved together with corresponding reductions in CO2, SO2 und NOx emissions. What is more, the investment costs also drop because a main engine with less output is needed – although this does not necessarily lengthen the time required for a round-trip. Total fuel cost for a vessel with all these variables may be as much as $1,000 per ton. For a large container vessel, the fuel bill might be more than 50 percent of total operating costs. For those who would buy a vessel for delivery in 2012, the need for an accurate forecast of fuel costs over the 25-year lifespan of the vessel is now more important than ever. GL’s entry into the fuel efficiency software game also includes training for the people who operate the vessels. Dr. Klein predicts that future vessels will be operated at

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GERMANISCHER LLOYD ing services provides for a very short payback time.”

Oil and Gas: Upstream, Midstream, Downstream

Dr. Hermann Klein

slower speeds with less power, much more optimized hull forms, and optimized propulsion systems/engines. “This involves especially the carbon footprint. That’s what we focus on. As a shipowner, this is what will cost you money.” Klein is certain that the cost of GL’s service package can be amortized over a very short period of time with enormous return on investment on the back end. He points to the $40 million fuel bill for just one large container vessel in 2008 (@ $700/ton) and extrapolates that figure to the 25year lifespan of the vessel. He adds, “This amounts to $1 billion or eight times the price of a new vessel. This shows how important fuel economy is. Investing in these consult-

GL’s full range of services to the oil and gas industry began with its 1976 entry into the industrial services segment. It continued with a series of acquisitions starting in 2007 that culminated in its 2009 merger with Noble Denton. Noble Denton’s experience with marine warranty work and dynamic positioning – anchored by the technical know-how of its 900 employees – has proven to be very important for GL. GL’s strategy in the oil and gas sector perhaps is not unlike that employed by Teekay Marine Services when it entered the FPSO game in 2007. At the time, Graham Westgarth, president of Teekay Marine Services said flatly, “It is Teekay’s ambition to be a leading service provider to the oil and gas industries.” Teekay lacked some competencies in core areas of the FPSO game, but the purchase of North Sea FPSO specialist Petrojarl ASA more than made up for those shortcomings and, in the end, Teekay got closer to its key customers. GL, for its part, hopes for the very same thing. The current global economy notwithstanding, GL is gambling that the offshore oil and gas sectors will begin to grow again – and soon. Just as Teekay eventually hopes to be the offshore industry’s “turnkey” provider of production,

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GERMANISCHER LLOYD storage and transportation of crude oils in the deepwater markets, GL hopes to achieve the same metric in the industrial services segment of that market, expanding its potential for vertical and horizontal integration of services to others.

GL Group in the United States and Around the World

The Germanischer Lloyd footprint in North American markets has in the past been profitable, but perhaps unremarkable. That’s about to change. Hermann Klein is keenly aware of the vast potential in the yacht markets in a recovering economy, especially in southern Florida, where he also has his eye on an expanded toehold in the cruise ship sector. And for those who would doubt that GL can make significant inroads into the cruise ship classification game, consider that every second containership in the world today is classed to GL standards. In Maritime Services, safety at sea, quality, economic efficiency and environmental protection are some of the key factors Germanischer Lloyd focuses on – in the U.S. and worldwide. Represented in the U.S. with six key locations, the spectrum of GL services includes newbuilding supervision, ship-in-service inspections, ISM, ISO and ISPS certification, quality management certification and approval of workshops/shipyards as well as training activities. In 1981, the American GL operation included but a few hundred

ship visits per year. Today, the Noble Denton portion of the GL Group adds more than 100 employees at the Houston location alone. In 2007, GL was authorized to participate in the U.S. Coast Guard’s Alternate Compliance Program (ACP). U.S. shipowners can now choose Germanischer Lloyd as their recognized organization, acting on behalf of USCG. In fact, GL is one of only three non-American classification societies to have ACP authorization. Since its founding in 1867, Germanischer Lloyd has experienced several phases of strong growth, with another robust expansion phase clearly underway. But GL’s considerable and growing market share as a function of classed worldwide tonnage and vessel numbers is only one part of the story. The GL business model may well turn out to be this decade’s most important development in maritime circles. The redefining and marriage of consultancy, inspection and certifications from all ends of the energy and shipping supply chains is clearly underway at GL, for all of its customers. Dr. Klein adds, “Ship classification has been and will also in the future remain our core business, as well as other core businesses. Therefore, the definition has broadened and expanded.” That said, the generic definition of the ship classification society as we know it today will Mar Ex soon have changed forever. GL on the Web: (www.gl-group.com)

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STOP Leaving Pollution inYourWake STOP

By Joseph Keefe

Stern Tube Oil Pollution Is Just One of Many Reasons to Make the Switch to Seawater-Lubricated Stern Tube Bearings When the subject of oil pollution comes up between two shipping executives, thoughts often turn to the catastrophic 1989 oil spill in Prince William Sound, Alaska. Or perhaps the 1978 Amoco Cadiz grounding off the coast of Brittany comes to mind. On the other hand, it’s doubtful that stern tube oil pollution (STOP) is even mentioned. Yet even a conservative leakage rate estimate of 6L/day (taken from Class Society Seal Type Approvals) emanating from stern tube oil seals can amount to as much as 80 million liters (21m US gal) annually from normal operations. By comparison, oil pollution from the Exxon Valdez spill was 41.6m liters (11m US gal). Today’s shipowners are faced with enormous pressure from many angles to run “green.” Stack emissions, oil pollu-

tion, invasive species emanating from ballast water, hull coatings that potentially leach toxins into the water, and sewage or gray water are all issues that are becoming increasingly more regulated. These potential hazards have to be managed from an engineering and operational standpoint. Probably the least obvious source of vessel pollution comes from stern tube oil leaks. And the fine imposed by the Coast Guard for such an event may be the least of your worries. Fortunately, removing this potential environmental issue from your menu of regulatory headaches is an easy fix. The installation of seawater-lubricated stern tube bearings is a smart investment. In the short term, the elimination of stern tube oil pollution as a potential source of fines provides obvious and instant gratification. Long term, amortizing the

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STOP cost of this simple yet valuable equipment may be a much shorter payout than one might think. Today, more than 600 Thordon-brand, seawater-lubricated stern tube bearings are in use around the globe, with over 100 more on order. That’s just about one percent of the world’s fleet. You have to wonder what the other 99 percent are waiting for.

The Status Quo

Most commercial oceangoing ships employ a propeller shaft typically supported by oil-lubricated metal bearings with the oil contained in the stern tube by forward and aft shaft seals. The seal must leak (aft - into the sea, or forward - into the ship’s bilge) at the shaft/seal interface in order to function properly. It doesn’t take much to damage this arrangement. Fishing nets or mooring ropes caught in the screw are just two of many regular headaches that can allow stern tube oil to flow out into the sea. A typical merchant ship’s stern tube might contain as much as 1500L (396 U.S.) gallons of oil. Classification societies, maintenance personnel and operators alike agree that oil lubricated seals are going to leak. Consumption from the seal is controlled to the extent necessary to maintain an acceptable life, but by design it is essential to have oil at the mating surfaces. Oil consumption is always lost directly to the sea, and some laboratory testing has produced estimates that as many as 2.5 million gallons

are lost annually from vessels. Getting more precise information on this from any owner is understandably difficult, if not impossible. Dr. David Gilmour of BP-Castrol Marine Lubricants, a large supplier of stern tube oils, has stated that “Environmental legislation can only get tougher, but even well-maintained and managed ships will still leak oil.” Indeed. Therefore, and without a doubt, one of the most serious environmental issues facing shipowners of medium and large commercial vessels is stern tube oil leakage. As environmental regulations get tougher and global enforcement is ramped up even further, shipowners find themselves looking for ways to manage their risk in the face of more than $140 million in criminal fines levied by U.S. Courts alone. Despite this reality, the perceived additional cost of retrofitting or installing seawater systems as original equipment gives many operators real hesitation. That type of thinking is more than shortsighted.

Achieving Zero Discharge

The alternative to an oil-lubricated sealed system that completely eliminates stern tube oil pollution is already a proven technology. Seawater-lubricated open systems use seawater as the lubrication medium in place of oil. The seawater is taken from the sea, pumped through non-metallic shaft bearings and returned to the sea. No stern tube oil is needed. Proven materials and new designs of non-metallic bearings

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STOP

now offer performance similar to metal shaft bearings. There are other alternatives to the oil-lubricated system and, in practice, these methods involve a more environmentally friendly sealing procedure. In one case, seal manufacturers use multi-lip seals, which reduce the amount of oil that escapes, but shaft seals can still be damaged and oil can still escape into the sea. Some systems also employ biodegradable oils, but these substances are still “oil� and leave a sheen, which is considered pollution. The third, less conventional, but simpler option uses proven stern tube bearing technology from Thordon Bear-

ings. The simplest way to completely eliminate oil from the stern tube is to use seawater as the lubrication medium and Thordon non-metallic bearings in place of oil and white metal bearings. The seawater enters the forward section of the stern tube just aft of the seal and passes through the forward and then aft bearings prior to reentering the sea. The quality of the seawater supplied to the bearing is critical to long wear life. To ensure that abrasives are removed from the seawater, a water quality package is used. This package employs centrifugal forces to remove particulate from the seawater stream, then collects it and discharges it through a blow downline. Use of seawater-lubricated bearings eliminates the aft seal as well as the storage, sampling and disposal of oil. The potential impact of stern tube oil pollution is zero. An additional design consideration with seawater-lubricated bearings is that the propeller shaft requires corrosion protection from the seawater. For economic and technical reasons, the shaft is typically steel, which will corrode in (salt) seawater. To prevent this, bronze or stainless steel liners are generally placed over the shaft. Between the liners a waterproof flexible coating is typically fitted to protect the shaft. Thor-Coat, a new two-part epoxy shaft coating, was specifically developed to complement seawater-lubricated propeller shaft bearing systems with the objective of provid12/11/04for11:59 am Page 1 period. ingProject1 corrosion protection a minimum ten-year

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STOP Thor-Coat addresses the issue of current shaft coating systems not being sufficiently reliable to allow extension of shaft withdrawal periods beyond five years.

Follow the Money

Craig Carter, Director of Marketing and Customer Service, readily admits that the cost of a Thordon bearing far exceeds that of the conventional oil-lubricated unit. That cost differential can run anywhere from $50,000 to $100,000. But, he adds, “That’s only part of the story.” Shipowners using Thordon bearings are already realizing significant savings from multiple cost centers. The benefits of using seawater-lubricated Thordon COMPAC bearings include: 1 reduced operating costs (no aft seal) 2 greater time spans between required seal maintenance 3 proven performance and reliability 4 fitting and monitoring methods to meet class society approvals 5 reduced legal and business risks from oil pollution Probably the best reason to employ Thordon COMPAC bearings can be found in research presented at the 2007 RINA (Royal Institute of Naval Architects) conference. There, the benefits of water-lubricated propeller shaft bearings received more than just a little attention. The presenters from Fincantieri, a large shipyard in Italy, stated that “Traditionally, the shaft line is oil-lubricated and located inside

the tube case with a diameter larger than the shaft itself. An alternative solution is presented with water lubrication, which offers some consequent benefits. First of all, the inflow water meets a smaller diameter and so the wake peaks on the propeller plane are reduced. Furthermore, the water through frictional effect is trailed in rotation towards the propeller with a significant benefit for propulsion efficiency (about two percent). The water-lubricated shaft line is also practically maintenance-free and represents a ‘green’ solution as the risk of oil leakage is avoided.” For those operators needing reasons beyond the obvi-

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STOP insists, “We expect 15 to 20+ years of service life, but it depends on the ship’s operational profile.”

Good Company

ous secure feeling of knowing that at least one source of ship “emissions” is gone forever, consider the fact that Disney Cruise Lines has two cruise ships equipped with COMPAC bearings. And no wonder: Working with Lloyds Register, they haven’t had to pull a shaft in ten years and they might not have to do it for another five. Ordinarily, the withdrawal interval for oil-lubricated bearings is five years. Thordon’s Carter

Currently there are over 600 commercial ships operating with Thordon seawater-lubricated bearings with the first commercial installation taking place back in 1983. Still, this represents a very small percentage of the world’s commercial fleet. Just a few of the more prominent operators using Thordon Bearings today are listed in the table below. The world’s largest cruise ship operator, Carnival Corporation, through its subsidiary Princess Cruises, has COMPAC bearings currently installed on nine of its ships with five more on order. Mr. Chris Joly, Principal Manager, Marine Engineering, for Carnival Corporation recently stated, “SeaOperator/ Owner Princess Cruises Alaska Tanker Company Mormac Marine Group (Interlake Steamship) Staten Island Ferries Disney Cruise Lines United States Gypsum Corp. CSL International

Type of Ships Cruise Liners 193,000 DWT Tankers Bulkers Ferries Cruise Liners 50,000 DWT Bulker 74,000 DWT Bulker

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STOP water-lubricated bearings are the present for many of our ships; I would like to see them for all of our future ships.”

2015: Standard Equipment?

The opportunity for shipowners to employ worry-free shaft lines for the life of the vessel is at hand. Ships trading in the world’s oceans and seas can now eliminate both operational and accidental stern tube oil pollution while reducing maintenance costs and saving money over the service life of the ship. Improvements in design and technology have resulted in Thordon bearings offering improved wear life, fitting and monitoring methods to meet class society approvals. The performance of seawater-lubricated COMPAC bearings to date has been comparable to oil-lubricated white metal stern tube bearings. They also eliminate any risk of criminal, civil and administrative penalties and other adverse reactions such as bad public relations for the shipowner that may occur from oil leaking from the stern tube. Thordon COMPAC bearings are guaranteed for 15 years. That guarantee is available for commercial newbuild vessels with shaft diameters of 300mm (12”) or greater and COMPAC bearings enclosed in stern tubes. With that guarantee comes the promise of zero pollution risk, high abrasion resistance, an elastomer bearing that withstands shock loads and edge loading, a proven long bearing wear life and global availability. Right now, a Thordon seawater stern tube bearing is

merely one of many options that a shipowner could choose for his existing vessels or future planned tonnage. That metric could change. And for anyone who doubts that possibility, just ask an operator who is currently shopping for a milliondollar ballast water treatment system for his fleet of vessels. The legislation necessary to implement that requirement is coming, and it is coming soon. So, too, will the requirement for stern tube bearings that no longer pollute the seas. With only one percent of the world’s collective global fleet now employing such devices, you might want to consider orderMar Ex ing yours now – in advance of the coming rush.

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SHIPBOARD FIRE FIGHTING

Shipboard Fire Fighting

Challenging theWorst Case Scenario at MITAGS By MarEx Staff

Maritime fires have an incredible potential for catastrophe. In fact, a fire at sea is considered by many to be the worst of all possible dangers. Of the ten most lethal fires in American history, four of them occurred on ships. These four shipboard fires alone killed a combined total of 2,138 people. Merchant mariners have a saying, ‘A fire at sea can ruin your whole day.’ This phrase, with its breezy cynicism, covers a true paradox. With water all around, a shipboard fire can quickly become a pernicious and deadly disaster. When a fire does occur, the primary goal of a ship’s crew must be to save the ship in order to stay alive. The safest course of action is always to fight the fire until the chance of injury or death becomes a greater threat than that posed by the fire itself.

Smoke from a fire poses another serious problem for merchant seafarer. Attempting to navigate through a maze of smoke-filled passageways deep within the ship is an incredibly difficult task. Fortunately, professional mariners receive extensive training and have a thorough knowledge of their vessel and its construction. The location of exits, ventilation, and built-in fire systems are all readily available to the crew as they work to contain a fire. As weight is added or shifted

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SHIPBOARD FIRE FIGHTING within the vessel, a knowledge of vessel stability is also necessary to ensure that the very actions being taken do not create another situation that could cause a loss of the vessel, or more importantly, lives. Cargo manifests, piping diagrams, and a myriad of other related details must also be known to the crew, as there may not be time to search for a blueprint as the fire builds around them. Since shipboard fires are one of the greatest perils a mariner may face, I wanted to learn more about the training programs that are available to help prepare a mariner for such a situation. I joined a group of students who were attending marine safety classes at the Maritime Institute of Technology and Graduate Studies (MITAGS) near Baltimore, Maryland. While most of the students in attendance were seeking basic fire fighting certification, we were also joined by three mariners who were working towards advanced qualifications. MITAGS transported the class to the Southern Maryland Regional Fire Training Center for an all-day fire fighting session. I joined the eleven students and a team of MITAGS instructors, including Donald Merkle, Jim Clements, and Eric Friend. At the fire fighting facility, we were also joined by seven professional fire fighters, who were led by Fire Chief Steve Augustine. In case you are counting, that is ten professionals overseeing just eleven students. The day began with Chief Augustine orienting the students (who primarily work on Military Sealift Command

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(MSC) vessels, container ships, and tankers) to the order of the day, which was, above all else, personal safety.The mariners then began the process of donning their PBI fire resistant suits (which are made of organic fiber and polymer), Nomex head coverings, helmets, and gloves. For information, the total cost of properly equipping a fire fighter, including fire retardant boots, can be as high as $4,500. A great deal of time was then spent on one of the most important tools in fire fighting, the Self Contained Breathing Apparatus (SCBA). SCBAs provide respiratory protection while in atmospheres that are considered to be immediately dangerous to life and health. The units can provide self contained breathing times between 35 and 60 minutes.

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SHIPBOARD FIRE FIGHTING

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An important life saving feature on all SCBAs are the alarms. These devices are used to help locate a downed fire fighter in a smoke-filled room or compartment. When a fire fighter has not moved for more than one minute, the alarm becomes activated. To silence the alarm, the fire fighter simply has to move his or her body. Many remember the incident that occurred on September 11, 2001. The sounds that were thought to be cellular telephones ringing in the World Trade Center towers, were actually SCBA unit alarms from downed New York City fire fighters. A fully-equipped shipboard fire fighter must be able to work in all types of confined spaces, some of which may be filled with smoke. ‘The Maze’ is a dark building that was designed specifically to train students to work in complete darkness while negotiating ladders, steps, and windows. MITAGS’ students were sent into the ‘Maze’ in pairs and were instructed on how to use the hose for guidance. Understanding this universal method of using the hose for direction cannot be understated, as it is a lifesaving technique common to all fire fighters. The hose is put together with male and female couplings. Knowing that the male coupling leads to the fire and the female coupling leads to the pump panel, or out of the building, is absolutely critical for survival and passage through the obscurity of smoke. “To effectively fight shipboard fires while underway, we need to train crews with the skills and equipment used by professional fire fighters,” says Glen Paine, Executive Director of the Maritime Institute of Technology and Graduate Studies (MITAGS), and its affiliate school, the Pacific Maritime Institute (PMI), which is located in Seattle, Washington. “Our students are taught the basic principles and behavior of fire. They learn to handle the hoses and nozzles and how to use portable extinguishers effectively. The use of breathing apparatus and personal protective equipment is also covered.” The MITAGS’ students then advanced to their next exercise. They were taken to the fire pits for simulated training of an electrical fire, a paint locker fire, and a tanker or engine fire. Each of these “live” exercises has a specific method for confronting and extinguishing the fire. The electrical fire requires the fire fighter to “kill” the power and then ground the CO2 extinguisher to the floor or other solid object. The paint locker fire, which is comprised of either turpentine or oil-based paint, is very dangerous due to the possibility of explosion. In both situations, the class was taught to never turn their back on the fire and to never assume that the fire was out simply because it stopped flaming. The tanker or engine room fire proved to be the most difficult exercise, as it quickly spread due to the windy conditions. This type of fire can easily proliferate and engulf an entire ship. The exercise teaches the students to work in teams of four, while using large fire hoses for protection. At a distance, the nozzles appear to be streaming the water at a high level of intensity for saturation. However, as the

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SHIPBOARD FIRE FIGHTING teams step closer to the fire, they discover that they must use the ‘fog’ method for shielding, as it is absolutely essential that the teams stand side-by-side. If the teams separate in any way, the fire could jump between them, possibly causing injury to the fire fighters, but most certainly losing any progress that had already been achieved. The last exercise that the students encountered was the ‘burn building,’ where the hose technique for directional guidance was tested in a real smoke situation. The students were moved into the building, which had all of its windows and doors open to allow familiarity with the two-story environment. In the middle of the room was a bale of cofferwood on a construction workhorse. With the self contained breathing apparatuses in full deployment, the windows and doors are shut, and the coffer-wood is ignited. Within minutes, black smoke is billowing out through the crevices of the windows and door, while the students make their way through the building using the hose. Remember, there are ten professional fire fighters working with eleven students, so full control is maintained at all times throughout the entire exercise. MITAGS’ instructors and the professional fire fighters are all certified Emergency Medical Technicians and paramedics. Donald Merkle is also a member of the National Fire Protection Association (NFPA), which was established in 1896 and serves as the world’s leading advocate for fire prevention.

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The organization is also an authoritative source on public safety. In fact, the NFPA’s 300 codes and standards influence every building, process, service, design, and installation in the United States, as well as numerous other countries. In addition to being compliant with the NFPA standards for training procedures, MITAGS’ fire fighting programs also meet the Occupational Safety and Health Association (OSHA) standards. Furthermore, the courses are approved by the U.S. Coast Guard (USCG) and meet the requirements reflected in the Standards of Training, Certification, and Watchkeeping for Seafarers Code (STCW-95). Confronting a fire raging onboard a ship in the middle of the ocean can do much more than ‘ruin your whole day.’ It could potentially kill or seriously injure everyone in its path. The MITAGS fire fighting program was quite extensive and very detailed. The instructors spent a great deal of time critiquing each student throughout the day regarding their performance and ensuring that they were clear on the proper tactics that are required for fighting fires. I came away with a renewed respect for the unpredictability of fire and for the possible dangers merchant mariners face each and every day. To learn more about the Fire Fighting programs or other courses offered at MITAGS, please contact Captain Robert Becker toll-free at (866) 656-5569 or via e-mail at rbecker@ mitags.org. Interested individuals may also visit the MITAGS Mar Ex website at www.mitags.org.

Outstanding Opportunity for Naval Architects Our client has a project in Australia requiring three naval architects. Experience should include: • 12+ years of naval architecture • 10+ years of production experience in a naval shipyard • Previous design experience • Degree in naval architecture or M.E. supported by production experience • Structural analysis and assessment • International shipbuilding experience These are full time, permanent positions with full relocation and very competitive salary. Resumes should be sent to fmainero@franklincareers.com.

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MITAGS and PMI are non-profit continuing education centers for professional mariners. The Institutes provide training for both civilian and military seafarers from around the globe. MITAGS and PMI are dedicated to helping mariners maintain and advance their certifications, as well as assisting individuals who would like to enter the maritime profession.

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SeaArk Marine, Inc. P.O. Box 210 Monticello, AR 71657 T: +1 (870) 367-9755 F: +1 (870) 367-2120 sales@seaark.com www.seaark.com

Washington Marine Group Shipyards 50 Pemberton Avenue North Vancouver, BC Canada V7P 2R2 T: +1 (604) 988-6361 F: +1 (604) 990-3290 www.wmgshipyards.com

Irving Shipbuilding, Inc. (ISI) specializes in the construction of AHTS Tugs, sub-sea and offshore structures and the upgrading, refitting and repair of Rigs and Ships up to Panamax size. ISI has six facilities, three in Nova Scotia, one in Prince Edward Island and another in New Brunswick and Engineering Offices in Halifax and Ottawa. Irving Shipbuilding Inc. P.O. Box 9110 3099 Barrington Street Halifax, NS, Canada B3K 5M7 T: +1 (902) 423-9271 marketing@irvingshipbuilding.com www.irvingshipbuilding.com

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Seabulk Towing: Providing Service Excellence Through Safety

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Celebrating its 50th Anniversary, Seabulk Towing is an established leader in harbor ship assist operations and offshore towing services. Seabulk Towing operates a fleet of tugs primarily assisting crude, petroleum and chemical product tankers, barges, container and other cargo vessels, and military vessels in docking and undocking, as well as providing LNG terminal

t: 954-467-9611 e: shipping@faststream.us w: www.faststream.co.uk

support services.

Ship Assist & Towing Operations

www.seabulktowing.com | (954) 523-2200

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Classification Societies: Maritime Employment: Innovative Products: New Products / New Focus

People & Partnerships

Ending Stern Tube Oil Pollution

THE MARITIME EXECUTIVE S I M O N X I A O L E I L I A N G / S I N O PA C I F I C S H I P B U I L D I N G G R O U P

Standard of excellence

 Global SaleS and Support  extenSive ranGe of productS and ServiceS

May-June 2009

Focus on Shipbuilding & Repair: New Challenges / Creative Responses

Simon Xiaolei

 onGoinG product development

V O L U M E 1 3 , E D I T I O N 9 , M AY / J U N E 2 0 0 9

clockwise from top left ScHelde naval patrol 9113 damen aSd tuG 2810 damen faSt crew Supplier 5009 damen platform Supply veSSel 7216 damen Stan patrol 4708 damen cutter Suction dredGer 450

D A m e N s H i p YA r D s G o r i N c H e m industrieterrein Avelingen west 20

4202 ms Gorinchem

p.o. Box 1 4200 AA Gorinchem

Chairman & CEO Sinopacific Shipbuilding Group

member of the DAmeN sHipYArDs GroUp phone +31 (0)183 63 92 67 fax +31 (0)183 63 77 62

americas@damen.nl www.damen.nl

the Netherlands

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The Maritime Executive May/June 2009  

The Maritime Executive Magazine, Articles, News and Pressreleases relating to the Maritime Industry

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