When Is it Worth Spending Money to Improve the Ship?

Engineering
1

Hi All,

I am an engineer working in the consulting business (land side desk job). As a consultant, my job is deliver customized solutions and make things better. I am all about improving the ship. That can mean anything from installing new equipment, writing new procedures, or fighting regulators. Must of shipping is rules, regulations, standard procedures. I get to tell you when the rules don’t apply or when we can write completely new rules. At the end of the day, I want to help the ship complete its mission better, faster, cheaper.

But . . . I find a lot of resistance to this whole idea in the marine world. Whether it comes from tight owner budgets, inflexible shipyards, or the shackles of tradition, there is very little interest in improving the ship. Generally, our clients only come to us for two reasons: a problem came up, and they must hire us to fix it; or regulators required them to hire an engineer. I see very little interest in pro-active improvement of the ships. For example, everyone agrees that it would be wonderful to save 5% on fuel bills. But few people want to pay money to learn how to do this. I only ever had one client willing to pay for studies on fuel reduction.

So I ask all of you: where is the gap? Why do we not have ship owners racing to optimize their fuel bills? To apply the latest technology and designs? I find that most operators rarely understand the full extent of what engineers can do to help. Example: many people think that fuel reduction requires new machinery. I once saved 3 - 5% on fuel consumption, just by changing the trim of the ship. No new machines required.

Do owners have no budget for ship improvements? Is this a mentality of “If it isn’t broke, don’t fix it”? Or do people really not understand what they can do to save money on their ship?

I would appreciate any insights on this.

2

Since you’re a consultant, consult with the people paying for the fuel.
Chances are most every owner that actually pays for fuel already is working on the point and has considered the payback period for any improvements.

3

Yes, in the maritime industry the mentality is “if it ain’t broke don’t fix it”. Digging deeper into that adage you arrive at the simple fact that, all things being equal, the purpose of a business is to make money, not spend it. Sure, sometimes it takes a little money to save a lot more. But what I have noticed about “improvements”–new inventions, new procedures-- is this: most of the low hanging fruit has already been picked. In an established company most of the easy ways to save money have already been done, which means you now have to look at more difficult ways to save money, and there is no surety to the process. A consultant can say do this or that to save money and it may work–or it may not. The consultant isn’t going to pay you back if his sure-fire idea doesn’t work. You have to be careful where you put your money. There’s a lot of snake oil out there. For example: let’s say you as consultant claim you can save a ship owner 5% in fuel over a voyage. Do you then guarantee it? Do you tell the ship owner you’ll pay him back your fee if you’re wrong? That you will pay him back the cost of this or that equipment if it doesn’t work out?

 The larger picture is this:
 As a company you take a gamble on any innovation. Most well run, established companies are averse to gambling. The exceptions are tech companies. Tech companies are in the business of innovation. It is their stock in trade. But the margins on tech companies are large, while those on many ocean shipping companies are razor thin. (We won't address the margins on OSV companies in these dark days for their industry). Tech companies rise and fall frenetically in an IPO/bankruptcy/buyout process which is completely alien to the maritime world, chiefly because of the volatility of this thing we call "innovation". In a tech company there are no bad ideas, and if your one pet idea doesn't work out they'll actually pay you to come up with another great, unproven idea.
 Take now the example of the maritime executive who made that new consultant's innovation his pet project--only to watch it fail. It could mean that executive's head. Hence the reason why most people play it safe in their daily work lives, and in their whole careers never innovate anything.

For all these reasons there is a built-in bias against improvements and innovations that either a) aren't crystal clear in their immediate benefits and/or b) cost a lot to implement up front.​ When major innovations are made it is usually because the company has its back against the wall, and is faced with with either innovating or going bankrupt. As of August 24, 2015 no one in a U.S. ocean shipping company's operations department is thinking too hard about saving fuel costs. World events are making those savings for us just fine without us spending a dime. Come $100/barrel oil and those company may start start thinking otherwise. But absent a crisis "if it ain't broke don't fix it". So it is with everything else aboard ship.

Where innovations can be readily made is at the level of design for new builds. It is the one time where the ship owner is looking at the 20 year (or 50 year, in the U.S.) lifetime of the vessel, where the incremental  cost of innovation readily pencils out. Initial design is always cheaper than renovation.
4

Freighterman,

Thanks for the reply. That really helps me to understand the trade-offs from a ship owner’s perspective. You hit on a couple of things that I have to ask more about.

You mentioned that most companies don’t want to take on the risk of trying new ideas, because there is no guarantee from the consultants. And you are right, there is a lot of snake oil out there. The consultant agreement is actually a sore point from both sides. As a consultant, say I come up with an idea that saves my client millions. But the consultant’s fee is only a fraction of that. So I have to ask, what if the consultant takes on the risk? I have joked with people about ideas where the consultant does the work for free. And in return, they get some agreed on percentage of the cost savings for a certain period. Of course, the problem the consultant is probably the guy who calculates what the cost savings are. That is definitely conflict of interest. Have you ever heard of any arrangement similar to this? Anything that worked out well?

That actually leads me to a second question. How do owners and operators perceive consultants? Is the view just that we are all too expensive? Out to serve our own interests? Or is the problem like you said: we don’t take on any of the risk?

Risk is another problem for the consultant, from the new build side. Like you said, that is where the innovation really pays off. But there is little cause for a consultant to innovate a new boat, for several reasons.
[ol]
[li]All boats are customized. I have never yet seen a true sister ship.
[/li][li]Often, owners have their own vessel requirements to allow better matches with the rest of their fleet
[/li][li]Consultants have a hard time getting paid for their designs. The ideal situation for a consultant is to spend all the time on our own to develop a design, and then sell that design multiple times. We get paid for each time a boat gets built. Except quite often, people cheat the consultant. They pay for 3 copies of the boat and instead build 5. The only option the consultant has is to sue their client. That hurts future business and lawsuits are never fun.
[/li][/ol]

For all those reasons, consultants don’t like to offer any solutions until they have contracts that guarantee their payment. And we are back to the problem of selling snake oil. Because consultants all look equally good when they present a proposal.

You made a very good point that companies usually only innovate when they have no choice. But this leads me to ask, how do shippers distinguish from each other? This is something that I have not gotten much exposure on. Say that I want to ship goods between two ports. And I am looking at a long term contract for a fixed route and schedule. Why should I pick one shipping company over another? The ships are all about the same (assuming these are all good companies who keep up their maintenance). What are the major differences? Is it just price? And what could make a large difference in price? I assume the crew are all paid generally the same between companies. Am I wrong?

Thanks again. I do appreciate the insight.

5

Freighterman,

Thanks for the reply. That gave me a some good insights. And prompted me with some followup questions.

You pointed out that any innovation is a risk to the company, and the consultant gets paid either way. And you are right. There is a lot of snake oil out there. From the outside it is hard to tell the difference. So is the risk up front one of the main problems against innovation? Is the problem that the consultant takes on no risk? A friend and I tossed around an idea once. Have the consultants do surveys for free and develop the innovations for free. The consultant goes about proving the case for the specific ship. And then, when the change is implemented, the consultant gets paid as a percentage of the cost savings for some set amount of time. Have you ever seen an arrangement like this? Clearly there are plenty of details that get in the way: How do you calculate cost savings? What if the owner likes the idea but doesn’t have the capital to install it? And plenty of other legal details. But I wonder if that would make innovation easier on the ship owner. At that point, the consultant will only take the free jobs where they think they can make real money. So the consultant is motivated to already do the economic analysis for you.

I agree that innovations really happen at the design new build stage. But we still see a lot of resistance from ship owners, even at that stage. Part of it is trying to keep consistency across the fleet. For example, picking specific engines to match the spares that other ships use. I see many ship owners that just focus on the purchase cost, without concern for the lifetime vessel cost. Are the margins really that small? Are they getting smaller?

I also have to ask how are consultants perceived? Are we all viewed as too expensive? Or worse, snake oil sellers? Do ship owners see consultants as a critical part of the ship support infrastructure? Or are we just an annoying burden?

And last I have to ask about is how owners and operators distinguish themselves. As you said, innovation is not a large feature in the marine industry. So if I were a client wanting to charter a vessel for a long term contract on a fixed route, what makes me pick one ship over another? Is there a large difference in quality of vessels? Cost of crew? How does an operator make the case that they are the best person to go with? As consultants, I think we get too insulated from the operator’s business. Too focused on the science. I like to know what is [I]actually [/I]important to operators and ship owners.

Thanks.

6

Sometimes the cost of fuel and the corollary, fuel savings doesn’t always enter into the equation if the ship is on charter. As long as the fuel consumption is within the charter’s spec and the charterer is paying for fuel it is pretty much a non-issue to the owner.

Some years back I was in Korea on a newbuilding project. On the same class of ships I saw some ships equipped with mechanical lubricators on the main engine while others were equipped with more efficient Alpha lubricators. When I asked each company project manager what was driving force in their choice of equipment. The one that chose the mechanical lubricators said they were the cheaper option. The one that chose the Alpha lubricators said that while more expensive they would quickly recoup the cost as cylinder oil is something the owner paid for, not the charter party.

7

Don’t take this the wrong way, but the problem might be that you’re not established enough. I doubt a company would hire an engineering consultant that doesn’t have a long standing reputation in the industry. The company is going to want to use people/firms they’ve used before or that come recommended from other companies.

As to your last question

And last I have to ask about is how owners and operators distinguish themselves. As you said, innovation is not a large feature in the marine industry. So if I were a client wanting to charter a vessel for a long term contract on a fixed route, what makes me pick one ship over another? Is there a large difference in quality of vessels? Cost of crew? How does an operator make the case that they are the best person to go with?

Generally a charterer will go to a ship-broker, the ship broker will see what vessels are available from their contacts, that meet the charterer’s need at the lowest day-rate. Then they sign the charter party. It’s mostly pure supply and demand market driven force. The only things that change this process is if a charterer prefers a specific operator or maybe they have a long standing relationship with that operator. Also if its a more unusual request, like for a specific type of vessel or performing specific work. The way a operator distinguishes themselves is offering a lower day-rate then competitors, if its still profitable, maybe even if its not profitable in a really bad market because then the issue is should I have the vessel work and loose money or sit around and loose money. Profit margins in shipping are extremely slim, this is actually true in almost all transportation related industries. Of course some segments can be extremely profitable but are very volatile.

8

You are right. A large part of it is the reputation. Some of that involves doing a good job for many years. And some of it is just doing a lot of marketing.

Thank you for the replies everyone. It really helps me to understand what matters to all you, instead of what the engineers think matters. What I have heard from the replies so far is that fuel doesn’t really matter, since that is usually paid by the charterer. But everyone keeps mentioning that shipping is dealing with a low margin business. Do I understand that what people really want is a way to increase the margin? You can’t really increase price. So the only way is to reduce costs. The things that come to my mind:

[ol]
[li]Crew costs[/li][li]Docking periods / regular maintenance costs[/li][li]Life of ship[/li][/ol]

Am I correct that these are the major areas that affect cost and affect the margin? Don’t jump on me about crew costs meaning reducing crew. I know the crew are already worked too hard. But that is where the engineering comes in. Designing ships that don’t need as much maintenance. And that feeds into the docking periods / regular maintenance. Again, a ship that needs less maintenance has less cost and spends more time on charter.

That leads to a good question. Take a typical bulk carrier. How much time does it typically spend on contract versus laid up for maintenance? I can look up standard studies and statistics on this stuff, but I always like to get confirmation from people in the industry.

Thanks everyone for the insights.

9

My experience with consultants is that unless they have a deep understanding of operations, which is rare, they can do more harm then good. A related point is the claimed savings is a maximum theoretical, on paper, not actual resuts. A third point is that, for the crew, loss prevention has a higher priority then a few percentage cost savings.

10

First: all any company wants to do is increase the margin. There is no other reason to have a company except to increase the margin. You do it by a constant scrabble of raising prices and reducing costs whenever you can, which, by the nature of business, is not often.
Vessel costs vary between maritime sectors. In my industry #1 is crew costs, followed by a close #2 fuel, followed by #3 shipyard costs.

You bring up a number of different points, all from an engineer’s point of view, which may color your understanding of the issue. Engineers have a methodical, analytical way of looking at things. Engineers want to solve problems scientifically. That is, except for the biggest problem they face: the psychology of the company owners and executives they interact with. Those company owners and executives think they are smarter than you are, until you prove otherwise. They are not inclined to hire someone they think is, to a lesser or greater degree, ignorant of their particular trade. They don’t want to spend money or time on you unless you are a sure bet. Maritime executives are very often intuitive, “seat-of-the-pants” decision makers, disinclined to look at all the technical data a consultant has painstakingly produced. In my neck of the woods we see more executives from the School of Hard Knocks than Harvard Business School. Self-made men revile degreed experts: psychology again. Give an executive the choice between a consultant’s reams of technical data versus the word of Billy their friend of 30 years, who is the local Caterpillar agent, and the maritime executive will usually listen to Billy. Again, that’s my view, from my one sector of the industry. What holds for David may not hold for Goliath.

In a sense, there is no "maritime industry". There are a collection of maritime trades which jointly make an industry. Each trade does things differently. OSVs, deepsea, towing, fishing--those are just a few of the maritime trades. They all do things differently than each other. Their adherents think their trade is superior to all others, and so are not inclined to listen to a consultant who says "Do this because I know it works for OSV boats, or "do this because most of the tugs on the East Coast are doing it".

A commentator brought up the subject of chartering. In a particular maritime trade the arcane knowledge of charting operations is essential for decision making. However, my trade does not charter. If a consultant comes to me speaking of chartering, I stop listening to him because he obviously doesn’t know my trade. If you come to me saying “I know that storms and 20’ seas are the rule where your boats sail, and not the exception,” I start listening to you because apparently you know what is generally arcane knowledge known only to my trade. As K.C. states, consultants rarely have a deep understanding of operations.
Now, if you are dealing with just one trade exclusively, say the OSV trade, you can make better inroads, because most of the companies are operating the same boats the same way. But you had better be an expert in that one trade, or executives will not listen to you–until a crisis comes. Rainmakers go unemployed before the drought.

As I was writing this it struck me that most consultants are just specialists. Most do one thing, whatever they specialize in. In that they are no different than a welder or a pipe fitter or a plumber. If I need a welder, I call for a welder. Other than that I don't want welders knocking on the door drumming up business. A true consultant would be a peer with as much arcane knowledge in their head about my particular operation as I have. That would be a guy I could consult with.
11

You make great points. You are right. Consultants really are just specialists. I know that some consultants do believe they are better than operators. I am not one of them. I can’t take on the job of representing all consultants. I can only say that I have specific knowledge in one area. Used in the right way, I believe that knowledge can help people. But you are right. I lack the practical experience, which is why I ask questions. I think we hit on a more important issue. How do we get to a point where the consultant has a better dialogue with operators?

You mentioned how I approached things analytically. I was trying to be polite, because I know that operators have a low opinion of consultants. Let me try this another way. Naval architects think operators don’t understand the science that created the modern technological marvel of ships. So they don’t understand how to identify when a problem is complicated or has hidden dangers. If you don’t want science, go back to the days of wooden sailing ships.

From what I heard, operators think consultants don’t have any practical understanding. That we are arrogant. All our theories and papers mean nothing out on the real ocean. We are just trying to sell things, and much of the time it doesn’t even help. We have never been on a real ocean and can’t understand what it takes to go out there.

Both opinions are true. I have seen consultants lie and do sleezy things. I have seen operators who didn’t understand the science and almost broke a ship in half. And it doesn’t matter who is to blame. People still die at sea. Ship’s are still lost. That means neither of us are perfect. I won’t be happy until every ship and every sailor come home safe, every trip. That is my goal. That is why I try to get operators to open up and describe their problems to me.

So tell me about your industry. Tell me the stories of when things went wrong. Or what works right. I can tell you when people really are selling snake oil. Or even better, when a good idea is bad for you. I’ll even start. I bet you already know this, but all those bulbous bows on ships: they don’t work very well. And the problem is because people slow the ship down. The bulbous bow get calibrated to work at a very specific speed. That is the ship’s design speed. The one on the general arrangement drawing that the engineer made. But if you don’t steam at that speed, the bow doesn’t work right. It actually fights you.

So, is anyone willing to share something from the operations side? Teach the consultant.

12

The operators running the ships are almost never the people who benefit from the cost savings. Frequently the operators are hurt by cost saving initiatives so they resist. Cost savings is never passed on to the operators, only the work involved in producing the cost savings for others.

Real example. A ship I used to work on was one of fourteen identical builds. It so happened that our chief engineer and captain got their rocks off on having the most fuel efficient ship in the class. (Other costs were lowered, i.e. lube oil, filters, engine maintenance.) They did all sort of things and, in the end, that ship was shockingly more fuel efficient then every other sister ship.

You would think that the other ships would try to emulate these fuel savings - and you would be dead wrong. Why would they do extra work for no extra pay? In fact, the reduction of required maintenance and parts would reduce their budgets and result in less resources. Who would be so stupid to slit their own necks?

13

I see your point about the extra work with no real benefit for the crew. And for the record, I am all about doing anything I can to help the crew. Sometimes the engineering consultants can slip in little benefits for the crew when we put together a new build or a big refit contract. Just because there is more open to discussion on the big projects. And reducing maintenance is one way that I can reduce ship costs. Freighterman said it best. At least in the USA, crew costs are highest.

This is where I can really use some education on the practical side. I understand that on many ships, you work a shift on watch and then another shift on maintenance. So anything I can do to reduce that time helps out the crew a little. Now I know that any time savings or cost savings just get taken by the owners and the crew never really see it. Sorry, but the only solution I have to that problem is to start my own shipping company. And I don’t make anywhere near that much money.

And I’m sorry to keep asking for this from basics. But the only practical exposure I have was when I served on a traditional tall ship. All that experience became useless when we started using engines.

So what are the top 10 most frequent maintenance tasks you need to do? What takes the most time? You mentioned engine filters. How often do you need to change those? Any engine brand better for this than others?

14

From my point of view the most effective consultants are the ones that have a long-term relationship with the company and have spent time aboard the ship and knows the ship and the crew. A consultant that can provide and supervise competent and reliable contractors to do needed repairs and upgrades.

Small gifts don’t hurt either, I’ll totally sell out for a cheap pen.

15

[QUOTE=Kennebec Captain;167895]
Small gifts don’t hurt either, I’ll totally sell out for a cheap pen.[/QUOTE]

Best cumshaw I got was a laser pointer! Now I can easily point out leaks and things. Speaking of that what’s with the current state of cumshaw? Used to get ball caps and T shirts at bunkering, now they ask me for stuff.

16

Yup. Give us a hat and a coffee mug worth a crap and we’ll jump through hoops to help you out. Had an agent that came on with a box of goodies for the crew and the captains raised hell when the office wanted to use someone else down the road.

17

[QUOTE=nickninevah;167883]I see your point about the extra work with no real benefit for the crew. And for the record, I am all about doing anything I can to help the crew. Sometimes the engineering consultants can slip in little benefits for the crew when we put together a new build or a big refit contract. Just because there is more open to discussion on the big projects. And reducing maintenance is one way that I can reduce ship costs. Freighterman said it best. At least in the USA, crew costs are highest.

This is where I can really use some education on the practical side. I understand that on many ships, you work a shift on watch and then another shift on maintenance. So anything I can do to reduce that time helps out the crew a little. Now I know that any time savings or cost savings just get taken by the owners and the crew never really see it. Sorry, but the only solution I have to that problem is to start my own shipping company. And I don’t make anywhere near that much money.

And I’m sorry to keep asking for this from basics. But the only practical exposure I have was when I served on a traditional tall ship. All that experience became useless when we started using engines.

So what are the top 10 most frequent maintenance tasks you need to do? What takes the most time? You mentioned engine filters. How often do you need to change those? Any engine brand better for this than others?[/QUOTE]

I can speak to the life cycle cost comparison between the CAT 3516’s (Tier 4) vs the GE 8L250’s (Tier 4) as I recently compared the two.

On an equal playing field in terms of the duty cycle (hours/year, maximum continuous rating…)
Oil consumption: The GE’s burn more oil (for my duty cycle, this was around ~23% more)
Preventative Maintenance (averaged over 20 years): CAT’s cost more to maintain ~23% more

But in the end, the engines themselves compare pretty well in terms of cost. However, when taking into account every possible comparison, it is likely that marine operators will continue to use the engine manufacturer that they already have an established relationship with, because of the familiarity, experience, and reputation of that manufacturer with their operations (crews, training, parts suppliers, etc).

18

Couple points.

Talking about fuel savings, it’s very dependent upon the operation in question.
Some anecdotes:
I was assistant on a freezer-longliner to an extremely intelligent Chief who would not change the filter elements in the Racors on the generators until they read 15 inches of vacuum. One. Five. Hg. He had arrived at this scientifically while at a former job with a cost-conscious fishing company, in/and/of Alaska(some of you know what I mean) that has killed a lot of people up there. He’s one of the smartest people I’ve ever worked for, and I learned a lot from him, but no way in hell would I ever do that. I’ve been the guy on deck 18 hours a day pulling up fish in dangerous weather and I would not chance leaving that guy in the dark. Wouldn’t do it. Cost-wise, absolutely the right thing to do. Loss of electrical power is frightening, dangerous, and possibly deadly in that situation. Saved considerable money though. Would your consultancy recommend that? Instead of finding a way for them not to get to that point in the first place? I’d just say they were all at 15 Hg when I changed them. Must have been bad fuel…your samples are wrong…
Master of a 141’ fish tender with KTA-19s. Really concerned with fuel consumption, figure out that I burn 30% less fuel at 1450 rpm than 1650 rpm but only lose a knot of speed. Run to offload have to wait 4-5 hours to offload after a 6 hour run, what’s the point of the extra knot? Work all day buying fish, all night running back, no competent mate on board to take the wheel…can sleep after arriving in front of cannery to anchor. Sleep deprivation becomes a factor. Throttles go up. Fuel costs too. Your consultant would have put a limiter on the governor, and we would have figured a way to bypass it.

I have more, but in the end a lot of cost saving measures often interfere with solid seamanship in the era we live in. We will fight it, and generally win, as you’re in there and we’re out here. Cost-cutting measures are important to those of us that take pride in our jobs, because doing it cheaper is part of the definition of a good job, but bringing everybody and the ship home safe is more so. Everyone that does this for a living has been in that position where it’s dark, it’s bad, and you don’t know how to get out of it, and the bottom line seems way less important then.

As far as a lot of it goes, as someone said before, if it will pay for itself, give it to us and we’ll pay you back out of the money we save. That’s good business, no?