Market News

 July 11, 2013
Rolls-Royce revives age of sail to beat fuel-cost surge: Freight.

 Rolls-Royce Holdings Plc (RR/), best known for powering planes from Concorde to the Airbus superjumbo, is working on a modern-day clipper ship as it bets on emissions curbs to jack up bunker-fuel costs and herald a new age of sail.

Cargo vessels are set for a design change embracing sleeker hulls and hybrid propulsion systems, according to London-based Rolls, which is helping to develop a ship featuring a 180-foot sail augmented by bio-methane engines and carrying 4,500 tons

"We're at the dawn of a transition," said Oskar Levander, vice president for innovation at Rolls's marine unit, who predicts a switch to alternative fuels such as dimethyl ether and liquid natural gas, as well as "high-tech wind."

Spurring the push are International Maritime Organization sulfur caps that are already compelling ship owners to switch to cleaner but pricier grades. Trimmer designs and innovative power systems could more than offset the extra cost with a potential 55 percent efficiency gain, according to Diane Gilpin, project leader at Rolls partner B9 Shipping of Larne, Northern Ireland.

Plans for hybrid models hark back to an era of wind power that ended less than 150 years ago, when steamships finally supplanted the sailing vessels that had dominated cargo traffic for thousands of years dating back to ancient Egypt and beyond.

America's Cup Expertise
The B9 vessel will measure 330-feet long and derive primary power from a sail hoisted using an automated rig. Before construction begins the blueprint will be further refined with input from America's Cup racing-yacht designer Rob Humphreys.

Rolls, whose stock has added 39 percent this year on higher aircraft-engine sales, will provide a back-up power-plant based on its Bergen model that's able to burn methane produced from municipal waste by another unit of B9 Energy Group. The sail and engine could also be used together for optimal efficiency.

Around 90 percent of the world's cargo fleet is currently propelled by bunker fuel, which while relatively cheap at about $600 per ton is also one of the heaviest and dirtiest of crude-oil distillates, with a 3.5 percent sulfur content contributing to about 84,000 deaths a year worldwide from marine emissions, according to a 2007 study led by James Corbett, a professor at the School of Marine Science and Policy in Delaware University.

Under the IMO rules, ships entering Emission Control Areas covering the English Channel, North and Baltic Seas and most of the U.S. coast were compelled to switch to 1 percent sulfur fuel on July 1, 2010, from an already stringent 1.5 percent limit.

Ships in the same areas must move to 0.1 percent fuel by Jan. 1 2015, and all ocean-going vessels will have to adopt 0.5 percent sulfur by about 2020, according to stipulations from the United Nations body, a development which will prompt a switch to "a much more diverse fuel pallet," according to Levander.

Fuel Guarantee
While the hybrid design increases capital costs, B9 says it will pay back in three to five years of a three-decade lifespan.

"Operational budgets are trumping build costs at the moment," said Gilpin, adding that B9 is seeking 15 million pounds ($22 million) of funds needed to put a ship in the water within two years. To help win backers, it's offering to package orders with bio-fuel costs guaranteed by its sister unit.

Sail last dominated during the clipper-ship era of the mid-1800s, when vessels averaging 30 kilometers an hour (19 mph) with a capacity of 1,500 tons transported high-value goods such as tea, spices and opium on Asian routes, as well as tens of thousands of people to the California and Australia gold rushes.

British and U.S. vessels such as the Cutty Sark and Rainbow easily outpaced steam rivals, and hybrid ships were also popular until the 1869 opening of the Suez Canal -- which lacked a reliable prevailing wind -- gave coal power a telling edge.

Gas Option
Sail held on in the form of so-called windjammers, which while slower than the clippers carried loads of as much as 7,800 tons in the case of Germany's Preussen. The ships operated on low-value routes until as recently as World War II, especially to ports lacking the coal and water required by steam models.

Efforts to introduce liquid gas-powered vessels are more advanced than the modern wind-based experiments, gaining early adopters among ferry companies in the sulfur-limitation zones.

Norway's Nor Lines AS, which serves dozens of local ports and a handful of others in the North Sea and Baltic, has ordered two ships for delivery next year with LNG engines also built by Rolls-Royce, having already switched much of its 16-vessel cargo fleet to low-sulfur marine-gas oil, Chief Executive Officer Toralf Ekrheim said in an e-mailed response to questions.

Maersk Moves
The Stavanger-based company has options to take two more of the ships, which will entirely eliminate soot and cut output of carbon dioxide by 35 percent and nitrogen oxide by 95 percent, according to their Chinese manufacturer Tsuji Heavy Industries (TSUJIZ). The model is an offshoot of Rolls's Environship concept, which includes new bow designs and an integrated rudder and propeller that the company says could boost efficiency 8 percent.

Still, demand for greener craft has been encumbered as the global freight market struggles to return to growth rates seen before the credit crunch and recession, and as companies seek to make the best of ships ordered during the pre-2008 boom years.

A.P. Moeller-Maersk A/S (MAERSKB), which controls 15 percent of the container market, is working with MAN SE (MAN)'s ship-engine unit to reduce the energy consumption of 500 existing craft by as much as 20 percent. The project, backed by Danish state funding, could deliver gains of at least 10 million kroner ($1.7 million) per vessel, the Copenhagen-based company said May 30.

"The big challenge for the ship owners is the multiplicity of options," said Nick Brown, a spokesman for marine consultants Lloyd's Register Group. "People are probably putting off decisions making as long as they can."