Taking a stake in the ballast water business

The simplicity of the Ecochlor system was a large part of its appeal to Scorpio (credit: Ecochlor) The simplicity of the Ecochlor system was a large part of its appeal to Scorpio (credit: Ecochlor)

Scorpio Tankers acquired a share in US ballast water treatment supplier Ecochlor earlier this year. Ole Christian Schroder, director of environmental compliance, Scorpio Group discusses the move.

It is in the nature of shipping that success comes by spotting market opportunities early. It is little surprise then that some ship owners are beginning to realise the potential benefit of buying a stake in suppliers of compliance-critical equipment. Where the systems in question are costly, challenging to install or operate and subject to labyrinthine supply chains, the logic is even more compelling. Just ask Scorpio Tankers, which bought a holding in Ecochlor as part of a deal to buy 55 systems in July.

According to Ole Christian Schroder, director of environmental compliance, Scorpio Group, the move was intended to give the company a degree of control over ballast water treatment installations that it had previously been unable to achieve. At that time, 105 of the company’s ships had systems installed from seven different manufacturers. Of those, Scorpio had selected precisely none.

“All were either contracted through the yard or by an earlier owner,” Schroder recalls. “We had no input on any of those decisions or the technology. We felt that, with the challenges we have seen particularly in the first- and second-generation ballast water units, we needed to take a different approach to cover the second half of our fleet.”

A stake in the company gives Scorpio a guarantee that it will receive good service and training as well as access to spare parts and technicians. Those might seem like basic requirements for any equipment an owner would buy, but bitter experience has taught Scorpio otherwise in the case of ballast water treatment. For Schroder, this lack of service is baffling. The apathy towards customer support was in full view when the company began looking at systems for the remainder of its fleet, he says.

SERVICE SHORTFALLS

“Our team in Monaco went through every single manufacturer, looking at everything from the basic technology to the limitations. It didn’t really help that during this process some of the vendors just didn’t respond. Any common sense will say that if you’ve supplied ten cars to a company that is looking for more cars, you make sure that the first ten are in good order. Otherwise why would anyone buy more?”

Perhaps the lack of service would be understandable if the systems as installed were more reliable. But, for several reasons, this has proved not to be the case. In some instances, the supplier only provided the yard with the unit, leaving it to install the system with limited understanding and no guidance. In other cases, particularly early installations, yards simply failed to check that systems were working as they should.

Schroder explains: “The yards were saying ‘don’t worry, you don’t need to use this for four or five years so we’ll just check it later’. Then of course you start sailing with it and there are problems, and you have had no training and there is no developed service network around the world.”

The complexity of the units pose another challenge, says Schroder. “This is a complicated unit, consisting of an electronic as well as mechanical part. This means that a lot of service technicians come onboard and they have one of those two skillsets. They can troubleshoot the software, but if a pump is not running they can’t fix that, so you need another guy to come onboard and in the meantime the system is still not working, and you sail to another port. And right now, the network is just not very well built.”

The lack of mature service networks is endemic to the ballast water system market and, to a certain extent, understandable. Schroder has sympathy for companies that have been expecting a surge in sales year after years as regulation was delayed, while having to maintain expensive manufacturing and service bases through lean times.

In some cases, problems seem integral to components. Total residual oxidant (TRO) sensors, required to monitor chlorine dosing and therefore required on most systems except those relying on ultraviolet light treatment, have been particularly problematic. One attraction to the Ecochlor BWTS is that it uses a different technology to measure dosing, eliminating that concern.

Given all these challenges, it is no surprise that Scorpio looked to de-risk its ballast water technology. But the company did not start out with the idea of investing in a system provider.

“We didn’t go out to find a manufacturer and say, ‘this is a great idea, we’re going to invest in it and they’ll make us a lot of money’,” says Schroder. “Basically, we liked the technology. Their general pitch was focused on how they were going to provide service and follow-up, but the beauty of the Ecochlor system is that it is very simple.

“There aren’t a lot of challenging parts like in electrolysis or electro-chlorination where you have so many moving parts – fresh water and salt water injection to compensate for salinity, gasses, a lot of electric equipment with software and then these tiny lines feeding down to the TRO sensors. There is a lot to go wrong which we feel is not there in Ecochlor’s technology.”

Scorpio was not deterred by the process of getting chlorine dioxide onboard vessels, a logistical challenge that is likely to discourage some owners.

“It’s not as complicated as it sounds. Subject to trading patterns you can predict your ballast rate or how many times you will need to ballast. The chemical has an extremely long shelf life, so you don’t need to take it off in six months if you haven’t used it. And our ships are always passing through the major ports of Rotterdam, Singapore, Houston, so you can always be at one point in the six-month schedule.”

INSTALLATION PLAN

The installation process for the 55 units begins shortly with two systems, then from April 2018 Scorpio will have a ship entering drydock every week at a Chinese yard, with a European back-up in case the sailing schedule demands it; as Schroder explains, the supply timeline for systems and their components means that you cannot fix one last cargo and take bids from yards around the world to determine the best value.

With Ecochlor now closely aligned to a major tanker owner, you might think that some ship owners would not want to buy systems in which a competitor held a stake. Schroder is confident that companies will not feel this way.

“I don’t think so, actually the opposite,” he says. “A lot of companies in the industry are fully aware that we were an early starter in this process and have had four or five years already of painful experience. I would imagine that when they see what we are selecting and how we are planning for this, they will understand that there are some good experiences behind it and that should give them some additional faith.”

It has helped, says Schroder, that Scorpio can relate to Ecochlor as a company. “They are doing a great job,” he acknowledges. “Ecochlor is not just selling BWMS, it’s growing a company, just as we did when we ordered 150 ships over a three-year period. You’re building up a company around your deliveries. We have full faith that they are capable of delivering.”

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