TOTE is building two ships and will convert two more to operate on LNG.
“It’s nice to be first,” said Peter Keller, executive vice president of TOTE.
Keller was brimming with enthusiasm during a recent visit to the San Diego shipyard of General Dynamic’s National Steel and Shipbuilding Co. (NASSCO) subsidiary where workers are building two new containerships that will be fueled with liquefied natural gas and which will be operated by TOTE’s Sea Star Line subsidiary in the trade between the U.S. mainland and Puerto Rico.
“This is going to be the first of many more environmentally conscious ships that the industry is going to be putting out” Keller said.
In addition to the new Marlin-class ships for Sea Star, TOTE is planning to repower two Orca class trailer ships that Totem Ocean Trailer Express operates between Tacoma, Wash., and Alaska so they burn LNG. By 2017, all four of ships will operate with LNG.
TOTE, Sea Star, and Totem Ocean are part of the Saltchuk conglomerate, whose other operations include Foss, Young Brothers, Tropical Shipping, Aloha Air Cargo, and Northern Air Cargo.
Hydraulic fracturing has made natural gas cheap and plentiful in the United States, but Keller said the decision to fuel the ships with LNG “is not about the price of fuel. It’s about environmental concerns. We are providing a ship that far exceeds any known or contemplated environmental requirements and we are doing that for Puerto Rico, Alaska and Florida. These are areas that are very environmentally conscious.”
On Jan. 1, ships operating in the emission control area within 200 miles of the U.S. and Canada coasts, as well as around Hawaii, must burn fuel with no more than 0.1 percent sulfur content, compared to 1 percent today. Keller said the intention is to operate the ships with LNG from day one, but they will be dual-fuel capable. Flipping a switch will allow the engines to use low-sulfur bunker fuel.
“We have made a quantum step forward in terms of the technology and where the shipping industry is going environmentally,” he said.
Other companies are making their ships capable of using LNG, but Keller said “I think the industry wants a proof of concept, This is a proof of concept. By January 2016, we will be operating two ships a week in the Puerto Rico trade.”
Busy Place. NASSCO’s shipyard in San Diego is a busy place. The yard is crowded with sections of ships under construction, called “blocks,” as well as components such as engines or the giant LNG tanks. Weighing hundreds of tons, they are assembled like giant Lego blocks into ships.
In addition to the two ships under construction for TOTE, NASSCO is simultaneously building a mobile landing platforms for the Navy and tankers for American Petroleum Tankers.
NASSCO is “transforming that San Diego waterfront to do the increased work they have there,” said Matt Paxton, president of the Shipbuilder’s Council of America. “They are ramping up employment to pretty high levels and that hiring surge is the result of this expanded commercial work we see going on right now.”
Part of the shipbuilding boom is related to the need to “recapitalize our noncontiguous trades with really environmentally sound and energy-efficient containerships,” Paxton said.
Keller said that if Sea Star had not pursued a fleet renewal program, its current ships for the Puerto Rico trade would have been out of class by 2019-2020.
In addition to the ships that TOTE is building:
- Pasha Hawaii is expected to start operating between California and Hawaii by the end of the year with a new container-roll-on/roll-off (con-ro) ship, the Marjorie C, which V.T. Halter is completing construction of at its Pascagoula, Miss. shipyard.
- Crowley has ordered two con-ro ships from VT Halter for the Puerto Rico trade where it competes with Sea Star. It said those ships, due for delivery in 2017, will be powered with LNG.
- Matson has ordered two 3,600-TEU containerships from the Aker Philadelphia Shipyard for delivery in 2018.
Another major category of ships being built in great numbers are tankers.
Paxton said shipyards are “answering the call of the shale oil revolution, and the need to get that oil around for refiners.” He noted:
- NASSCO in September began construction on the first of five 50,000-deadweight-ton tankers each with a 330,000-barrel cargo capacity for American Petroleum Tankers, a subsidiary of Kinder Morgan Energy Partners. It will also build three similar ships for Seabulk Tankers.
- Aker Philadelphia shipyard earlier this year delivered the first of two 115,000-deadweight-ton crude oil tankers it is building for ExxonMobil’s U.S. shipping unit SeaRiver Maritime. It has three tankers on order from Crowley and two product tankers from Philly Tankers.
- VT Halter is building integrated tug barges for Bouchard Marine and Crowley. Some of these barges are comparable in size to the tankers that NASSCO, for example, is building.
“When people say we don’t build big ships anymore, clearly that is not the case. We’re building a lot of them and we’re building more than we have in several decades,” Paxton said.
He explained shipyards building smaller tank barges, like Jeffboat, are also benefiting from the boom in energy exploration.
“This is probably the most robust barge market we have seen in a while, because you have barge builders who are building again—be it barges to move waste water, sand, or oil,” he said.
U.S. shipbuilders are also leaders in the construction of boats to serve the offshore oil and gas sector.
“We are doing that for international as well as domestic markets,” Paxton said. “Now the U.S. is a net exporter to the tune of over $500 million annually. That’s a market that’s been there and we’re just proving that we can do really complex and innovative vessel construction.”
Paxton said that having an active commercial shipbuilding industry also benefits shipyards constructing vessels for the Navy and Coast Guard because it helps support the supplier base for these facilities.
Companies that have stayed in the commercial shipbuilding industry “have shown an ability to diversify and work hard and do well are growing. That’s good for the overall state of the industrial base. We want as many workers as we possibly can and we want to make sure we have a strong supplier base,” Paxton said.
Shipyards are “taking advantage of this time, are hiring, are growing and are getting better. And that has a ripple effect across our manufacturing sector, making the entire manufacturing sector stronger,” he added.
Paxton said one thing that has made U.S. shipyards more competitive is the opportunity for some, such as those building tankers and offshore work boats, to build a series of identical ships. When that happens, a yard can drive down costs, become more efficient and deliver ships on time or even ahead of schedule.
Keller said when TOTE signed the contract for the ships, it was told the first would be launched on April 18 at 9:50 p.m.—because a high tide is needed for the stern launch (and because the event would be marked by fireworks).
He said having a “day certain” for launch and delivery, while common with Asian shipyards, is unusual in the United States, and a sign of how good NASSCO has become at commercial work.
“When there is an uptick like we are seeing now, you are not seeing shipyards saying ‘golly, we just don’t have the bandwidth’—you are seeing shipyards like NASSCO, Aker, and Bollinger and others saying, ‘okay, we are going to hire for this,’” Paxton said.
This increased activity was apparent at NASSCO where in mid-September the first of the two TOTE ships was 56 percent complete and the second one about 9 percent.
Puerto Rico-Minded. While designers of the new TOTE ships started with a standard 3,000-TEU containership, the vessel has been greatly modified to meet the needs of the Puerto Rico trade.
Because the trade to and from Puerto Rico is really an extension of the domestic supply chain, the ship has been designed to complete a roundtrip in a week so Sea Star can offer two sailings a week with Tuesday and Friday departures from Jacksonville, Fla., arriving three days later with 95-96 percent reliability.
“That’s what you need in a domestic supply chain,” Keller said.
Over half the capacity of the ship will be able to carry domestic containers that are 53 feet long and 102 3/8th inches wide instead of the narrow and shorter dimensions of ISO containers carried by most of the container industry.
While the ship will be capable of carrying some of the domestic containers used today by the trucking and railroad industry on the top of the stacks, Keller said those containers are generally not built to be stacked more than two high. So Sea Star is building its own fleet of heavy-duty 53-foot containers boxes that can withstand the heavier weight they will experience at the bottom of stacks when they are stowed underdeck.
The ships will also have a robust enough electrical system to accommodate about 250 refrigerated boxes, which is a higher percentage than a standard international ship. This is because of high demand to move food to grocery stores and restaurants on the island.
Sea Star is also building multi-temperature reefer containers so that both frozen and chilled goods can be shipped in the same container. This can be done with bulkheads, but the new containers will do so with mechanical systems and are expected to be more reliable.
Robert Browne, chief executive officer of the large non-vessel-operating common carrier serving Puerto Rico, Aqua-Gulf Transport, said demand for direct-to-store deliveries in domestic containers is rising because of a new import tax, similar to a value-added tax, the government instituted in September.
The consignee has to pay a 6 percent tax upfront when cargo hits the dock, “which means you cannot afford to have a warehouse in Puerto Rico,” he said.
The magazine Caribbean Business said the commonwealth’s treasury expects the change will cut down on rampant evasion of the so-called IVU tax, which a recent study “placed at 44 percent of all collections, or $900 million in lost revenue a year.”
Browne said the new Sea Star ships will make just-in-time deliveries more attractive.
Sergio Sandrin, president of Aqua-Gulf Transport, noted that high electric prices—two to three times the U.S. average, according to the U.S. Energy Information Administration—has also made warehousing unattractive in Puerto Rico.
Combined with the multi-zone reefers, direct-to-store deliveries are expected to be attractive to island supermarkets such as Econo, Pueblo, Amigo, Supermax, Selectose and Walmart. For Aqua-Gulf, nearly 70 percent of the 25,000 or so containers it moves each year are food-related.
Another feature of the new Sea Star ships are special tanks to carry fructose to the island which is used as a sweetener for soft drink bottlers. Sea Star’s current ships have deep tanks for carrying this commodity, but the new ships will have a dozen 53-foot tank containers tied together with pipes and serve the same purpose.
Keller said this gives the company the ability to change the amount of fructose it carries by adding or taking away tanks.
The ships are also powered with a slow-speed diesel engine which is modified so it can burn LNG, which will be stored in two 900 cubic-meter tanks. That’s enough gas to make nearly two roundtrips, but the tanks will be refilled after each voyage when they call Jacksonville.
‘Built For 40 Years.’ Today, Sea Star moves about 1,200 FEUs southbound each week (about 20 percent of that northbound). The new ships will have the capacity to move about 2,000 FEUs.
“These ships are built for 40 years,” Keller said. “Do we hope to fill them before 40 years? We hope so, but we don’t have to. The economics are not based on that. We see more moderate growth in Puerto Rico. Hopefully as Puerto Rico reestablishes itself economically, it will continue to moderate economic growth over many years.”
Keller said TOTE expects to select later this year the shipyard that will convert its two trailer ships that operate between Tacoma and Anchorage. Those ships each use four electric diesel engines
“As much fun as it has been building the ship and working on the conversion, putting together the partnerships to provide LNG for the ships has been very interesting,” he said.
In the Jacksonville area, Pivotal LNG, a subsidiary of AGL Resources, and WesPac Midstream have been selected by TOTE to provide LNG to fuel the Sea Star ships; in Tacoma, WesPac will work with Puget Sound Energy (PSE) to provide fuel for the Orca-class ships.
PSE will provide fuel directly from a liquefaction plant to the Totem Ocean ships, while in Florida, a liquefaction plant is expected to be constructed on Dames Point in Jacksonville and provide the Sea Star ships with LNG by barge.
Since building the facilities will take a number of years, TOTE will develop short-term options to fuel ships in Jacksonville with fuel obtained from peak-shaving facilities in Georgia which are delivered by truck and, in Tacoma, barged from Victoria, Canada.
“We certainly believe that as a transportation fuel, LNG is going to be very important to the U.S. long term. We have an abundance of it, and we just need to move forward,” Keller said, pointing to the interest by Florida East Coast Railway and other railroads in LNG locomotives and the increasing number of gas stations selling this gas to truckers.
He believes there may be opportunity to move LNG as cargo in small quantities in ISO tank containers to customers in the Caribbean, Puerto Rico, Hawaii, and even parts of Alaska, where natural gas may be abundant, but there are no pipelines. That could create new opportunities not only for Sea Star, but also Tropical Shipping, which Saltchuk acquired this summer.
“The problem is the initial investment is pretty high because an ISO tank capable of handling LNG is currently around $140,000-$150,000,” Keller said. “If you are looking at an ISO tank each week to support your plant, you are probably talking a supply chain with six tanks, so you are talking a three-quarters-of-a-million-dollar investment,” he said.
Tropical is also investigating the use of LNG as a fuel because of the low-sulfur requirements for ships operating in emission control areas around the United States and Caribbean.
This article was published in the November 2014 issue of American Shipper.