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The Analysis and Research on Cost Advantages of Sh

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Journal ofShipping and Ocean Engineering 6(2016)129·134 doi 10.17265/2l59.5879/2016.03.001 The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP LiNing Department ofNavigational Technology,Merchant Marine College,Shanghai Maritime University,Shanghai 201306,P.R.China Abstract:The cost advantage of Arctic NEP(Northeast Passage)is mainly naalyzed.The traditional southern route through the Suez Canal between the East Asia and the Europe is referred as benchmark route,general cargo ship and container ship are respectively selected as benchmark ships,which are analyzed and compared with Arctic NEP from fuel consumption,insurance,icebreaker fees and cost for SOLAS amendment,etc.The study reveals that Arctic NEP highly reduces general cargo ships’sailing time,container ships’fuel consumption,and contributes to shipping’s sustainable development. Key words:Arctic NEP,cost advantages,shipping,analysis nad research,sustainable development. 1.Introduction 2.Research Method In recent years,the opening of Arctic NEP The purpose of this paper is to look at the (Northeast Passage)in summer makes the maritime commercial aspects of using NEP to a similar trip transport from east Asia to Europe more fast, using the Suez Cana1.There are many ways one could economic,and brings great convenience for east-west make comparisons,but the main three usual trade nad development of world economy.With global approaches are: warming,the melting speed of the Arctic sea ice is ·Calculating the total transportation costs for accelerating.The latent traffic strategic value in the using each route to obtain a S/ton cost estimate for rActic area has become increasingly prominent:the each route; NEP connecting the Atlantic Ocean and the Pacific ·Calculating the total cost of setting up a regular Ocean is becoming navigable throughout hte year at a service based on an assumed yearly quantity to be very fast speed[1】. shipped; Once the Arctic sea ice melts totally,the Arctic ·Focusing on cost differences among the route NEP will be completely navigable and significantly alternatives. change the world pattern of economy,trade and hTe first approach focuses on cost savings for the maritime transport.The north of our country is located end user of rtansport.The second approach takes into within the extension of the Arctic NEP,so the consideration that saving time makes it possible to changed of the Arctic NEP are closely related to service a given amount of cargo with fewer vessels China,especially the shipping industry of our country. (trips)and is thus taking into consideration the capital This paper takes hte rActic NEP as the research object costs of investing in vessels.The third approach is comparing with the traditional passage via the Suez more used in a first commercial feasibility study,i.e. Canal,and analyzes the commercial value of the one explores hte order of magnitude of cost savings to rActic NEP[2-5]. get a feeling for cost diferences and to be able to do simple sensitivity tests. COrrespOnding author:Li Ning,lecturer,research fields Since htis paper is considering a hypothetical future rtnasportation information engineering&contro1. where ice conditions have greatly changed in the 130 The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP Arctic,the starting point for a comparison will be to assume Arctic transit without icebreaker support.By then calculating the cost advantage of the northerly routes vs.a southern route through the Suez Canal,the implicit willingness to pay for icebreaker support will also be given. The research therefore uses the third approach and looks at the main cost components where there will be differences.The comparison would be relevant for a ship owner with a given ship and a choice of which route to sail.So general ship and container ship are recognized as the typical type of ship,and the routes between the Far East area and the Europe are taken as the typical routes.The benchmark ships and routes are as follows: 。Benchmark ships:general ship:Beluga Fraternity (sailing in the Arctic northeast passage in September 2009)and her sister ship;container ship:CSCL Hamburg; 。Benchmark routes:Yokohama to Hamburg via Suez;Shanghai to Hamburg via Suez; ‘Arctic NEP:Yokohama—Hamburg via NEP; Shanghai-Hamburg via NEP. 3.Costs Analysis。n Benchmark R。utes 3.,Yokohama toHamburg viaSuez The main data for benchmark general ship are given by IHS in Table 1. The route specific data are given in Table 2. The Suez Canal toll has been calculated on the basis of the calculator provided by the Suez Canal authorities,using current exchange rates ofr SDR5/¥. The insurance figures are based on figures from Drewry[6],where yearly ifgures have been convened to S/day ifgures.The comparison of insurance costs is, however,a tricky one.Currently the insurance costs ofr ships passing the Gulf of Aden towards Suez have soared since 2008 due to the piracy risk.It is claimed mat the insurnace has increased tenfold for this coastal area between September 2008 and March 2009. After 2015,ifthe situation ofthe globe shipping market Table 1 General cargo ship characteristics. Gross tonnage GRT 9,611 Net tonnage NRT 4,260 Deadweight ton DWT l2.672 Suez Canal Net Tonnage SCNT 12,915 Draught in meter 8 Service speed in knots 14 Gram fuel perkwh 190 Powerinkw 5,400 Tonfuelperday at service speed 24.624 Table 2 Route speciifc data Yokohama-Hamburg via Suez. Distance in nautical miles(nm) l1.430 Journey days at service speed 34 Fuel consumption in tons 838 Suez canal tollin¥ 51.168 Hull and machinery insurance S/day 360 P&I 340 P&I insurance,S/day persists like now,the shipping costs will maintain the present level,such as insurance cost.On the contrary, if the insurance cost raises dramatically,it will increase the advantage of Arctic passages.It is claimed this is one important motivating factor for China’s increased interest in the Arctic【2-4】. 3·2 口f幻 6“rg 1, As the benchmark container ship,CSCL Hamburg with a capacity over 4,000 TEU,main ship data are given by IHS in Table 3. The route specific data are given in Table 4. 4.Increased Costs of Ships Sailing on Arctic NEP by SOLAS Amendment SOLAS Chapter XIV‘‘SAFETY MEASURES FOR SHIPS OPERATING IN POLAR WATERS”includes the requirements about ship structure and machinery, manning and training,navigation and communication, ifre safety nad life—saving appliance nad arrangements ofr ships sailing in hte polar waters【7,8】. 。ships shall be ice strengthened[7,8]; ·ships constructed on or after 1 July 201 7,ice strengthened shall have either two independent echo.-sounding devices or one echo--sounding device wiht The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP 131 Table 3 Container vessel data. Gross tonnage GRT 39.94l Net tonnage NRT 24.458 Deadweight ton DWT 50,790 TEU 4,253 Suez Canal Net Tonnage SeNT 57,387 Draught in meter l2.6 Service speed 23 Gram fuel perkwh 190 Powerinkw 36,515 Tonfuelperday at service speed 166.5 Table 4 Route speciifc data Shanghai-Hamburg via Suez. Distnace in nautical miles(nm) 10,857 Journey days at service speed 20 Fuel consumption in tons 3.275 Suez canal tollin¥ 135.145 Hull and machinery insurance S/day 750 P&I insurance,S/day 460 two separate independent transducers[7,8]; 。ships shall have two non-magnetic means to determine and display their heading.Both means shall be independent and shall be connected to the ship’s main and emergency source of power[7,8]; 。ships proceeding to latitudes over 80 degrees shall be fitted with at least one GNSS compass or equivalent,which shall be connected to the ship’s main nad emergency source of power[7,8]; 。with the exception of those solely operating in areas wiht 24 hours day light,ships shall be equipped with two remotely rotatable,nalTOW—beam search lights controllable from the bridge to provide lighting over an arc of 360 degrees,or other means to visually detect ice【7,8】; ·ships involved in operations with an icebreaker escort shall be equipped with a manually initiated lfashing red light visible from astem to indicate when hte ship is stopped.This light shall have a range of visibility of at least two nautical miles,and the horizontal and vertical arcs of visibility shall conform to the stem light speciifcations required by the International Regulations for Preventing Collisions at Sea[7,8]; ·for ships intended to operate in extended periods of darkness,searchlights suitable for continuous use to facilitate identification of ice shall be provided for each lifeboat[7,8]; 。masters,chief mates and ofifcers in charge of a navigational watch on board ships operating in polra waters shall have completed training to attain the abilities that are appropriate to the capacity to be filled nad duties and responsibilities to be taken up,taking into account the provisions of the STCW Convention and hte STCW Code,as maended[7,8]; 。equipped with such means for removing ice as hte Administration may require;for example, electrical and pneumatic devices,and/or special tools such as axes or wooden clubs for removing ice from bulwarks,rails and erections【7,8]. Ships sailing in the polra waters shall increase the costs for satisfying the requirements of SOLAS amendments,as given in Table 5. Through the data collection from involved party of hte costs,such as:the maritime safety administration, equipment suppliers,shipyard,etc.,and maintenance ofr hull,machinery and equipment every 5 years,the additional cost is¥32.6 a day on average in 20 year period of ship service. 5.Costs Analysis on Arctic NEP hTere are three parameters that will change if the general cargo ship decides to go via the NEP: (1)The distnace(which will affect total bunker consumption); (2)The speed(expected speed reduction during NEP); (3)The insurance costs. Table 5 Increased costs of ships sailing on Arctic NEP by SOLAS Amendment(unite:¥1. Hull nad machinery(maintenance,every 5 years) 200,000 Crew training 3.000 Navigational equipment 28.328 Communication equipment 3,500 Life-saving&Fire-fighting equipment and system 2,840 Toral 237,668 Average(day,20 year period) 32.6 l32 The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP For the moment the research will disregard icebreaker costs.as assuming that the NEP in the future may be navigated without icebreaker support. The research could include the additional cost of an ice-navigator,but this is a minor cost element in the big picture. 5.i Ship Yokohama—Hamburg via NEP The distance will depend on which route is taken through the NEP.Since the ship has a draught of 8 meters,the research will assume it will go the shortest route of 2,700 nm[9】.The total distance will then be 7,400 nm,or a reduction of almost 35%,as given in Table 6. The research will assume that the average speed is reduced somewhat during the NEP to 1 2 knots on average.This will on the other hand reduce the fuel consumption on this leg.The research will further assume wihtout any particular justification other than the assumption that although one could pass without icebreaker support,there might still be drift ice on this leg.so hull insurance will increase.The research just assumes it is tripled compared to the benchmark route. The results of these assumptions are summarized in Table 7. It should be clear from Table 7 that the main savings from using the NEP are the reduction in fuel consumption in addition to cutting sailing time from 34 tO 23 days.Fuel consumption is reduced by some 40%.How much this is worth in US¥will of course depend on the oil price. Currently the price of low sulphur heavy fuel in Rotterdam is¥1 69 per ton.while diese1 oi1 is¥328. With the much stricter regulations for sulphur contents in bunker oil coming into effect in 2020,it could be that in the future more ships will be using diesel fuel, which currently is 50%more expensive than heavy fue1.At the current price of¥169.the savings in our example is¥58,305 or more htan 14 times the increased insurance costs in order of magniutde.In addition there come the savings ofthe Suez Canal toll of¥51,168, Table 6 Distances in nm Yokohama-Hamburg via the NEP. Yokohama to the Bering Strait 2,700 Bering StraittoNovajaZemlja 2,700 Novaja Zemlja to Hamburg 2,000 Total 7,400 Table 7 General cargo ship Yokohama-Hamburg via the NEP. Distance NEP in nm 2,700 Distance outside NEP in nm 4,700 Speed in NEP in knots 12 Speed outside NEP in knots 14 Fuel consumption at 1 2 knots tons/day l5.5 DaysintheNEP 9 Days outside NEP 14 Total days 23 Fuel consumption in the NEP in tons 135 Fue1 outside NEP in tons 344 Total fuel consumption in tons 479 Fuel consumption reduction in tons 345 Increased insurance costs in¥ 4.16O Increased costs by SOLAS amendment(¥) 750 Saved Suez canal toll(¥) 51.168 so hte tota1 savings amount to about¥1 09,473. Now the bunker prices are low,but the general sentiment is that they are more likely to be higher than today than lower. The reduction in bunker consumption will also reduce emissions of CO2.More use of Arctic passages would,ceteris paribus,contirbute to more sustainable transport. A saving of around¥1 09.473 for a ship of almost 1 3,000 dwt implies that the willingness to pay for icebreaker assistnace is limited.A fee of¥9 or more per ton will cancel out the cost saving effect.The icebreaker fee for carrying mechanical engineering products(which seems relevant ofr this ship type)was ¥86 in 20 1 5.This is clearly unrealistic from a commercial point of view,as it would imply a cost almost twice that of the Suez Cana1 tol1. 5.2 Shanghai—Hamburg via NEP The research assumes the same sailing distance in hte NEP of 2,700 nm.In addition there comes the The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP l33 increased distance Shanghai to the Bering strait 6.Conclusions compared to Yokohama--Bering Strait of 8 1 4 nm. The two dominant cost savings factors in the The Arctic route is thus 8,214 nlTl,or a reduction of research are the fuel savings and the saved Suez Canal 24%. There is no way a container ship can go through the tol1. NEP in 23 knots if there is any ice there at all,so the 6.1 Eme Savings ofGeneral Ship Are Substantial by research assumes that the average speed through the UsingArctic NEP NEP is 1 4 knots.This will substantially reduce the Time savings of general ship are substantial by bunker consumption and the research has used the using Arctic NEP.A reduction in sailing time from 34 Admiralty formula(Fuel consumption=k speed3)to to 22 days will free up capaciyt htat has a value ofr hte calculate the consumption. ship owner as the ship can faster be put into new hTe results are summarized in Table 8. contracts.This value would have been explicit if the If the research again uses the March 2016 price of research had chosen a total yearly service approach. low sulphur heavy fuel oil of¥169 per ton,the fuel hTe value is dififcult to stipulate,however,as it will cost savings are¥220.376.The total cost savings for totally depend on the actual market siutation at the hte container ship sums to¥344,874,or¥8 1 per time of the sailnig.Time savings could also have a container.The saving in sailing time is only 2 days. value for the cargo owners.Commodities in transport however. tie up capita1.which is an implicit cost for the cargo It is assumed mat a loaded container weighs 24 owners.For high value cargo,this cost element could tons.If that were the case,our container ship would be significant. only be able to carry around 2.100 TEU or half its TEU capaciyt.If hte research then,more realistically, 6.2 Fuel Savings of Container Ship Are Massive by assumes an average weight for a loaded container of UsingArctic NEP 1 l tons.our ship fully loaded would be willing to pay Fuel savings of container ship are massive by using around¥7 per ton for eventual icebreaker assistnace. rActic NEP.The reduction in fuel consumption The NSR Administration stipulated a fee for container implies a reduction in emissions of greenhouse gases cargoto¥43 pertonin2015. and other substnaces[10].Using the Arctic routes Table 8 Container ship Shanghai-Hamburg via the NEP. rather than the Suez route contributes to more Distance NEP in am 2,700 sustainable transport networks, ceteris paribus. Distance outside NEP in am 5,514 Emissions will be proportional to the actual fuel Speed in NEP in knots l4 consumption.In a future where environmental Speed ou ̄ide NEP in nkots 23 concerns are more prominent,this is also an advantage Fuel consumption at 14 nkots tons/day 37.6 DaysintheNEP 8 that could be used commercially[3,1 1]. Days outside NEP 10 References Total days l8 Fuel consumption in the NEP in tons 302 [1] Wang,D.,Li,Z.F.,and Z,Y.2014.Inlfuence ofArctic Fuel outside NEP in tons 1.669 Waterway Opening on China Shipping Industry. Total fuel consumption in tons 1.97l Shanghai,CN:Navigation of China. Ho.J.2010.‘‘The Implications of Arctic Sea Ice Fuel consumption reduction in tons 1,304 Decline on Shipping.”Marine Policy:713.5. Increased insurance costs in¥ 10,060 Valsson。T..and Ulfarsson.G.F.20 l1.“Future Increased costs by SOLAS amendment(¥) 587 Changes in Activity Structures of the Globe Saved Suez canal toll(¥) 135.145 under a Receding Aretie Ice Scenario.’’Futures: 1 34 The Analysis and Research on Cost Advantages of Ships Sailing on Arctic NEP 450.9. [8】 Maritime Transport.’’ Research in IM0.2 0l 4.Adoption of the international code for ships [4] Hong,N.20 1 2.“The Melting Arctic and Its Impact on China’S operating in polar waters(POLAR CODE). nes on Arctic Navigation in 【9] China MSA.2014.Guidelithe Northeast Route. IMO.20 1 O.MARP0L amendments. [10】 gentin,V.2009.“Container Shipping on the Northern [11] GriSea Route: International Journal of Pmduction Transportation Economics:50—7. .Z.F.2009.“Analysis of China’S Strategy on Arctic [5] LiRoute.”China Soft Science:1.7.  [6】 Drewry.2015.P142.[7] IM0.2014.SOLAS amendments. Economics. 

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