Albert Vygovsky: “Utilization of old vessels has a direct influence on safety and quality of Russian shipping"

The law supporting Russian shipbuilding and shipping industries (305-FL) came into force a year and half ago. During this period, national ship owners “tried on” all advantages of the new legislation and revealed its drawbacks in practice. That is how the initiative of National Shipping Chamber on introduction of a federal programme to provide ship owners with ship utilization grants appeared in Russia. Albert Vygovsky, Managing Director of North-Western Shipping Company OJSC, tells IAA PortNews about how this measure is to influence the Company’s decision on its fleet renovation.

-  Mr. Vygovsky, do you think a shipping company is interested in a state programme on ship utilization today? 
       
- North-Western Shipping Company is interested in fast consideration of the National Shipping Chamber’s proposal on introduction of ship utilization grants in Russia at the level RF Government. As of today, the proposal has been supported by RF Transport Ministry and the Ministry of Industry and Trade, thus allowing us to expect that the necessary document can be adopted by the government soon. The programme on providing ship utilization grants adopted by the government will help the shipping companies develop their own long-term plans on fleet renovation. 

According to NSC proposal, the ship utilization grant should make at least 10% of the new vessel cost. It would by profitable for ship owners to scrap vessels in stead of trying to sell them in the second market.

When this new mechanism starts working in Russia NWSC will be able to adjust its fleet renovation programme with consideration of ship breaking and contracts for new vessels. The orders will, certainly, be placed at Russian shipyards with funds attracted from Russian banks. 

Since 2004, North-Western Shipping Company OJSC has been a member of the Association of Shipping Companies reorganized into National Shipping Chamber this year. As on of the largest ship owners in Russia, NWSC is ready to back this essential and appropriate initiative of NSC. I am sure, the implementation of this initiative will have a multiplicative effect in all industries related to shipping and shipbuilding.     

- Why is it important for NWSC to renovate its fleet? What economic motivation is aguidance for you?

Obtaining of a utilization grant on favourable terms will stimulate a ship owner to dispose of the old fleet not complying with the latest requirements of national legislation and international conventions on safety and environment. Last years, it costs too much for shipping companies to operate aged vessels. 

For example, river-sea dry cargo carriers built in 80-ies of the past century are both worn-out and obsolete. Their speed is 20% below that of the vessels built in 2003-2013, their energy consumption per a tonne of cargo is much higher. “Light” grades of fuel needed for fleet built in 80-ies (dry cargo carriers of Sormovo, Siberia and ST class) are 30% more expensive as compared with “heavy” grades of fuel being used for modern vessels of Baltic, Valdai, Rusich types as well as the latest vessels of Ametist and Neva-Leader series. 

It is getting inefficient for any shipping company to repair vessels with age exceeding 30 years or to have them certified every year at classification societies. 
 
- How many vessels does NWSC operate today and how often do you renovate your fleet? 

The company operates over 100 cargo vehicles including 85 vessels of river-sea class, 6 barges, 7 tugboats and 3 auxiliary vessels. Annual cargo traffic exceeds 6 mln t.

Form 2009, the Company has been implementing the program on new fleet construction. 

Under this programme NWSC obtained 10 new dry cargo carriers of Project DCV36, Ametist series, built at the shipyard of Hyunday in China between 2011 and 2013. Our Company is satisfied with this contract implementation. However, I must say, that contracting with a foreign shipyard was driven by the world price situation in shipbuilding market as well as by credit conditions. In 2008, when the project on construction of Ametist series was under elaboration, none of Russian banks could give a credit with terms applicable for us. However, in 2009, when the following contract for construction of ten vessels of Project RSD49 was under negotiaon with Nevsky Shipyard in Shlisselburg we obtained a credit in our national bank Zenit. Today, 4 vessels of this project, Neva-Leader are in operation already. 3 more vessels will be put into operation this year. The last vessels of the series will enter NWSC fleet in 2014.     

With ten Ametist vessels of 5,000-dwt and four Neva-Leader vessels with 7,000-dwt, total deadweight of North-Western Shipping Company hit 353,000 tonnes while average age was down to 18 y.o. from 20  y.o.  

Introduction of 14 new vessels over the recent years let the Company improve the efficiency of its fleet and attract additional cargo flows. With the deployment of new vessels, the volume of cargo carried by NWSC in the first half of 2013 increased by 28%, year-on-year.

Today we look into implementation of new shipbuilding projects. We would like to have them implemented at Russian shipyards and prompt launch of the programme on ship utilization grants is essential for this. 

- How many vessels have been utilized and sold recently? 

- Last 10 years saw no ship breaking at NWSC except for M/V STK-1002 planned for scrap this year. The Company, as a careful carrier had no reason to operate a vessel which was built in 1982 and required heavy spending for repair. 

Most often, old vessels requiring costly repairs for obtaining of new documents for foreign sailing are sold to other companies. NWSC follows a policy of selling vessels with age exceeding 30 years in the second market as their repair is not economically reasonable. Today, selling is more economically efficient than o utilization.

On the other hand, when we sell our old fleet we risk turning our buyer into a rival if our sold vessel will then be used in the same cargo niche. And not all market players offering lower rates are careful carriers. Low rates can be only achieved through saving on repair and safety activities. An old vessel requiring considerable repair remains working at Russian rivers or water basins threatening safety of navigation in general. 

Another reason against the sale of aged fleet is a matter of the seller’s image as the vessel will for some years be associated with the former ship owner. 
I am sure, with the launch of the programme on ship utilization grants at the terms favorable for ship owners, this combination of risks will be excluded as taking a vessel out of operation for scrap will be economically comparable to revenue from its sale in the second market. 

The number of vessels in our Company has decreased in the past 5 years. In 2008, we operated 119 vessels, in 2009 – 123, in 2010 – 110, in 2011 and in 2012 – 85 vessels. The number changed with the sale of old fleet and obtaining of new vessels. All in all, from 1996, we have sold about 150 vessels. 

Despite the decrease of in the number of vessels, total deadweight of the fleet increased with the vessels of new series. Average age of our vessels in 2008 - 2011 was 20-21 years while today it is down to18. 

- Do you think that utilization of vessels and renovation of fleet is an urgent issue for the entire Russia?

-Similar programmes on old fleet utilization have for a long time been working in the USA and Western Europe. This programme would be especially timely for Russia. Its implementation would let us dispose of hundreds of obsolete vessels not complying with international requirements. This would certainly improve navigation safety, service quality as well as competitiveness of national suppliers of transport services. This programme, in combination with other activities being carried out by RF Transport Ministry and shipping community will let boost Russia’s rating in the international shipping market.

With introduction of ship utilization grants in Russia, the demand of shipping companies for fleet renovation will surge and that will require renovation of the existing shipbuilding enterprises and construction of new shipyards. This programme will not only take the shipbuilding technologies to a higher level but also provide national shipyards with guaranteed orders and generate new jobs. 

Interviewed by Sophia Vinarova