Adding value through innovation
The company, which this year celebrates 100 years in the marine business, opened a major testing facility in Aalborg in 2014, and in March extended that site to accommodate LNG equipment testing and training. It is an example of what Leifland describes as a special focus on product development. The company continuously invests across its wide product range to make equipment smaller, more efficient and more reliable. Ultimately, says Leifland, this is what drives value for ship owners and operators.
How would you characterise the state of the marine market, and Alfa Laval’s marine business today?
Yard contracting was low in 2016 and shipowners suffer with low freight rates. Orders for capital goods declined in 2016 for the marine division. In total we saw a decline of 35% of orders in 2016. If you look at external analytic houses like Clarksons, they foresee a pick-up in newbuilding in 2017 from a very low level, and back to a more normal level in 2018.
What strategy is the company pursuing to maintain sales in a slow newbuilding market?
The marine market is one we have been in for a hundred years. Our vision is to offer world class products and service to all ship segments in all phases of the business cycle.
We follow our customers in the good times and the bad times. We want to serve customers with a full range of equipment, which is why we have 17 product groups. So even in a market that could be soft we still work on having a broad offer. Our ambition is to sell more to each ship being built.
Due to the environmental regulations facing shipowners and operators today we have a special focus on environmental solutions like ballast water treatment, exhaust gas cleaning and gas as a fuel. These represent an opportunity for us in a soft market.
Do you think the IMO is, in that sense, a friend of marine equipment suppliers?
We don’t take a political view on the market. What we do is to try to serve customers based on their needs. And of course, some of that is due to environmental regulation. But the need comes first – what they need, we try to offer.
We have a great focus on innovation, whether it is a ballast water treatment plant or an exhaust gas cleaning system. We continuously try to reduce the footprint and increase the efficiency of our equipment. Thereby, over time we hope that these products become more affordable. That’s why we invest in facilities to improve testing, such as our new gas testing and training site in Aalborg.
What is important is that products have low operation expenses and as little downtime as possible – they must be affordable and reliable. That’s what steers our product development, and our after-market services – making sure we are available where needed, in all ports in the world. Our retrofit and aftermarket accounts for 30%-40% of our volumes depending on where we are in the capital sales cycle. In a market where newbuilding is slow, we would be closer to the 40% figure.
Are there any vessel segments that Alfa Laval is under-represented in? Which ones and how are you seeking to grow your position there?
Due to our assortment – in particular the Framo pumps business – our most important ship segment is the tanker market. These pumps are not used in other ship types so that is a relatively big business dedicated to that market. But for other products that we sell, we have a strong position across all segments. We have the ambition to serve all ship segments and have the right product and service offering and thereby have a leading position in all segments.
The evolving regulatory market offers a lot of potential for a company like Alfa Laval. Which of the current issues offers the biggest sales potential, sulphur regulations or ballast water management?
The ballast water treatment market is somewhat bigger than the sulphur market. Our guidance is that we estimate that by 2025 35,000 ships will be equipped with ballast water treatment systems. This equals an order value opportunity of €7 billion.
The interest in our ballast water management systems has definitely increased since we received US Coast Guard type approval in December. The number of requests for meetings and quotes is high, but we will see as the quarters are reported what the books look like.
When it comes to exhaust gas cleaning we estimate that 5,000 ships will be equipped with scrubbers by 2025 and that will equal an opportunity of €5 billion.
Our assumption is that ships with large engines that consume a lot of fuel have a greater likelihood of using scrubbers. Our guidance is that, excluding installation, there will be an average cost of around €1 million. That is an investment that you need a payback on, and the payback is the difference between heavy fuel oil and another cleaner fuel. So you need to look at how much fuel you consume and the cost of the alternative. We think that larger engines in all ship segments will have a better payback calculation, and we believe that some smaller engine sizes in the tanker market will also invest.
Scrubbers are just one alternative solution. That’s why we have made our investment in burning gas. We want to have a solution for customers irrespective of which fuel they use. If you use LNG or some other type of gas fuel, we have equipment for that; if you continue to use HFO, we have a solution for cleaning the exhaust gas. So we see opportunity irrespective what fuel the customer picks.
The Ballast Water Management Convention enters into force in 2017, while sulphur comes into effect in 2020. This means that the ramp up on ballast water is coming much earlier, while we expect a slower uptake for sulphur, really starting next year and in 2019 ahead of the 2020 introduction.
Clearly carbon is the next big regulatory hurdle for ship operators: What kind of regulation do you anticipate on this front and can you give any examples of how Alfa Laval is working to make its equipment more energy efficient?
Our heat exchanger business is the biggest for the group, and that is all about getting more compact. It is in our genes to make efficient heat transfer. Saving energy is something that we do across the company, including in marine. That’s about both design and the materials we use.
We have three core technologies in Alfa Laval – separation, heat transfer and fluid handling for marine vessels. For separation, higher efficiency means lower power consumption per treated unit and for heat transfer we continuously try to improve the thermal performance being able to make the units more compact in relation to the duty to be performed.
Digitalisation is another major topic for the industry: what is Alfa Laval’s approach? How can it change your business and enable you to better serve ship owners? What investments have you made in this direction?
We are indeed active in this area. For shipowners and operators, the value with performance monitoring is either to lower operational expense with efficient and reliable operations or showing that you are compliant with environmental regulations.
The technical platforms for connectivity is already available and performance data is available in the control systems. What needs to be developed is how we can assist ship operators by providing performance data in the right way, so they can make adjustments when operating the ship. Today performance monitoring is operated on a ship mainly. But now we will be able to compare entities with the same customer and offer advice.
We are now running or starting pilots in respect of some major products like scrubbers, ballast water treatment equipment, high-speed separators and boilers. In these pilots we will together with customers develop how we can assist them in lowering opex or show regulatory compliance.
What in your opinion is the biggest engineering challenge facing the marine industry today?
Standardisation of engineering solutions is much talked about and is what is most important. In the end that lowers the cost for transportation or oil and gas exploration. If you take the offshore market, with floaters, historically each product has been unique. But as the oil price lowers the pressure to standardise is high. The big players here really need to work on bringing down the cost of their platforms, and standardisations is the answer.
The same goes for transportation segments. When you are in this type of industry you understand that it is beneficial from a cost perspective to offer a standardised system or ship design.
In Alfa Laval we continuously focus on innovation in order to improve the performance/cost ratio of our products and systems in order to serve our customers. We have a special focus on design and we have invested in a big test centre in Aalborg to be able to speed up development.
