The day Wärtsilä's billion-dollar market disappeared

First the ballast water rules were postponed two years. Then scrubbers became subject to fierce criticism. Maritime environmental technologies have taken heavy fire in recent months. Wärtsilä's CEO talks to ShippingWatch about the consequences.

Wärtsilä Chief Executive Jaako Eskola probably remembers the first week of July this year more as the point when a promising billion dollar market disappeared into thin air than for the humid summer heat that had descended across North Europe.

On one of the first days that month, Finnish Wärtsilä found itself relegated to the sideline, forced to accept the fact the IMO had once more postponed the rules for ballast water management, and an otherwise promising market faded several years into the future.

What the CEO did not know was that, just a few months later, criticism would be aimed at the group's other environmentally-friendly offering, scrubbers, which remove sulfur from vessels' exhaust, not least starting in 2020 when the global sulfur cap comes into force. The criticism came from Maersk Line, the world's biggest container carrier, which described the technology as costly and poor.

We are, of course, like many other stakeholders, disappointed with this development, and that the decision-making process has not been as strong as expected"

Jaakko Eskola, CEO, Wärtsilä

In an interview with ShippingWatch, Eskola comments on the developments that have characterized recent months. He is, to say the least, particularly disappointed about the postponement of the ballast water rules. Wärtsilä has spent huge sums to develop its ballast water management system, and it is certainly not a good thing when the rules are pushed back, he says.

"We've developed the product and the solution, and we've been planning according to the date previously announced by the IMO, and when this was postponed by two years, the market disappeared almost instantly for some time. Of course we have the development ready, and our negotiations with customers are sound and continue, but this of course pushes back the entire business," he says:

"We are, of course, like many other stakeholders, disappointed with this development, and that the decision-making process has not been as strong as expected."

Targeting retrofit

According to Eskola, Wärtsilä is targeting the retrofit market, where existing vessels must install the systems in order to comply with the sulfur directive. This applies to 30,000 to 40,000 vessels. But with the postponement, this business has been put on hold.

The CEO stresses that the sale of ballast water management systems does not account for much in the company's books, but will contribute to the business, and a strong one at that. This will now come a bit later, he explains.

The postponement of the ballast water rules has also made one supplier fold. In September, the investors behind Oceansaver had enough and withdrew support for the company. Since its launch in 2003, Oceansaver has lost NOK 800 million (USD 98.0 million) as the business never took up, hit by the repeated postponements of the rules, which were adopted 13 years ago.

Like Wärtsilä, Oceansaver also targeted the market for existing ships. There are currently close to 50 companies supplying ballast water management systems, but this number will likely shrink in the years to come, while the industry is waiting for the rules to come into force, projects Eskola.

"Because of this delay, I expect that more players will disappear, or that there’ll be more consolidation. I haven't heard about anyone other than Oceansaver, but let's see. It must be hard for smaller companies," he says, noting that Wärtsilä along with competitor Alfa Laval already years ago predicted that several of the smaller competitors would likely leave the market.

Major ballast water supplier bankrupt after delayed regulations

He anticipates more activity later in 2018 when carriers and shipowners will need to book time at yards for installing systems.

Not worried for scrubbers

As for the company's scrubbers, the situation is entirely different. Wärtsilä has sold more than 50 systems this year, and the market has grown, says Eskola. Alfa Laval recently reported similar developments. The scrubber technology came under fire when Maersk, at a conference, described scrubbers as too expensive and noted that the technology allows for cheating.

Eskola declines to comment directly on this criticism, yet he does acknowledge the comments from shipowners about the technology representing a costly investment. But he does not see it as Wärtsilä's job to enter this discussion.

"If regulation is implemented, we'll develop solutions that enable our customers to sail. As for whether it's expensive or not, I'll just say that we'll provide the most efficient solution, which will be the best in the long term. I've heard the comments about the potential for cheating, but I don't agree that this can only be done with scrubbers. It can be done in many ways," he says.

Suppliers: Only 500 ships are equipped with scrubbers

In light of the sales number for this year, Eskola is not worried about this discussion impacting sales.

"We've sold more than 50 scrubber systems to customers and many ships, which indicate that the system is working and providing value, as that it's an attractive solution. It's also important to remember that many systems are used for the cruise sector, where customers are very cautious in terms of investing. 2020 is not far away, and there are many ships that need to be retrofitted or have to switch to gas or diesel. We project that the market will improve ahead of 2020."

A life cycle

Wärtsilä published its third quarter interim report Wednesday last week, and Eskola in particular highlighted the company's order intake, which grew 19 percent. All business units delivered better results than last year, and this development is driven mainly by cruise, ferries, RoRo, and gas vessels, segments in which Wärtsilä has a strong position.

Going forward, Eskola points to the biggest trend in shipping right now – intelligent shipping, which covers aspects such as digitalization, a field where shipping, unlike other sectors, is far behind.

Wärtsila acquired tech company Guidance Marine Limited in October, a company whose work includes sensors, and which can help operate ships in a more optimal manner. The Finnish company has also been performing tests to operate a vessel from land.

"We see a lot of opportunities here, and we've developed concepts to help our customers operate their vessels in the most efficient manner, not just in terms of energy and propulsion, but also navigation and automation, etc. Everyone's talking about an environment in which customers look at their entire operation as a life cycle. This is definitely a possibility," says Eskola.

English Edit: Daniel Logan Berg-Munch

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