WRTSIL TECHNICAL JOURNAL 02.

2012

The Total Cost of Ownership: Looking towards a more profitable future

AUTHOR: Reynolds James, TCO Programme Manager, Innovat ion & Bus iness Deve lopment So lut ions Management

The profitability of a shipping corporation is dependent upon many factors, only some of which are within anyones abilities to control. The cost of operating a vessel is one area that is highly influential on profitability, and, to some degree, controllable. To evaluate and optimise vessel operating costs, Wrtsil launched a Total Cost of Ownership (TCO) programme some time ago. The aim is simply to achieve the lowest possible lifecycle costs for its customers.

The difficulties facing the marine industry are clear. The global economic climate has halted shipping volume growth, and coincided with an influx of new vessels to the market. The combined result has been high levels of over-capacity. Tough competition has driven down freight rates which, when combined with increasing fuel prices, has worsened an already uncomfortable situation. The full extent of this is demonstrated by many shipping companies running high deficits, continuing only with the long-term expectation that the markets will restore themselves over time.

Industry changes
In such turbulent times, shipping management is increasingly driven by the companies financial performances and the individual vessels financial indicators.

This focused accounting style of management is further motivated by the primary interim goal of maintaining solvency until more prosperous times are here. Traditional engineering practices for defining engine maintenance have, therefore, taken a back seat. It is clear to Wrtsil that its own profitability is closely allied to that of its customers. Changes must therefore be made on all sides. Whilst we would all like the ability to influence revenues more freely, this is unfortunately not the reality. Operating costs are however easier to manipulate, and any cost savings bring the benefit of being reflected as improvements to the financial bottom line. As such, a TCO programme was launched some time ago within Wrtsil with the task of evaluating and optimising vessel

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Manning Insurance Maintenance Lubricants Operating Costs Periodic Maintenance Costs Voyage Costs Capital Costs Other

Fuel Oil Diesel Oil Port Dues

Fig. 1 Example cost breakdown of a mid-size container vessel.

operational and maintenance procedures to achieve the lowest possible overall costs. The overriding goal is to ensure alignment between Wrtsils 2-stroke offering, and the needs of its customers.

TCO considerations
Total Cost of Ownership (TCO) is a phrase that has been around for some years in many industries. The marine market is no longer an exception. TCO is a broad term and, as a concept, can encompass many influencing factors. Generally, all considerations are differentiated under the Capital Expenditure (Capex) and Operating Expenditure (Opex) brackets. Although the TCO programme has focused on Operating Expenditure, much progress has also been made in terms of the Capex of new engines using a design to cost approach. The optimisation of production processes, the re-design of engine layouts, and the standardisation of components to achieve economy of scale benefits, have been largely successful. This is a key issue in the marketing of many of the new engines. For example, production cost reductions in double-digit percentages for the X-series engines (per kW compared to references), have been realised. Such reductions are more significant given the recent operational trends and required engine design parameters.

To note a few; load ranges from 10% up to 100% for near continuous operation, and fuel properties ranging from almost road diesel standards down to heavy fuel oil outside of ISO specifications. Opex considerations are no more simple than those for Capex. The increasingly detailed analysis of a vessels costs by its customers has, however, naturally guided and supported the assertions of Wrtsil in defining the key drivers that require improvement. Fuel and lubricating oil costs continually top the list of Opex costs, although these concerns often depend upon the style of vessel management. Improvements with these systems are a continual process and are generally considered in the development of new engines, systems, and service products. Many service products are already available for reducing these costs, all of which provide different levels of benefits with different applications. Notably, the Slow Steaming Upgrade Kit (SSUK), Intelligent Combustion Control (ICC), Retrofit Pulse Lubrication System (RPLS), and cylinder lube oil Blend on Board (BoB) products offer impressive benefits for customers with different operational characteristics and restrictions. Aside from fuel and lube oil, the other common focal point and high concern of

many ship owners and managers is that of the lifecycle maintenance costs; particularly spare part costs. Over time, the costs of Wrtsil RT-flex common-rail engine components, relative to conventional engine technology, have been evaluated and singled out as one area for improvement. This has been one of the main points taken up by the TCO programme.

The maintenance cost focus

To realise improvements in lifecycle maintenance costs, much of the work has capitalised on the experience and knowledge of RT-flex systems gained over the past 10 years as the technology has matured. On paper, the lifecycle maintenance costs for engine components are incurred as a function of the individual price, the frequency of replacement, and the maintenance concepts applicable. Numerous tasks and projects have tackled these points with the overall goal of optimising the profitability of both Wrtsil and its customers: Component costs - The optimization of component design, manufacturability, production procedures and procurement, together with higher volumes, have resulted in lower component costs. This benefit was shared with customers through several component price reduction steps.

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Frequency of replacement - Also

commonly known as the Time between Overhauls (TBO). Since the introduction of RT-flex engines, extensive service experience has been acquired. Design updates and technical improvements have been made and implemented to improve both new and re-manufactured parts. The further knowledge, understanding, and confidence gained from the many on board inspections of RT-flex parts have resulted in revisions of the TBOs, as made official in bulletin RT-123. Maintenance concepts - The remanufacturing of components, rather than replacement by new components, is one maintenance concept employed to reduce costs for our customers. The guiding principle is to reduce the material and labour required to provide OEM quality components. Whilst re-manufacturing maintains the high standards of new parts, sound non-wear components are cleaned, tested and re-used to limit waste. This is mostly applicable to non-wear parts, such as component housings, which represent significant portions of the production costs. The re-manufacturing process has been developed, implemented and has already proven successful, with full availability for the majority of the RT-flex parts. The offering continues to expand, with the current focus being on streamlined processes and a globally aligned offering for mechanical components, such as piston crowns, piston rods, and cylinder covers.

Projected cost improvements of an Injection Control Unit (ICU) and Fuel Oil Pump (FOP) over a 20 year period
100 % Component costs relative to 2009 80 ICU costs 2009 60 40 20 0 ICU costs 2012 FOP costs 2012 FOP costs 2009

10 15 Years of Engine Operation

20

Fig. 2 Lifetime RT-flex component cost projections and achievements made.

7-cylinder Wrtsil RT-flex 84T, version D

100 % Component costs relative to 2009 80 2009 60 40 20 0 2010 2011 2012

Substantial Cost Reductions Achieved

Over the last few years therefore, a number of RT-flex generic lifecycle maintenance achievements have been made. When looking from a component level, implementation of the earlier methods has enabled vast cost reductions. When all RT-flex parts are considered over a 20-year lifetime, a 65% reduction from 2009 levels has been achieved. Ultimately, the implications to the complete engine lifecycle maintenance costs are the most relevant. When the above TBO and cost improvements are put into a calculation tool considering all required engine parts, the effect is slightly diluted, but a significant 50% to 55% reduction is still demonstrated. To further expand upon these achievements, time has been spent addressing differences between customers

10 15 Years of Engine Operation

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Fig. 3 Lifetime spare parts costs projection of a large bore Wrtsil RT-flex engine.
maintenance practices and requirements. With missing experience of the new RT-flex technology, and in particular the maintenance and component service lifetimes , the maintenance possibilities were intentionally limited. Initially, only new complete RT-flex components were offered. As a second possibility, Wrtsil introduced the re-manufacturing of these components on an exchange basis as already detailed. This chosen concept proves itself as a means to address three important points: 1) a lower cost maintenance method for new parts 2) an automatic upgrade of components to latest technical specifications, enabling longer TBOs, and 3) a convenient maintenance method offering with a minimized time requirement, suiting short port stays, and reduced onboard spare part stock requirements.

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This concept has proven to be the most cost effective for scheduled maintenance work, and ensures high quality and operational reliability throughout the foreseen service lifetime. However, it does not adequately address situations whereby unanticipated failures of such components occur. In these situations, the onboard crew needs to have the possibility to repair the failed sub-component without having to exchange the entire assembly. For this purpose, the maintenance offering for Flex parts has been extended. New Onboard Repair Kits are available for RT-flex components so that a failure of any of the small internal parts of a component will not necessitate complete replacement An overview of the solutions available for all customer segments is shown in Figure 4.

1. 2. 3. 4.

To repair a Flex part in case of premature failure of an internal component

Onboard Repair kits:

As cost optimised alternative to new parts with the same quality guaranteed

Remanufactured Components:

For development of a pool for remanufacturing ones own components

New Part:

Flex Parts Agreement

The TCO future

Strong progress has already been made, and the benefits of these achievements are available for implementation. Efforts must continue however, and future attention will be given to where the most impact can be realised. The achievements reported throughout this article very much concentrate on the ideal case according to the planned maintenance intervals, and the costs that would be incurred. However, real life cost expectations also have to account for reliability, which can be a large influencing factor on TCO. Whether it be from premature component failure, incorrect operation, sub-standard fuel or crew mistakes, the source of reliability issues is irrelevant at the time those problems become apparent. The priority is to restore engine operations and resume sailing as quickly as possible so as to limit the lost revenues, penalties and any increased costs, such as from the higher speeds required to catch up to the schedule. Wrtsil therefore recognises the value of anything which improves the rectification speed of systems operation. As the volume of documentation and knowledge required for the operation of electronic engines increases, questions are also being raised in some circles of the possible decline in manning abilities. Such trends are far from favourable so innovative methods must be employed to mitigate their impact. One of the support needs was identified as being clearer instructions, which do not require the reading of long texts and difficult-to-understand technical

Fig. 4 Demonstration of the RT-flex maintenance concepts available.

Fig. 5 Simulation demonstrating the disassembly procedure of fuel oil pumps from an RT-flex supply unit.

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sketches. To meet this need, Wrtsil has developed three-dimensional, animated repair instructions including spoken texts. The main causes of the off-hire of RT-flex engines have been analysed. For the top five causes, 3-D animations are being made to be displayed on the ships computers. These animations clearly illustrate the necessary steps to correct failures and return a vessel to normal operation. The use of this animation software allows the user to pause a sequence, to rotate components, and to make housing transparent. The visualisation is clear to really understand how the systems are working and how problems should be resolved. A final means to improve customer operating costs very much leverages the confidence and trust Wrtsil has in its own products and engineering capabilities. Agreements are something that have been around for some time, but are now being

tailored to each individual customers requirements. Whether the main concerns are for the costs of RT-flex parts, the complete engine, or the complete engine room, agreements have been made, and can be made, that bring value to each customer. Performance guarantees with respect to fuel and lube oil consumption, planning of maintenance, global coordination, and lifetime component guarantees can be made to enable varying degrees of risk sharing. And the unpredictability of maintenance costs can be smoothed via capped, monthly or yearly subscriptions that provide stakeholders the cash flow predictability they desire.

CONCLUSIONS
The shipping industry has drastically changed during recent years, and financial figures are today of key importance. These working practices are unlikely to change,

even in future times of prosperity. TCO is not the only solution, but is an approach that is aligned to this concern and is here to stay. Within Wrtsil, this is something that influences the everyday thinking to achieve this goal. With this mind-set, vast reductions have been demonstrated to bring the cost of RT-flex common-rail engines down to the very competitive levels of the companys RTA series engines. Improvements will continue across all portfolio engines. To move forward in the future, innovative approaches must continue to be employed, and complete lifecycle costs must be taken into consideration for improving customer profitability. Wrtsils success stems from that of its customers. The clear goal is to offer the most competitive and reliable engines, and to be the preferred and trusted service provider.

Fig. 6 RT-flex Fuel Oil Pump.

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