Box lines faced with slow steaming conundrum

Bunker prices are reaching the tipping point at which it becomes less expensive to operate fewer ships at a faster speed than more of them at the slower speeds.

In an analysis of the latest bunker fuel prices, Dynamar’s Dirk Visser said that with 380 cSt fuel oil now available from Rotterdam at a level of $239 per tonne, compared with $565 a year ago, shipping lines will be becoming increasingly nervous about their slow steaming strategies.

At present on the Asia-north Europe trade as many as 12 ships per string are being used to ensure a weekly frequency can be maintained at fuel cost saving service speeds of around 17 knots in the headhaul direction.

But Mr Visser said that as well as the price of fuel there are various other factors that would need to be considered before speeding up ships.

For instance, shipowners had made sometimes irreversible modifications to ships already in service, such as fuel injection pumps, replaced stem bulbs and propeller blades.

Also, new vessels were being built to operate at slower speeds. The lower fuel prices are compounded by lower revenues generated by carriers’ bunker charges.

“Consequently,” Mr Visser said, “for some the choice between the devil and the deep blue sea may have arrived: either lose money and continue steaming slow, or steam faster, accepting the costs of laying up (big, perhaps very big) ships.”

Other factors to be considered are the cost of chartering vessels, the cost of laying-up unwanted ships, the impact of excess capacity on freight rates, container turnaround times, environmental impact and customers’ needs.

He added that forward prices for a barrel of Brent crude oil stood at $51.15 as of January 8. The last time annual oil prices averaged at this level, apart from the financial crisis year of 2009, was 2005, a few years before slow steaming was first introduced.

So far shipowners and operators have largely been against the idea of speeding up ships because slow steaming has the added benefit of using up excess capacity.

However, Gerry Wang of Seaspan said that there could be room for some slight increases in speed.

AP Moller-Maersk chief executive Nils Andersen recently said that any savings made by speeding up ships would likely be frittered away by lower freight rates.

Maersk Line chief executive Søren Skou was also concerned by the impact speeding up vessels would have on the environment.

Evergreen’s second vice-group chairman Bronson Hsieh pointed out the destabilising risks to the whole container shipping industry of faster voyage times.

There is also the varying cost of fuel to consider.

Mr Visser said that it was anyone’s guess as to how long prices would remain at this level.

Jonathan Roach from broker Braemar ACM Shipbroking said that prices in Singapore for 380 cSt remained at $282 per tonne and in fact increased on Thursday.

Dynamar figures show that 380 cSt is even more expensive in Tokyo and Genoa where it is valued at $330 per tonne and $284 per tonne respectively.

Mr Roach’s figures show that the average speed in the headhaul direction of the Asia-Europe trade stayed largely the same last year, at 18.2 knots in the first half of the year and 17.7 in the second half.

“Speeding up could be devastating for the liner trades as it would help create more overcapacity. So I think the larger east-west trades will maintain their slow steaming,” he said.

“But liner operators will still be able to enjoy a better bottom line as their cost base will be significantly less as one of their main costs is bunkers.”

However, he said the lower bunker prices could have an impact on regional services.

He said that additional port calls on existing services that would have previously been unprofitable because of the cost of fuel could now become financially feasible. It could also result in new services for the same reason.

The lower prices could also result in the charter market price difference between ecofeeders and older less fuel efficient tonnage narrowing, he said.

Although he said newer vessels would still be more reliable and economical so would still command a premium.

Source: Lloyd's Loading List

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