Drewry: To Slow Steam or Not to Slow Steam?

Bunker prices are now at a low level not seen since the early 2000s and with much lower marine fuel prices big containerships’ cost advantages are dwindling, according to Drewry Maritime Advisors.

When bunker prices increased five-fold, to levels in excess of USD 600 per tonne, lines responded with a number of cost saving measures as they focused on bunkers as the biggest single cost item in their business, including slow-steaming.

However, with the complete reversal of that trend, and bunker prices now in the range USD 100-150 per tonne, a question arises whether slow steaming is still justified.

Drewry believes that the reversed trend would not result in a rush to speed up loops on the main East/West trades.

“Lines and alliances will have carefully planned their networks, including terminal berth windows, based on their present slow steaming speeds. To increase service speed would require major re-planning, and potential disruption,” Drewry said.

In addition, lines may be nervous of making radical changes, in case bunker prices swing back up again – given the apparent inability of forecasters to predict these changes.

What is more, the current excess of supply of tonnage, would only be exacerbated if more ships were released as a result of speeds being increased.

However, Drewry expects to see other steps being taken by lines, such as adding of extra calls to loops, improvement of schedule reliability as lines should be more willing to pay the cost of speeding up to achieve an on time arrival and finally, carriers and/or alliance may see this as an opportunity to gain a marketing advantage by offering a fast transit service on key routes, using the additional speed capability of their vessels.

“While sudden change is unlikely, lines should be aware that the ongoing surplus of tonnage will get worse if there is a trend to remove ships from loops,” Drewry added.

Based on Drewry’s analysis of bunker price impact on containerships’ savings, the impact of bunker price on economies of scale is fairly limited over a vessel size range from 8,000 to 18,000 teu.

However, low bunker prices may well give a new lease of life to Panamax vessels which, at current charter rates, can compete on costs with vessels twice their size on trades that cannot sustain the largest vessels.

“A continuation of the current low bunker prices is not going to change the drive of the lines to larger vessel sizes in pursuit of economies of scale, but it does represent a stay of execution for the smaller Panamax ships,” Drewry said.

“While there are other reasons why lines may continue slow steaming for the time being, a trend of increasing service speeds will reduce global requirements for tonnage. Lines should carefully consider this change when planning any orders for new vessels.”