21 Oktober 2014

[211014.EN.SEA] Slow Steaming Will Be Less Profitable in Inevitable Bull Markets to Come

THE practice of slow steaming as way to reduce a vessel's fuel consumption has proven a good way to trim operating expenses to boost a shipping line's bottom line and stay profitable in the current weak freight market.

Speaking at Singapore's Nanyang Technological University, economics professor Ma Shuo from Sweden's World Maritime University presented numbers to back his theory that the prevalence of slow steaming was mostly dictated by low freight rates.

To calculate the optimal speed, he applied the six factors into a feasible model of a 8,000-TEU ship sailing between Shanghai and Rotterdam with a distance of 12,000 miles and 100 per cent load factor.

Bunker was set US$650 per tonne, plus a ship cost of $100 million, containers worth $20 million, operating cost per day of $8,500, value of cargo at $60,000 per TEU, annual interest rate at three per cent, emission cost of $30 per tonne of fuel consumed and a freight rate of $800 per TEU.

The calculations showed that with rates at less than $600 per TEU, the optimal speed would be 17 knots, rising to 19 knots for a $800 per TEU rate, 24 knots for $1,200 per TEU and 27 knots for $1,400 per TEU, meaning that the optimal speed becomes higher in a firmer freight market.

"During the previous shipping boom, had anyone heard of slow steaming?" asked Prof Ma.

"Shipping companies would be foolish to slow steam back then when freight rates are high and it made sense to sail at the fastest speed in order to achieve higher turnarounds for each vessel," he said.

Given a cyclical shipping market, many question whether slow steaming, which makes economic sense in a bear market, is here to stay, reported Seatrade Global.

Port captain Soren Retz Johansson at Denmark's Norden Shipping with businesses in the dry cargo and tanker segments, made it clear: "We are doing everything we can to slow steam."

In the container segment, Mr Johansson highlighted that 18,000 TEU containerships are designed specifically to slow steam, pointing to a long term resolve by lines to employ this modus operandi.

Based on a recent market survey of 200 liner and tramp companies, 75 per cent apply slow steaming to various extents, said Prof Ma.

"I consider slow steaming to be affected by an interplay of six forces or factors. But basically the most important and dominating factor is the freight rate," he said.

"This means that when freight rates are high, speed has to be high."

Apart from the freight rate, the other five factors are bunker cost, ship cost, cargo cost, interest rate and environmental cost, he said.

Source : HKSG.

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