Drewry: Low Bunker Prices Have Halved Slot Cost Benefits for Mega-Ships

Drewry says carriers are having to be more creative when deciding where to deploy smaller deliveries.

Data from Drewry Shipping Consultants Limited (Drewry) shows that, while larger box ships continue to enjoy a cost advantage, tumbling bunker prices have halved the slot cost benefit for mega-ships.

"Carriers are fearful of being left behind in the race for ULCVs (Ultra Large Container Vessels) but while they will always retain a competitive advantage (now diminishing) the value of having a smaller, but more flexible fleet in slowing market should not be overlooked," stated Drewry.

At the start of this month, when Ship & Bunker data shows bunker prices were recovering from being at their lowest for several years, Drewry says an 18,000 TEU vessel on a round-trip Asia-North Europe route yielded a $38 per slot cost savings compared to a 14,000 TEU vessel, down from $76 per slot at its June 2014 peak.

Due to their size ULCV's can only operate on the Asia-Europe trades, and while they have been joined by the 10,000 TEU and above newbuilds, Drewry says "it's where carriers are putting the 8,000-10,000 TEUs that reveals how they are trying to spread the burden of the new capacity."

Those smaller newbuilds delivered in 2015 have been deployed in nine different trade lanes, and Drewry points to the Asia to East Coast South America route as an example of how that can then push down spot rates. 

"It is a delicate balancing act, and one that carriers cannot win all of the time," said Drewry.

Drewry suggests that the situation will only get worse as there are many more ULCVs on the way.

"The alarming drop in Asia to Europe traffic and a parallel crash in rates caused two of the big carriers groups to take the unprecedented decision to suspend services in the supposed peak season, while the two other alliances have been tinkering with missed sailings in order to try and support higher rate requests," said Drewry.

"The rush to purchase ULCVs is borne of the desire to reduce slot costs and not be left behind, but the impact on the wider industry in terms of heavily discounted freight rates has thus far been entirely predictable."

In May, Drewry said that Q1 2015 demand in the box markets has meant ULCVs have failed to deliver on their promise of improved economics for their owners.