Low Bunker Prices Mean "Clear Cost Savings" from Increasing Vessel Speed

by Ship & Bunker News Team
Tuesday February 9, 2016

Contrary to the belief that slow steaming saves carriers money, a new report from Drewry Maritime Advisors (Drewry) suggests that current low bunker prices have created a new environment in which vessel speeds will increase and smaller vessels may be kept in service longer.

At a bunker price of $600 per metic tonne (pmt) Drewry says it made sense to run more ships at slower speeds on a loop, but notes bunkers fallen to the $100 - $150 pmt range.

Data from Ship & Bunker shows last month IFO380 in Rotterdam and Houston fell to $109 pmt.

"At a bunker price of $100 per tonne, there are clear cost savings from increasing service speed, and reducing the number of vessels per loop," says Drewry.

The report also finds that the cost savings in moving from smaller to larger ships has disappeared at the lower bunker rate.

At a bunker price of $600 pmt, moving from a 4,000 to 8,000 teu vessel garnered cost savings of 17 percent; with a bunker price of $100 pmt, Drewry says the cost savings rate "goes to zero."

As a result, the lower bunker price will give a "new lease on life to Panamax vessels that can compete on costs with larger vessels on routes 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."

Low bunker prices will also lead to extra calls added to loops, an increase in schedule reliability as carriers pay the cost of speeding up to achieve on time arrival, and marketing of fast transit service on key routes.

The report notes, however, there is not an expectation of a "rush" to speed up loops on the main East-West trade routes. 

The report notes carriers "have carefully planned their networks based on their present slow steaming speeds...to increase service speed would require major re-planning, and potential disruption."

Carriers will also shy away from making "radical changes on routes" in case bunker prices return in the short-term.

Last month Ship & Bunker reported Drewry said that the over-supplied containership market is being "propped up" by current low bunker prices.