Slow steaming new paradigm in liner trade

Slow steaming major impact on the liner industry is not well understood.

One leading marine analyst said recently in an article on the market that slow steaming is a murky concept: QUOTE "Roughly speaking, that means the industry is carrying 20% of spare capacity. This calculation of surplus can be fine-tuned by allowing for changes in tonne-miles and slow steaming. But, the former is a murky concept, since the globe does not get any bigger, and most ships are designed to go at 85% MCR, so the minute rates go up the fleet will no doubt speed up. UNQUOTE

Slow steaming existence in liner trade is simply based on the price of bunker vs. the price of ships. The extra costs by adding a ship to a rotation must be more than covered by the savings of bunkers for all the other ships of the rotation. And the higher the bunker the more likely slow steaming makes sense.

The additional capacity which is absorbed by slow steaming is a consequence, not the cause for slow steaming. Slow steaming is not there on temporary basis, it is there to stay, and the world liner fleet will not speed up until the bunker savings vs. ship price equation change, which is unlikely when there is too much capacity .

The fact that ship engines are designed to run at 85% MCR is neither a reason for slow steaming to stop. The engine system might not be optimized below 60% MCR, however manufacturers have found ways to circumvent the technical drawbacks (lower air flow, poor combustion, increased fouling and corrosion…etc.) and even guarantee a safe operation as low as 10% MCR.

On the biggest 2 strokes engines, going down from full speed to 18 kts reduce fuel consumption by 75%, or bunkers actually represent more than 50% of shipping lines fixed costs.

Slow steaming is likely creating a new paradigm for liner shipping, as new ships being optimized for lower speed; provide higher bunker savings which translate into a slot cost advantage.

Managing capacity will remain high on the agenda for some years as ship owners will have no choice but to order new ships to remain competitive in an Industry guided by economy of scale. Maersk line returns to profitability clearly show how important it is to have the lowest cost.

And unless the industry and the world economy recover quickly, old inefficient ships might not find a fixture. This is a serious risk for all ship owning funds and definitely for the German KG since Germany ten top banks have USD 128 Billion in outstanding credits related to the global shipping industry. That is more than double the value of their holdings of government debt from Greece, Ireland, Italy, Portugal and Spain.

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