Ship capacity reserve can cater to future demand, SeaIntel says Slow-steaming has absorbed significant amounts of space on container ships, helping carriers save money on fuel. But according to SeaIntel’s latest Sunday Spotlight report, this phenomenon of slowing down ships has also created a reserve of capacity that can cater to several years’ worth of potential increased demand, giving shippers a buffer against future cargo rolling and higher rates. “Container carriers have been very adept at using slow-steaming as a means to accomplish the dual goal of reducing operational costs as well as absorbing the significant capacity injection seen in the past few years,” SeaIntel said in the report. “This, however, also means that vessels, which have been slowed down, have the potential of being sped up again should this prove economically advantageous.” Global demand is expected to increase 4 percent to 6 percent in coming years, according to the analyst. If ship speeds were sped up by just a 1 knot, it would be tantamount to matching the entire demand increase for a full year, SeaIntel said. The report only analyzed vessels of 5,000 TEUs or larger, in order to consider the potential impact on long-haul trades and not shorter feeder and intra-regional routes. For example, if the average vessel speed in the global fleet is 15 knots, the global capacity would be increased 6.7 percent if average speed was increased by 1 knot, SeaIntel said. The impact becomes relatively smaller as vessel speed is increased, the analyst noted. Thus, if the global average vessel speed today is 16 knots, then speeding up to 17 knots would increase global capacity by 6.2 percent. Further increasing to 18 knots would add another 5.9 percent of capacity, and hence, in total, the global capacity would be increased by more than 12 percent. Global capacity can, in the most extreme case, be increased by up to 40 percent compared to the current situation, according to SeaIntel. However, speeding up vessels would result in increased fuel costs, as fuel usage rises rapidly as a function of vessel speed. For the week ending Sept. 12, low-sulfur fuel averaged $559.90 per metric ton, and high-sulfur fuel averaged $550.90 per metric ton, according to numbers provided by BunkerVision. One metric ton is equivalent to about 6.4 barrels or 300 gallons. SeaIntel showed that in the extreme example of approaching a 40 percent capacity increase in the market, carriers would have to consider an increase in fuel costs of 150 percent to 200 percent ― triple the current fuel bill. That means low-sulfur fuel could be as high as $1,399.75 to $1,679.70 per metric ton, and high-sulfur fuel could be in the range of $1,377.25 to $1,652.70 per metric ton. “Consequently, it appears highly unrealistic that we would see a 40 percent capacity increase in the market,” SeaIntel said. “However, smaller impacts should not be ruled out.” The analyst reported that a 6 percent injection of capacity would equate to a 15 percent increase in fuel consumption. Thus, if there were a sudden increase in demand of 6 percent associated with a 15 percent in freight rates ― a conservative estimate that 100 percent of freight rates are attributable to fuel costs, when, in reality, it tends to be in the 50 percent to 65 percent range ― then there would be a clear positive trade-off between cost increase and capacity increase, relative to the demand increase, SeaIntel said. Slow-steaming has created a de-facto pool of capacity that can be injected into the market with little lead time should demand and freight rates rapidly increase, beyond the associated fuel cost increases, SeaIntel said. JOC NEWS - SEPT 15 2014
Posted on: Mon, 15 Sep 2014 20:56:52 +0000
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