Lower vessel productivity has been a key feature of the container shipping sector in recent years, as elevated bunker prices have incentivised container lines to slow down their services and add extra vessels to maintain schedules. However, with bunker prices having seen a significant drop over the last few months, it’s worth taking a closer look at how things stand today.
The reduction in vessel productivity resulting from slow steaming in the face of increased fuel costs was initially focussed on the long-haul east-west trades, where slow steaming is operationally more straightforward. However, it has since spread to other parts of the liner network. As box shipping faced up to oversupply in the wake of the economic downturn in 2008, this spread has helpfully absorbed some of the surplus vessel capacity.
However, it’s not always simple to quantify the precise amount of capacity absorbed by the drop in vessel productivity. It hasn’t all been due to slow steaming. Other factors such as services being re-routed on longer journeys, for example Asia-USEC cargo being carried via Suez rather than Panama, have also added to the drop in productivity.
Counting It Up
On each trade lane today’s running capacity is generated by a specific amount of vessel capacity deployed at today’s productivity levels. This can be compared to the capacity that would have been needed to generate the same running capacity at previous (higher) levels of productivity. Adding up the difference between the two across trade lanes is one method for estimating the capacity being absorbed by reduced productivity. The graph shows the development over time of this estimate. Capacity absorbed rose to 0.9m TEU by June 2011, as bunker prices broke the $500/t barrier. By the start of 2014, the total had risen to 2.0m TEU, with bunkers at around $570/t, having peaked at over $700/t. The connection between bunker price increases and lower vessel productivity was strong.
Speed Up Or Down?
But is the trend here to stay? Bunker prices slipped to as low as $450/t in October but the capacity absorbed by lower vessel productivity has continued to increase, passing the 2.5m TEU mark in September. The position of containerships on the speed/consumption curve means that the benefits from slowing down are highly significant. In the bulk sectors gains from slower speeds are less dramatic due to their location at a shallower point on the curve, meaning that in improved markets operating speeds will increase again. But speed-related productivity gains seem less clear for boxships unless bunker prices fall quite a bit further. This is borne out in recent years by the trend in ordering boxships optimised for slower speeds than their predecessors, and despite falling fuel prices many lines have thus far re-iterated commitment to slower speeds.
Still, when the economics change swiftly it’s worth watching closely, and there could yet be increases in productivity. If this proves to be limited, containership market players will breathe a sigh of relief. When you need some stress relief in today’s tricky market, keep taking it slow.