As global oil prices smashed through $120 this week and are now threatening to constrain world economic growth, few would argue that costlier energy is merely a temporary blip. In the short run, today’s prices have certainly been driven by the natural catastrophe in Japan and political unrest in the Middle East, but all the signs are that radically higher energy prices are here to stay.

Of course, rising bunker prices are no new phenomenon and have been a constant headache for owners and operators for years, particularly those who must foot the bunker bill themselves, as compared to others who can pass on fuel bills to charterers. Ships have slowed down significantly, partly it is true as a result of a vast surplus of new tonnage, much of which is still delivering into markets where supply far outweighs demand. But ship operators have also cut speed as a result of the exponential relationship between ship speed and required power, and therefore of course fuel consumption.

Rather like permanently higher energy prices, recent reductions in ship speed could be here to stay and, according to one eminent shipping economist, may well have important implications for ship designers, engine builders, owners and operators. Speaking recently at a Lloyd’s Register press dinner in London, Clarkson Research head Martin Stopford painted a very bleak picture of mankind’s insatiable appetite for energy over recent years, and in a shipping context, the huge volumes of fuel required to propel ever-larger ships across the oceans of the world at the speeds to which we have become accustomed.

In 1840, Stopford said, half of Europe’s energy was derived from 38m horses and oxen, with the balance coming from wood, water, manpower and wind. In that year, global seaborne trade totalled about 20m tonnes. Today, ships carry more than 8bn tonnes of trade every year and the OECD’s 1.3bn people consume an annual energy equivalent of around six tonnes of oil per capita. A further six billion people each consume a little over one tonne of oil equivalent energy every year but their energy consumption is rising at an unprecedented rate. This partly explains why the world’s VLCC trades have altered so dramatically. Instead of most VLCC Gulf export cargoes heading west to Europe and the US as was the case until a few years ago, nine out of every ten VLCCs leaving the Gulf are now bound for the east.

Noting how most analysts have been utterly hopeless at predicting likely future energy price trends in the past, Stopford pointed to figures which suggest that recent predictions do not foresee any levelling out of prices, but a constant increase with oil prices breaking through $200 a barrel within the next 15 years. Some believe even this daunting prospect is too conservative, and time may well prove them right.

In a well-reasoned economic argument, Stopford went on to demonstrate the relationship between the cost of shipping capacity and fuel savings as a result of speed reductions, based on low and high bunker price assumptions. At $200 a tonne, for example, it might make good economic sense for ships to maintain service speeds of 21-22 knots. But at bunker prices of $1,500 a tonne, Stopford’s curves – which are admittedly conceptual rather than actual and would, in any case, vary between ship types, routes etc – indicate an optimal service speed of about 11 knots. In future, therefore, we could conclude that we are likely to see many more ships sailing much more slowly.

Of course, this has obvious implications for everyone in shipping – from shipyards to finance providers, and engine builders to maritime training establishments. It would also require a sea change to supply chain management theory, “just-in-time” delivery and warehouse logistics management. But shipping is ultimately a form of pipeline and a one-off hit in terms of pipeline content might be offset, in theory, by cheaper overall sea transport costs.

The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd.
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