A fundamental change in global shipping

It was Clarkson’s Martin Stopford who recently highlighted the fundamental change in day-to-day operating economics of global shipping. Instead of the assets themselves constituting the largest single cost centre, it was now the fuel required to run them, he said. And there was unlikely to be a let-up, he warned: low-sulphur fuels required in the world’s ECAs will, of course, cost more as demand grows, and ship operators who run ships in such areas will face some major decisions on how they manage their ships.

His comments have been amply illustrated in recent days by the voyage of the Greek-owned 134,000 m3 ice-class LNG tanker Ob River, which has just shipped a cargo of gas from Hammerfest in northern Norway to Japan’s Tobata port through the Arctic Ocean. Admittedly with the support of a nuclear-powered Russian icebreaker, shrinking ice cover in the Arctic means that such a voyage is now technically possible. And if northern ice continues to melt as it has done recently, new routes through northern seas will dramatically alter tonne-mile shipping demand and ship type requirements.

Whether you call it global warming or climate change, our planet’s environment today is radically different as compared with ten years ago, with fundamental implications for shipping. Aircraft burn the highest grades of hydrocarbon fuel and, arguably, carry the world’s most valuable commodity. Mostly, the rising costs of operation can be passed on. Ships, on the other hand, burn the residues that no-one else wants, and transport essential raw materials and manufactured goods which few people even think about. Rising running costs cannot be passed on, and if ship operators fail to cover direct costs, something has to give.

Leading shipping companies are keen to highlight their emissions-cutting initiatives, and a growing number of charterers – estimated to foot the bill for as much as 70% of bunkers – are focused on fuel efficiency as never before. Cynics argue that shipping companies’ initiatives have little to do with reducing emissions, and are fundamentally survival strategies in over-tonnaged markets where rates don’t stack up by a long way. Mostly, so far, shipping companies’ policies have centred on speed reductions. The exponential nature of the speed:power curve means that even a small speed reduction cuts engine loads dramatically, saving lots of fuel.

Container ships designed to run between Asia and Europe at speeds of up to 25 knots, for example, are now sailing at 16-18 knots – even lower in Maersk Line’s case. The Danish group is also “ultra slow-steaming” its VLCC fleet, at speeds as low as eight knots. The tonnage surplus, analysts warn, is likely to remain for at least two or three years – shipping supply will continue to outstrip demand, they say, until at least 2014 or beyond. Few expect bunker prices to come down, even if ships are running at significantly lower speeds.

So changes in the global environment are not only undermining conventional ship operating economics; they are also transforming the cost:benefit equation in terms of new trades and new routes. The exploitation of shale gas in the US, for example, is changing the fortunes of many LNG operators who are now challenged by different global trades which are shorter-term in nature, and are being generated by pricing and arbitrage opportunities in global gas prices, as well as ship operating economics.

We may not yet be fully aware of the scale of the transformation in global maritime economics. Many shipping company executives are more concerned with the fundamental challenge of corporate survival, rather than the opportunities presented by a new world maritime order. For repairers, however, there is more scope than even for imaginative initiatives to adapt today’s largely unsuitable fleet into a more efficient one, fit for purpose tomorrow.

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

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com