Bunker prices are continuing to fall as are bunker adjustment factor (BAF) charges made by the shipping lines to the shipper. In January 2014, the average BAF applied by shipping lines involved in the Asia/Europe trade was US$700/teu, but by December, that figure had fallen to around US$550/teu, reflecting a drop in fuel prices of more than 20% in the space of a year.
Inevitably, as bunker prices continue to fall, the subject of slow steaming and whether it is really necessary during slack season periods on the mainhaul trade to undertake this exercise, raises its head again, and more and more shipping lines voice their opinions on this idea of cost saving.
Slow steaming normally means the deployment of additional vessels, most likely laid up during the slack periods, and obviously costing the line for convenience of a lay up berth or anchorage, but with the price of fuel in recent years being so high, the lines saved by this exercise.
Now fuel prices are falling week on week and the increasing likelihood of slow steaming disappearing, the big question being asked is whether it would be necessary or not to operate all the vessels presently deployed today on the major trade lanes.
On this subject, shipping lines are united in their opinions, and the answer is an emphatic no.
If the lines worked together to take out capacity, many sources believe the path would be completely open for rate increases and more profitable times for the carriers, and the industry could rid itself of those heavy loss-making periods during the slack seasons. But withdrawing vessels from operational duties on any trade lane is not an easy task.
On the Asia/Europe and Asia/US trades, it would seem that the easy target for the withdrawal of capacity is the chartered vessel sector which is responsible, on the Asia/Europe trade, for almost 40% of the tonnage deployed.
On the face of it, shipping line executives believe the chartered vessel sector is the best target for any capacity withdrawal programme, but openly admit that things are not that easy.
“For example, complications can arise over time charter periods and early
cessation of a charter contract can cost the carrier quite heavily,” was a common comment.
Then there was the question of what happens if the price of fuel starts to rise again. Does that mean returning to slow steaming, and if so, where the extra capacity come from?
Of the 238 vessels deployed on the Asia/North Europe trade, 89 are chartered. That figure equates to 37.4% of the total capacity deployed on the trade, and all lines are adamant that there is plenty of capacity that could be withdrawn.
But nothing comes free, and the lines would have to forfeit most, if not all, of the overall cost. The premature ending of time charter contracts before the official expiry date, can cost deeply.
Then there’s the question of what happens if the price of fuel goes up again, and whether future deployment and charter contracts could come under some serious questioning.
As the slack season approaches following the usual Lunar New Year rush, the way ahead for the upcoming slack season is anything but clear for the shipping lines.
By Paul Richardson
Sea Freight Correspondent | London