Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Friday Stock Market CRASH Following Israel Attack on Iranian Nuclear Facilities - 19th Apr 24
All Measures to Combat Global Warming Are Smoke and Mirrors! - 18th Apr 24
Cisco Then vs. Nvidia Now - 18th Apr 24
Is the Biden Administration Trying To Destroy the Dollar? - 18th Apr 24
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Slow Boat To China, Oil and Global Trade

Economics / Global Economy Jan 26, 2012 - 07:53 AM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleAn article of 26 January published by Bloomberg put it this way:
Container ships can’t go any slower.  Shipping lines are running out of options to stop losses as sailing speeds reach their lower limit, exhausting a solution that helped restore profitability in 2010.

Slow-steaming, pioneered by A.P. Moeller-Maersk’s container unit, Maersk Line, helps carriers cut costs by sailing at lower speeds, needing less fuel and also offsetting capacity stresses by using more vessels each sailing longer. For a nine-week Asia-Europe round trip with ships carrying 8 500 containers, a carrier can cut 3 percent of costs by slowing to 17.2 knots from 19.8 knots, according to Maersk Line. Slowing further to 15.2 knots, by contrast, actually pushes up costs 0.5 percent as the expense of operating additional ships starts to outweigh fuel reduction, Paris-based shipping broker and analyst AXS Alphaliner estimates.

According to Morten Engelstoft, Maersk Line’s chief operating officer, its whole fleet currently sails at about 16-18 knots, but adds that Maersk Line is looking into the possibility of super slow-steaming at speeds as low as 12-16 knots, either below or the same speed as 19th-century clippers.

The fastest ships of their time, these clippers transported tea, cotton, spices and other goods including coal, minerals and manufactured products to and from Europe, the U.K. and U.S. from China and India, and could reach a peak average speed of more than 16 knots.

The global container fleet as of early 2011 was estimated by Alphaliner as 4860 ships with a total capacity of  7.25 million standard 20-foot container units (TEUs), ranging from ships able to carry 100-500 containers, up to ocean-going monsters carrying 10 000 - 15 000 containers

Chinese built Seaspan 10 000 TEU container ship consuming about 200-220 tons per day of fuel
(Minimum of 165 grams fuel oil per kWh; 1500 barrels per day)

Oil and LNG shipping, dry cargo and bulk minerals continue to weigh heavy, with these types still dominating world shipping, at about 72% of total capacity, but their growth rate is far behind container shipping. Since the 1980s container shipping tonnage has increased eightfold or 700%, much faster than other categories. Today's container ship capacity of around 7.25 million TEU now represents about 15% of world shipping tonnage, versus less than 10% in 1985.
Total oil consumption for all types of commercial cargo shipping is estimated at around 4.5 million barrels per day (about 5% of world demand), ranking their consumption equivalent to the combined national demand of Italy and France, or one-half China's current national oil demand. The outlook going forward is heavily tilted to a compression of container, and other heavy cargo shipping as manufacturers and producers seek localised and lower energy raw materials supply and goods distribution systems, as well as alternate fuel-saving ship design and propulsion solutions. Mass insolvency in the shipping industry is another, and real option.

Container ships steam faster than most other cargo ship categories, explaining the extreme power requirements of these ships - and their fuel demand - with the role of fast transport of bulk manufactured goods heavily integrated into global manufacturing and manufactured goods trading operations. Rapid shipping has enabled and driven reduced wharehousing and "just in time" logistics, but the energy cost is high - and times are changing due to the impacts of overcapacity, high fuel prices and shrinking economic growth.

Global container ship operators are now cruising near record-low speeds, and only in the 4 months since end August 2011 average container ship speeds have slowed by an estimated 11% on average, as freight rates fell by 25% in the same period, according to data compiled by Bloomberg, Lloyd’s Register and industry specialists such as Drewry Shipping Consultants Ltd. 

“Container lines have already exhausted most of the tricks for absorbing capacity,” according to Bjorn Jensen at Singapore-based Electrolux AB which oversees about 150 000 container shipments a year, again underlining that as average speeds drop from the design speeds of the fastest, most powerful container ships, around 20 knots (36.5 kilometres/hour), to speeds as low as 14 knots, or less, container ships of today are no faster than sailing clippers of the 19th century.

With speeds unlikely to get much slower than about 12 knots, the industry is today even more vulnerable to rising fuel costs. According to BIMCO, the world's biggest international shipping association which controls about two-thirds of world tonnage, all container lines are now losing money, with the smallest operators of the oldest, least fuel-efficient ships the most exposed to insolvency.

Slow-steaming, ship idling, and tax sheltering operations helped turn a 2009 industry-wide operating loss of $19 billion into a $17 billion profit in 2010, according to Drewry Shipping, but the industry reverted to a $5.2 billion loss in 2011 and the prospects for 2012 are dire. Attention and hopes have therefore turned to the only quick solution which exists: ship scrapping and demolition, but this option is hampered by the results of the boom years 2004-2007, during which both container and bulk ship construction was at record rates, as the industry key indicator - the Baltic Dry Index of average freight rates - attained record highs one after the other.

Average ship ages are low: for some container categories only 3 to 5 years age, compared with about 11 years for the global dry bulk fleet and 9 years for tankers, and many ships have yet to be paid off by their buyers. This makes scrapping the direst-possible option.

The probable region of highest stress, and largest number of insolvencies is the Asia--Middle East-Europe zone, where overcapacity is highest. Operators concentrated in this world region stand to lose the most, with analysts forecasting that even the largest operators including Maersk, Hapag-Lloyd, Neptune Orient, Hyundai Merchant Marine stand to lose as much as 50% of their share value. The period of time this poker game will play has several determinants - including oil prices. At current freight rates, earnings by carriers were not sufficient in the last quarter of 2011 to cover average container ship fuel costs. For the first quarter of 2012 the situation is likely to worsen.

Faced with an unsustainable future, the global heavy cargo shipping industry will surely be looking into sustainable energy with renewed interest: sailing ships may become one (rediscovered) option!

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2012 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in