More Slow Boats to China Following P3 Flop: Analysis

By George Backwell
Monday, July 07, 2014
Engine room telegraph: File image

With Maersk, MSC and CMA CGM now in damage limitation mode following their failure to get P3 agreed in China, what else can they do to cut costs? Drewry Maritime Research considers the question in their latest 'Container Insight Weekly' – excerpts as follows:

Following China’s rejection of P3 last month, Maersk, MSC and CMA CGM are under pressure to find alternative ways to cut costs. In Drewry’s view, one of these must be by reducing fuel consumption through increased slow steaming, as bunker costs account for well over half of all vessel running costs. It is not the only way, as clarified in ‘Life without P3’.

Cash strapped competitors could easily follow suit on slow steaming as the carrier industry is still struggling with over-capacity, and shareholders are clamouring for remedial action. Without change, there will continue to be too many vessels chasing insufficient cargo, thereby putting yet more pressure on freight rates and profitability.

One of P3’s biggest savings was intended to come from carrying more-or-less the same amount of cargo between Asia and Northern Europe with only eight sailings a week instead of nine. And to the Mediterranean, five loops were planned instead of six. The implication is that 11 of the carriers’ small 9,000 teu vessels would have been cascaded out of the former, and another 11 vessels of around 8,000 teu out of the latter.

It will be a hard act to follow, as many of the displaced vessels could have been transferred to other trade routes where further economies of scale are possible, such as the Transpacific. Quantifying the amount saved through the entire P3 project is difficult, therefore, but the benefits of further slow steaming between Asia and Europe could make up a significant proportion of the sum involved.

By lengthening the round voyage time of each existing weekly service between Asia and Europe by seven days through the addition of one vessel, Maersk, MSC and CMA CGM could effectively ‘lose’ 15 surplus vessels whilst awaiting the cargo growth for which they were ordered to belatedly appear.

Had P3 been allowed, the elimination of a 9,000 teu vessel a week between Asia and Northern Europe would have saved its members approximately $155 million annually in bunker costs alone, according to Drewry’s calculations, and port costs, diesel costs and vessel costs would have been on top of this.

On the other hand, by lengthening the westbound and eastbound transit times of the three carriers’ existing nine weekly loops between Asia and Northern Europe by three and four days respectively (through the addition of one vessel), the annual bunker cost saving would amount to around $264 million, according to Drewry’s calculations. This is based on the price of fuel being $610/tonne, whereas it has recently jumped to $640/tonne, and would entail westbound vessels being operated at 16 knots instead of 18 knots, and eastbound vessels being run at 12 knots instead of 14 knots.

In the Mediterranean, the elimination of one 8,000 teu vessel a week would have saved its members another $94 million annually in bunker costs alone, whereas, by also lengthening the westbound and eastbound transit times of the three carriers’ six existing weekly loops by three and four days respectively, the annual bunker cost saving would amount to around $132 million. The speed adjustments would be more-or-less the same as for Northern Europe.

However, whereas the financial benefit of the service eliminations between Asia and Europe originally envisaged by P3 would have all gone to its members, some of the savings resulting from increased slow steaming would have to be passed back to shippers via reduced bunker surcharges. Ignoring the split, and assuming an average vessel utilisation of 85% from Asia to Europe, and 65% on the way back, the three carriers and their customers together would save approximately $45/teu on every teu shipped during the speed reduction programme.

It must be emphasised that these are very approximate calculations based on one service pattern in each trade lane, whereas there is little uniformity in either port rotations or vessel speeds. Not all service speeds have to be further reduced either. Some service speeds could be maintained, creating dual speed alternatives.

Also, the key to making the savings is having enough surplus vessels in the right place at the right time, which may not be possible. MSC only shares vessels with CMA CGM between Asia and Northern Europe, and Maersk only shares vessels with CMA CGM in the Mediterranean, so there is no overall co-ordinating centre to simplify planning in this respect, which would be illegal.

Moreover, slow steaming is not a win-win situation for carriers and shippers. Drewry has spoken to many shippers who claim that carriers’ slow steaming cost reductions ultimately cost them more money through the need to maintain higher inventory costs, so the initiative will be resisted.

Drewry's View
Further slow steaming between Asia and Europe appears a strong possibility as Maersk, MSC and CMA CGM must find new ways of reducing costs following China’s rejection of P3.

Source: Drewry Maritime Research


Maritime Reporter June 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Qatar Navigation Absorbs Balance of SocGen Gasships

Qatar Navigation (Milaha) said on Thursday its unit Qatar Shipping Company had acquired the remaining 60 percent interest in two firms which own Liquefied Natural

Petrobras hands over Campos basin stake to PetroRio

Petrobras today signed with PetroRio S.A. (‘PetroRio’) the contracts for the sale of 20% of its stake in the concessions of Bijupirá and Salema fields, currently operated by Shell.

Stolt-Nielsen's Results Show Bright Future

Stolt-Nielsen Limited today reported unaudited results for the second quarter ended May 31, 2015. Net profit attributable to shareholders in the second quarter was $42.


Qatar Navigation Absorbs Balance of SocGen Gasships

Qatar Navigation (Milaha) said on Thursday its unit Qatar Shipping Company had acquired the remaining 60 percent interest in two firms which own Liquefied Natural

GasLog Partners To Buy Three Vessels

GasLog Partners LP and GasLog Ltd. announced today the closing of the Partnership’s acquisition from GasLog of 100% of the ownership interests in the entities

San Leon Signs Moroccan Rig Deal

San Leon Energy signed a rig contract for the drilling of the El Aaiun-4 well on the Tarfaya conventional licence, onshore Morocco. The rig contract has been

Container Ships

Bahri Goes to Hyundai Samho for Five More VLCCs

Immediately after signing contract with signed with Hyundai Samho Heavy Industries to build five VLCCs, with an option to build additional five VLCCs, the National

Hapag-Lloyd's New Noses Lower Emissions

Hamburg based shipping company Hapag-Lloyd plans for 24 of the largest containerships in its fleet to get new bulbous bows by 2016, with some of the vessels also

Charleston Harbor Deepening Gets US Funding

Charleston Harbor deepening project earns key federal funding for preconstruction engineering and design; U.S. Army Corps of Engineers allocates $1.303 million

Marine Power

Fincantieri, Finmeccanica Win Italian Navy LHD Contract

Fincantieri, one of the world’s largest shipbuilding groups and reference player in the naval shipbuilding industry, and Finmeccanica, Italy’s leading manufacturer in the high technology sector,

Confidence Low in Shipping Idustry

Confidence levels in the global shipping market have fallen to a seven-year low as a glut of cargo ships, weak freight rates and excess liquidity continue to batter the industry,

Yanmar Diesel Engines for Fast New Crew Tender

The expansion of the number of wind turbines out at sea near the northern Dutch coast was reason enough for Ubels Offshore to expand its fleet with a fifth ship last year.


Qatar Navigation Absorbs Balance of SocGen Gasships

Qatar Navigation (Milaha) said on Thursday its unit Qatar Shipping Company had acquired the remaining 60 percent interest in two firms which own Liquefied Natural

USN Data Center Hit by Electrical Storm

An electrical storm that hit the evening of June 27 affected the data center at Navy Personnel Command (NPC) and BUPERS On-Line (BOL) was offline until 3 p.

Mega Valemax Enteres China for First Time in Two Years

Mega-ore carrier  Valemax  Yuan Zhuo Hai, which is owned by China Ore Shipping,  has arrived Dongjiakou Port in Qingdao for unloading iron ore. This is the first


Beier Radio is now Beier Integrated Systems

For 70 years, Beier Radio has provided engineering, sales, and service for marine electronics around the globe. As the corporation marks its 70th anniversary,

China's State Audit Uncovers Misdeeds in Cosco

Intensifying crackdown on corruption China’s National Audit Office released an audit report for state-run shipping conglomerate Cosco Group in which it has uncovered

New European Inland Waterway Project Underway

Engineering and consulting firms setec and Royal HaskoningDHV have been selected by VNF – the French navigable waterways authority – to jointly provide program

Maritime Careers / Shipboard Positions Maritime Contracts Maritime Standards Naval Architecture Pipelines Port Authority Ship Electronics Ship Repair Ship Simulators Sonar
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2853 sec (4 req/sec)