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 Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter July 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

DP World's H1 Volumes Rise

Ports operator DP World reported on Tuesday first-half 2016 gross container volumes up 1.2 percent on a like-for-like basis and up 2.5 percent on a reported basis.

Samil PwC Okays Hyundai's Management Improvement Plan

Hyundai Heavy Industries (HHI) is notified by Samil PwC, a local member of the global accounting firm PwC, that its 3.5 trillion won worth management improvement

Finance

Baltic Index Down as Rates for Large Vessels Stay Weak

The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Wednesday on weaker rates for larger vessels and supramaxes.

Summer Cruise to North Sea Oil Rigs Amazes Tourists

Bored with palm-fringed beaches and turquoise seas? Then the gigantic oil platforms of the North Sea beckon. The first ever "rig-spotting" cruise just ended off the coast of Norway,

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

Container Ships

New Container Facility at Krishnapatnam Port

Krishnapatnam Port, India's largest all-weather; deep water port on the east-coast of India has inaugurated CONCOR’s - Port Side Container facility – a Government of India undertaking.

DP World's H1 Volumes Rise

Ports operator DP World reported on Tuesday first-half 2016 gross container volumes up 1.2 percent on a like-for-like basis and up 2.5 percent on a reported basis.

DP World's H1 Gross Volumes up 1.2%

DP World Limited handled 31.4 million TEU (twenty-foot equivalent units) across its global portfolio of container terminals during the first half of 2016, with gross container volumes growing by 2.

Marine Power

Staying Afloat Down Under?

In recent years, Australia has been a major growth area for offshore gas production and a key driver of offshore CAPEX, says Clarksons Research.   However, the

LNG-fueled Bulker Ordered from Korea

Hyundai Mipo Dockyard (HMD) has signed a contract to build a 50,000 dwt bulk carrier with ILSHIN LOGISTICS. The project is a collaboration between POSCO and ILSHIN

BMT to Lead Repower for Historic USCG Eagle

BMT Designers & Planners, a subsidiary of BMT Group, an international maritime design, engineering and risk management consultancy, is leading the effort to repower the historic U.

Logistics

No Clues on Hanjin's Financial Health

Cash-strapped Hanjin Shipping Co. sources say that the negotiations with tonnage providers for lower rates are undergoing, but wouldn't say much else.   According to Korea Herald, the country's No.

New Container Facility at Krishnapatnam Port

Krishnapatnam Port, India's largest all-weather; deep water port on the east-coast of India has inaugurated CONCOR’s - Port Side Container facility – a Government of India undertaking.

China Joins UN Trucking Treaty

China has taken a major step towards establishing a speedy new "Silk Road" to Europe by signing up to a U.N. trucking treaty.   Fifteen years after joining the World Trade Organization (WTO),

Consulting

BMT to Lead Repower for Historic USCG Eagle

BMT Designers & Planners, a subsidiary of BMT Group, an international maritime design, engineering and risk management consultancy, is leading the effort to repower the historic U.

RINA Closes Edif Group Acquisition

RINA S.p.A, the holding company of the multinational testing, inspection, certification and consulting engineering group based in Genoa, Italy, has announced that

CNO Visits Chinese North Sea Fleet

Chief of Naval Operations (CNO) Adm. John Richardson visited Chinese North Sea Fleet headquarters, July 20 to meet with fleet commander Vice Adm. Yuan Yubai. The

 
 
Maritime Security Maritime Standards Naval Architecture Pod Propulsion Port Authority Ship Electronics Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
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: 0.0949 sec (11 req/sec)