Liners unlikely to speed up their ships despite falling oil prices, analyst says

Liner shipping companies are unlikely to hike their steaming speeds despite a steep decline in fuel prices, experts say.

Oil prices have fallen dramatically in recent months, prompting some shipping analysts to wonder if cheaper bunker fuel could inspire containership operators to increase their vessels' speeds through the world's oceans. Not so fast, maritime shipping experts say. Though shipping firms may enjoy fuel savings during the current cycle, they are unlikely to abandon the practice of "slow steaming," under which vessel speeds are reduced to conserve fuel.

The reason, according to the Danish container shipping analyst SeaIntel Maritime Analysis, is that the global supply chain is so complex that changing just one variable will trigger costly adjustments elsewhere along the chain.

"It requires considerable time, effort and money to redesign and implement a new network, finding new berthing slots and communicating new transit and cutoff times to customers," said Alan Murphy, SeaIntel's COO, in a report issued today. "It is simply not worth it if the carrier does not expect a long-term gain from such a restructure."

That calculus means the industry will not adjust its shipping speeds until it can predict that fuel prices will stay stable and low in the long run—and few economists are willing to stake their reputations on that shaky assumption.

Carriers like the Belgian tanker company Euronav expect fuel prices to rebound soon to higher levels while ports continue to offload cargo at their current pace.

"Lower bunker costs make speed less of a cost issue, but ship owners will not waste fuel, so speeds in ballast will vary as to whether the ship is sailing to a cargo or not," Euronav said in its fourth-quarter 2014 earnings announcement. "No ship owner will want to speed up just to wait. Ships should continue in slow speed until they are fixed for a cargo and then adjust speed to arrive just in time."

Maritime freight firms began the practice of slow steaming in 2008, when a spike in global oil prices—and the bunker fuel that seagoing vessels burn—led to skyrocketing gas bills in an industry where logistics professionals strive to shave pennies off every shipment cost. At the time, operators implemented slow steaming in the belief that the world was heading into a long period of rising oil prices.

By taking their foot off the accelerator, ship captains saw a quick financial return as they burned less fuel and reduced carbon emissions. A containership saves money through efficiency by steaming at 13 or 15 knots instead of its typical top speed of 20 or 22 knots, just as a highway motorist can improve a car's mileage by cruising at 55 miles per hour.

Those savings add up fast when bunker-fuel costs account for an estimated 70 percent of the total voyage expenditure for a cargo vessel, according to the analyst firm Research and Markets.

But the strategy also came with a downside, delaying the delivery of precious containers to port locations by a day or two for every ocean crossing. That slow speed caused headaches for shipping customers, who operate in an age when manufacturing and retail industries rely on just-in-time deliveries to keep factories and shop floors humming.