Skip Navigation LinksHome|News & Analysis|News Features|News Feature Detail


Sail slow to keep fuel low: How the shipping industry is coping with costlier bunker fuel

By Ned Molloy and Eklavya Gupte in London

March 27, 2012 - As bunker fuel prices remain close to all time highs achieved in mid-March, shipping companies are struggling to stay afloat amid rising fuel costs and an oversupply of ships.

Shipping companies are coming under huge duress as freight rates remain weak despite high bunker fuel rates, and they have to find new ways to cuts costs by slowing the speed of their ships or by picking up cheaper bunker fuel from certain ports. (See a related chart: Rotterdam, Gibraltar, Istanbul 380 CST high sulfur bunker fuel.)

Prices for bunker fuel -- which constitutes the bulk of voyage expenses for shipping operators -- have been hovering at or have been close to all-time highs since mid-March.

Article continues below...

Platts Marine

Take a closer look at Platts latest shipping coverage, providing you with marine shipping news, fuel transportation rates and market news. Register free for listed fuel rates, maritime news and market commentary.

Access Platts Marine

On March 13, the price of bunker fuel in Rotterdam reached a record high of $727.50/mt, according to Platts data.

Shipping lines are doing everything they can to minimize the volumes of bunker fuel they buy and the price they pay.

More and more shipowners have been resorting to the process of slow steaming, which is when shipping lines order their captains to throttle back their engines to slow the speed of their ships.

The need for slower speeds

Slow steaming is the most effective and popular way to soak up the surplus capacity and save fuel, according to shipowners, and thus combat the high cost of bunker fuel.

One shipowner said that most oil tankers have been actively slow steaming for months as bunker prices have gone from record to record.

"We have to have very high freight rates, or high time charter equivalents, to keep up. All we can do is slow steam and make sure our crew is monitoring the engine," he said.

With ships traveling at a slow speed, some regions have seen a slight tightening of the supply of ships but from a global perspective there remains an oversupply of ships, and slow steaming cannot altogether improve that scenario.

Some sources believe though that it does not help newer ships or ships that are less than two to three years old, as by slowing down the engine below its optimal levels it can cause harm to the engine.

"It is not good to slow steam new ships. Take a Ferrari for instance: if you drove it for 20 miles per hour all the time it could spoil the engine," said a shipowner.

Different routes, cheaper ports

As well as traveling at reduced speeds and leaving less economic products ashore to save weight and therefore fuel, vessel owners are also prioritizing cheap ports in their route planning, and loading the maximum quantities they can at the cheapest ports they can find, whenever they have a vessel in the vicinity.

"St Petersburg, Antwerp, and Rotterdam are a bit less than other parts of the world," a bunker buyer said. "Any vessel we have in the area we try to send there."

Although St Petersburg-quoted bunker prices are the lowest in Europe, if shipowners arriving in the port carry out only bunkering operations they must pay a hefty export tax, making the port less competitive, local traders said.

Vessels need to load or discharge some cargo at the port to refuel without paying the tax.

Nevertheless, the current discount of St Petersburg to other European ports still draws traffic, affecting demand at nearby ports such as Gdansk, suppliers said.

"If [a vessel] were to call in St Petersburg, we're 100% sure they'll take the minimum here, and bunker [there] at lower prices," a Gdansk bunker supplier said. "The question is whether they want to lose time and go to Skaw [in Denmark] -- it's generally cheaper in Skaw, but adds a few days."

Shipowners face similar options calling at South Africa. Traders said that when Cape Town bunker fuel becomes significantly more expensive than Durban, some vessels load only cargo in Cape Town and call at Durban for bunkering operations.

In the Mediterranean, shipowners face fewer options about which port to call at because all ports tend to follow the same benchmark of 3.5% sulfur CIF Mediterranean cargoes, traders said.

The freight and fuel factor

Freight rates have not been keeping up with bunker fuel prices, whose all-time highs have caused a huge dent in shipping companies' bottom lines.

However, in mid-March this year, dirty tanker freight rates on most active routes rose both on the back of increased bunker fuel and also on supply and demand fundamentals especially related to tighter tonnage. (See a related chart: West Africa to East, USGC routes for VLCCs.)

"With higher bunker fuel, rates should move, otherwise it is very tough even to break even," said one shipowner.

VLCC freight rates out of the Persian Gulf and West Africa saw a big increase in mid-March, and high bunker fuel prices supported stronger freight rates.

The market was also supported by an increase in fixtures amid waning vessel availability in both West Africa and the Persian Gulf which helped West African VLCC rates rise by over 15 Worldscale points in a week.

West African VLCC rates to the East and to the US Gulf Coast were assessed near Worldscale 70 points between March 13 and March 20, compared to earlier in the year when it averaged around Worldscale 50-55.

Standard & Poor's Ratings Services said in a recent report that high bunker fuel prices and an oversupply of ships will continue to cause a dent in the profits of global shipping operators.

"If bunker fuel prices don't stop rising, the pressures on shippers' operating expenses and hence on their bottom-line earnings will continue to mount," said Standard & Poor's credit analyst Izabela Listowska.

The weak industry conditions are weighing on the credit quality of rated ship operators, the report added.

And, the price of bunker fuel could well be the glue that can hold this industry together or the loose thread that can hastily unravel the tapestry of a fragile shipping industry.

Return to top

Chart: West Africa to East, USGC routes for VLCCs

Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.