Full Steam Ahead: Shippers Risk Paying a Price for Cheaper Fuel

By Keith Wallis and Jane Xie

SINGAPORE, Aug 20 (Reuters) – A slide in marine gas costs to six-year lows must be a welcome break for international transport – by slashing prices for an trade struggling to get better from its worst downturn in many years.

But shippers say the advantages on some routes danger being quick lived as low-cost gas is encouraging companies having fun with higher charges to ditch “slow steaming”, a apply began from 2007 to function ships beneath most pace to avoid wasting money after a soar in gas costs.

This signifies that at a time when a slowing Chinese financial system is hitting worldwide commerce a rise within the pace and variety of journeys on some routes might weigh on cargo charges and hit demand in a sector already struggling overcapacity.

“Low bunker fuel prices are a negative factor as they lower the freight rate level at which ships will speed up and thus increase shipping supply,” mentioned Mats Berglund, chief govt at dry bulk shipper, Pacific Basin Shipping.

Prices of Benchmark 380-cst marine gas costs in Singapore have halved over the previous 12 months consistent with a droop in crude costs to round $250 a tonne, a stage final seen through the international monetary disaster in 2009.

Lower payments for marine gas, also called bunker gas, have helped firms like Hong Kong’s Orient Overseas Container Line, a unit of Orient Overseas (International) Limited , and Singapore’s Neptune Orient Lines obtain a 25-40 p.c reduce in working prices within the first half, the companies mentioned.

Maritime consultancy Drewry estimated a container shipper working 11 18,000 TEU (20-foot equal models) ships on a single Asia-Europe route would save greater than $69 million this 12 months over 2014 assuming common bunker costs of $370 a tonne.

Drewry doesn’t count on container ships to hurry up crusing to keep away from the danger of flooding the market with capability, however ship operators are working extra shortly on some routes.

SUPERTANKERS

Supertankers specifically are growing their pace on empty return voyages between Asia and the Middle East, accelerating from 10 to 13 knots, shippers say, reducing the typical crusing time between Singapore and Fujairah within the United Arab Emirates, for instance, by three days.

Based on present gas prices, this might enhance spending by about $15,000 on the route for a really giant crude service.

The further gas prices solely presently make sense within the tanker phase, the place freight charges have been extra buoyant, though dry bulk shippers are involved any sturdy restoration on dry bulk charges might encourage operators to hurry up.

“We have seen some requests (from charterers) to go faster on the tankers on ballast legs, but not on bulkers,” mentioned Tim Huxley, managing director of Hong Kong-based Wah Kwong Maritime Transport Holdings, a cargo ship proprietor.

A bulk service transports commodities together with iron ore, coal, metal merchandise and grain, whereas a ballast leg refers to when a ship isn’t carrying cargo.

The transport sector can also be frightened in regards to the impression on commerce of China’s slowing financial system, whose share of world container throughput nearly doubled between 2000 and 2014 to round 30 p.c, in line with Drewry.

The Baltic Dry Index, a basket of dry cargo freight charges, hit an all-time low of 509 this 12 months and has since recovered above 1,000, although stays removed from its peak close to 12,000 in May, 2008.

Tanker freight charges, however, hit a five-year excessive of $95,000 per day for a VLCC voyage from the Middle East to Japan on July 20, helped by sturdy demand from Asia, although some latest knowledge on Chinese crude demand and automobile gross sales have began weakening.

(Editing by Henning Gloystein and Ed Davies)