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Speed Reduction Of Up To 30% Will Lead To Net Cost Savings For Shipping Industry And States In The Majority Of Cases: Economic analysis of slow steaming: study presented to IMO delegates

Speed reduction of up to -30% will lead to net cost savings for shipping industry and states in the majority of cases.

The highest savings are to be achieved especially when fuel prices are high and shipowners’ earnings are low, including on long journeys (30,000 nautical miles).

These findings are applicable to long-distance trades like iron ore exports from Brazil to China.

Savings will diminish or become negative when fuel prices are very low or if ships slow down too much (beyond -30%). But even in that case the negative cost impacts will likely be insignificant.

This study looks only at bulk carriers only, but the results are likely hold true for most other ship types too, which are engaged in comparable trades.

In each of the scenarios, the adoption of progressively higher speed reductions extends the number of days at sea and this results in additional bulk freight costs (i.e. the longer voyages due to the introduction of speed reductions leads to an increase in operational, capital and revenue costs). However, based upon our analysis these additional bulk freight costs are offset by the lower fuel costs in the majority of the scenarios, unless the fuel price is very low or a ‘break-even point’ speed reduction is exceeded where the marginal fuel cost reductions no longer offset the marginal operational cost increases under slow steaming. The reason for this is that the extra time has a reciprocal relationship with the speed reduction whereas the marginal benefits of reducing speed on fuel consumption are highest at full speed and decrease the slower a ship is already going. Even in circumstances where slow steaming may result in an increase in bulk freight costs (i.e. under the assumption of low fuel costs or high daily earnings), it likely to only have a negligible impact on product prices in most cases as maritime transport only accounts for a minor share of the total transport costs of a product.

The results of the study also demonstrates that the impact of slow steaming on the total costs of smaller vessels, such as handysize bulk carriers, is considerably less than for larger vessels such as either panamax or capesize bulk carriers. This is due to the fact that the relative importance of time based costs (i.e. crew, insurance, capital costs etc) compared to fuel costs are higher for smaller ships than for larger vessels. The same relative fuel savings therefore have a lower impact on the total costs of the trip. Finally, it is important to add that changes to the bulk freight costs of an individual vessel will not necessarily lead to a corresponding adjustment to freight rates. The extent to which changes to freight costs will be passed through to freight rates will ultimately depend on the market situation and this topic may warrant further research in the future.
The full findinds of the report can be found here.

Source: Öko-Institut e.V., Authors: Sean Healy, Jakob Graichen

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