RECORD FUEL PRICES PLACING STRESS ON GLOBAL SHIPPING
Shipping lines worldwide are struggling as crude oil prices topped an unprecedented $119 per barrel last week, in turn pushing marine bunker fuel prices up past $552 per ton – a $26 per ton increase since the end of March alone. Bunker prices have risen 87% since the beginning of 2007.
Fuel costs represent as much as 50-60% of total ship operating costs, depending on the type of ship and service. The World Shipping Council pointed out that ocean carriers are required to recover these costs to maintain levels of service, meaning the price of shipping goods will continue to face upward pressures.
With the cost of bunker fuel at $552 per ton, and fuel consumption at 217 tons per day, a single 28-day round trip voyage for a container vessel with a capacity of 7,650 TEUs would produce a fuel bill of $3,353,952. This number could be greater for a number of reasons, such as if the voyage were
more than 14 days, or if the vessel were smaller and less fuel efficient per container, or if schedule delays required the vessel to speed up to stay on schedule.
Recovery of fuel cost from cargo customers is a challenge when one considers that vessel capacity utilization is not 100%, that trades are not evenly balanced (some exports may utilize only half of a vessel’s capacity), that different trades and commodities can handle different levels of rates, and that fuel prices continue to rise.
If a cargo shipper pays less than its share of the fuel cost, it can only mean that other shippers must pay more, and/or the carrier fails to recover its operating cost, which is not a
sustainable business scenario. If extended to a single weekly service using five vessels, it would create an annual fuel bill to the carrier of about $220 million.
Approximately 1,500 ocean-going liner vessels, mostly containerships, make more than 26,000 U.S. port calls each year, providing American importers and exporters with efficient transportation services to and from roughly 175
countries. Today, U.S. commerce is served by more than 125 weekly container services.
The annual fuel cost for the services is tens of billions of dollars and continues to rise substantially. How carriers seek to obtain recovery of these rapidly rising fuel costs in the current market is a matter for commercial negotiations, but the significance and the magnitude and the consequences of the challenge continue to grow.
Carriers have been responding to the high cost of fuel by utilizing a range of operational adjustments. Beginning in early 2007, most container lines began restructuring their operations to address fuel price trends. Among other measures, many have redeployed ships among global trade lanes to
optimize utilization; consolidated services through multi-carrier alliances; consolidated routes to serve more locations with fewer ships; slowed sailing speeds to conserve fuel where possible within schedule; improved monitoring of hull and propeller conditions to reduce resistance and improve efficiency and adopted container transloading, street turns and other strategies to cut inland fuel costs. |
