Why Slow-Steaming Makes No Waves

The will to act collectively isn’t something container lines are known for — just look at the rates and scarcity of profits. Yet in 2012, and indeed for the past five years, the carriers have remained in lockstep when it comes to one key area of their operations: slow-steaming their ships.

Initiated in 2007, carriers are operating ships at less than 20 knots, and few observers don’t believe them when they say — as they did repeatedly in 2012 — “slow-steaming is here to stay.”

It’s easy to see why: Fuel savings amount to millions of dollars a year from operating a ship at 17 versus 20 knots or even at 15 knots in the occasional “super-slow-steaming” service. With little control over revenue that fluctuates wildly based on the market, carriers can control costs such as fuel, which is why organizationally they’re turning increasing attention to addressing costs of all types.

Slow-steaming can have an indirect impact on rates by absorbing excess capacity; a slower weekly service can operate with an additional ship. Research analyst Alphaliner estimates current slow-steaming efforts worldwide account for 6 percent of global capacity and, through additional slow-steaming or super-slow-steaming, could clip another 4 percent of capacity — a nice bonus when overcapacity is likely to serve as a drag on the industry at least through 2015.

But perhaps most significant about slow-steaming is the reaction, or lack thereof, from customers. It’s an insightful angle on how global supply chains work that protests from shippers for two- to four-day longer transit times have generally been muted. The trip from Shanghai to Rotterdam is now 26 to 27 days versus 24 to 25 before, while the transit time from South China to the U.S. West Coast is now 13 to 14 days versus 11 to 12 in the pre-slow-steaming days.

There’s only one conclusion to draw: In most cases, shippers have adjusted. “Transit times of three to four days longer prevailed in 2010 and 2011. Eventually, many customers embraced this reality. In 2013, the trend will likely continue,” MOL (America) Chairman, President and CEO Tsuyoshi Yoshida writes in his essay on page 78. He points out some key reasons, among them that interest rates are low and therefore there is a low cost to inventory onboard vessels. “Under this situation, occasionally, I now see routings with seven- to 10-day longer transit times than traditional routings being accepted and used by shippers,” though at a lower rate, he writes.

And that gets to a key point: The general lack of broadly differentiated transit times, where shippers have an option to pay more for faster services, suggests the majority of shippers aren’t, in fact, ready to pay a higher rate; rates are already satisfactorily low and by stretching out lead times on product orders, shippers are able to absorb the longer transits.

By and large, shippers aren’t clamoring for shorter transit times or volunteering to pay more. “With exception of the fashion industry, fewer shippers say ‘the shortest transit is a must for all of my business,’ ” Yoshida writes.

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Underscoring the reality that shippers aren’t willing to pay more — and in fact are willing to endure slower transit times — NOL CEO Ng Yat, speaking at the TPM Asia Conference in October, responded to an apparel shipper’s question about slow-steaming by saying, “How much rate differential are you prepared to pay? $1,000 (per container)? $100? $50? The demand for those higher-speed options is simply not there or not aggregated in sufficiently high volumes” for it to make sense.

Shippers get a free bonus from slow-steaming: a reduction in their carbon footprint. On its Web site discussing slow-steaming, Maersk Line says that from 2007-2009 it cut carbon dioxide emissions per container by 12.5 percent and is aiming for a total reduction of 25 percent by 2020. “Slow-steaming will be key in reaching this target,” it says.

The irony is that this “free” benefit arrived without shippers asking for it, and that’s the point: While having a carbon-friendly supply chain is a goal many shippers say they aspire to, there is little evidence it’s coming up in contract negotiations or that shippers are willing (gasp!) to shell out more in freight cost to achieve it.

As slow-steaming continues into 2013 and likely well beyond that, it’s raising other issues. Most of today’s vessels and their engines weren’t designed for the slow speeds they’re operating at, causing wear and tear. If slow-steaming is to become permanent, a new class of slow-steamer will need to be rolled out, and that, of course, will mean more, likely unnecessary, capacity.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/PeterTirschwell

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