Slow Steaming Won't Be The Answer Going Forward

Implications: The charter market for post-panamax tonnage is hot as owners jump on the bandwagon of slowing vessels to save fuel cost.

Analysis: What began as an effort to hide excess capacity (we are in the fourth year of capacity growing faster than demand) has evolved into a strange iteration of adding capacity to save fuel.  Slow steaming of fuel-hungry container ships offers up to $40k/day in fuel savings, per ship.  For an 8-ship Asia-EU loop moving to 9 ships, this is significant.

However, this is a somewhat zero-sum game.  Load factors tend to drop when a 9th vessel is added, there is the charter/capital cost of the 9th vessel, as well as the operational costs and voyage costs.  It is beneficial to keep in mind that this strategy was originally implemented as a way of controlling capacity and has been fortunate to benefit from the high-bunker cost environment that has developed over the last year.

For companies absorbing new-build capacity, this makes sense.  What is harder to contemplate is that companies who did not order excess capacity are coming to the conclusion that they must charter-in tonnage, at very high rates, in order to adopt the same practice.

As we delivery a very heavy order book over the next two years, it will become increasingly difficult to "hide" this capacity.  Indications of weakness on the major trade lanes will only exacerbate this situation.  Unless economies recover very soon, 2009 and 2010 will be less rewarding years for container shipping companies.