Four-fifths steam ahead!

Four-fifths steam ahead!

Thomas Timlen Asia liason officer, BIMCO tt@bimco.org

On Second Thought'

   Among the issues explored in Eric Johnson's May column was the increasing use of slow steaming and its relationship to bunker surcharges ( 'Time ripe for slow steaming answers,' page 46 or www.AmericanShipper.com/links ).
   While that is a key concern in the complex issue of slow steaming, its usage has not arisen solely as a result of increasing fuel prices.
   Carriers were not motivated to implement slow steaming as a result of increasing fuel prices, but more in response to a sudden and drastic overcapacity of vessel tonnage. The reality of zero-freight as global markets plunged in 2008-2009 is a clear and recent memory, as the only revenue some carriers received were terminal and bunker surcharges.
   An obvious solution that carriers had ample previous experience with was to lay up ships. As a result anchorage areas soon became congested, while several carriers even decided to put ships into long-term 'cold-layup.'
   But still, the bleak market was too weak and additional action was required, hence, slow steaming became increasingly popular, eventually helping the market to achieve a modest recovery.
   Aside from tonnage overcapacity, another benefactor of slow steaming is the global environment. The industry faces international demands to lower emissions of greenhouse gasses (GHG). Far ahead of any mandatory regulations capping carbon, sulfur and other emissions, slow steaming ships operate in a more environmentally friendly manner, emitting fewer GHGs as a result of consuming less fuel.
   While the International Maritime Organization explores technical and market-based solutions for global application to reduce emissions, slow steaming is perhaps the easiest to implement for all ships, regardless of age, design or trading pattern. Refitting is not required, nor is there any international certification or similar bureaucracy.
   To illustrate just how much the environment benefits from slow steaming, consider that an 8,000-TEU containership reducing its speed by 20 percent can cut its fuel consumption in half, while significantly shrinking its 'carbon footprint.'
   However, such changes have introduced new questions, such as those Johnson identified regarding whether shippers should share in the 'cost savings' of slow steaming.
   There are a few important things to keep in mind. First of all, ship operators always seek to run their fleets in the most efficient ways possible. The profit margins on the goods carried are incremental. If you consider ocean transport costs often amount to less than 2 percent of the retail shelf price of the goods transported, you can easily see how little this contributes to a carrier's revenue. This is only possible as a result of the efficiencies of ocean transport.
   Another aspect is the difference between fuel cost and fuel consumption. Had surcharges been based on fuel consumption, then shippers would have a much stronger case in seeking relief. However, surcharges are based on fuel cost. Regardless of the quantity consumed, if the price at the pump increases, so too will the carriers' costs.
   As Johnson reported, several entities are examining slow steaming and seeking to reach consensus on the related issues. BIMCO is also taking a close look for several reasons.
   Our technical experts are working with IMO member states and other non-governmental organizations to identify workable technical solutions. BIMCO also chairs an IMO working group that is examining market-based solutions. In both areas progress has been achieved yet there is still much work to be done.
   The example of slow steaming halving fuel consumption is certainly encouraging. However, different ships, depending on design and technical characteristics of their engines, have varied abilities to alter cruising speed. Hull and engine designs are based on specific optimal speed range, and operating outside the optimal range can result in engine damage. Remember, on most large cargo ships you cannot shift gears as you can behind the wheel of your car. The props spin at the same rpm as the engine, so there are limits depending on the specific engine of each ship.
   Aside from technical restrictions, there are often competing needs of the various parties involved with each shipment, including but not limited to the shipper, receiver, agents, forwarder, brokers, ship owner, ship operator and terminal operator.
   Recognizing that slow steaming will be with us for some time, and that it will affect various contractual obligations, BIMCO is developing clauses that can be used in shipping contracts aimed at clarifying the respective roles and responsibilities of all involved.
   Part of that work seeks to facilitate the practice of slow steaming and the concept of 'virtual arrival' to reduce GHG emissions. In this approach, by agreement with the shippers and the terminal, the ship would be allowed to steam at a more environmentally friendly speed that would bring her alongside just as a berth is available for cargo operations, based on advice issued by the terminal operator. This is a great 'green' concept, but it requires the agreement of all parties involved with the shipment to work. The BIMCO clauses will hopefully make that easier to achieve.
   Slow-steaming clauses for both time and voyage charters will cater to the varied ability of different ship types to reduce speed while also addressing contractual and commercial aspects.
   Incorporating BIMCO's slow steaming clauses will in some ways enhance the transparency between shippers and carriers at least in respect to the allocation of contractual obligations.