Despite fall in bunker fuel costs that have been almost halved in the past six months dropping from USD 600 to USD 330 per tonne, introduction of higher speeds cannot be justified as overcapacity still prevails in the dry bulk market, according to BIMCO.
Therefore, several years of strong demand growth are needed to reduce overcapacity substantialy since demand and supply sides continue to match quite narrowly at the moment.
“When you consider the entire dry bulk fleet on a global scale, overcapacity remains substantial. In that sense, there is no overall case for increasing speed anytime soon,” Chief Shipping Analyst at BIMCO, Peter Sand, said adding that there is an operating surplus of some 25% in the market today.
As a result, to keep industry profitability slow steaming should continue being an integral part of business conduct.
According to BIMCO, in spite of bunker fuel costs coming down significantly, they remain by far the largest cost item for owners and operators.
In addition, oil price futures all present a steep contango (contango is a situation where the futures price (or forward price) of a commodity is higher than the expected spot price), the association pointed out.
“Bringing higher ship speeds back may cause some unwanted commotion to the freight market, where the norm in recent years has been one of lower and lower ship speeds. Lower ship speed has significantly assisted freight rates in staying higher than they would in the case of all ships steaming at full ahead. Reversing this trend may also mean reversing the benefits obtained from slow steaming”, adds Peter Sand.