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High bunker prices – where is the shipping industry heading?

By • Sep 1st, 2008 • Category: General

High bunker prices – where is the shipping industry heading?
by Ravindra Galhena

The world saw the highest ever oil prices in the middle part of this year. The bunker prices that remained around US$450/tonne a year ago rose to US$800/tonne or so.

Most shipping companies adapted a slow-steaming policy to save bunkers as partial solution. Liner shipping companies (container) commenced to phase in additional tonnage/vessels to provide services uninterruptedly and maintain schedules. They reckoned this as a more economical solution although the charter higher for a 6,000 – 10,000 TEU vessel is ranging between US$30,000 and US$50,000 a day. Among other measures, introduction/increase of Bunker Adjustment Factor (BAF) and removal of some service strings were seen.

From the supply side, Maersk Line and the New World Alliance (may be a few others) removed some service strings in the Asia-Europe tradelane (the heaviest route), as the demand for imported goods decreased in Europe owing to the credit crunch, recession and various other economic woes. But the back-haul leg has shown positive developments as far as the international trade is concerned, based on stronger Asian currencies.

The order-book is heavy, a considerable amount of fairly large box ships meant for the Asia-Europe trade are to be delivered in the next 24 months or so. The question now is; where these ships can get deployed if the situation remained unchanged.

When the demand is less, laying up the extra capacity is one of the most economical ways of controlling the supply. Is the container shipping industry heading this direction now?

ABOUT THE AUTHOR:
Ravindra Galhena is a Fellow of the Institute of Chartered Shipbrokers and the Chartered Institute of Logistics and Transport. He also holds a PG Diploma in Port and Shipping Administration and an MSc in International Trade and Transport.
Ravindra is a writer/analyst for ‘Containerisation International’ magazine and a tutor for Institute of Chartered Shipbrokers.
Presently, he is reading for a doctoral degree at Loughborough University in Maritime Logistics.
Ravindra is also the author of the UNCTAD monograph entitled ‘Container Terminal Development and Management: the Sri Lanka Experience (1980-2002)’

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