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While shippers have been warned that low-sulphur regulations to be enforced globally in 2020 will see bunker costs added to their freight bill, they could also face a huge upswing in freight rates if new proposals to cut vessel speeds, due to be discussed at the International Maritime Organization (IMO), turn into regulation.
At this week’s TPM conference in Long Beach, World Shipping Council (WSC) vice president Bryan Wood-Thomas said the IMO would next month meet to discuss curbs on greenhouse gas (GHG) emissions from shipping – and potentially the enforced reduction of ship speeds.
Shipping consultant Franck Kayser, until recently chief operations officer at CMA CGM, said his “coffee pot” prediction was that if speed limits were enforced – reductions of 10-30% – shippers could be faced with freight rates increasing 25-30% and bunker adjustment factors (BAFs) rising 50%.
“If speed restrictions come in, that will require a huge increase in the number of vessels required to fulfil existing cargo volumes, and demand will outstrip supply.
“For example, it currently takes 10 vessels to operate a weekly Asia-US east coast service. If service speed was forced to decline by 10%, you would need 11 vessels; if it was 20%, you would need 12, and so on…
“It is obvious that demand would outstrip capacity and for the shipper, the costs are going to go up,” Mr Kayser said.
Mr Wood-Thomas said the IMO and national governments were looking at vessel speeds because there was already a general agreement among governments that emissions had to be reduced.
“Although this is likely to be highly controversial within the shipping industry, there are now some very influential governments that say emissions of all sorts have to be reduced, and you can do that significantly through speed reduction, without technological changes.
“But there are tremendous complications – a 30% reduction in vessel speeds will require tremendous capital expenditure on the part of shipping lines to move the same amount of cargo around the world,” he said.