Slow steaming impacts on ocean carriers and shippers
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Slow steaming impacts on ocean carriers and shippers M i c h a e l M a l o n i a , J o m o n A l i ya s Pa u l b a n d D av i d M . G l i g o r c a
Department of Management and Entrepreneurship (BB337), Coles College of Business, Kennesaw State University, 1000 Chastain Road, #0404, Kennesaw, Georgia 30144-5591, USA. b Department of Economics, Finance, & Quantitative Analysis, Coles College of Business, Kennesaw State University, 1000 Chastain Road, Kennesaw, Georgia 30144, USA. c Department of Marketing and Supply Chain Management, Henry W. Bloch School of Management, University of Missouri-Kansas City, 5110 Cherry Street, Kansas City, MO 64110, USA.
A b s t r a c t Ocean container carriers have implemented slow steaming (reduced vessel speeds) in recent years to improve fuel efficiency and lower greenhouse gas emissions. However, many shippers oppose the practice due to increased pipeline inventory associated with longer transit times. Given this conflict, this article seeks to quantify the costs and benefits of slow steaming relative to carriers and shippers. We simulate a high volume AsiaNorth America container trade lane to estimate slow steaming impacts under different vessel speeds, volumes and fuel prices. Under current conditions, the results justify slow steaming practices, revealing extra slow steaming as the most beneficial vessel speed with a 20 per cent reduction in total costs and a 43 per cent reduction in carbon dioxide emissions. Extra slow steaming is also optimal for future volumes and a wide range of fuel prices. Furthermore, the results detail carrier and shipper cost trade-offs, thus offering practical evidence and transparency to the industry on how to create financial equity in facilitating contractual-based agreements for vessel speed standards. Maritime Economics & Logistics (2013) 15, 151–171. doi:10.1057/mel.2013.2
Keywords: ocean freight; slow steaming; international logistics; environment; simulation
r 2013 Macmillan Publishers Ltd. 1479-2931 Maritime Economics & Logistics Vol. 15, 2, 151–171 www.palgrave-journals.com/mel/
Maloni et al
Introduction Ocean transport contracts often refer to ‘utmost dispatch’, urging carriers to pursue speeds as fast as reasonably possible (Alvarez et al, 2010). In recent years however, ‘slow steaming’ (that is, slower vessel speeds) has become commonplace in order to improve vessel fuel efficiency (Cameron, 2010; Johnson, 2010a; Leach, 2010a). Considering that larger vessels may consume several hundred tons of fuel per day at US$700 þ per metric ton (MT) (at the time of writing), the resulting cost savings can be significant. It is estimated that slow steaming can save carriers $3 billion in fuel annually (Page, 2011). Additional slow steaming benefits include reduced greenhouse gas (GHG) emissions, absorption of excess fleet capacity and increased schedule reliability. Although carriers have identified slow steaming as a win for all stakeholders (Barnard, 2010c), shippers are expressing concerns (Dupin, 2011b). Shippers can benefit from slow ste
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