Maersk Line Won't Cut Ship Speeds as Oil Costs Jump, CEO Says

Maersk Line, the world’s largest container shipping company, won’t cut sailing speeds further to reduce fuel costs, even after oil prices jumped 15 percent this year, Chief Executive Officer Eivind Kolding said.

“If we sail much slower, our customers may not be happy with the transit time,” Kolding, 51, said in a March 7 interview at Maersk Line’s Copenhagen headquarters. “The higher oil price has not made it more likely for us to increase slow- steaming.”

Nippon Yusen K.K., Asia’s largest listed container line, may slow its vessels by an extra 10 percent after bunker prices jumped to the highest in more than two years, the Tokyo-based company said this week. Maersk Line, owned by A.P. Moeller- Maersk A/S, will pass on fuel costs to clients and consider cutting speeds only under “extreme” conditions that would have to match the freight market collapse of 2009, Kolding said.

“We’re making sure that our higher oil costs are being covered by the bunker fuel charges that we add to the freight rates,” he said. “As long as we’re covered via the surcharge, we won’t slow down any further.”

Container vessels traveled at average speeds of 11.02 knots in February, 15 percent slower than two years earlier, according to global data compiled by Bloomberg. Maersk Line, which began slow-steaming in 2009, said on Feb. 23 that slower sailing reduced fuel consumption by 10 percent last year.

‘Watershed’ Moment

“It’s a watershed saying we can’t slow down more,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo. “It will just lead to the customers paying the fuel that Maersk uses, even if the price goes higher.”

Crude oil prices jumped to more than $100 a barrel this month on concern turmoil in Libya may spread to other oil- producing nations in North Africa and the Middle East. The price of 380 Centistoke marine bunker fuel, used by ships, rose to $611.50 a metric ton on March 8 in Rotterdam, the highest since Sept. 3, 2008, according to figures compiled by Bloomberg.

Reducing speeds helped the industry boost profit in 2010 as it trimmed the supply of transporters. An index of container shipping rates from the Hamburg Shipbrokers’ Association more than doubled last year to 555 points, and has advanced another 23 percent in 2011.

‘Top Speed’

“With the slow speeds of today container lines are out at the end of the margin curve where going even slower gives fewer cost benefits,” said Jacob Pedersen, an analyst with Aabenraa, Denmark-based Sydbank A/S. “The container industry is getting close to the point where slow-steaming has more to do with the freight market rates than with the fuel price.”

Ron Widdows, CEO of Singapore-based Neptune Orient Lines Ltd. said Feb. 16 the container industry may be able to slow more vessels to curb capacity amid weaker growth this year.

The U.S. Federal Maritime Commission said Feb. 7 it has started an inquiry into how slower container ship speeds are affecting freight rates and supply chains.

The biggest container ships use about 300 metric tons of fuel a day at top speed and sailing 10 percent slower cuts fuel use by about 27 percent, according to London-based Drewry Shipping Consultants Ltd.

Maersk Line won’t increase speeds next time there’s a shortage of capacity in the market, Kolding said.

“That would send costs higher and ruin the environmental profile we have,” he said. “So on average, we’re on our top speed now.”

To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net; Alaric Nightingale in London at anightingal1@bloomberg.net

To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net; Stuart Wallace at swallace6@bloomberg.net.

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