Cargill Plans 18% Speed Cut for Ships on Record Fuel Cost

Cargill Inc., the biggest charterer of dry-bulk ships, plans to reduce vessel speeds to the lowest possible in an effort to limit spending on fuel as prices reach all-time highs.

The commodity trader is looking at how to extend existing speed cuts by a further 18 percent to 9 knots, Jonathan Stoneley, environment and compliance manager of Cargill Ocean Transportation, said yesterday by phone from London. He declined to say how much the company is already saving from slow steaming, as the practice of operating a merchant vessel at less than its design speed is known within the industry.

“We’re looking at every ship to see if the investment makes sense,” Stoneley said, adding that Cargill operates about 400 vessels and spends $2 billion a year on marine fuel. Ships must be new or have engine modifications to manage the lowest possible speeds, he said.

Fuel’s average price in Singapore this year would be an annual record for data compiled by Bloomberg going back to August 2002. The share of operating costs devoted to powering ships surged to 70 percent from 30 percent because of higher fuel prices, according to Copenhagen-based vessel owner D/S Norden A/S. Increased fuel prices added to pressure on the industry as an expanding fleet and weaker demand for seaborne commodity imports reduced returns to a 14-year low.

“In the current market, the only way you can make money is excellence in execution,” Stoneley said. “There’s going to be a lot more pain before it gets better.”

200 Million Tons

Talks are under way with owners of vessels hired by Minneapolis-based Cargill to see what’s required to slow them further, according to Stoneley. The company transports 200 million metric tons of minerals, grains, and energy commodities by sea a year, he said.

Vessel fuel, known as bunkers, averaged $679 a ton in Singapore since the end of December, figures compiled by Bloomberg showed. A Panamax dry-bulk ship proceeding at 14 knots burns fuel worth $18,450 daily at current prices, according to the Baltic Exchange in London.

The dry-bulk fleet averaged 12.3 knots in August, data from Oslo-based RS Platou Economic Research showed. Slowing an unloaded tanker to 8.5 knots from 14 to 16 knots cut bunker costs by 50 percent while adding 11 days to an average round voyage, according to the website of Copenhagen-based A.P. Moeller-Maersk A/S’s tanker unit. The plan was approved by the two leading makers of tanker engines, it showed.

A further reduction of vessel speeds to 9 knots would be known as super-slow steaming. Container lines and owners of tankers started using the practice from 2009 to help manage overcapacity. Speed cuts also lengthen the time needed for a ship to complete a voyage, curbing excess capacity.

Daily average returns for all dry-bulk ships are $6,617 so far this year, the lowest level since 1998 and a 40 percent drop from last year, according to a weighted average gauge from Clarkson Plc, the world’s largest shipbroker. The year-to-date average for Capesizes, the biggest iron-ore carriers, is the lowest for data going back as far as 1990, it says.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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