An Analytical Study of the Break-Even Bunker Price in the East-West Intercontinental Container Shipping Market

Slow steaming is the current way of doing business in the container shipping market. In times that margins are getting smaller and smaller and overcapacity in the industry is structural, cutting costs is more important than ever before. This research investigates the costs and benefits faced by container carriers at an annual individual service level as a result of vessel speed adjustments. By means of a first difference analysis, bunker prices needed to offset cost increases resulting from consecutively vessel speed decreases by one knot are calculated. This first differential break-even bunker price analysis is a function of operating, capital, time and emission costs on the one hand and fuel consumption on the other hand. Break-even bunker prices found in this research vary between $762 and -$74 for different services and different speed levels implying the high cost savings potential at higher speeds. In this research, for several major east-west container shipping services the break-even IFO380 bunker price is computed at various speed levels. It appears that the current optimal speeds lie between 15 and 17 knots given current bunker prices in major bunker ports. This research complements existing research by completely focussing on the speed decision faced by carriers and accounting for the environmental aspect in term of CO2 emission cost. The results from this research serve as a basis for strategic decision making on individual service level from a carrier perspective in terms of vessel speed and vessel deployment decisions.