OVER the course of the past two days we have analysed the situation on the Asia-Europe trade and have concluded that carriers are encroaching upon the profit break-even point.
Thus far, we have examined the fixed costs of running an 8,000 plus TEU time chartered vessel and measured these costs against the lowest freight rates in the trade today and found that these rates only just covered the fixed costs of running a full steaming vessel from selected Asian ports to Europe.
In addition, we found that when the speed of the vessel is reduced these rates can no longer cover the fixed cost of running the vessel from one of the selected ports used in the study—Chiwan.
However, when we continued our analysis yesterday, we shifted gears to focus on variable costs and found that the vessel operator could not cover his bunker costs if the vessel was running at full speed with the FEFC proposed BAF surcharge for the coming month.
On the other hand, the vessel operator could reduce his bunker expenditure by around 30 per cent through slow steaming and by doing so, could cover this cost.
Today we will conclude this three-part series by summarising the overall picture to give carriers a general overview of what steps need to be taken and what mistakes to avoid as we enter deeper into a second half that could prove very challenging as volumes are expected to continue declining on the trade.
Again, for the purposes of this study, we will continue our analysis using the same 8,468 TEU vessel with an effective capacity of 6,230 TEU at an assumed average weighting of 14 tons per TEU across the entire ship.
From our analysis in part one we know that by full steaming the vessel at 25 knots the operator will incur a total operating cost of roughly US$3.024 million per round trip, and will require a freight rate of at least $485 per TEU.
By slow steaming, the vessel will run an additional seven days on the ocean, and will therefore incur a higher fixed cost for the additional days at sea. The total round voyage cost for the slow steaming vessel stands at around $3.4 million, meaning that the operator will need a freight rate of $546 per TEU to cover its costs
(Source : CSM website)
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