Legal and capacity impact of slow steaming

With the recent publicity about slow steaming, it has recently become a buzzword in the industry news circles.

Legal and capacity impact of slow steaming
03 January 2011 - 20:43

With the recent publicity about slow steaming, it has recently become a buzzword in the industry news circles. Indeed, on the surface, simply slowing down makes a certain amount of sense. However, there are legal considerations to be examined, particularly for those ship owners whose vessels are under charter.

An excerpted press release from the North of England P&I Club:

The club says chartered ships which slow down to save on ever-rising bunker costs risk being sued for breach of charterparty. Examples might include failing to ‘proceed with the utmost despatch’ under a New York Product Exchange 1946 time charterparty, and failing to ‘proceed with reasonable despatch’ under a voyage charterparty.

Slowed ships may also be exposed to claims under the bills of lading for deviation by delay. ‘Another possible risk might be indemnity claims under the charterparty for losses suffered under the bill of lading contract,’ says Baker.

Slow steaming has a customer service impact, along the entire supply chain. So many manufacturers rely on JIT supply, when their shipper starts slowing down, this forces them to adjust their entire manufacturing processes, costing the end users more money. So, the cost impact, even with fuel savings, can start to spiral upward. Shipping is a service industry. Too many problems, and shippers will start to look elsewhere. With the current overcapacity in the market, that is a real risk to ship owners.

From Gerson Lehrman Group:

The basic problem is that there is still a large order book overhang of tonnage and even some new ordering.  The slow steaming has been masking the existing over capacity and some are even calling for these measures to become permanent.  The sector would be exposed to the effects of trade rebalancing when and if this every takes place.

These ramifications along the entire supply chain take many months to be seen in total economic terms. On a circular eight ship Asia Pacific route, adding a ninth ship to the route initially makes sense, with fuel savings projected to cover the expenses associated with the extra ship. In a climate of rising fuel prices, this logic holds true, however in a climate of stagnant or declining fuel prices, a company could quickly increase its’ costs. This does not even take into consideration losses by the shippers from time-sensitive, perishable, port, or customer service delays.

Indeed, it is unlikely that any reliable studies will become available for at least a couple of years. One thing is for certain: As more companies embrace slow steaming, and it is quickly becoming SOP for the industry, the reprucussions in emissions, fuel, and the global supply chain will start to show. That is why STI advocates optimization rather than minimization: It simply makes better business sense.

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