Container ships are crossing the world’s oceans faster this year amid a red-hot freight market.
The latest ship-speed stats from U.K.-based data provider VesselsValue reveal the extent of the gains. The data also points to a surprising and potentially bearish development: Container lines have just tapped on the brakes.
Why ships speed up
In bulk commodity shipping, when spot freight rates are high, as they are now for dry cargo, operators make more money speeding up on the ballast (empty backhaul) leg so they can pick up more loads in places like South America and Australia. When spot rates are low, as they are now for crude tankers, there’s no rush to get back to places like the Persian Gulf — particularly given that fuel prices are up sharply and consumption rises exponentially with speed.
In container liner shipping, there’s a set schedule, or there’s supposed to be. The slower a shipping line can bring average speed and still keep to schedule, the less it spends on fuel and the higher its profit margin.
The primary driver of this year’s higher container ship speed is port congestion. Ships stuck for days or weeks at anchor off ports like Long Beach and Los Angeles need to race back to Asia after they finally unload to make up for lost time.
For container shipping, it’s less about a freight rate boom directly causing ships to go faster, as would be the case in commodity shipping, and more about import demand simultaneously causing a freight rate boom and clogging ports, with the latter causing container ships to go faster on backhauls.
Patrick Jany, CFO of shipping giant Maersk, confirmed during last week’s conference call that rising fuel costs in Q3 2021 were partly driven by “an increase in average speed due to the disruption across the supply chain … [as] speed was increased in an attempt to mitigate impacts to liabilities from congestion.”
Backhauls drive speed gains
VesselsValue provided American Shipper with data on container-ship speed as well as the global average speed for all commercial vessels, including container ships, tankers, bulkers and gas carriers.
The data shows that container ships are moving much quicker than other vessel types, averaging 14.64 knots year to date through October, 27% faster than the global average for all commercial ships of 11.84 knots.
In March-August, container-ship speed rose 4% worldwide versus the same period in 2020. Speed then fell back 1% in October versus the August high.
If container-ship speed is being driven by port congestion, vessels should increase their pace more on the backhaul leg than on the fronthaul, as they try to catch up. VesselsValue data on Asia-West Coast container trade lanes confirms this trend.
The speed on the China-to-West Coast fronthaul leg has kept fairly steady over the past two years. It is the backhaul leg, West Coast-to-China, that’s driving the increase, jumping 9% during the past 12 months versus the preceding 12 months.
There were some months when West Coast-China backhaul speed actually matched or exceeded average speed on the China-West Coast fronthaul leg.
The same pattern is seen in Southeast Asia-West Coast trade. (VesselsValue data includes includes Taiwan and a portion of China, from Fujian southward, in Southeast Asia.) Backhaul speeds began exceeding fronthaul speeds starting in late 2020.
The pattern repeats yet again in the trade between the West Coast and North Asia (primarily Japan and South Korea): Rising backhaul speeds have driven gains over time.
Speeds are pulling back
In all of these trans-Pacific trades, on both the fronthaul and backhaul, speeds have pulled back over the past one to two months.
Looking at the data globally, VesselsValue broke down the average speed by size of container ship — and no matter the size, there has been at least some recent pullback.
A number of factors may be affecting ship speeds. Fuel costs might be one factor.
According to Ship & Bunker, the price of very low sulfur fuel oil (VLSFO) at the world’s top 20 ports jumped almost 20% in the September-October period when container-ship speed pulled back. VLSFO prices are up 52% year to date.
In the case of ultra large container vessels (ULCVs), the speed reduction might be fronthaul-related. Such vessels are overwhelmingly deployed in the Asia-Europe trade. According to data provider Alphaliner, “In Europe, some big ships avoid waiting at anchorages by sailing at slow speed from one port to another.”
There have also been several storm-related port closures in Asia over recent months, as well as COVID-related supply chain fallout and, in the case of China, negative effects on manufacturing from power shortages.
But if trans-Pacific backhaul container speeds are driven by port congestion, why would they be slowing? Congestion in Los Angeles/Long Beach remains near all-time highs, with 72 container ships stuck offshore as of Friday, not far below the record of 80 set on Oct. 17.
Chinese power outages do not explain backhaul speed dips to Japan, South Korea and Southeast Asia. Furthermore, fuel cost increases pale in comparison to freight income from higher carried volumes.
That brings up a more bearish theory: that demand may be pulling back, at least temporarily, given that it’s now too late to import goods that will arrive in time for the holiday season. The peak of peak season appears to have passed. Spot rates are still historically high, but several indexes show rates plateauing or pulling back moderately. Theoretically, slower speeds on backhauls could help support rates.
Drewry’s weekly container rate assessment peaked in September both globally and for the Shanghai-Los Angeles route. Last week, Drewry’s global assessment shed another 5% and its Shanghai-Los Angeles assessment dropped 7%.
In the ship-leasing market, the Alphaliner charter index just fell for the first time since June 2020, brought down by lower rates in the “overheated” short-term market.
And there is also evidence of some softening in shipper import bookings. FreightWaves’ SONAR platform features proprietary data on ocean bookings. This booking data for U.S. imports shows a slowdown since September, mirroring the trends in spot rate, charter rate and speed data.