Sylvie Willis
The cost of fuelling a cargo ship varies depending on the type of fuel used, the size of the ship, and the route taken. Fuel typically accounts for around 50% of a ship's total running costs, with crewing costs being the second highest expense. The price of ship fuel has been increasing, with the average price of Very Low Sulphur Fuel Oil (VLSFO) at the top 20 marine fuel supply hubs peaking at $1,125.50 per ton in June 2022. The price has since decreased to around $600 per ton. Ships can also use Heavy Fuel Oil (HFO) or Marine Gas Oil (MGO), but these may require the use of scrubbers to comply with sulphur emission regulations. The cost of refuelling a large cargo ship can be up to $16.5 million.
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What You'll Learn
Fuel costs can be up to $16.5 million
Fuel is typically the single biggest expense when it comes to running a ship, accounting for around 50-60% of a ship's total running costs. The cost of refuelling a ship depends on the type of fuel loaded, the size of the ship, and the length of its journey.
The three main types of fuel used by cargo ships are Heavy Fuel Oil (HFO), Marine Gas Oil (MGO), and Very Low Sulphur Fuel Oil (VLSFO). The price of HFO hit a global average low of $144.50 per tonne in January 2016, but in May 2022, the global average price hit an all-time high of $745 per tonne. The price of VLSFO has also been increasing, with an average price of $1,042 per tonne in June 2022, and an average price of over $900 per tonne in July 2022.
Due to regulations introduced by the International Maritime Organization (IMO) in January 2020, all ships must burn fuel with a sulphur content of 0.5% or below. Some areas of the world require ships to burn fuel with a sulphur content as low as 0.1%, which comes with additional costs for shipowners. Shipowners must either purchase Very Low Sulphur Fuel Oil, which satisfies the IMO's requirements, or they can buy Heavy Fuel Oil or Marine Gas Oil and run it through a scrubber system that reduces the sulphur expelled when the fuel is burned.
The cost of refuelling a cargo ship can be up to $16.5 million. This is a significant expense, and it is no wonder that fuel costs are a major concern for the shipping industry. The high cost of fuel can impact the price of shipping goods, as ocean carriers are required to recover these costs to maintain their levels of service.
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Fuel is the biggest expense when running a ship
The cost of refuelling a ship can also depend on its fuel capacity and the length of its journey. The Emma Maersk, the world's longest in-service ship, has a fuel capacity of 2,300 tons and can burn 20.6 tons of fuel per hour. The largest container ships typically take more fuel because of the length of their journeys. For example, the MV Colombo Express has a cargo capacity of 93,750 tons and an estimated annual fuel cost of $64.5 million. The cost of refuelling the largest container ship in the world is approximately $14 million.
The type of fuel used by ships is regulated by the International Maritime Organization (IMO), which has set a limit of 0.5% sulphur content in fuel since January 2020. Some areas of the world require ships to burn fuel with a sulphur content as low as 0.1%, which comes at an additional cost for shipowners. To comply with these regulations, shipowners can either switch to low-sulphur fuels or install scrubber systems to clean exhaust emissions. The additional cost of low-sulphur fuel for a 20,000 TEU ship would be $50,000 per day, while the cost of installing a scrubber system for this size of ship would be around $8 million.
The rising cost of fuel has a significant impact on the shipping industry, with fuel costs accounting for up to 60% of total ship operating costs. The challenge of recovering these costs from cargo customers, especially in an uneven market, can affect the sustainability of the business. The transition to green" fuels, such as LNG or methanol, is expected to further increase fuel costs for shipowners and operators, who may pass these costs on to cargo shippers.
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Fuel prices vary depending on the location
The price of fuel also varies depending on the regulations in place at specific locations. For example, authorities in Shenzhen, the world's third-busiest container port, introduced tighter controls, demanding that ships calling there do not use fuel with a sulfur content of more than 0.5%. This increase in the cost of fuel can be mitigated by using scrubbing technology, which costs around $8 million to install on a 20,000 TEU ship. However, there is some debate about whether these scrubber systems are cost-effective, and not all ships use them.
The price of fuel can also be influenced by the type of ship and its route. For example, larger ships that do long-haul runs are more likely to have scrubbers installed. Additionally, an economical route for a ship is one where the ship can take advantage of following wind or tide or can achieve a constant, fuel-efficient speed. This means that it is economically important for ship officers to plan and execute a route that is both safe and economical.
The cost of fuelling a cargo ship can vary significantly, with estimates ranging from $14 million to $16.5 million to fill up a large cargo ship. The variation in cost can be attributed to the different types of fuel used, the size of the ship, and the location where the fuel is loaded.
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Fuel type depends on sulphur content regulations
The fuel type used by cargo ships depends on the sulphur content regulations of the region they are operating in. In recent years, there has been growing concern about the environmental impact of the maritime industry, particularly concerning air pollution. Bunker fuel, a type of heavy fuel oil (HFO) used to power ship engines, contains high levels of sulphur. When burned, it releases sulphur dioxide into the air, which can cause respiratory problems and other health issues in humans.
To address this issue, the International Maritime Organization (IMO) has implemented new regulations under MARPOL Annex VI, which limit the sulphur content of bunker fuel. Since 2020, ships operating outside Emission Control Areas (ECAs) have been required to use fuel oil with a sulphur content of no more than 0.50% m/m (mass by mass). This limit is even lower for ships operating within ECAs, which have been designated by the IMO for the control of sulphur oxides (SOX). Within these areas, ships must use fuel with a sulphur content of no more than 0.10% m/m.
Ships can comply with these regulations in several ways. One option is to switch to ultra-low sulphur fuel oil (ULSFO) or very-low sulphur fuel oil (VLSFO), which have a maximum sulphur content of 0.10% and 0.5%, respectively. Another option is to continue using HFO but to install scrubbers, which remove sulphur from exhaust fumes, enabling ships to meet the required emissions standards. However, there is some debate about the cost-effectiveness of scrubber systems, and not all ships use them.
The cost of complying with these regulations can be significant. Low-sulphur fuel oil (LSFO) is more expensive to produce than high-sulphur fuel, and this price increase is passed on to customers. For example, the additional cost of LSFO for a 20,000 TEU ship would be $50,000 per day. As a result, some shipowners have opted to install scrubber systems, despite the high upfront cost of around $8 million.
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Fuel costs are passed on to cargo customers
Fuel costs represent between 50% to 60% of a ship's total operating costs, with crewing costs being the second-highest expense. This percentage can vary depending on where the fuel is loaded and whether the ship is sailing on an economical route. An economical route is one where the ship may have a following wind or tide, or can achieve a constant, fuel-efficient speed.
Fuel costs are a significant expense for cargo ship operators, and these costs are typically passed on to cargo customers. However, the recovery of fuel costs from cargo customers is challenging due to several factors. Firstly, vessel capacity utilisation is often not 100%, and trades are not evenly balanced. Different trades and commodities can handle different levels of rates, and fuel prices continue to rise. If a cargo shipper pays less than their share of fuel costs, other shippers must make up the difference, or the carrier may fail to recover their operating costs. This situation is not sustainable for the shipping industry.
The cost of refuelling a ship can vary depending on the type of fuel used and the size of the ship. The three main types of fuel used by ships are Heavy Fuel Oil (HFO), Marine Gas Oil (MGO), and Very Low Sulphur Fuel Oil (VLSFO). The price of these fuels can vary significantly, with HFO costing $144.50 per tonne in January 2016 and reaching an all-time high of $745 per tonne in May 2022. Low-sulphur fuel oil (LSFO) is even more expensive, currently costing around $600 per tonne. The cost of refuelling a large container ship can be up to $16.5 million.
To comply with environmental regulations, shipowners may need to switch to cleaner fuels or install scrubber systems to reduce emissions. Switching to cleaner fuels, such as diesel or liquefied natural gas (LNG), can increase fuel costs. Alternatively, installing scrubber systems can be costly, with an estimated price of around $8 million for a 20,000 TEU ship.
As fuel costs continue to rise, the price of shipping goods will also face upward pressure. The shipping industry is facing the challenge of recovering fuel costs while maintaining its levels of service.
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Frequently asked questions
The cost of fuelling a cargo ship varies depending on the type of fuel used, the size of the ship, and the location of fuelling. Fuel costs for cargo ships can range from hundreds of thousands to millions of dollars. For example, the average price of Very Low Sulphur Fuel Oil (VLSFO) was $608 per ton in April 2023, while Heavy Fuel Oil (HFO) averaged $476 per ton. A 20,000 TEU ship using VLSFO would incur an additional $50,000 per day.
The price of ship fuel is influenced by global regulations, such as the requirement to use fuel with a lower sulphur content, as well as the availability and cost of alternative fuels like LNG or methanol. The type of ship and its route can also impact fuel costs, with some ships utilising economical routes that take advantage of following wind, tide, or fuel-efficient speeds.
Fuel costs represent a significant portion of a ship's total operating expenses, often accounting for up to 50-60%. As fuel prices rise, cargo shippers may be expected to cover these increased costs, leading to higher prices for transporting goods. This can create a financial burden for shippers and impact the sustainability of the industry.
One method to reduce fuel costs is to invest in scrubbing equipment, which removes sulphur from exhaust fumes, allowing ships to use cheaper fuels like High Sulphur Fuel Oil (HSFO). Ships with scrubbers can benefit from the lower cost of HSFO compared to VLSFO, resulting in significant daily savings. Additionally, wise planning can help shipowners save money by choosing when and where to refuel, as fuel prices vary across different ports.
The push for cleaner fuels and the adoption of regulations to reduce sulphur emissions have driven the shipping industry to explore alternative fuels and technologies. While this can lead to increased fuel costs in the short term, it also encourages the development and utilisation of more environmentally friendly solutions, helping to reduce greenhouse gas emissions and maritime pollution.
