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Fueling a Competitive Advantage: An End-to-End Approach to Cutting Bunker Costs

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  • To gain a competitive advantage, shipping companies must reduce their single largest cost item: bunker.

  • Companies that apply BCG’s end-to-end optimization framework, which consists of six levers and four enablers, may achieve cost reductions of up to 10 percent.

  • Keys to success include achieving quick wins, using decision-support tools, streamlining processes end-to-end, strengthening skills, outlining clear responsibilities and accountabilities, monitoring performance, and creating partnerships.

 

Recent years have been challenging for maritime shipping companies across all vessel segments. Soaring bunker costs and plunging freight prices have combined to dramatically dampen industry performance—and the market is not likely to recover soon. To build a competitive advantage, as well as to relieve pressure on margins, shipping companies must focus on reining in their costs. And they should start by reducing their biggest one: bunker.

Bunker costs, which have been known to exceed 50 percent of total costs, have not only reached record highs in recent years, but they have also become extremely volatile due to broad fluctuations in crude oil prices. The chemical industry has moved refinery capacity away from bunker production because of increased demand for high-distillate products and improved refining methods. The resulting decrease in bunker supply has, in turn, caused greater increases in prices for bunker than for crude oil.

Environmental regulations, particularly those imposed by the International Maritime Organization, are also raising bunker costs. The growing number of IMO Emission Control Areas, for example, has forced shipping companies to shift a greater share of fuel consumption from bunker to more expensive, but environmentally friendlier, low-sulfur fuel. Companies must also comply with the IMO’s limitations on carbon dioxide emissions. What’s more, the IMO has required all vessels to have a Ship Energy Efficiency Management Plan by January 1, 2013, emphasizing even further the immediate need for stronger fuel-management initiatives.

Expenditures for bunker also depend heavily on how effectively a company procures the fuel, manages consumption, and implements efficiency measures. Performance varies widely. For example, BCG’s Container Benchmarking Initiative (CBI) found that bunker consumption among participants fluctuated by as much as 30 percent within any given vessel class.

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