Freight rates and the cost of going slow

What actually sets a freight rate

A freight rate is the price a shipper pays to move a box or a bulk cargo from one port to another, and it is set by the balance of available tonnage against cargo demand on that route, adjusted for fuel, port time and the terms of the charter. Two ships of the same size on the same route can earn very different amounts in the same week because one is on a long-term charter fixed months earlier and the other is on the spot market. The visible number, the rate quoted in a fixture report, is the end of a chain that starts with the ship's consumption figures and the price of the fuel it burns.

For anyone licensing footage of ports, terminals or ships at sea, this matters because the images that sell are usually the ones that show the physical consequence of those numbers: a queue of ships waiting off a terminal, a berth that is idle, a stack of containers that has stopped moving. The rate itself is invisible. The behaviour it produces is not.

How fuel and speed decide the voyage

A ship's fuel consumption does not rise in a straight line with speed. It rises roughly with the cube of speed, which means that cutting speed by a fifth can cut daily fuel use by nearly half. That relationship is the single most powerful lever an operator has when fuel prices move, and it explains why the same vessel may cross an ocean at eighteen knots one month and fourteen the next. The calculation is not just about fuel. Slower steaming adds days to the voyage, and those days have to be paid for in charter hire, crew costs and the loss of the next fixture. The operator is comparing two totals, not one.

This is where the commercial detail gets interesting. A time charterer who pays for fuel has an incentive to slow down. An owner who pays for fuel under a different arrangement may not. The split between who pays for the bunkers and who pays for the days is written into the charter party, and it changes behaviour on the water. Analysts who follow these decisions, such as those writing at Eitzen Group, tend to treat the charter party as the real document of the industry, because it is where the incentives are set before any ship moves.

Why do ships wait outside ports?

A queue of ships outside a port is usually not a sign that the port is broken. It is a sign that the cost of waiting is lower than the cost of arriving at the wrong time. Ports charge for berth windows, terminals have fixed labour shifts, and a ship that arrives early may simply anchor and burn nothing while it waits. The alternative, arriving at the exact hour, requires the ship to have steamed at a speed that may have cost more in fuel than the waiting costs in hire.

Just-in-time arrival, as the practice is called, is a scheduling problem rather than a technical one. It requires the ship, the terminal and the agent to share a reliable estimate of when the berth will actually be free. When that estimate is good, ships slow down and arrive on time. When it is poor, they race to the anchorage and wait. The difference shows up in fuel burn, in emissions and in the number of ships visible on the horizon from a coastal road. For a camera, the anchorage is the most legible part of the whole system: a line of hulls at rest is a picture of a decision that was made weeks earlier.

What decarbonisation options are actually being chosen?

The short answer is that no single option has won, and the choices being made now are mostly about which bets stay open. Methanol has attracted the largest share of new orders among alternative fuels because it can be stored and handled at ambient temperature and because engines for it are available today. Ammonia has a higher energy density and no carbon in its molecule, but it is toxic, and the rules for handling it in port are still being written. LNG is the incumbent alternative, widely available and well understood, but it is a fossil fuel and its emissions savings depend heavily on how much methane escapes unburned.

Batteries make sense for short sea routes, ferries and harbour craft, where the ship returns to a charging point often enough to make the weight worthwhile. Shore power, the practice of plugging a ship into the grid at berth, removes local emissions from the port but moves the problem to the electricity supply. Wind propulsion, whether as rotor sails or as traditional rigs, offers a fuel saving that depends entirely on the route and the weather, which makes it hard to finance on a fixed schedule.

The common thread is that each option trades one kind of certainty for another. A shipowner choosing methanol is betting on fuel supply and on a regulatory framework that is still moving. A shipowner choosing LNG is betting that the methane problem will be solved or tolerated. A shipowner choosing to wait is betting that the rules will become clearer before the next newbuilding contract is signed. All three are rational, and all three are visible in the order book.

How do ship finance and asset cycles interact?

A ship is a long-lived asset bought at a price that swings far more than the steel in it. In a strong market, secondhand values rise faster than earnings, and owners order new tonnage that will not arrive for two or three years. In a weak market, the same ships are worth less than their outstanding loans, and the question becomes whether to refinance, sell or scrap. The cycle is old and well documented, but it is not mechanical: the timing of newbuilding deliveries, the availability of credit and the price of fuel all shift the turning points.

Renovations complicate the picture. A ship that is fitted with a scrubber, a shore power connection or a fuel conversion is a different asset from the one that was financed. The money for those changes often comes from a separate lender or from the operator rather than the owner, and the payback depends on routes and regulations that may change before the investment is recovered. Group structures matter here too, because the entity that owns the ship, the entity that operates it and the entity that holds the charter are often not the same, and the risk sits in a different place in each case.

What the rulebook changes on the water

Regulation is not background noise in shipping. SOLAS sets the safety baseline, MARPOL sets the pollution rules, and port state control is the mechanism that turns both into inspections that can detain a ship. The Poseidon Principles ask lenders to report whether their shipping portfolios align with climate targets, which links the cost of capital to the fuel a ship burns. Automation and training rules decide how many people are on the bridge and what they are qualified to do.

For anyone filming or licensing footage of the industry, the rulebook is often the reason a scene looks the way it does. A scrubber tower on deck, a shore power cable running to a terminal, a lifeboat drill on the after deck, an inspector climbing a gangway: each is a visible trace of a text that was agreed somewhere else. The history of the companies involved, including the Tschudi and Eitzen lines, is part of the same record, because the structures that own and operate ships today were built by decisions made in earlier cycles.

The useful habit, whether you are reading a fixture report or shooting a terminal, is to ask what decision produced the scene in front of you. The rate is a number. The queue, the speed and the fuel are what the number does.

Two further entries in the log: Finance basics for beginners, and Reading Japanese books as a daily habit.