The economic impact of fuel consumption uncertainty for tankers

Abstract

In this thesis, we evaluate how uncertainties in ship operation, particularly fuel consumption, impact speed optimization and profit maximization. By courtesy of SKS Tankers AS, three years of noon reports and the ship management history of ten sister ships are analysed. This data allows us to forecast and compare how factors such as ship speed, weather forces and hull fouling uncertainty impact fuel oil consumption. We find that a proper assessment of the hull fouling condition is critical to avoid bias in other important variables’ coefficients, yet finding a good proxy based on observable variables is found very difficult. Even though weather data in our noon report is limited, we show how wind, wave and swells drive up fuel oil consumption by specifying a detailed empirical model based on noon report data and assumptions based on naval architecture theory. Empirical results show that optimal speed is very sensitive to bunker price rather than freight when subject to various weather and hull fouling conditions. In an era of expensive bunker price, the difference between theoretical optimal speed in idealized conditions and our empirical model is large. To the best of our knowledge, the economic impact of uncertainty in weather and hull fouling conditions has not been empirically estimated on the basis of detailed noon report data. In this regard, we hope this thesis is useful as the first attempt to analyse how various factors in reallife ship operation change the decision making for profit maximization and speed optimization.