Walking a tightrope blindfolded
20th July 2015 10:36 GMT

Its not easy to run a successful bunker business; ask anyone who recently held a senior position with OW Bunker.

Better still, check with the Sri Lanka Ports Authority (SLPA). They began supplying bunkers at Hambantota in the middle of last year.

They were pretty confident. It was a new operation. True, it was running years behind schedule, but nevertheless, the new port was backed by Chinese finance. Hambantota was close to major shipping lanes. Bunker calls were to be exempt from port dues.

On top of that, the SPLA had decreed itself the monopoly supplier. What could go wrong?

It’s not the purpose of this column to work that out. Suffice to say that in February bunkering operations were suspended. The SLPA was reported to have run up losses of some $16 million.

Two months later it was looking to the private sector for help, “desperately” seeking a suitable partner for a joint venture.

With hindsight, some sources suggested the SLPA had taken on more than it could handle. Hardly a breathtaking insight. Bunkering, as the Authority had found out the hard way, is a specialist business.

Specialist or not, it is a business that has far-reaching consequences. According to the Reuters market analyst John Kemp, bunker prices have a disproportionate influence on the global economy.

While freight charges typically make-up only a small proportion of an item’s price at the point of sale, they are large in comparison to profit margins. “Cheaper transportation has a direct impact on corporate profitability. Cheaper bunker fuel acts as a stimulus to large parts of the global economy.”

Kemp predicted that the low bunker prices prevailing from the second half of last year would stoke demand for shipping services and hence for bunker fuel. "With lower fuel costs containerships, oil tankers and bulk carriers are speeding up to cut total voyaging costs - sacrificing more fuel consumption for shorter journey times and faster turnarounds.”

Pity the poor bunker player about to take a strategic decision. Why? Because just two months earlier another respected analyst, addressing the issue of slow steaming, had concluded the opposite.

His case was that ship operators had got used to slow steaming, had made expensive modifications to their vessels, and were hardly likely to throw their investment to the winds.

Or take another unknown. Should suppliers be preparing for a global 0.50% sulphur limit for bunker fuel in 2020 or 2025?

The date is of huge importance to the bunker and shipping industries. But we are unlikley to know until 2018, the year the International Maritime Organization is due to publish a fuel availability study.

No wonder some sections of the industry have a reputation for focusing on the short-term. Long-term decisions have too many imponderables.

Even for dedicated bunker players, with years of experience, the market is an unpredictable and unforgiving place. There are bound to be casualties along the way. Neither private companies nor state enterprises are exempt. Playing the bunker market is an exacting discipline.

This text first appeared as the 'Commentary' column in the June 2015 issue of the Bunker Bulletin, the Bunkerworld magazine.

Nick Jameson,
20th July 2015 10:36 GMT

Comments on this Blog
Mustafa Muhtaroglu - Enerji Petrol Denizcilik ve Ticaret A.S (Energy Petrol)
22nd July 2015
Very good point Nick, thanks
Do you expect any decrease for number of suppliers world-wide ?
John Phillips - GP Global APAC Pte. Ltd.
13th August 2015
Nice item Nick - enjoyed it...
agoetfme agoetfme
3rd September 2016
agoetfme agoetfme
3rd September 2016

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