Bunker barge bottlenecks cause VLSFO to rocket in price at ports
Logistics issues are resulting in delays and shortages of very low-sulphur fuel oil and are pushing up the price of compliant bunkers
A surge in demand for very low-sulphur fuel oil (VLSFO) from tramp shipping operators combined with bunker barging bottlenecks are causing supply sourcing difficulties and exceptional price spikes at many ports in the first two weeks of IMO 2020.
While bigger shipping groups that prepared for the global switch to 0.5% sulphur fuels by securing bunker contracts are reporting a smooth switchover, smaller shipping outfits and tramp operators are being caught out by logistical bottlenecks, causing an inability to deliver fuels and major price spikes.
As TradeWinds went to press, reports filtered through that six 1,500-teu and 6,600-teu boxships operated by Pacific International Lines had been parked in Singapore for up to three weeks due to difficulties securing bunkers.
Bunker players and analysts concur that a shortage of delivery barges and other equipment in Singapore and other ports had caused owners to have to look elsewhere or pay more for supplies as demand for VLSFO has surged.
Svend Molholt, chief operating officer of Danish bunker supplier Monjasa, told TradeWinds: “At the end of 2019 we saw more and more owners taking more stems with fewer tonnes, trying to run on high sulphur for as long as possible. Entering 2020, that vacuum of demand opened up so owners are now purchasing larger lots because they require more fuel.”
In the first two weeks of 2020, Molholt said Monjasa had delivered 260,000 tonnes of fuel, up 60% from 160,000 tonnes in the same period a year ago, with average fuel order volumes rising from 380 tonnes to 500 tonnes.
“The release of this vacuum has put pressure on the supply chain — with barge availability and logistical issues with the number of vessels wanting to bunker at different terminals. This imbalance in supply and demand has translated into premiums and pricing structures that are not reflective of a balanced market.”
Molholt said larger owners and liner companies have planned for the transition and secured barges and direct contracts, but the imbalance is playing out in the tramp sectors and for smaller operators who had not prepared as well.
Adrian Tolson, insight lead at communications consultancy Blue, told TradeWinds that a vicious circle of tightness and availability is transferring itself across the world as everybody sees the same issues and looks elsewhere for fuel supplies.
“Singapore’s tightness is not product availability, but on the barging side,” he said. “VLSFO trading at nearly a $100-per-tonne premium to wholesale diesel is ridiculous. It does not make sense, but it is being driven by a lack of barges to deliver the distillate. You can be tempted by the diesel but cannot get it on the ships.”
Tommaso Panzeri, project manager at Italian supplier Bunker Energy, said similar issues were being seen in the Mediterranean, citing vessels diverting from Malta to its supply ports for fuel.
“The difficulty finding compliant product and the lack of barge tankage has caused a dramatic increase in demand that found many bunker suppliers unable to satisfy,” he said.
Ships have been facing long waiting lists at loading points, overbooking and congestion forcing them to go in search of suitable fuels.
Mikki Koskinen, managing director of Finnish bulker owner ESL Shipping, said it had encountered problems finding low-sulphur fuel.
"We have had a bit of a bottleneck and a delay in Gibraltar for our supramaxes, so we had to look elsewhere," he said.
Panzeri added that shortages of VLSFO have at points led to owners accepting any price to fill up, but pricing is fluctuating day by day, with competitive offers being traded at other times.
Most sources expected supply and pricing fluctuations to continue throughout the first quarter, but to die down as the market stabilises. However, Tolson added that the drawdown of floating storage could be an issue in the second quarter.