Everyone knows the incredible story of the quality movement in Japan. Prior to 2nd World War, Japanese products were known for the lowest cost and lowest quality. Even a Japanese Ping-Pong ball would crack after a few strokes of the bat. Then came the Quality Movement in which 2 Americans became the Gurus for the Japanese Industry. Starting from there to the point when the Lexus Car has the fewest problems of any car made in any country is the success story of Japanese Industrial might.
I had a small tab on my table and it read “If you want Quality Oats you have to pay the right price. If you do not mind oats which has passed through the system of the horse, that comes a little cheaper”
Bunker fuel industry offers the strange anomaly of total disrespect for quality. Quality fuels do not command a premium. In fact, they may command only a lower price in the market. Let me explain.
By far the best bunker fuel supplied in the world is at Jeddah, Saudi Arabia. It is well known that, lower the density, better the quality and ignition property of a bunker fuel. The heavy fuels in Jeddah have a density of 971 kg/m3. Bunker fuels are paid on the mass of the fuel, not the volume and certainly not the quality. The Jeddah fuels weigh less because of the lower density and command much lower prices per metric ton than vastly inferior quality fuels from other parts of the world which are blended and manipulated to reach the limiting density of 991.
You may ask why this strange anomaly. If you know the history of shipping, you will understand this. Ships (the assets) are owned by one group of people. They are hired (chartered) by another group of people. They are managed (operated and used) by a third set of people. The interests of each group are different. Since the charterer pays for the fuel, he tries to buy the lowest cost (aka lowest quality) fuel. He does not care for the asset. You cannot blame the charterer. When you get into a taxi, do you really care if the driver is filling gas from Exxon or Shell or Valero. Therefore, poorest quality fuels are in maximum demand. This has created a market situation where premium quality bunker fuels never command a premium. Differences in bunker fuel prices are dictated by demand and supply logistics considerations alone.
There are many interesting real life stories and these will be narrated in the future blogs.
Keep in mind. If there is one industry which pays zero respect for quality – It is the bunker fuel industry.
Only a massive restructuring of the way this business is carried out can change this anomaly. It is a global challenge. Will we rise up to it?