- Charterers relinquish time-chartered barges on cost concerns.
- Barges oversupply, muted demand hurts suppliers.
- Barging landscape to recalibrate as new dynamics unfold.
A Platts news source by Nicholson Lim, Surabhi Sahu and Rajesh Nair states that Singapore weak barging spreads dampen time charter market for bunker tankers.
Barge fleets downsized
Barge fleets will likely be downsized as rising operational expenditures and narrow differential between Singapore-delivered Marine Fuel 0.5%S and ex-wharf basis depresses margins.
As a result, it prompts bunker suppliers who time-chartered these barges to consider a contract lapse upon expiry, with no intention to renew it in the near term.
A Singapore-based bunker supplier said that he was turning barges eight- to-nine times a month but there was limited upside, given muted market demand.
Ample availability of barges
Ample availability of barges plying the delivered bunkers trade in Singapore stiffens price competition too, another bunker supplier said.
Data by the Maritime and Port Authority, or MPA, of Singapore showed a registry of 210 bunker barges as of March 2021, slightly down from the 215 registered barges reported in July 2020.
Determined offers amid ample availability and a firming flat price for Marine Fuel 0.5%S bunker sold on a delivered basis has led to a narrowing of the spread between product sold on a delivered basis and that on an ex-wharf basis.
This spread, much of which is barging cost, chips away at suppliers’ margins.
According to S&P Global Platts data, the differential between Singapore-delivered Marine Fuel 0.5%S and the same grade for ex-wharf basis, has narrowed to an average of $4.34/mt in June, a 36.3% decline year on year and up 79.3% on the month.
This narrowing of barging spreads eroded suppliers’ margins for delivery of bunker fuel, sources said.
Rising operational costs hurt margins
Bunker suppliers, who own barges on time charter agreements, have cited rising operational costs as another key factor that discourages ownership of chartered barges that require an average barging spread of $8-$9/mt to break even.
Apart from the rising gasoil prices, a Singapore-based bunker supplier said that barge owners also rack up substantial expenses to facilitate the 21-day stay-home notice for crew changes, which is a COVID-19-induced preventive measure mandated by the MPA. Most bunker barges use marine gasoil as bunker.
Singapore-delivered low sulfur marine gasoil prices in June averaged at $593.32/mt, 5.37% above May and up 40.98% from June 2020.
According to barge owners, a minimum barging spread of $3/mt is required to recover operational expenditures, particularly for older barges as the cost needs to be amortized over the years.
“Barge charterers face a greater challenge to turn barges, which in turn drove these suppliers of delivered Marine Fuel 0.5%S to sell at competitive prices,” said a Singapore-based barge owner.
Barging landscape gearing towards recalibration
Given the changing landscape, a short-lived transitional period will likely emerge whereby the barge owners could revise time charter rates downward to hasten the transfer of barges between charters in a bid to reduce downtime.
“Whether the diluted supply of bunker barges will lift premiums of Singapore-delivered Marine Fuel 0.5%S and effectively widen barging spreads remains a question, but supply-demand economics play a part too,” a Singapore-based trader said.
Based on the underlying fundamentals, industry sources are in consensus that the bunkering market will gradually tilt towards an equilibrium.
This implies that the supply of barges would be more balanced against the overall demand of the IMO-compliant marine fuel in Singapore’s spot market.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Platts
