Fuel is one of the biggest costs in ocean shipping, and fuel pricing has seen some big changes in recent months, featuring new dynamics that haven’t been seen in years, reports Yahoo.
HSFO Vs VLSFO
Prior to the IMO 2020 regulation implemented on Jan. 1, 2020, most of the world’s commercial ships ran on 3.5% sulfur fuel known as high sulfur fuel oil (HSFO). Ships with exhaust-gas scrubbers can continue to burn HSFO under IMO 2020, while others — the majority of the commercial fleet — have switched to more expensive fuel with 0.5% sulfur known as very low sulfur fuel oil (VLSFO).
The vessels with scrubbers that burn cheaper HSFO are predominantly larger container ships, tankers and bulkers doing long-haul runs. The discount of HSFO to VLSFO — the so-called Hi-5 spread — equates to savings on the fuel bill. The bigger the spread, the more ships with scrubbers save.
That spread has collapsed. Not only has it fallen from record highs seen after Russia’s invasion of Ukraine, it has tumbled back to levels last seen during the pandemic.
VLSFO-HSFO spread drops to $73 per ton
Ship & Bunker publishes the average price of marine fuels at the world’s top 20 refueling hubs. On Wednesday, the discount of HSFO to VLSFO dropped to just $73 per ton.
The last time it was this low was in early December 2020. The all-time low was $45 per ton in November 2020. The peak — $420.50 per ton — was hit last July.
The average discount of HSFO to VLSFO has been near or below $100 per ton since early June. This is bad news for ships with scrubbers, increasing the payback period for the installation costs.
When the spread spiked a year ago, pre-2012-built very large crude carriers with scrubbers were saving $24,000 per day in fuel costs, according to data from Clarksons Securities. On Wednesday, the savings were only $3,400 per day. Larger dry bulk carriers with scrubbers were saving $18,000 per day when the spread peaked a year ago. On Wednesday, they were saving just $2,400 per day.
