The Myths About Low-Cost Bunkers

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Credits: Venti Views/ Unsplash

Oilmar Shipping and Chartering’s Maaz Ahmed is the MEA region’s regional manager for marine fuels. The views expressed in this opinion post are those of the author and do not necessarily represent those of their employer, as reported by Ship&Bunker.

High inflation

Global logistics activity appears to be in a rut in the coming months due to the socio-economic and geopolitical unrest that is roiling the world. This unrest is caused by high inflation, perpetual COVID lockdowns that are popping up here and there, a complicated conflict between Russia and Ukraine, and sluggish global commodity demand, especially from the major markets of China and India.

Nearly all sectors of the maritime and oil industries have experienced tremendous profits in recent months, exceeding all predictions. These are quite exceptional phenomena. Despite the shifting conditions in the shipping and oil industries, one activity continues.

In order to have a more sustainable outlook on how business should be performed, especially on the bunkers side of shipping, this needs to be addressed and brought up for discussion in shipping circles.

Significant liability

All bunker buyers are always searching for cheap bunkers, and this mentality needs to shift because bunker fuel is not a quickly moving consumer good. It accounts for between 60 and 70% of a vessel’s operational costs and has intricate mechanical effects on vessel performance. Additionally, it entails a significant amount of liability in terms of the specifications that must be met, potential harm to the vessel’s machinery, and at-risk commercial interests. More than just buying and selling bunkers is involved. When a ship searches for bunkers in various ports across the world, there are many factors at work, and buyers must understand that inexpensive bunkers come at the cost of cheap quality and cheap quantity. The importance of bunkers must be understood by buyers, especially medium- to small-size vessel owners and operators, who also need to be informed on how oil dynamics, pricing, and availability operate at various ports across the world. Some buyers try to negotiate prices down to the last cent, which is not good for a long-term working relationship between bunker buyers and sellers. This turns human business into superficial transactional dealing, and when issues arise, each side works to protect itself rather than supporting the other.

Seeking the lowest prices

It is really discouraging to discover as a bunker merchant that the majority of bunker buyers are seeking the lowest price with the greatest amount of credit. Since bunker exposures operate primarily on credit terms, involve significant risks, and include intricate commercial transactions, the bunker supply chain must always be a win-win scenario for all parties involved.

In order to accommodate this quest for affordable bunkers, bunker traders and suppliers continuously drive the price down; occasionally, this process results in counterparties losing counterparty credibility and support in front of refiners and cargo suppliers, leading to bunker compromise on all sides.

In order to assure seamless and issue-free supply, bunker prices should include appropriate premiums or margins that take into account all of the costs associated with carrying out bunker delivery. This is because millions of dollars worth of vessels and cargo movements are always on the line.

Some purchasers looking for inexpensive bunkers visit places like the OPL or look for unofficial sources of supply, where the danger is excessive in terms of quantity and quality while legal exposures are disregarded, leaving nothing inexpensive but claims, issues, and damages. Unsavoury players and marketplaces are produced by cheap bunkers.

Customer loyalty

Customer loyalty is unusual, and the bulk of inquiries about bunkers have the appearance of a fish market. The bunker market’s future is looking dismal due to increased pressure on buyers to get everything for as little money as possible, especially since purchasers and their management have not established any rules to make sure that the interests of all parties involved are fairly represented. The cappuccino effect, MFM manipulation, quantity shortages, and quality problems are topics that come up from time to time in the bunker and shipping sectors. I completely agree that these difficulties cannot be disregarded, but as an industry, we must never lose sight of the fact that all of these problems are directly related to the vessel owners’ and operators’ overarching search for low-cost bunkers. It’s time to bring order to this complicated predicament.

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Source: Ship&Bunker

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