ARA Market Expects Higher Bunker Prices and Consolidation After MFMs Become Compulsory

Mass flow meters could soon become the norm for bunker supply at the ARA hub. Image Credit: Port of Rotterdam

The bunker market at the Amsterdam-Rotterdam-Antwerp hub in Northwest Europe is expecting consolidation and a rise in prices to follow the introduction of mandatory use of mass flow meters (MFMs) for marine fuel supply.

The Rotterdam and Antwerp-Bruges port authorities are currently in the process of developing a mandatory MFMs policy, with implementation expected possibly as soon as the start of next year.

MFMs are a more accurate bunker delivery measurement system than the methods currently in use, and could go some way to reduce quantity disputes in Northwest Europe.

Consultancy CE Delft has published this week a summary of the research it conducted into the ARA bunker market as part of the port authorities' decision-making process around MFMs.

65% of stakeholders interviewed as part of the research and more than 90% of survey respondents agreed that mandatory MFMs would be a solution to quantity disputes, the firm said. But the market also expected to see price rises and consolidation as a result.

"Most of the stakeholders expect that the average price of the bunkers in Rotterdam will increase as a result of an MFM obligation," CE Delft said in the report.

"This expected cost increase consists of two components: a surcharge for earning back the investment in the MFM and, if applicable, a price correction for actually delivering the agreed quantity of bunkers for the agreed price.

"According to stakeholders, an MFM obligation can also lead to market consolidation.

"According to them, larger parties are better able to finance MFMs, while smaller parties have more difficulty doing so because they operate with smaller margins.

"This may also lead to a number of bunker suppliers and transporters moving away to ports where the MFM obligation does not apply.

"The size of the Rotterdam bunker market could shrink in the short term due to the increased bunker prices, as shipping companies decide to bunker in other, cheaper ports."

Singapore's experience of introducing its MFM mandate for fuel oil deliveries from the start of 2017 gives a picture of some of the changes the ARA market might see.

There is some evidence of consolidation, with the number of licensed suppliers dropping from 58 companies at the end of 2016 to 55 by the end of 2017, and the number falling further in the ensuing years to stand at 42 today.

But little sign can be found of the market shrinking, with total bunker sales in Singapore climbing from 48.6 million mt in 2016 to 50.6 million mt in 2017.

Prices, meanwhile, rose at only a slightly faster pace than the global average. HSFO delivered in Singapore averaged $329/mt in 2017, according to Ship & Bunker data, up by 42.7% on the year, while the G20-HSFO Index of prices across 20 leading bunkering ports gained 37.5% on the year to $357.50/mt.