Industry Insight: How Real Time Software Provides a Bunker Fraud Firewall

Screenshot of the ClassNK-NAPA GREEN software

The introduction of mass flow meters to Singapore is expected to clamp down on the widely publicised malpractice 'cappuccino effect' fraud. But with high fuel prices fostering heightened temptation for unscrupulous suppliers and surveyors, it's unlikely that fraudulent activity will cease entirely. Esa Henttinen, executive vice president at NAPA for Operations, reports on the lesser-known malpractice of bunker consumption fraud and advises on how software can protect shipowners and charterers, who most often pay for the fuel.

Esa Henttinen, Executive Vice President, NAPA for Operations

Fraud has existed in the maritime industry since its origins, but the prevalence of bunkering crime is of particular concern to today's fuel payers, who, faced with sustained high bunker prices, spend up to 80% of operational expenses on bunker purchasing.

Although bunker fraud is said to be on the increase, understanding the full extent of this crime is difficult due to the relatively outdated methods of clarifying the quantity of fuel dispensed versus the amount purchased. For example, it remains common that bunker deliveries are manually measured by 'dipping' to determine the quantity of bunker delivered. Anyone who has purchased bunker fuel will know that in all probability the majority of fuel purchases are short-changed, either deliberately though criminal acts or unintentionally through lack of detection.

In a recent industry article the CEO of an established global bunkering firm echoed this sentiment, declaring that 'practically everyone' was affected by the malpractice. Recent figures suggest that ship owners and operators expect to lose between four and five percent of bunkering fuel purchased a year to fraud. In other words, a vessel owner consuming 50 tonnes of fuel a day at $600 and sailing 250 days per annum would be shortchanged to the tune of an average $375,000 per year. In large bunker deliveries where owners, operators and charterers are already experiencing squeezed margins, the serious financial implications of this are clear.

Malpractice Methods and Claims

Ask any bunker bill payer about the most common 'tricks of the trade' and the likely response will concern disputes and misdealing in respect to the quantity of fuel delivered. In a fraudulent transaction coined 'the cappuccino effect', this practice involves unscrupulous suppliers and surveyors overstating the amount of bunkers supplied, a deception achieved by either pumping air into bunkers or heating them to increase their volume. It can take a number of days to uncover the deception, by which time, with the vessel at sea, the deadline for submitting a Letter of Protest to query a delivery with the bunkering supplier is likely to have passed.

Mass flow meters, which are able to make fluid measurements based on mass and not volume, will go a long way to helping eliminate wide-scale practice of the cappuccino effect when they become mandatory in the world's largest bunkering hub of Singapore on January 1, 2017. While some commentators maintain that more technical restrictions are needed to counter the use of the cappuccino effect, it is likely we will see this practice cut down significantly in the world's largest bunkering port post-2017. While this will represent a long-overdue landmark for the bunkering industry it must be assumed to be unlikely that fraudsters will shut down their illegitimate practices. Amid high fuel prices, the temptation to gain quick cash by conning shipowners, operators and charterers  will no doubt tempt fraudsters to explore other scams.

In addition to the cappuccino effect, the maritime insurance firm Skuld identified another common form of bunkering fraud in its recent loss prevent article 'Fraud in the Maritime Industry'. The Skuld example came into the spotlight in April 2014 when the chief engineer of the crude oil tanker, the Sakura Princess, was found guilty of colluding with a bunker clerk and an independent marine surveyor to shortchange his vessel in a Singapore court. The fraudulent transaction involved the chief engineer arranging for a portion of the bunker fuel to be sold back to the supplier, assisted by an independent marine surveyor who under-declared the amount of fuel remaining in the vessel and a bunker clerk who prepared false documentation.

Be prepared

Skuld's general advice in preventing all bunkering fraud is to 'be prepared'. But with reference to quantity consumption scams, vessel owners and operators are also advised to carry out careful voyage monitoring as well as on and off hire surveys and bunker supply surveys.

It is through voyage monitoring that software companies such as NAPA can bring tangible fraud detection and prevention. The latest crop of voyage monitoring optimisation software solutions, notably NAPA's ClassNK-NAPA GREEN system, are equipped with a new dynamic performance model (DPM) capability that 'self learns' the fuel consumption of a vessel and provides feedback ashore in real time.

Developed primarily to cut bunker bills and promote eco-efficiency by assessing and recommending operational improvements for a vessel's individual components, real time software also provides a sustained and highly accurate firewall against fraud. This is achieved through the software's ability to measure fuel consumption at a 99.6% accuracy rate (recorded during recent full scale sea trails of ClassNK-NAPA GREEN abroad a 8,000 TEU 'K Line' container vessel).

Such high levels of accuracy could play a key role in preventing a repeat of the Sakura Princess case as DPM eliminates the opportunity for portions of bunker fuel to be removed from the bunker tank under the guise of falsified paperwork. Should such an instance occur in future, the fuel usage anomaly would be flagged in real time by the software and relayed ashore where analysts can drill down into detailed fuel statistics including fuel usage tonnage per mile as well as fuel consumption in different regions and sailing conditions.

This analysis would determine whether a fraudulent transaction has occurred onboard a particular vessel but is notwithstanding the need to investigate and identify the individual conspirators responsible. For this, maintaining rigorous staff training and company codes of conduct remains a critical means to pinpoint the source of fraudulent activity. However there is an argument to suggest that instances where whistleblowing is required would be reduced by sufficient publicity of DPM's capability. In the knowledge that illegal quantity consumption transactions will be detected with almost 100% accuracy, the installation of the software should act as a deterrent to prevent would-be criminals from attempting malpractice.

While the chief reason to invest in DPM software lies in its ability to generate fuel savings of up to 6%, the software also effectively enables additional savings to be achieved through quantity consumption fraud prevention and detection. By the admission of many of the shipping industry's key players, no one is immune from bunker shortchanging, which is a direct and significant drain on the profits of shipowners, operators and charterers. With high bunker costs set to continue their dominating grip on the purse strings of the shipping industry, every angle of bunker cost reduction should be explored and the opportunities sought by fraudsters should not be overlooked amid the introduction of mass flow meters.