Inside Opinion: Flow Meters, and Mass Consolidation in Singapore

Do we think the impending flow meter regulations for Singapore could cause mass consolidation in this most fractured and disparate of markets? I will come out and say, yes I think it will.

I noticed with interest recent comments coming from the bunker trading community with regard to flow meter use in Singapore. It is hardly a surprise that the big traders are nominally in favour of its adoption. It is not their margin the flow meters will be cutting into, it is the supplier's.

All flow meters do for the big traders who are not physical in Singapore is cut down on quantity claims. This means the technical guys and girls at the trading firm have more time to focus elsewhere. As someone who knows what a ceaseless job these vital team members have, this is an even bigger deal than you might think, believe me.

The applause from some sections of the bunker trading sphere in light of the MPA's plans is not exactly a shocker, then.

While a notable few suppliers have come out and backed - and indeed are already using - flow meters in Singapore, the response from the majority of suppliers has yet to be heard. One assumes the reliable and scrupulous majority will be in favour in public at least, but equally some of the "less reliable" companies might see this as a huge, potentially existential, threat.

I have commented at length about this in previous Inside Opinions. I'm still not convinced the flow meter thing is the right solution but the signs are that the MPA will press ahead with it in the medium term at least.

Mass Consolidation

So back to my point then: Flow meter regulations causing mass consolidation in Singapore.

I believe the number of competitors in the market (not the same as the number of barges though, let us be clear) may drop significantly, maybe by as much as a third if I had to pointlessly speculate. Some operators will regard it as a final straw after years of scraping the literal bottom of the tanks for tiny margins and so look to sell the barges and move on.

I'll say this - if the MPA were trying to bring about a cull of the shallow end of the local supplier pool, the flow meter idea for all its pitfalls certainly has an elegance to it.

So what if there was a change in the supplier landscape, competitively and practically?

The likes of the aforementioned big traders who may not be physical in Singapore should see a much more level playing field. The majority of the really big household name traders are not physical there.  With deep pockets and an eye on asset plays it seems certain to me they could look much more seriously at Singapore again as a physical port.

They know their economies of scale and supply chain management would allow them to go toe to toe with the smaller suppliers with the flow meter rules in place. It is not a fair fight as things stand which is why so few of the big global bunker traders are physical there.

So with some of the older bunker barges in Singapore right now either going to other theatres of operation or for scrap once the rules come in, plus the modern vessels potentially available in-situ for a decent price, maybe the large traders may go back in. It isn't just barges that could change hands, either. The potential for consolidation of suppliers into the larger traders as acquisitions seems even more significant to me.

I'll also say this - if the MPA were trying to bring about some consolidation of the local supplier pool and to entice some of the (theoretically) clean(er) and (more) compliant megatraders back into a physical position, the flow meter idea for all its pitfalls certainly also has an elegance to it.

We shall see.

Global Megatraders

There are a lot of reasons why they wouldn't of course. It is still a high cost place to do business and in terms of ones and zeroes your ROI is often lower than many other places in Asia. The global megatraders would I suspect run their barges at a higher level of cost in terms of compliance/HSEQ/crewing/technical management for safety and MARPOL considerations than before.

Opex per day for the same age barge would be higher for the bigger boys, even allowing for economies of scale for possible bigger fleets. Even with the likely consolidation and drastic reduction in the number of claims Singapore will still be a very competitive place to buy and sell bunkers. To be honest I can think of a few places I'd probably rather be physical than there if I won a bunker barge in a game of poker...

But would the large traders feel the same way?

Or as I ruminated earlier, might they see an opportunity to grab a far larger piece of the world's largest and most significant bunker port in a much-changed and much-improved competitive environment?

A fascinating question. We'll see over the next 24 months which way it will go. I can't wait to find out.