IMO2020: Compatibility Questions are Going to Complicate Bunker Buying

by Paul Hardy, NSI
Wednesday January 30, 2019

I have spent a lot of time the last few weeks considering compatibility of fuels. A number of buyers have expressed frustration at the lack of specification data being released by suppliers, who are also finding the situation frustrating.

Of course, we need to segregate suppliers into 'refiners' and 'barging co's'. The first have access to the blending analysis whereas the latter are waiting to see what will be on offer on the cargo market.
In terms of planning, compatibility raises a number of questions:

  • Does the market have the expertise to assess compatibility rapidly?
  • Are suppliers going to release COQ's quicker?
  • How are large traders going to operate when traditionally many do not release the supplier quoted (never mind the COQ) until well after nomination and/or platts numbers have been published? Will this kill the traders practice of nominating with the owner one day and the supplier another?

In theory, the only safe way to assess compatibility is to take an extra sample on delivery and then courier this sample to the next port of delivery and do pre-delivery tests on products with the various suppliers in port. This is possible on long voyages but if ships are operating short haul it represents a problem. Secondly, there is the question of logistics of operating such a programme.

The reality is as brokers we will be constantly accessing suppliers COQ's and making available to owners in advance of stemming. The owner will then be faced with either co-mingling the fuel or segregating.

Segregation will mean more frequent liftings and smaller quantities. Co-mingling might mean either the above procedures or time sensitive pre-delivery compatibility tests when the barge is alongside. The question is, if the product is found not to be compatible after the barge has arrived:

  • Will it be possible to cancel the order?
  • Will it be possible to reduce the order quantity to segregate the product?
  • What will be the penalties for underlift? Especially if the product has been hedged by the supplier.

The suppliers' argument will naturally be "the product is on-spec" and compatibility is your problem not mine.

Logically buyers will spend a lot more time fielding such issues and making decisions basis the data or lack of provided to them. There is thus a case to outsource part of this process to brokers to do the 'hard yards' in making sure COQ's are available and to field calls in the middle of the night. Secondly, we can be used as a useful barrier to negotiate problematic issues arising from compatibility.

At NSI, we are investing in resource to be able to assess compatibility of products and put in place the necessary procedures to manage the process. This includes the fact that we are updating the availability of 0.50% products via our platform, and we will also be postinh the COQ's.

As our industry moves from a paradigm focussed on pricing to a new one with more emphasis on logistics and quality it is clear we as market participants must also adapt.

To be honest I am no chemist, as such I must find the resource to fill that gap in my knowledge. Those that fail to adapt and recognise their weaknesses will fail in the new market. Similarly, those that do not contract the resource either directly through employees or via brokers will feel the pain as the jobs complexity grows.