Malpractice in the Bunker Business

Paul Hardy, NSI

There have been a number of reports in recent weeks of potential malpractice within the bunker industry. I wrote an article back in 2017 and thought now was a good time to review the situation.

Singapore MFM Magnet Reports

I see this at present as an isolated incident. Pre- MFM the bunker market was operating sometimes at a discount to the cargo market. In these circumstances something has to give, be it quality or quantity. Post-MFM there is a clearly defined premium for delivered bunkers over cargo.

If malpractice was widespread and substantial we would have naturally seen a shrinking of the bunker premium over the last months. This has not been the case and as such the economics for me points towards an isolated incident. Importantly also, the MPA have taken the lead in such cases and are willing to revoke licences and prosecute companies and individuals.

As an aside, bunker premium is the first thing we watch for in terms of quality and quantity claims as a shrinking premium usually results in increased claims. Suppliers are working with substantial fixed costs and the market needs to respect this and pay a healthy premium for logistics whilst promoting fair competition.

A similar view was expressed by Peter Grünwaldt last week and I concur completely.

Sanctions Busting

Of course this is a hot topic on everyone's lips with the 8 country waivers for Iranian product expiring tomorrow. There is of course speculation as to how much Iranian product finds its way into the bunker market.

The simple thing to watch out for is again price. If it is too cheap what is the reason? Of course all of our buyers in areas where product may appear from North of the border follow strict KYC procedures and audit trails of COQ's etc. This should be not best practice but usual practice for all market participants.

It is of course in the owners' interest to ensure no sanctioned product reaches their ships. We must then look to the traded market and wonder whether decreasing margins for trading companies in general will push some traders into taking unnecessary risks in the search of an 'easy' quick buck.

A number of trading companies foster the transactional profits model and base incentives around the premise that the higher the margin the better. This at some point inevitably leads to catastrophe whether it is bad debt, dubious product origins or poor choice of clients. The best traders have stringent KYC and supplier vetting procedures and I believe these are the ones that will flourish long term.

Back-Dooring

Since returning to the market I have also seen increased instances of what I can only describe as 'back-dooring'. This is of course a moral rather than a legal issue.  Again it seems for some the chasing of transactional profit seems to be at the expense of long term cooperation.

I have written before that in order to achieve a successful IMO2020 transition we need all market participants to cooperate. I see instead from some quarters an increase in 'dubious practices'. It is a shame.

So, as we approach IMO2020 I ask the question again- As an industry are we that bad? My conclusion as stands…………..watch this space.