IMO2020: A Look at Some of the Less Talked About Changes for Bunker Buyers

Michael Donaldson-Badger, Managing Director of NSI's Dubai operation

After years of conferences, speculation, planning, research and a bit more planning, change is finally upon us, we have moved past the low sulphur trial stems and now we are seeing real stems in preparation for January.

Transport by sea is still the most environmentally friendly form of bulk transport and will remain so regardless of whether you have opted to follow the scrubber, compliant fuel or a more exotic option to comply.

The talk of availability and locations of fuels is now complete for the first few months of regulation, we have a clear map of what specification fuels we can get, where, when and how. But as well begin to increase our market experience with these newer products,  the market will evolve with new location opportunities becoming apparent and refiners and blenders gaining more product experience and being able to refine their blends.

But today I wanted to leave alone the topic of fuel quality and look at some of the lesser talked about changes and the elements that still need a little work?

Tank preparation

We are seeing a diverse range of approaches to tank prep.

Chemicals – Various chemical additives are being used to reduce sediment in tanks and many owners are planning to use Chemicals next year for adjusting or protecting various elements of fuel quality. While an innovative and often cheaper solution than buying a higher quality fuel there needs to be consideration of how this may void many quality claims as many suppliers in their terms and conditions prohibit any changes or blending of the oil. Additionally as part of contingency planning the use of chemicals may impact the ability to debunker the fuel if required as many receivers may not be permitted to receive.

Cleaning – Just a bottom rinse or full scale digging out sediment? Both extremes are being used across the market and it really depends on so many factors as to the best approach here, tank structure and accessibility, quantity of sludge, access to riding squad / additional labour and disposal facilities, cost and available time. We have worked with several owners in the region here to help provide manpower to get the job done safely and quickly and cause minimal delay to the vessel with Fujairah having excellent access to these services.

Dilution – We are working with several owners who will follow a dilution method where residues are difficult or impractical to access. We have sourced several 0.3% sulphur products for owners in the region and this has proved a commercially advantageous method of tank preparation for them.

Credit

Own credit lines - The price spread at most hub ports seem is settling around 35% differential between HSFO and VLSFO currently. Given the changes in market price and arbitrages have you made arrangements for 35%+ more credit in the right ports, it is clear all of our lifting profiles will change as business in some cases will move to more advantaged locations so just as important to consider in having more credit available is making sure that this credit is in the right places to fit your new lifting profile.

If you are relying on other intermediaries credit – have you assessed that your route to market has grown their credit lines in the right places and have you factored in the additional costs of this, although there has been a slew of intermediaries announcing increased finance arrangements of around 10-15% but with increased finance premiums across the market owners will need to appreciate the additional cost of these new credit source.

Benchmarking

We've all had days where the market assessment doesn't seem to make sense but during this price discovery phase with so many varying blends it seems it will take a number of months before we see a stable benchmark. This isn't a swipe at the reporting agencies as when they are trying to report the price in a port where the products may range between a locally produced heavy fuel oil product and an imported distillate based blend there is potential for a large price differential between the two differing products.

Is your benchmarking reliable, are you looking at more than one methodology and do you know which products the reporting agency is using to generate their assessment? What are you doing to make sure that you will be assessing like for like? With various reporting agencies using different methodologies my feeling is it is best to choose a benchmark where date, stem size and intraday range are taken into account in addition to the various quality based parameters.

Contingency Planning

Things will go wrong, plans will change the unexpected will happen – it is the nature of shipping and the thing we all complain about but its also the part we all secretly love and keeps us coming back for more. Contingency planning is going to be more important than ever, planning to have enough compatible fuel to complete all likely voyage scenarios and have empty tanks for the next bunker loading is going to provide some sleepless nights to our friends in ship operations, for our part we will provide them with the best information sources and data to make these plans. Flexibility to changing requirements is going to be required from suppliers with more last minute quantity changes than ever to be expected.

Record keeping is more important than ever – the speculative bunker questions you are asking now "can I get low sulphur in port x" are you recording this? Do you have a full detailed record that when it may be required to support a FONAR will quickly be available and have the information required centrally to support the FONAR requirements? At NSI we have begun ensuring all this data is captured in the right format and we can provide it to our customers quickly and easily to support FONAR's.

2019 has been officially the year of tolerance in the UAE – "Tolerance and forgiveness are a duty. If the Almighty Creator forgives and we as human beings are His creation, then shall we not forgive" – The Late Sheikh Zayed Bin Sultan Al Nahyan. This rapidly changing world requires us all to work together, co-operation across the market to safely operate, improve the environment and provide a high quality service to our ultimate customers. Which brings us to blacklisting – Marpol2020 requires vessels to use 0.5% sulphur fuel oil or equivalent and when considering non-availability and the possibility of a FONAR there is no written allowance for scenarios where a buyer may not choose to work with a supplier either due to historic issues, barging policy etc, now is the perfect time for burying the hatchet in the spirit of tolerance and working towards a brighter future.