Lower Bunker Prices Fail to Stem COVID-Fuelled Rise in Shipping Costs

The shipping industry's costs are rising rapidly. File Image / Pixabay

A significant drop in bunker costs this year have failed to prevent vessel operating costs rising at their fastest pace in more than a decade, according to consultancy Drewry.

Average daily operating costs across 47 different ship types and sizes have jumped by 4.5% this year, compared to gains of 2% and 2.5% in 2018 and 2019, respectively, the consultancy said in a statement on its website Monday.

The gain has been driven by higher insurance premiums and COVID-19-related expenses.

Of course, operating costs were always expected to rise this year due to the IMO 2020 rule. Prior to its January 1, 2020 introduction, the new global 0.50% sulfur cap on marine fuel was widely expected to lift bunker costs 20% to 40%.

Ironically, bunkers have been one of the few areas where owners have seen costs fall.

Prices & Consumption Fall

Taking into account the dominant bunker fuel lifted last year was IFO380 and the majority of owners this year switched to burning IMO2020 compliant VLSFO bunkers, data from Ship & Bunker shows that for the January to November period the average price paid for bunkers in major ports this year is 9.3% lower than the same period in 2019.

Specifically, looking at Ship & Bunker's Global Average Top 20 Port's index (G20), the average IFO380 price over the 11 month period in 2019 was $410.17/mt vs an average VLSFO price of $372.04/mt in 2020.

But the consequences of COVID measures slowing the global economy have also meant reduced bunker consumption. A recent Ship & Bunker market survey showed demand in Q2 was down some 9.3% with some ports witnessing marine fuel sales fall as much as 30%.

While the net impact will vary from owner to owner, Maersk in its recent Q3 report said for the first nine months of 2020 its bunker costs were over 16% lower YoY, falling to $2.9b from $3.5b in 2019.

This included a reduction in the price it paid for bunkers of 7.4% YoY (390/mt vs $421/mt) and a 10% drop in consumption (7.5 million mt vs 8.3 million mt).

While overall operating costs for owners have not followed suit, as noted by Drewry's Martin Dixon, Director, Head of Research Products, they were at least a little lower at the start of the pandemic.

"Like many aspects of merchant shipping, vessel operating costs have been severely impacted by the COVID-19 pandemic," Dixon wrote in the statement.

"Its effects cut opex spend through the first half of the year as economic lockdowns and social distancing restrictions closed dry-docking and repair yards, while owners reacted to the resultant trade downturn by postponing anything except essential spend.

"However, costs have jumped through the 2nd half of the year as repair facilities reopened, unleashing pent-up demand, while manning costs escalated due to disruption to crew repatriation arrangements."

The cost rises are likely to slow in 2021 as one-off costs related to COVID-19 unwind, he added.