Strategy Review

by Paul Hardy, NSI
Friday December 27, 2019


a detailed plan for achieving success in situations such as war, politics, business, industry, or sport, or the skill of planning for such situations

"In the midst of chaos, there is also opportunity"

― Sun-Tzu,

In October 2017 we devised a strategy. To summarise it I have built a short timeline based around key events and advice we gave our clients. To condense further I have focused on our historical advice for HSFO as well as key elements in our plan:

November 2017

The first article detailing the logistical conundrum

This was the start of a series of articles detailing various aspects of IMO2020 and how we viewed the market. They proved both popular and unpopular in equal measure and provoked both thanks and anonymous hate mail. A sure sign we were on the right track.

February 2018: Paul Hardy Baltic Briefing 2020 Sulphur Cap Speech

  • If you know where you are going lock contracts for LS fuel oil to lock a discount to MGO for 2020
  • Lock HS contracts going into 2019 and hedge them to take advantage of the backwardation
  • If you have scrubbers fitted or are planning- the product will be cheap but check to see if you can get it delivered.
  • If you can't do any of the above plan for MGO with a large price rise and the knock on effects on credit needed. Do not leave to the last minute and get caught out due to lack of available credit.
  • And finally………….consider buying bunker barges!"

April 2018 Launch of

Our aim was to map the logistical models of the global supply chain. The platform has been backed up by over 350 emails detailing various aspects of IMO2020. We currently have over 500 subscribers.

June 2018 Implementation of ClearLynx Bunker platform

As the market got more opaque we had to get more transparent. The platform gives us the audit trail, benchmarking and data to drive performance and offer a transparent model to clients.

Q3 2018 Market Outlook Report published 02/07/2018

"As per my last update the market is still heavily backwardated. Advice remains the same as back in February where I suggested fixing forward to take advantage of the backwardation by fixing average of the month physical contracts and buying swaps to lock the price.

2019 prices are now $75 bucks ahead of where they were in Feb but importantly they are still 65-70 bucks under prompt. If you have not done so look for the dip and lock them out."

"In major markets there will be supply. The cargo/bunker premium for HSFO will expand significantly. The best way someone can purchase is ave of the month or fixed price as supplier can more accurately calculate its costs.

In smaller/mid sized markets HSFO supply should logically disappear.

The other thing we should consider is possible market manipulation. When there is a lowering of volume there is a potential for pricing to be manipulated.

Lastly, will there be accurate benchmarks for HSFO?- I can easily see the existing disappear or due to the very small volumes being reported in a strange way."

Q4 2018 Market Outlook Report published 26/09/2018

"As per last quarterly report the wild card is going to be the growing bunker to cargo premium as demand drops off in the latter part of 2019. This is inevitable as the cost of running the barges will have to be divided by fewer MT delivered. Secondly suppliers being hit by diminishing cargo value may if market is tight ramp up the bunker premium accordingly.

As such, to me it makes sense to contract the volume as far into 2019 as possible where you will receive a fixed premium over cargo prices.

From Q1 2019 Market Outlook report published 09/01/2019

"It is increasingly clear the main challenge going into 2020 is a logistical one. As previously written, why would a barging company use its barges for a product which has falling demand coupled with a highly backwardated market? The obvious conclusion for them is to go with the demand and switch to MGO and LSFO. We see a lot of people concerned about the availability of fuel but the real challenge will be the availability of logistics. Maersk have taken the lead among the shipping community and are investing on their own supply capacity to manage this conundrum.

With this in mind many suppliers are holding fire in offering HSFO contracts going into 2020 as they see greater value in other products and/or taking advantage of a tight logistical market come Q4 2019. There is limited interest in Bunkerwire contracts but not in cargo based.

It is interesting to note also the last couple of months have seen HSFO values rise in relation to crude. This can be explained by a drop in interest in the product among main players causing tightness in the market. Many of the large trading houses have consolidated their fuel desk into their distillate trading desk."

From Q2 2019 Market Outlook report published 22/03/2019

"Same problem remains with lots of product available but very tight logistics to get it delivered. We have seen contract offers for 2020 with a 10-15 premium over current cargo/bunker premium. As such, those heavily invested in scrubbers should consider chartering/purchasing own barges to control logistical risk and cost. The opportunity has passed by from when, in 2017 we suggested the same and the cost of barges has risen considerably. That said, the maths does work out and we have some availability of barges in Singapore which come with a licence/BDR."

April 2019

This was how we saw the market developing:

From Q3 2019 Market Outlook report published 11/06/2019

"This uncertainty is a nightmare for those planning. My guess is the reporting agencies will keep reporting the market from established channels and it looks like the backwardation may be less than expected 6 months ago.

The key- do not be long on HSFO product heading into December if you have no scrubber fitted! As a high profile shipping friend told me last week 'you never see a poor scrap dealer'"

From Q4 2019 Market Outlook report published 12/09/2019

"An imbalance in supply and demand has caused price spikes in a number of markets with barging becoming tight and premiums soaring for prompt supply.

The market remains heavily backwardated into 2020. For those invested in scrubbers HSFO has collapsed into Q1 2020. It needs careful monitoring but never before in the last 30 years could you buy fixed price at such a discount to the current spot market. So why not kill 2 birds with 1 stone and lock out both the logistics and the price."

From Q1 2020 Market Outlook report published 02/12/2019

"Please note the divergence in the prices occurs precisely when the large backwardation in the HSFO market starts to kick in. The reason being it became uneconomical to ship arbitrage cargoes to Singapore from traditional routes as they were losing too much money when on the water. In contrast the Middle East was awash with HSFO so the market remained lower. The lack of incoming cargoes was exacerbated by logistical shortages for HSFO in Singapore which added additional upward pressure to HSFO numbers and caused additional spikes for prompt enquiries.

The market has now bottomed out after many months backwardation at the front of the curve and the contango Q1 into Q2 2020 is strengthening. This is a significant change as it is no longer painful for suppliers to store HSFO as it has been the last months.

This may well tempt people back into the market in 2020. So whereas, everyone has been keen to be low on HSFO stock and have switched logistics to VLSFO causing a logistical squeeze, logically this should be eased going into 2020 due to:

  • Nature of the forward curve
  • Falling HSFO demand
  • 3 grade deliveries cease on switchover day (people will not be lifting HSFO, VLSFO and MGO in same stem as we have seen last 2 months).

As such, reading is supply and demand should balance on HSFO after initial turbulent January. As supply and demand balances then delivery premiums should also settle from historic highs we have seen over last months."


In summary, was the strategy correct? It is clear there was a big risk in being vocal about specific market movements. We had to be clear and consistent in our approach and conduct a lot of analysis.  This involved a lot of investment in systems, staff and additional resources.

The main reason we went down this route was our long term commitment to our clients. For many IMO2020 was presented as potential 'chaos' but for us we believed with the right strategy our clients can realise an 'opportunity'. So did they benefit? You can ask them yourself. Please contact me and am happy to provide you with a list of references.