VIEWPOINT: The Myth of Cheap Bunkers

The instinct to hunt for the cheapest possible bunkers could be behind much of the industry's problems. File Image / Pixabay

Maaz Ahmed is marine fuels regional manager for the MEA region at Oilmar Shipping and Chartering. This opinion piece is written in a personal capacity, and does not necessarily reflect the views of the author's employer.

Lurking amid global socio-economic and geopolitical turmoil -- thanks to high inflation, unending COVID lockdowns rearing their heads here and there, a complex conflict between Russia and Ukraine, sluggish global commodity demand, especially from the main markets of China and India because of high interest rates coupled with rising cost of living and looming fears of a global recession -- overall global logistics activity seems set to be in the doldrums in the coming months.

The past few months have seen very unusual developments, where nearly all segments of shipping and the oil industry made unprecedented profits and both industries have surpassed all expectations. However, one particular activity is persistent, despite the changing realities of shipping and the oil industry.

This needs to be addressed and must be brought to debate in shipping circles in order to have a more sustainable outlook of how business should be conducted -- especially on the bunkers side of shipping.

Bunker buyers, without exception, are always looking for cheap bunkers, and this mindset needs to change as bunker fuel is not a fast-moving consumer goods commodity. It carries 60-70% of a vessel's operating cost, and involves complex mechanical implications for vessel performance. It also encompasses a heavy liability in terms of specification requirements, potential damage to vessel machinery and at stake business interests. It involves much more than the mere buying and selling of bunkers.

There are many variables at play when a vessel is looking for bunkers at different ports worldwide, and buyers must realise that cheap bunkers come at the cost of cheap quality and cheap quantity. Buyers, especially from medium- to small-size vessel owners and operators, need to realise the significance of bunkers, and must be educated on how oil dynamics, pricing and availability work at different ports around the world.

Some buyers push the prices to the last cent, and this does not bode well for a sustainable working style between bunker buyers and sellers, turning human business into cosmetic transactional dealing; and when problems occur, each side tries to save their side instead of helping each other.

The majority of bunker buyers are looking for the cheapest price with the maximum possible credit, and this is very disappointing to experience as a bunker trader. The bunker supply chain must always be a win-win situation for all parties involved, since bunker exposures work mostly on credit terms, carry massive risk and are complex business transactions.

To accommodate this search for cheap bunkers, bunker traders and suppliers push the price down back and forth; in some cases this process triggers losing counterparty credibility and support in-front of refiners and cargo suppliers, resulting in compromise on bunkers from all sides.

Bunker prices should come with suitable premiums or margins, considering all costs involved to carry out bunker delivery, to ensure smooth and problem-free supplies, as millions of dollars of vessels and cargo movements are always at stake.

Some buyers in search of cheap bunkers go to the locations like OPL or look for unofficial avenues of supply, where the risk is too high both in terms of quality and quantity and legal exposures are overlooked, ending up with nothing cheap but claims, problems and damages only. Cheap bunkers create troublesome players and markets.

Customer loyalty is rarely present, with the majority of bunker enquiries presenting the look of a fish market. Increased pressures on bunker buyers to find everything cheap-cheap are making the bunker market's future look bleak, especially when there are no standards being set by bunker buyers and their management to ensure that fair interests are being served of all the stakeholders involved.

Every now and then, there is noise in bunker and shipping markets about quantity short supply and quality issues. I totally understand that these issues can't be overlooked, but -- industry-wide -- we must not forget that all these issues have a very strong connection with the underlying chase of cheap bunkers by vessel owners and operators. It is time that this complex imbroglio is put to order.