Efficient Bunker Buyers “Need to Know”

Friday, June 09, 2000
The bunker industry is witnessing interesting times. Throughout the last 12 months, prices have doubled for many grades of fuel, reaching unparalleled levels. At the same time, the industry has seen the launch of the first serious Internet-based marine fuels sales operations. While apparently unconnected, both developments have had a similar effect on the industry. They have underlined the importance of training and education for those in the bunker business. Without knowledge, those working in marine fuels, purchasers in particular, will not be able to face up to the challenges of high prices and electronic trading.

The sharp increase in bunker prices during the last year is in stark contrast with what was going on immediately prior to the rise. Eighteen months ago, oil prices around the world were at levels that could barely sustain well exploitation in some areas, and they looked to be heading lower still. The Economist went so far as to predict that oil prices would dip as low as five dollars per barrel. Behind the fall was a massive oversupply of oil in nearly every market. This was good news for consumers, including the shipping lines, for whom buying bunkers is the most expensive part of running a fleet. Bunker prices in key markets edged close to $50 per ton at one stage.

It didn't last, though. The Economist was proved wrong. Rather than dipping further, oil prices suddenly started to rise. Alarmed at collapsing revenues, OPEC dramatically pegged back its production. The tried and trusted supply-and-demand mechanism did the rest. Oil prices started to climb. First back to sustainable levels, then to heights that sent jitters around the world. At the time of this writing, oil in some markets is being quoted at close to $30 a barrel, a rate previously only matched during the oil crises of the 1970s.

The consequences for the bunker industry of the high oil prices were profound. Prices rose in line with the wider oil picture. Fleet managers saw their monthly fuel bills increase dramatically. Rates were rising so fast that even a day's delay in placing an order could add thousands of dollars to the final invoice. Shipping companies, already operating with slim margins or even at a loss, reacted by charging shippers bunker surcharges and told their crews to go slow in order to burn less fuel. Some made the error of buying as cheap as they could, regardless of quality, and got caught out with off-spec fuel.

The increase in bunker prices has proved the merit of training and education in the industry. It is almost certain that those ship operators who invested in training for their bunker purchasing staff are now reaping the benefits. They are doing so, either because their purchasing staff were able to buy their fuel ahead of time at lower prices, using sophisticated products now available to the bunker industry, or because their staff are able to make the best of a bad situation.

You would think that in an environment where a difference of a few dollars in bunker prices can spell the difference between a profitable and a loss-making voyage, that the Internet, with its capacity to provide information from a wide range of sources directly to the purchaser's PC, would be a boon. Indeed, there is a lot of bunker price information available on the Internet. It is even possible to buy fuel on the Web. Yet without proper knowledge of how the bunker industry works, purchasers will not be able to get the best out of these new services.

Many news articles have focused on the launches of online bunker purchasing sites. Two of the most renowned launches have been of eFueloil.com (backed by Chemoil and Itochu) and OceanConnect.com (founded by a grouping of Shell, BP and FAMM, itself a joint marine fuels marketing initiative of Chevron and Texaco). So far, newly-created ExxonMobil has resisted the temptation to sell marine fuels online. The company says that buying online will mean buying the cheapest bunkers available, as price is the only factor under consideration. This is fine, if cheap fuel is what you want. But just what is cheap fuel? One definition says it is fuel that you buy at a low price. This, however, takes no notice of quality, which in turn can mean you end up paying dearly for your fuel after all. Bad quality fuel can lead to costly and time-consuming problems onboard ships. What the Internet quoted as the cheapest deal may cost thousands of dollars more. Online price quoting for fuels is in itself not a bad thing, but it does mean that the person using the net as a purchasing tool must be able to marry up the prices quoted with the quality of fuel they actually want - this requires knowledge. Critics of online bunker buying have asked where you can turn to when problems occur. Relying too heavily on the Internet means that you will have no recourse to a human being. Going online to e-mail a faceless, silent corporate entity will not bring the missing barge alongside. No doubt these fears are being overplayed, but it does set the mind thinking. Again, a sound knowledge of the industry will help locate the right person to solve the problem.

Technology has always served to make life both easier and more difficult. Computers are a good example. Modern life would be unimaginable without them. Yet they have created an entirely new set of problems for humans to wrap their heads around. Those who have used new technology to their advantage have always been the ones with the knowledge to do so. So it is with the Internet and bunkering. Those who can harness new online technology to make the most of their knowledge of the marine fuels industry will flourish. For evidence of this, you need only look at how ship operators are succeeding, or otherwise, in today's high-price bunker market.

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