Softer bunker market brings little cheer for shipowners

Based on the benchmark Singapore 380 cst bunker fuel was indicated at around $600 per metric tonne (pmt) on Monday. To put this in perspective the owner of a fleet of five 5,000 teu containerships, with each vessel consuming approximately 150 metric tonnes of bunker a day for 300 working days a year, would need to spend $135m on fuel annually.

In some cold comfort for shipowners this bunker bill would have been even harder to swallow last year when Singapore 380 cst prices had averaged at $670 pmt.

This year, bunker prices started at around $620 pmt before the market gave shipowners a scare as prices surged to $663 pmt in mid-February. The prospect of prices breaching $700 pmt were real, as had been witnessed during the first quarter of 2012. By mid-April, however, prices dipped slightly below $600 pmt and went on to stabilise between $584-612 pmt until today. But the volatility this year so far is nothing compared to last year's wild swings from $575 pmt to $740 pmt.

Shipowners have no control over the volatility of bunker prices, which tend to largely follow crude oil prices combined with the bunker market's fundamentals of demand and supply. As bunker prices rose from a yearly average of $470 pmt in 2010 to $650 pmt in 2011 before hitting $670 pmt last year, shipowners have taken concrete actions to combat soaring fuel costs through various methods such as slow steaming, managing energy efficiency onboard and building fuel efficient new ships.

Many shipowners believe that high fuel costs are here to stay, due in large part to the world's endless and rising appetite for energy extracted largely from fossil fuels. Until the day that freight rates can adequately cover bunker bills and still give owners a healthy margin, efforts made to reduce fuel consumption will not stop.

As to the key question of how will bunker prices trend over the last five months of this year records unfortunately show hardly anyone has the ability to make an accurate forecast. In fact, a better shot at guessing bunker prices would be to bet against any forecast made.

But if one were to make a prediction based on upcoming IMO regulations requiring ships to burn cleaner and lower sulphur content fuel, it is a certainty that owners will receive higher fuel bills as better quality fuel will not come cheaper. Shipowners can only brace themselves for steeper challenges from the bunker market in the near future.

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