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Win or lose in the bunker shake-up

Coastal Oil and Brightoil’s financial plight trigger warnings of an increase in bunker delivery costs and a credit crunch in bunker industry; but industry players say there is more than meets the eye and, amid sweeping regulatory changes, the focus may shift to identifying winners, not losers, from the pack

The focus will eventually shift to who will best adapt to changes, rather than who is falling through the cracks

THE plight of financially challenged players such as Brightoil and Coastal Oil has hogged the limelight in recent months, stoking fresh fears over the health of the bunkering industry.

Trade and mainstream media have attempted to size up what the implications this new wave of financial restructuring or insolvency may hold for the marine fuel trade and henceforth, the shipping sector at large.

Argus Media has identified tightness in bunker barge supply resulting from the liquidation of Coastal Oil and the arrests of Brightoil and Heng Tong’s tankers, as one factor driving up the cost of delivered marine fuel in Singapore, the world’s top bunkering hub.

It cited data pointing to an increase in the average delivered bunker premium — or delivery premium over cost of cargo — from $14 per tonne for December to $17 per tonne over the first 18 days of this month.

This week, the Business Times forewarned that banks are likely to further tighten credit to the bunker industry “amid fraud and other risks”.

Coastal Oil’s insolvency being linked to alleged debt fraud has not helped in allaying fears.

It is akin to re-opening old wounds. Just five years ago, banks and creditors were hit by the traumatic fall-out from the demise of OW Bunker, which was triggered by fraudulent trading activity.

Still, those with ears to the ground hold the view that things remain under control.

Timothy Cosulich, of Italian group Fratelli Cosulich, pointed out that the higher delivered bunker premium does not directly correlate with bunker barge availability.

Mr Cosulich, who is sixth-generation successor to the bunker and shipping group, argued that the recent increase in the cost of delivered bunker has more to do with “tightness in product availability”, or simply put, shortage of fuel oil supply.

To be fair, Argus Media had also highlighted one other factor — “an operational backlog” from a high level of “fixing activity” in bunker trades at the end of December and early January — as contributing to logistical bottleneck in Singapore’s bunkering industry.

Yet one veteran suggested that the industry stands a good chance at emerging relatively unscathed from such challenges.

International Bunker Industry Association regional manager Simon Neo noted that in 2017 Singapore turned in record-breaking bunker sales, despite being hit by the exit or insolvency of three licensed suppliers, Universal Energy, Panoil and Transocean Oil.

These three named suppliers operated a combined fleet of more than 30 bunker barges. 

By comparison, the vessels on the fleet of Coastal Oil’s affiliates and Brightoil are said to number just over two dozen.

On the concern over credit availability, Mr Cosulich countered: “International banks have not raised our interest rates.”  He conceded however, that “smaller bunker players” may face a different situation.

Still, the shake-up in bunker industry is not new — many view the collapse of OW Bunker as kicking off what is shaping up to a years-long industry consolidation.

What has fed the pace of consolidation are two regulatory changes.

Singapore’s move mandates the use of mass flow meters in bunker delivery effectively flushes out opportunists from the industry. Others who choose to stay on had to learn the ropes of trading in new products if they wish to thrive, just survive, as international shipping makes the low sulphur transition.

By January 1, 2020, a 0.5% cap on sulphur content in marine fuel that was ratified by the International Maritime Organization, will enter into force.

Taking in all these, it is unsurprising that some would fall through the cracks and in time to come what may be a more pertinent question is: who can best adapt to rapidly challenging environment so as to emerge the winners in tomorrow’s bunkering industry?

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