OW Bunker: Collaborating on Fuel Management

Business & Finance

OW Bunker - Collaborating on Fuel Management

Søren Christian Meyer, Global Sales Director, OW Bunker, considers the finer details of fuel management, and explains why collaboration is key to overcoming financial and regulatory hurdles

There has been a lot of ‘big picture’ talk about the impact of the ratification of the 2015 and 2020 sulphur regulations. Quite rightly, various factions of the shipping industry have been looking at the long-term supply and demand hallenges of distillates, as well as the potential for other compliancy solutions uch as LNG and exhaust gas cleaning systems.

But while the 0.1% sulphur debate continues, many ship owners and operators want to know what to do right now to meet the requirements of existing 1% ECA regulations. How it impacts their day-to-day business, and the management decisions they need to make from an operational and financial perspective.

In terms of supply, it is the North American ECA where we are seeing initial teething issues. There is over-demand for low sulphur fuel products, as well as a lack of infrastructure and facilities, particularly on the West Coast, to meet increased requirements. This imbalance has created a US$200 to $350/mt price differential between low sulphur and high sulphur products. A large part of the issue is that refineries are not developing enough product as they don’t have a clear understanding of the demand, as ship owners and operators have not been prepared to state what supply they need.

The net impact of this is that they need to work more closely with their fuel suppliers. Firstly a proper procurement strategy should be implemented so there is a detailed understanding of what products are needed, where and when, so that supply is assured. In the current financial climate, where cash is tight, owners and operators should also look to work with suppliers that have the financial strength and liquidity, and therefore the facilities, to provide good credit terms.

Secondly a risk management strategy is also advised as part of a complete fuel management strategy. By using a variety of hedging instruments that are aligned to a ship owner/operator’s appetite for risk, a genuine financial difference can be made through locking in costs, controlling cash flow and maximising levels of profitability.

It is also important, from a technical perspective that suppliers work with their customers to ensure that they fully understand the technical implications of switching fuels. It is a complex process, which can cause real operational – as well as financial – problems if done incorrectly. Unplanned vessel downtime is simply not an option right now, where cost and operational efficiencies are a premium for charterers.

Importantly, implementing a fuel management strategy should not just be about price – using low quality fuels might ultimately prove more costly, not just in terms of noncompliance, but also affecting operational performance. Indeed ‘quality’ has been highlighted as a growing issue amid concerns over the blending of fuel oil to reach regulatory compliance.

Suppliers must bear responsibility for getting this right; ensuring properly segregated tanks for low sulphur products, as well as using more sophisticated online blending techniques. OW Bunker has also recently implemented a Global Quality Control Standard, which provides customers with a specification analysis of products prior to the usual testing procedures conducted by an external fuel oil analysis provider. This ensures total rigour in the fuel oil testing process and guarantees that customers receive the best quality products. Our aim is to ensure that global claims for the entire Group are below 1%, an unprecedented industry level.

There are significant challenges amidst the changing regulatory environment, but none are insurmountable. Put simply, collaboration and partnership between fuel suppliers and their customers is critical to meeting them.

[mappress]

OW Bunker, October 3, 2012