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Feature: Singapore bunker industry faces volatile barging cost

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Feature: Singapore bunker industry faces volatile barging cost

Highlights

IMO 2020 rule to impact barge suppliers

Less efficiency expected in barge turnarounds

Singapore — The bunker industry in Singapore should brace itself for volatile barging costs once the International Maritime Organization's tighter sulfur limit rule is implemented in 2020, a development which could further squeeze barge companies who are already facing tough market conditions.

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The IMO rule will cap global sulfur content in marine fuels at 0.5% starting January 1, 2020, compared with 3.5% currently.

Barge operators will need to cater to a range of marine fuels including high sulfur, low sulfur and distillate blends as suppliers try to comply with this rule, which will make it difficult for them to turn around barges efficiently and impact cost.

"The barging cost will increase going into 2020 with more [bunkering] grades [available]," a Singapore-based barge operator and bunker supplier said, adding that fleet movement might not be smooth if suppliers need to load not just 380 CST fuel oil, but also marine gasoil.

Currently, a relatively efficient barge operator in Singapore is able to turnaround barges about nine times per month, a supplier told S&P Global Platts recently. However, this could drop to six or seven come 2020, he said.

Products could vary in viscosity, among other specifications, and different barges will be required to deliver these fuels, a source said, adding that this could contribute to difficulty in barge scheduling and impact cost.

Barging cost is currently between $4.50-$6/mt, market sources said.

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The cost is likely to edge up gradually in the second half of 2019, with the potential to climb up to $10/mt going into 2020, market sources said.

The spread between Singapore delivered 380 CST and Singapore ex-wharf 380 CST bunker fuel prices had widened in January due to tight barge availability, especially for prompt delivery. The price spread averaged $7/mt over January, compared with $5/mt over the previous quarter, Platts data showed.

"The cost would also depend on the demand for each grade -- different fuels might command a different barging cost [depending on barge availability], so barge owners will have to allocate the right number of barges to the right segment," a bunker purchaser said.

SURVIVAL OF THE FITTEST

The impending IMO rule comes at a time when barge operators are already dealing with tough market conditions in shipping and a competitive industry landscape amid uncertain global macroeconomics.

"It is already hard for the barging companies to survive, especially the smaller ones," a shipowner said.

"The barging landscape also depends on how many more companies survive before 2020; some smaller ones are already struggling," another bunker supplier in Singapore said, adding that if there was a dramatic drop in the number of operators, the market could see some upward pressure.

Only the ones who are nimble will survive, a supplier said, adding that some players were already examining ways to repurpose their barge fleet to transition smoothly to the impending IMO 2020 rule.

"Barging cost is going to become more volatile in 2020, and we might see a wide range going forth as operators would have to cater to both fuel and gasoil deliveries," a bunker fuel trader in Singapore said.

--Jeslyn Lerh, jeslyn.lerh@spglobal.com

--Surabhi Sahu, surabhi.sahu@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com