18-01-2017

Time for the bunker industry to come clean

Bunkerf

In Denmark a former bunker trading CEO is being sent to prison for defrauding his customers, and no one in the industry seems particularly surprised.

Last month a court in Denmark named Monjasa as the previously anonymous company fined 10 million Danish kroner ($1.43 million) earlier this year for overcharging a buyer, and former CEO Jan Jacobsen as the executive facing a prison sentence.

The case relates to 24 deliveries of fuel oil to a Malaysian customer in 2014, in which the buyer received less product than it had paid for, and Monjasa is still appealing the sentence.

But none of this is news to the bunker industry. This is a sector in which buyers are routinely overcharged by sellers. Industry estimates put the losses to overcharging at as much as $1.5 billion/year.

If you can generally refuel a truck or a plane without being overcharged, why can’t that be the case for shipowners as well?

“Corruption in bunkering certainly occurs in the industry and therefore people think, if he’s doing it, I’m going to do it, because I’m not going to make money if I don’t,” International Bunker Industry Association (IBIA) chairman Robin Meech said.

Meech said a lack of training, low wages and the little long-term connection to their employer leaves some shipping crews willing to overlook or help suppliers overcharge buyers.

“If you steal fifty tons at $300/mt, that’s $15,000—half of that is three months’ wages to the guy signing the paperwork,” he said.

The way the bunker industry developed over the past 50 years contributed to its shady reputation, according to maritime consultant Adrian Tolson, as the oil majors viewed it as simply a means of selling an unwanted product.

“Bunkering is a largely unregulated business,” he said in an interview January 13. “In the past there wasn’t anybody particularly interested in the bunker market other than the refiners, who wanted to get rid of it, and the logistics and barging companies who helped them do that and eventually became the physical bunker suppliers.”

That bunkering and shipping companies tend not to be publicly traded also contributes to malpractice, many in the industry point out.

‘Unholy alliance’

“Shipping is vastly dominated by privately held companies, and bunkering is too,” Tolson said. “The two are in a sort of unholy alliance together.”

“I once made the statement that the shipping industry gets the bunker industry it deserves,” he added. “I’m not sure I necessarily believe that any more. But I would say that the bunker industry reflects the shipping industry, and as shipping improves the way it operates, so does the bunker industry.”

Part of what helps the trucking and aviation industries refuel without having disputes with suppliers is more accurate systems for measuring the quantities delivered, according to Meech. In bunkering the volume of fuel delivered is often tested by dipping a measuring tape into the tank to check the height to which it has been filled —a method open to mistakes and abuse.

In Singapore from the start of 2017 all bunker deliveries will be required to be measured by mass flow meter, a tool that more accurately measures fuel volumes. The meters can counter the so-called ‘cappuccino effect’, where fuel is delivered with large amounts of air artificially raising its volume, leaving customers with less product than they thought they had bought.

“The mass flow meter has come in because Singapore was starting to lose business and be less attractive because there was so much cheating going on,” Meech said.

But few other authorities are likely to follow Singapore’s example without greater regulation, as individual ports fear losing bunker market share to nearby rivals if they take this step first.

Another area in which misbehavior in the shipping and bunker industries may worsen in the coming years is emissions regulation.

In October the International Maritime Organization (IMO) decided to cut marine fuel sulfur emission limits from 3.5% to 0.5% from the start of 2020, forcing most shipowners to switch to buying cleaner, more expensive fuels.

While shipowners will need to follow the rules to the letter when operating in busier areas like northwest Europe, it seems unlikely that the regulations will be universally enforced elsewhere. In taking a cargo from China to the US west coast, for instance, how many regulators will the ship run into in the middle of the ocean?

Meech has previously forecast that as much as 49 million mt/year of fuel oil demand may remain after 2020 from shipowners ignoring the new sulfur cap.

Source: Platts 

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