Impact of $ 70+ Oil on Containers, Tankers and Dry Bulk Transport

On Thursday, Brent crude oil prices exceeded $ 72 per barrel and West Texas Intermediate exceeded $ 70. As the price of oil goes up, so does the price of marine fuel. This means higher costs for ship operators and, in the case of the container sector, more fuel surcharges being passed on to the cargo shipper.

Higher bunker (ship fuel) costs have different impacts on different transport segments. American Shipper examined each segment and interviewed Richard Joswick, Head of Global Petroleum Analysis at S & P Global Platts, for a broader perspective on where pricing will go next.

Impact on shippers of container goods

In the container sector, liner companies pass on rising fuel costs through the Bunker Adjustment Factor (BAF).BAF Career Filing to Distribution Publisher (DPI) Shows that the BAF plummeted in the third quarter of 2020 after the oil price plunge caused by the coronavirus infection, and has been on an upward trend ever since.

CMA CGM, COSCO, Evergreen, and OOCL filed for Q3 2021 BAF on the West Coast of Asia averaged $ 229 per 40-foot unit (FEU), an increase of 69% over the same period last year. .. The BAF on the East Coast of Asia for these four airlines averaged $ 409 per FEU in the third quarter, an increase of 78% year-on-year.

(Figure: American Shipper based on DPI data)

In normal times, these price increases will attract attention. However, in the current situation where fares per FEU from Asia to the United States often exceed $ 10,000, the rise in BAF is a drop in a bucket.

Steve Ferreira, Founder and CEO of Ocean Audit, told American Shipper: Now, for the shipper, this is another nail in the casket. At this point, I don’t think the loggers are even paying attention to the bunker. I think it’s BCO [beneficial cargo owners] Given the exorbitant fees they are paying, BAF negotiations need to be better done. “

Ferreira also said that the BAF offered by non-shipped forwarders (NVOCCs) is “significantly higher” than that listed by liners on the same date and route. “they [NVOCCs] It’s marked up, “he insisted.

Impact of scrubbers across all segments

From a shipowner’s perspective, one of the implications across all major segments such as containers, tankers and dry bulk includes exhaust gas scrubbers.

From January 1, 2020, under IMO 2020 regulations, scrubber-free ships will be known as very low fuel oil (VLSFO) or 0.1% sulfur marine gas oil (MGO), the more expensive 0.5%. You need to burn the sulfur fuel. Vessels equipped with scrubbers can continue to burn the cheaper 3.5% sulfur fuel known as High Sulfur Fuel Oil (HSFO).

According to price data from Ship & BunkerThe HSFO-VLSFO spread reached $ 121 per ton on Wednesday, the highest level since March 5, 2020. Spreads are over $ 100 overall this year, and more shipowners are choosing to install scrubbers to save money.

Prices are average of the top 20 bunker hubs in the world (Figure: American Shipper based on Ship & Bunker data)

Impact on container liner operators

The question for container ship operators is whether BAF revenues from freighters will completely offset the rise in fuel prices. Is the liner losing or profiting from the bunker cost by passing on more costs to the shipper than the liner pays?

Revenues from liner contracts from shippers are directly affected by BAF. During a conference call on results for the third quarter of 2020, Maersk executives said the rise in spot rates was offset by lower contract rates lowered by bunker clauses associated with lower fuel prices. That dynamics should be reversed. With the increase in BAF, the contract rate reported by liners is Higher annual rate recently negotiatedNot only, but also from the upside down of BAF.

On the other hand, the actual fuel consumption of liners is Extreme port congestion around the worldOn the other hand, ships are reported to be sailing faster in backhauls to make up for lost time, and fuel consumption is exponential with respect to speed. Ships moored for weeks, on the other hand, consume much less fuel.

Yet another variable: Is the type of fuel the container ship is burning, VLSFO or HSFO? Of all the different ship types, large container ships have the most scrubbers installed. It burns much more HSFO than VLSFO.

According to Clarksons data, super-large container ships on the water (Clarksons defines it as having a capacity of at least 15,000 20 feet) are equipped with scrubbers. An additional 5% of the existing fleet will be modified. Of the new vessels ordered in this class, 78% are equipped with scrubbers. Scrubbers will be installed on 74% of super-large container vessels, including existing vessels and new vessels. This is an increase from 70% in January 2020 and 60% in January.

Impact on tanker shipowners

In the tanker sector, rising oil prices are a good sign for future cargo demand, at the forefront of both crude oil tankers and product tankers. However, tanker operators are very exposed to the spot market, and in spot voyage transactions, operators pay for fuel. Increasing costs of marine fuel are negative for costs.

Tanker fee Stay very depressedTankers with scrubbers can save fuel costs, which means less bleeding than tankers without scrubbers.

According to Clarksons, the old VLCC (a very large crude oil carrier, a tanker carrying 2 million barrels of oil) made a profit of $ 3,400 a day on the spot market on Thursday. Sun — To save fuel. The latest “eco” non-scrubber VLCCs manufactured since 2015 earned $ 9,700 per day, and the latest VLCCs with scrubbers earned $ 13,100 per day.

However, analysts estimate that VLCC’s cash breakeven is about $ 22,000 to $ 25,000 per day. Even the latest VLCCs with scrubbers have a large deficit.

Nevertheless, owners of large tankers continue to adopt scrubbers. According to Clarksons data, 40% of VLCCs on the water are currently equipped with scrubbers and 2% of existing VLCCs will be modified. Of the new VLCC vessels ordered, 43% will be equipped with scrubbers. Combined with existing and ordered vessels, 42% of VLCCs are set to use scrubbers. This is an increase from 40% in January 2020 and 35% in January.

Many of the previous tanker scrubber repairs were postponed to the fourth quarter of 2019 and the first half of 2020 due to the very high rates. What owners don’t want to do most is put the tanker in the yard at the very moment the returns are skyrocketing. However, in the fourth quarter of 2020 and the first quarter of 2021, the markets were the exact opposite. The rates were so low that the owner accelerated dry docking and brought the ship to the yard earlier than planned.

Randy Giveans, an analyst at Jefferies, said: Even with a spread of $ 100 per ton, the VLCC premium is at least $ 4,500 per day, which makes a lot of sense at current rate levels. “

Impact on owners of dry bulk carriers

The longer the ship is not moored in the port, the more scrubbers will be saved. As a result, scrubbers navigate longer routes, making them more economical for large vessels. The scrubber penetration is the highest in the dry bulk sector of Capesize (Valqua with a deadweight of 100,000 tons or more), as is the highest in ultra-large container ships and VLCCs.

Clarkson’s data show that 42% of water Capesizes already have scrubbers and an additional 1% are set up for mods. 41% of Capesize orders will have scrubbers. Including existing and new vessels, 43% of Capesize is set to carry scrubbers. It was 42% in January 2020 and 34% in January.

The savings you get from HSFO-VLSFO spreads Scrubber and non-scrubber Capesize indexes edited by S & P Global PlattsThe Cape T4 Index rated the non-scrubber cape rate at $ 19,920 per day on Wednesday. The valuation price for a cape equipped with a scrubber was $ 23,316 per day due to fuel savings, an increase of $ 3,396, or 17%.

TCE rate = regular charter rate (Chart: American Shipper based on S & P Global Platts data)

Unlike tankers, dry bulk carriers are profitable, so scrubbers do not reduce losses, but actually increase profits. According to various analysts, the break-even point for all cash on Capesize vessels is between $ 13,000 and $ 17,000 per day.

What will happen to the price of marine fuel?

Several factors are pushing up marine fuel prices and spreads. One is the crude oil price. The recent rise has spurred a significant rise in prices in the future. Joswick of S & P Global Platts disagrees.

“It’s not surprising that the price is around $ 70. Global demand is improving and the huge inventory surplus seen in 2020 is disappearing and almost disappearing. Many are OPEC (OPEC). Is waiting to see if demand will increase before further production) and what will happen in Iran. We believe there may be some trade with Iran. The question is when will it be? “

“As we approach autumn, oil prices are more likely to fall than to rise. The basic outlook is that oil prices will be tightest during the summer and then ease. I don’t see any underlying reason for the surge in marine fuel prices. ”This means that there is no reason for the price of marine fuel to skyrocket.

In terms of spreads, there are developments that could push up the price of VLSFO, push down the price of HSFO, and benefit the scrubber’s economy.

On the VLSFO side, jet fuel is an important issue. Demand for jet fuel has fallen due to the new coronavirus infection, but demand is recovering as domestic air travel resumes. Non-scrubber vessels consume much more VLSFO than MGO, and jet fuel demand is more related to MGO than VLSFO pricing, but there is a connection between jet fuel and VLSFO.

As the demand for jet fuel diminishes, some of the molecules that would have been used in jet fuel can enter the diesel pool and some of the heaviest components with higher boiling points can be used to produce VLSFO. As the demand for jet fuel increases, those extra molecules decrease.

“Demand for jet fuel is returning. This underpins diesel and MGO, to a lesser extent, VLSFO. [pricing]”Joswick explained. MGO says, “It’s getting stronger, and the key issue is where VLSFO is. [fits in the equation].VLSFO was moving in step with MGO, but now it isn’t. “

The problem on the HSFO side is the use of refineries. When refinery utilization is low, that is, during peak COVID periods, less HSFO is produced. If the HSFO is low, it is easier for the most efficient unit of the refining system to convert the HSFO to diesel. As is happening today, increasing refinery utilization reduces the efficiency of the units required to convert HSFOs.

“If you start deploying inefficient units, it’s economical to have a wide diesel-HSFO price spread. When that happens, HSFO prices will be lower than diesel,” explains Joswick.

The tailwind of VLSFO and the headwind of HSFO are positive for the scrubber economy. However, Joswick emphasized that at the time of the implementation of IMO 2020, this would not lead to the extreme spreads seen in the fourth quarter of 2019 and the first quarter of 2020.

“You should expect the spread to widen somewhat over time, [spread] Spikes like before. The problem with IMO 2020 is that it was only announced three years before implementation and it usually takes five years for refiners to build something.Now, five years have passed and new facilities are online, so we’ll gradually expand. [of the spread] However, IMO 2020 will not be repeated. “

Click on another article in Greg Mirror. Impact of $ 70+ Oil on Containers, Tankers and Dry Bulk Transport

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