World Bunkering > News > Spring 2010 > Competition intensifies

A year ago, the tone of presentations at the Fujairah Bunkering and Fuel Oil Forum (Fujcon) was optimistic despite the onset of the worldwide economic crisis. One year on, that optimism by and large seems to have been borne out. The effects of the downturn in the economy were, however, still visible, and last year saw a subdued pace with few announcements of new projects and a degree of trimming of costs by operators.

Tanker take remains high

At Fujcon the point was made strongly that the majority of the bunker stems in Fujairah are lifted by tankers which are the least hit by the world economy slowdown. The the theory was that while the shipping industry had to contend with fewer cargoes, crude oil had to flow out of the Middle East Gulf and therefore tankers had to take bunkers at Fujairah. That has been largely borne out by experience, though with the qualification that supplies have been increasing in the Strait of Hormuz, an alternative to Fujairah’s anchorage.

Fujairah ranks among the world’s top three world bunkering ports, with about 24 million tonnes a year being handled. The port’s expansion programme continued through the past year. An additional 840 metres of dedicated oil tanker quays with a draft of 18 metres are due to become operational in 2010. Storage and fuel blending facilities are also still being expanded.

Looking at how the Fujairah market has performed since the onset of the global recession, George Gaviotis, director of UAEbased Oil Marketing & Trading International says that volumes dropped initially, but have now returned to normal. “But,” he adds, “the major impact is on the margins, which have been in negative territory for a long time with no sign of improvement.”

Changing lift patterns

The competitive situation has, however, changed. Mr Gaviotis says: “The addition of three bunker suppliers in the past year or so has impacted negatively on the margins.” Until recently most reports from the region spoke of minimum demand for low-sulphur fuel but he notes: “In the last two to three months there has been an increase in demand for low sulphur MGO but demand is not great yet. We are currently contemplating adding low-sulphur MGO the list of products we supply and we shall do so slowly.”

So can any demand for low sulphur be met in the Middle East? He is cautious. “MGO (at 500) is available but fuel oil is harder to blend down to low-sulphur levels without bringing the viscosity way down. Then the question is: who will pay for the quality give-away?” Mr Gaviotis agrees with the suggestion that owners are tending to bunker to capacity where prices are lower. “Correct,” he says, “and it will continue to be so till freight rates increase to the extent that time is the only concern. But also remember, bunkering to capacity means bigger credit exposure at current price levels, which few suppliers can afford to give.”

Fujairah retains a strong bunkering business

Tightening credit

On that topic, World Bunkering asked, has his company’s policy on credit altered in the current circumstances? He says: “It has absolutely changed. When owners are earning big money nobody worries about payment. Even traditional big shipowners have liquidity issues nowadays. Credit lines have shrunk while oil prices are increasing, making everybody worry as to how much is too much.”

As a result, he says, his company has become more cautious but it has not been practical to take other steps to secure or insure credit risk. “But we have reduced credit lines,” he says, “and are reviewing them more often. Potential insurance cover premiums have increased and in conjunction with diminishing margins it becomes uneconomical to insure the receivables.”

He notes one change in the market which is not good news for suppliers. He says: “The major change is the shifting of bunker grade from 180 cSt to 380 cSt and the reduction in the consumption of MGO. Modern ships burn primarily 380 and older ships burning 180 cSt are being scrapped, decreasing the demand for 180 cSt, which has been more profitable to supply.” Mr Gaviotis sums up by saying: “Price is paramount. I see margins becoming hair thin in 2010. Let’s hope 2011 is better.”

The deciding factor

The emphasis on price is echoed by Mehran Ghobadian, BGK Bunkers’ sales and marketing director. BGK’s operation, which includes a Dubai office, is mainly aimed at making supplies in the Strait of Hormuz. He says: “Price is the deciding factor. I would say the main factor these days seems to be the cash flow of the buyers. I have seen very reputable and cash-rich companies who continue to lift to maximum capacity when prices are good enough and on the other hand those who will lift the minimum required and more frequently in order to overcome cashflow problems. Most will try to lift just as much as they need for the voyage except a few who are more cost conscious rather than cashflow conscious.”

He says that increased credit risk is an issue but adds: “Making more and more credit checks and obtaining updates, seeking market feedback rather than listening to rumours, and approaching companies with strong financial backgrounds has led to a very good year for us without even one single bad debt.”

He notes: “As a fast growing supplier who is offering best quality product as well as service, our clients increased by almost 180% during 2009. This is mainly bunker-only call business off the Strait of Hormuz. There are no calling costs or additional/hidden charges to pay There is no congestion at the anchorage, which provides a very safe area for vessels to manoeuvre and anchor in 50 metres of water only.”

“Our sales have increased significantly due to the above factors,” says Mr Ghobadian, “and we are well above 200,000 tonnes per month right now. By adding a newly acquired 5,000 tonner to our fleet we are heading for even higher figures in 2010.” Looking ahead, Mr Ghobadian says: “I see very good potential in the region. I have already noticed signs of improvement. We at least are preparing ourselves for another successful year with a minimum 35% growth in sales.”

Fujairah retains a strong bunkering business

Adapting to the situation

Looking at the UAE market, Carsten Ladekjaer, director of International Bunkering (Middle East), says: “Generally I do not have the impression that there have been any remarkable changes in the Fujairah market within the last few months. In my view the biggest changes were felt right after the credit crunch set into the Middle East market during the last half of 2008 and into the first quarter of 2009. Since then most suppliers have adapted to the situation and trimmed their organisations and operations according to the new world.”

He notes: “Demand for low-sulphur fuel is still limited in our part of the world. This of course is primarily caused by the geographical distance to the SECA areas. Meanwhile, we do see sporadic inquiries and most of the time they can be met, since some of our suppliers do keep a limited stock available – naturally with noticeable price premiums. I am convinced that suppliers in the region will increase the outflow of low-sulphur fuel to meet demand as and when the need arises. However, there needs to be a higher level of demand before suppliers will go ‘full scale’ on low-sulphur fuel oil.”

Single hull ban

One development that could possibly boost deliveries in the Strait of Hormuz at Fujairah’s expense is the ban on single-hull tankers in UAE ports that was due to come into effect at the beginning of January. Fujairah’s harbour master, Tamer Masoud, was quoted as saying: “No single-hull ships will be allowed in the port or anchorage from January 1.”

According to the Bloomberg news agency, about three-quarters of all single-hulled VLCCs have called at Fujairah in the past year. It is thought that less than 100 single-hull VLCCs are still operational. In the medium term these vessels will disappear from the scene and Fujairah will continue to benefit from its unique location. There are regional competitors but few can see Fujairah doing anything other than continue to dominate regional bunker sales.