World Bunkering > News > Summer 2011 > A selfregulating system

World Bunkering: Prior to the Japanese catastrophe, how would you describe the Russian Far East bunker market?

Yury Telelyuev: After suffering the effects of the global economic crisis, the Russian Far East market had stabilised, in my opinion, by the middle of 2010. However, the crisis itself, along with certain decisions made by the Russian government, has brought some changes to the Far East bunkering market.

Since the beginning of 2009, the government has imposed customs duties on car imports. For the Russian Far East ports this was a noticeable loss, with fewer ships coming to the ports for bunkers. Before the duty was introduced, Vladivostok received a huge flow of car shipments from Japan. There were usually four to five vessels with cars in the port on a daily basis. Considering the fact that the turnaround time of such vessels is no more the one week, you can see how big a segment of the bunkering market was lost.

Consequently, the shipowners involved in transportation of this cargo have suffered. Most of them had specialised roll-on-roll-off vessels, which they could not use for any other type of transportation. As a result, they were frantically selling the vessels at the cost of scrap metal. Some of those companies somehow managed to reorientate their fleet to work with other cargos, others just left the market.

As a result, this has changed the structure of the ports’ cargo flow, and, correspondingly, the presence of some shipowners on the market. It has also had a negative effect on the bunkering market. Some smaller companies that lost their clients were forced to close. Only the strong ones, active and adaptable to changes, remained afloat. As for our company, we did have some difficulties but overcame them without losses.

WB: How has the steady rise in prices affected the Russian FE market? Has the pressure on margins eased?

YT: The market is the market. It is a self-regulating system, and the sooner it reacts to changes, the sooner it will come back to balance. Yes, at the end of the day, we are all dependent here on the major fuel suppliers. If they put their prices up, we correct ours. If there is demand then the prices are fixed at a new level. Should the demand fall, there will be an overstocking situation and the system rolls back, which means if the demand has to be revived the main suppliers need to react accordingly. Apart from that, there is competition between the main suppliers themselves, which helps the market to avoid sudden jumps and falls. The local market is dependent on the availability of ample supply in case of a sudden deficit of a particular oil product. Whoever has this supply marks the price up. Situations like this, however infrequently, do occur. In reality, there is no pressure from the centre on the margins, but there is a market which reacts to different conditions.

WB: What effect has the Japanese earthquake and the damage to that country’s bunkering infrastructure had on the Russian FE bunker market? Have volumes increased?

YT: It is difficult to speak for the Russian Far East market in general. For this, analytical investigation needs to be done. It would be correct for us to speak only about how our company is affected. I can say with a high degree of certainty that the Japanese tragedy had no effect on our business. Our clients continue to work on Japanese routes as they did before the earthquake. Those Japanese areas which were not affected by the disaster seem to be working normally. All the parties, ours and the Japanese, are fully aware of the high risk of radioactive contamination of vessels and cargoes, as well as the responsibilities for the consequences of that.

As a result, a tough radiation control has been introduced, both at the points of the vessels’ departure at the Japanese ports, and points of entry on the Russian territory where the cargo is unloaded. The numbers of vessels coming to our ports has not decreased, nor has the number of bunkers we supply. The consequences of the Japanese catastrophe have largely affected the fuel and energy complex of Japan. The destruction of one of the biggest nuclear power stations, breakdowns and damages at the oil refineries, has made the country redirect pressure to energy generating plants and has changed the structure of energy consumption. It is obvious that Japan will increase the volumes of import of oil products, but this will have a greater effect on exporting companies rather than bunker suppliers.

WB: Do you think the Japanese earthquake will have a long-term effect on the region’s bunker market?

YT: The tragedy that happened in Japan – the aftermath of the earthquake, killer tsunami, breakdown at the power station, radioactive contamination – are all tough challenges for the Japanese people. We, as the closest neighbours, have taken it with pain in our hearts as we have a lot of friends and business partners there. However, we understand from our contacts with our Japanese partners that life goes on for them, and things start taking their course. All our partners working on the Japanese routes continue to do so. In my opinion, there will be no considerable effect on the regional bunkering market.

WB: Have recent events affected TransOilBunker’s plans?

YT: As I mentioned previously, neither recent Japanese nor Libyan developments have affected our bunkering business in any way. These events do, certainly, affect the global prices on oil and oil products, or, indeed, dollar to rouble exchange rates when trading with our foreign clients, but they do not affect TransOilBunker and our strategic planning. Also, since the beginning of the year we have shown a steady growth on bunker fuel sales and strengthened our position in the market. In our plans for the near future is the purchase of a 3,000-dwt bunker tanker. We have already concluded a contract and made the first instalments, with the new vessel coming out from the shipyard in May or June this year. We are also in the process of developing new directions for expansion. This includes bunkering in Russia’s western ports and bunker trading in the ports of the Baltic States.