World Bunkering > News > Winter 2010 > SA weathers the downturn

When the downturn hit shipping the two sectors to suffer most were the bulk and container segments. As James Nash, the manager of Cockett Marine Oil’s Cape Town office, points out, these happen to be the most important sectors for South Africa.

The South African economy was, however, relatively sheltered from the global recession and this came through strongly on the domestic front. While the global shipping industry was tackling dwindling world trade volumes, credit complications, plummeting rates and surplus tonnage, South Africa’s coastal shipping by contrast remained buoyant.

Market fundamentals

Overall bunker volume growth has slowed due to global industry trends, including newbuilding cancellations and delays, scrapping of older tonnage and return of chartered vessels to owners. SMIT Amandla Marine says the global downturn has affected the South African bunker market “a little”, adding: “Owners are very price sensitive and are topping up their vessels as opposed to stocking up.”

On prices; Mr Nash notes that after MFO prices at Durban, the country’s biggest port in terms of bunker throughput, touched over $775 a tonne in August 2008, prices went into free fall to a low of around $250 a tonne in March 2009.

SMIT notes that slow-steaming, which generates fuel savings, is another feature of the post-recession industry that has also helped rebalance market fundamentals.

Avoiding piracy en route?

While the downturn has clearly hit the South African market, is it still benefiting from vessels using the Cape route rather than Suez because of piracy? The SMIT answer to that is a simple “yes”. Mr Nash is more guarded, saying: “Piracy remains a serious issue and a major concern for shipowners in the area. However, it would be very difficult to quantify the benefit seen in South Africa as a direct consequence of this activity. A complicated cost-benefit analysis must be conducted by each shipowner to determine whether such deviations can be accepted. There are a number of variables to take into consideration, such as the type of vessel, ship’s speed, value and type of cargo and crew, current bunker prices and the freight market to name but a few.”

The long way around the Cape of Good Hope , Mr Nash notes, will add about one week onto a transit from the Indian Ocean to Europe, and consequently increases fuel and labour costs. However apart from the main aim of avoiding pirate attacks, the long route has the added advantage of avoiding the “exorbitant” Suez Canal charge for passage. Shipping firms also see some relief from paying the highrisk insurance rates associated with transit through the Gulf of Aden. The threat is continually changing, Mr Nash observes. Pirates responded to a shift in routes and since late 2008 have also been attacking ships coming out of the Mozambique channel’s northern end, which in turn forced mariners to go east of the island. Now the pirates have adapted to that tactic as well, threatening the vessels within the Mozambique channel.

Supply security

Historically, availability of supplies has been an issue in Durban and other South African ports. SMIT says that availability had been good until a recent power failure when both refineries were down. Mr Nash remarks: “Avails at Durban are erratic as a result of supply interruptions and refinery turnarounds, both scheduled and impromptu. Shortages are more prevalent on MFO blends and less so on lighter products such as MDO and MGO. When the Enref and Sapref refineries are at full production, all grades generally have good availability. Maintenance is typically scheduled every quarter and sporadic outages do occur from time to time. Richard’s Bay freight takes the majority of its product from Durban and thus when Durban is dry the same will generally apply to the bulk of Richards Bay tonnage. Cape Town product is largely ex-Calref and availability on all grades is generally very steady.

New markets

Once, South African ports were the only real option for vessels needing to bunker while taking the Cape route. Both companies agree that West African offshore bunkering is beginning to provide real competition.

Mr Nash observes: “Referring to offshore supply only, West Africa is certainly now another option for vessels traditionally calling SA ports for ‘bunkers only’. The obvious benefit offshore suppliers have over the South African market is, vessels do not need to call into the port and may therefore avoid the huge port costs involved. The offshore market also provides RMG 380cSt and low-sulphur MGO when available, therefore offering a wider choice of products to operators. The majority of vessels calling South African ports are working cargo however, and it makes sense to take bunkers concurrently rather than making a bunker stop offshore and incurring downtime plus the possible delays and complications that are associated with this. Moreover, the prices of the bunkers in South Africa are typically cheaper than the offshore West Africa levels.

The two companies so far report different experiences regarding demand for low-sulphur fuel. SMIT says: “We have not seen any demand.” On the other hand Cockett’s manager says: “Low-sulphur fuel (max 1% IFO and 0.5% MGO) demand has trended upwards, particularly since the new ECA regulations effective from 1 July 2010. Although ADO (500ppm) is available ex-truck at certain locations, bulk low-sulphur product is not readily available at South African ports. Domestic refineries do not have modernised desulphurisation units. Oil majors continue to monitor demand situation for LS product but any implementation of such steps still seems a few years away.”

The two companies view the prospects for the next 12 months rather differently. SMIT says: “Depending on the price it could be a great year.”

Mr Nash is more reflective and says: “South Africa’s peak bunker volume reached approx 3 million tonnes in 2006. This coincided with record-high freight rates. With the advent of offshore supply, particularly off West Africa, volumes have decreased by approx 25% to date. Modern vessels, which can burn up to 700cSt, are limited for choice in South Africa where only max 180cSt RMF is available. Higher viscosity product is available offshore which has further eroded SA supply.

“Cost-effective, quick and easy bunkers-only anchorage services are not currently possible in South Africa. These limiting factors will likely be offset by the significant turnaround in international trade, which is heading back toward 2006 activity levels. The SA market therefore looks set to maintain its flat curve into the next year.”

On Africa’s other markets, Mr Nash says: “The offshore East Africa market is developing now that there are two tankers that can supply RMG 380cSt, RME 180cSt and MGO. The port of Maputo in Mozambique will next year benefit from the current dredging project underway to provide more accommodating access channels, basins and berths. The project, which has an approximate completion date of March 2011, will allow the port the opportunity to handle larger vessels, and greatly enhance its attractiveness to potential port users. As a consequence we may see a natural market driven improvement for greater bunker options in port.”

“West Africa,” Mr Nash suggests, “appears to have reached saturation point in terms of space for new physicals to enter the market. It has a very strong presence of physical suppliers with good International reputations. These offshore suppliers conform to ISO 8217: 2005 standards, unlike many of the local distributors based in minor African ports.”