Barge fleets will likely be downsized as rising operational expenditures and narrow differential between Singapore-delivered Marine Fuel 0.5%S and ex-wharf basis depresses margins, prompting bunker suppliers who time-chartered these barges to consider a contract lapse upon expiry, with no intention to renew it in the near term.

A Singapore-based bunker supplier said that he was turning barges eight- to-nine times a month but there was limited upside, given muted market demand.

Ample availability of barges plying the delivered bunkers trade in Singapore stiffens price competition too, another bunker supplier said. Data by the Maritime and Port Authority, or MPA, of Singapore showed a registry of 210 bunker barges as of March 2021, slightly down from the 215 registered barges reported in July 2020.

Determined offers amid ample availability and a firming flat price for Marine Fuel 0.5%S bunker sold on a delivered basis has led to a narrowing of the spread between product sold on a delivered basis and that on an ex-wharf basis. This spread, much of which is barging cost, chips away at suppliers' margins.

According to S&P Global Platts data, the differential between Singapore-delivered Marine Fuel 0.5%S and the same grade for ex-wharf basis, has narrowed to an average of $4.34/mt in June, a 36.3% decline year on year and up 79.3% on the month. This narrowing of barging spreads eroded suppliers’ margins for delivery of bunker fuel, sources said.

Platts data indicated that the premium of Singapore-delivered Marine Fuel 0.5%S over FOB Singapore cargo of the same grade was assessed at an average of $5.30/mt in June, down 75.9% year on year and up 55.1% from May. Average outright prices of FOB Singapore Marine Fuel 0.5%S cargo had spiked almost 43.61% compared to June 2020 and also gained 6.7% from May, Platts data showed.

Where prompt deliveries of bunker fuel should ideally command a premium, competitive offers by suppliers who are eager to turn barges diminish premiums instead, a market participant said.

Rising operational costs hurt margins

Bunker suppliers, who own barges on time charter agreements, have cited rising operational costs as another key factor that discourages ownership of chartered barges that require an average barging spread of $8-$9/mt to break even.

Apart from the rising gasoil prices, a Singapore-based bunker supplier said that barge owners also rack up substantial expenses to facilitate the 21-day stay-home notice for crew changes, which is a COVID-19-induced preventive measure mandated by the MPA. Most bunker barges use marine gasoil as bunker.

Singapore-delivered low sulfur marine gasoil prices in June averaged at $593.32/mt, 5.37% above May and up 40.98% from June 2020.

According to barge owners, a minimum barging spread of $3/mt is required to recover operational expenditures, particularly for older barges as the cost needs to be amortized over the years.

“Barge charterers face a greater challenge to turn barges, which in turn drove these suppliers of delivered Marine Fuel 0.5%S to sell at competitive prices,” said a Singapore-based barge owner.

Barging landscape gearing towards recalibration

Given the changing landscape, a short-lived transitional period will likely emerge whereby the barge owners could revise time charter rates downward to hasten the transfer of barges between charters in a bid to reduce downtime.

“Whether the diluted supply of bunker barges will lift premiums of Singapore-delivered Marine Fuel 0.5%S and effectively widen barging spreads remains a question, but supply-demand economics play a part too,” a Singapore-based trader said.

Based on the underlying fundamentals, industry sources are in consensus that the bunkering market will gradually tilt towards an equilibrium. This implies that the supply of barges would be more balanced against the overall demand of the IMO-compliant marine fuel in Singapore’s spot market.

Zhoushan price competition

The push to grow Zhoushan as a bunkering hub has pulled demand from Singapore amid rising competition, impacting margins.

Throughout the first half of 2021, Zhoushan-delivered Marine Fuel 0.5%S was assessed at a discount of 3 cents/mt against Singapore-delivered prices of the same grade. The spread gradually flipped into a discount compared to H1 2020, when this spread averaged at a premium of $9.29/mt, and narrowed to a premium of $1.90/mt across H2 2020.

“Despite trading activity generally ranging between average to steady, demand for delivered Marine Fuel 0.5%S in Singapore could have performed better if not for the cheaper bunker prices at Zhoushan which has wrestled substantial market share from Singapore,” said a Singapore-based trader.

In 2020, the port of Zhoushan supplied 4.72 million mt of bonded bunker fuels, up 15.14% year on year, making it the eighth-largest bunker supplying port in the world, according to Zhoushan's Bonded Bunker Fuel Association. The east China port of Zhoushan aims to sell at least 6 million mt of bunker fuel in 2021, according to the Zhoushan City Council.