Product split in Price Indexes?

The implementation of new degassing regulations is expected to encourage more barges to operate within dedicated product pools. This raises the question of whether there is a need for Spotbarge to create separate price indexes for different product types.

Upon examining the clean petroleum products market, it can be categorised into three distinct segments, each with varying statistical probabilities of finding a suitable subsequent cargo.

1.      Fame, biodiesel, hvo

Fame pre-cargo offers limited flexibility compared to distillates and light products. When looking for a subsequent cargo, the options are restricted to either fame or distillates. This is primarily because most companies do not permit fame as a pre-cargo for light products due to contamination and off-spec concerns.

2.     Distillates; diesel, gasoil

Distillates pre-cargos are the most flexible, as it allows the loading of distillates, fame and light products as a subsequent cargo. There are some exceptions when the sulfur content in distillates is extremely high, but these instances are not common practice.

3.     Light products; gasoline, naphtha, reformate

Light products pre-cargos also offer flexibility when it comes to subsequent cargos. Some companies permit the loading of fame and distillates as subsequent cargo following light products. However, there can be a restriction in place for loading fame and diesel, which requires the vessel to arrive gas-free at certain load ports.

As evident, being gas-free is not the sole restriction that impacts the flexibility of barges and index prices; the pre-cargo is an even more significant factor. There are also numerous minor details within pre-cargo specifications, such as sulphur context (ppm), bio-free, and oxy-free, that can further limit the up-following loading options.

Moreover, some charterers do not even accept naphtha as a pre-cargo from another oil company, despite loading naphtha themselves.

Many brokers and charterers have their spot barges already operating within specific product categories, with some dedicated to particular cargo types. Brokers often specialise in different areas, with some focusing more on light products, while others concentrate on fame or distillates. Seasonal fluctuations can lead to increased demand for certain products at various times of the year, such as during a seasonal switch. However, these fluctuations typically do not result in drastic price swings within categories, with only minor peaks observed. Consequently, these small variations do not significantly impact price differences between products in the market.

As a result of the new degassing regulations, some barges may be planned less efficiently. Caused by fewer backhauls and increased empty sailing time. Consequently, barges can perform relatively less trips than before, and more capacity is needed, potentially leading to higher prices overall, rather than affecting specific product groups.

Liquidity

For most of the routes, liquidity of barge price reporting is currently already low, and if products are further divided into different indexes, it will only serve to make the indexes even more illiquid. Many of the routes will probably will receive 0 quotes and some 1 or maybe 2 quotes per day. In a situation where the spot market had a higher liquidity, for instance, with 70-100 quotes per day for all routes, it would have been a more realistic approach to create a split in product indexes.

Factors determining price discrepancies.

It is challenging to determine whether price changes are due to an increased demand or other influencing factors. As an example, fluctuations in Spotbarge price reports have been observed within the same product, routes and charterer, with price variations ranging from 0 to 0.50 cents per ton. Numerous factors can impact the pricing of a barge, making it difficult to pinpoint a single cause for any given change.

Different customers

Some charterers maintain relationships with a small pool of brokers and do not actively seek the cheapest barge options in the market. They remain loyal to their chosen brokers through favourable and challenging times, which can result in not always securing the lowest or highest rates.

A broker can book a naphtha cargo above the price of a diesel cargo, while a different broker can book this naphtha cargo below the diesel cargo with the same charterer.

Vapor Recovery Units (VRUs)

When booking a new trip, the charterer and the broker may not know yet if there will be a VRU available for the next trip of the barge.

Degassing installation

If the charterer and the broker agree to ventilate the barge at a degassing installation, a premium added on a different index will make no sence as the barge will be gasfree again after the trip.

What will change?

Rhine

The impact will be particularly significant on the Rhine due to the different product flows upstream and downstream, as well as the longer sailing times compared to the ARA region. Germany has already been prohibited from degassing, which has resulted in barges sailing to the Netherlands for degassing and the pick-up of new cargo or back to Germany. This situation could potentially lead to an increase in Time Charters and Contracts of Affreightment (COAs) due to the need for more dedicated sailing on the Rhine.

Capacity

Over the years, there has been a significant increase in barge capacity in the ARA and Rhine regions, a trend that is expected to continue in the coming years. This expansion will result in a well-balanced fleet, enabling vessels to specialize in specific product groups. Consequently, pricing for these groups is anticipated to remain relatively the same.

The implementation of new degassing regulations in the upcoming year will provide insight into the market's response, including potential pricing adjustments.

At present, we do not see the need to create different price indexes, primarily due to the following reasons:

1. Low liquidity in different indexes, which makes it challenging to establish a reliable price benchmark.
2. Wide price variations, making it difficult to determine whether these fluctuations are caused by demand or other contributing factors.

Furthermore, there are numerous additional factors that influence barge pricing, and introducing a split in the indexes would only serve to unnecessarily complicate an already intricate system.

To ensure that we remain up-to-date with market developments, Spotbarge will continue to closely monitor the market throughout the upcoming year. We will maintain open lines of communication with brokers and charterers to gather insights and feedback, allowing us to make informed decisions and provide our clients with the best possible service.