Bunker buyers & suppliers in ARA

The bunker supply industry in the ARA region is a complex ecosystem. ARA is well-known for its relatively low-cost bunker fuels, making it an attractive bunker port. However, another significant factor is that Rotterdam and Antwerp are Europe's largest container ports. The primary reason for vessels to dock at these ports is the loading and unloading of containers. While there are other regions, such as the Middle East, that produce bunker fuels, vessels are less likely to stop there if there isn't a major container hub and stopping there would bring unnecessary deviation costs. A thriving economy in Europe results in increased import and export activities, which in turn leads to a higher number of vessels arriving at the ports and a greater demand for bunker fuels. Conversely, when the economy is slowing down, it is often reflected in the decreased volume of bunker fuels.

Bunker suppliers can be broadly divided into three main groups: oil majors, trading houses, and bunker resellers. Each group operates with distinct strategies, infrastructure, and market approaches, shaping the dynamics of the regional and global bunker fuel supply.

Oil Majors

Oil majors, such as Total, Shell, BP, and Exxon, are prominent players in the bunker fuel market. These companies own several refineries in the ARA region that produce residual fuels, which serve as the primary components for blending fuel oil. The extensive refinery infrastructure allows these oil majors to maintain sufficient storage and depot facilities to ship blend components efficiently.

The oil majors not only sell blended fuel oil as delivered bunkers to direct customers, but also offer FOB (Free On Board) sales to other bunker suppliers, including resellers. Historically, the perception has been that oil majors provide the highest quality fuel oil due to their consistent blending processes using the same streams. However, the introduction of the IMO 2020 regulations, which mandate the use of Very Low Sulfur Fuel Oil (VLSFO), has introduced new challenges in fuel stability, even for these established players. The need to balance production and storage to keep operations feasible adds another layer of complexity.

FOB sales can pose a potential disadvantage for bunker suppliers, as they are heavily dependent on the timely arrival of their customers' barges. A delay in the loading of bunkers onto a barge can have a cascading effect on the entire logistics supply chain. If the land tanks are required to be emptied for the next batch of residual fuel oil, but the product is unable to be dispatched, the tanks may become overfilled. This, in turn, can halt blending operations and hinder the ability of jetty planning to accommodate all incoming barges.

Oil majors collaborate with specialised brokers to manage their primary volumes of bunker deliveries, given the substantial quantity and scale of these operations. These brokers maintain a close working relationship with the oil major's operations team to optimise bunker planning and execution. In addition to the barges exclusively designated for bunkering, they often have a fleet of DPP barges that transport fuel components and residual fuel oil to ensure refinery viability, these DPP barges are also occasionally utilised to assist with bunker deliveries.

Trading Houses

Trading houses like Trafigura, Glencore and Vitol also play a significant role in the ARA bunker market. Unlike oil majors, trading houses typically do not own refineries in ARA but have substantial storage and blending capacities. They purchase various blend components, allowing them to adjust their blend compositions more frequently than oil majors.

This flexibility enables trading houses to respond swiftly to market conditions. When the market is weak, and profit margins are thin, they can reduce the purchase of blend components and scale back blending activities. This adaptability gives trading houses a competitive edge, especially in volatile market conditions. Like oil majors, they sell both delivered bunkers and FOB products to other suppliers.

Due to their lack of involvement in the refining of products and the absence of a consistent flow of bunker deliveries, it can be challenging for them to ensure that the bunker or DPP barges are continually in use. As a result, time charters, are not typically hired for these operations. Instead, these companies often opt for COAs (Contracts of Affreightment) or supply deals with barge companies. In these arrangements, the barge companies are responsible for delivering bunker fuel to the company at a fixed rate per ton. This approach allows the company to secure reliable transportation for their bunker fuel without the need to maintain a dedicated fleet of barges. However, in a tight barge market, not having barge flexibility can be a significant disadvantage. In situations where prompt components, such as cutters, are required for a blend, or when an opportunity for a prompt bunker sale arises, the lack of access to a barge can hinder the ability to act quickly and capitalise on the situation. This can ultimately impact the efficiency and profitability of the company's operations.

Bunker Resellers

Bunker resellers operate differently from oil majors and trading houses. Generally, they do not own storage facilities or engage in blending themselves. Instead, they purchase fuel oil FOB from oil majors or trading houses. Their business model revolves around buying oil in various ports and maintaining a significant length of freight on their books.

By securing fuel oil in different locations, bunker resellers can ensure consistent availability for their clients. However, this approach often results in a loss of freight efficiency, although it saves on storage costs. The trade-off between storage savings and freight efficiency is a key consideration in their operations.

Opting not to rent a storage location can also present a significant disadvantage for resellers, particularly in terms of influence over loading operations. For instance, if a reseller purchases bunker fuels from a trading house and their barge arrives for loading, the supplier maintains the authority to dictate the sequence of barge loadings. Should the supplier prioritise their own barges for loading due to any number of reasons, the reseller's barge may be forced to wait. This can potentially lead to delays, jeopardising the reseller's ability to arrive on time for bunker delivery.

Fuel Oil Dynamics in NWE

The North-West Europe (NWE) region, which includes ARA, is naturally long on fuel oil. This surplus necessitates exporting a portion of the production, typically to regions with higher demand such as Singapore. Both oil majors and trading houses are heavily involved in these export activities, ensuring that the regional surplus does not lead to oversupply and price depressions in the local market.The export of fuel oil to the east requires a lot of barging activity to ship all the components between oil terminals and refineries.

The ARA region caters to a diverse range of buyers, each with distinct requirements and operational patterns. There are several kind of buyers:

Tankers

The ARA ports experience a high volume of tanker traffic, necessitating extensive bunkering services. However, tankers often have less reliable estimated times of arrival (ETAs) and shorter port calls at various terminals. This unpredictability can complicate their bunkering needs, requiring suppliers to be flexible and responsive to last-minute changes.

Container Ships

Container ships tend to have longer port calls and typically require larger volumes of bunker fuel. This can be advantageous for sellers, as it allows for more substantial and consistent sales transactions. The extended stay of container ships in port provides suppliers with ample time to deliver the necessary fuel, ensuring efficient and timely refueling operations. Well known container liners are MSC, HAPAG-Lloyd, CMA, Mearsk and ONE.

Dry Bulk and RoRo Vessels

Dry bulk carriers and Roll-on/Roll-off (RoRo) vessels generally have shorter port calls and demand smaller bunker volumes compared to container ships. Their bunkering needs are more sporadic, making it challenging to manage efficiently. Suppliers must be adept at coordinating timely deliveries to meet the quick turnaround times of these vessels.

Cruise Ships

Cruise ships also visit the ARA region, requiring significant bunkering services similar to container ships in terms of fuel volume. However, the schedules of cruise ships are often more predictable, which aids in planning and executing bunker deliveries. This predictability allows suppliers to arrange fuel deliveries well in advance, ensuring that the ships are adequately supplied for their voyages.

Given the diverse buyer landscape, oil majors and trading houses are frequently viewed as the most competitive on prices due to their extensive infrastructure and blending capabilities. However, bunker resellers effectively compete by leveraging their no-storage advantage. By avoiding the costs associated with maintaining storage facilities, resellers can offer flexibility for smaller volumes.

Who to choose?

In the ARA region, the choice of bunker supplier often depends on the size of the customer and the reliability of their schedules. Smaller customers with lower volume needs and less reliable estimated times of arrival (ETAs) often opt for bunker resellers. The flexibility offered by bunker resellers is a significant advantage for these smaller buyers, as resellers can accommodate last-minute changes and irregular schedules more effectively, provided the bunkering volumes remain modest.

On the other hand, larger customers, such as container ships and big tankers, typically prefer oil majors and trading houses. These suppliers are better equipped to handle the larger volumes required by these vessels, and their extensive supply chains are well-suited to the consistent and predictable needs of these larger operations. The infrastructure and logistical capabilities of oil majors and trading houses ensure that they can meet the high demand and stringent schedules of significant maritime customers efficiently.