The Importance of Bunkering: Moving Goods Around the World

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Harbor,Copenhagen,Denmark - May 13,2011 :
Source: ZE

I heard the term Bunkering before, but it wasn’t until I started working with our signature product the ZEMA Suite, which collects and analyzes data, that this industry piqued my interest.

What is Bunkering?

Bunkering is the act of  providing fueling services for the thousands of ships, barges, boats – you name it – that circle around the oceans moving goods from one end of the world to another. What I didn’t know was that the name actually comes from the word “bunker ”, the leftover (or the heavy oil) that is the hardest to refine in the oil refining process. There are several degrees of heavy oil, but to keep things simple, other terms by which it is known are “gas oil” or “fuel oil”.

What is the Industry Impact?

 To understand the impact of this industry, we need to look at who uses the fuel.

Ships have historically been the most common mode of passenger transportation over water. That changed with the development of the airline industry. But, ships have not gone away: presently about 90% of the world trade goes by sea. To meet demand, vessels are more specialized, faster (according to  a report from the World Ocean Review  the average speed now is 45 to 55 km/hr. or approx. 1200 km/day, up from a historical 28 km/hr.), lighter (in addition to steel, composite materials are also used in manufacturing to increase fuel efficiency), and larger.  And, automation such as GPS, computerized navigation systems, and automated cargo loading and unloading has been implemented to reduce costs.

The ships are built by heavy machinery manufacturers that are mostly in Korea and Japan. Some names may sound familiar: Mitsubishi, Hyundai, Samsung, and Sumitomo are just a few of the companies that have shipyards in Japan and Korea. Although STX (a subsidiary of STX of the Republic of Korea) just opened the world’s largest shipyard in China: 460 m long (the length of about four football fields); 135 m wide, and about 150 m tall. It can host two ships with a deadweight capacity of 320,000 tonnes.

And, just as in the auto industry, in addition to the manufacturers, there are also credit risks, insurance service providers, arrests (repossession for not paying), and other factors.

What Do Vessels Transport?

As part of the specialization of good transportation, there is a type of ship for every type of cargo: tankers for crude oil, bulk carriers for bulk goods (ores, coal, and grain); bulk carriers for large-volume unit loads (motor vehicles and iron), general container ships, and refrigerated vessels.

Crude oil is the most important type of cargo, accounting for nearly a quarter of goods transported by sea. Along with crude oil, there are also tankers who transport processed petroleum products. Iron ore and coal are significant dry-bulk goods also.  Most of coal is used in generating electricity in power stations.

Where is Bunkering heading?

 The performance of the bunkering industry also follows the ups and downs of world trade:

According to a Bloomberg article, the IMF estimates world trade will increase by 4.5% this year, up from 3.2% in 2012. Consequently, demand for bunker fuel is expected to rise by 2.2%  to 3.37 million barrels per day. This increase in demand is expected to push prices to an all-time high of $690/metric ton.

Since fuel accounts for about two-thirds of the operating cost of a vessel according to the World Ocean Review report, we can assume that the increase in demand combined with an increase in prices will impact operating profits of shipping companies if these costs cannot passed on to the customers.

With the increasing cost of bunker oil and its impact on the bottom line, managing bunker oil prices effectively and efficiently is critical for shipping companies. Our signature product, the ZEMA Suite can help your company collect this data and create different scenarios and forward curves for a timely and effective decision making. To receive a demonstration of our product, feel free to contact us.


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