News / Bunker prices in free fall – a lifesaver for carriers struggling with ever lower rates

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The price of Rotterdam-sourced IFO380 bunker fell another $14 per tonne this morning, following a $28 plunge on Friday, to hit a new five-year low of around $365 per tonne.

Bunker prices have fallen by $80 per tonne in the past month, and by more than 30% since the summer, to provide ocean carriers with significant cost savings for the final quarter of the year.

Indeed, from a brief analysis of the recent round of third-quarter financial results, carriers paid an average of around $575 per tonne for heavy fuel oil during the period. Even with slow-steaming techniques, ultra-large container vessels (ULCVs) burn over 100 tonnes of bunkers per day, and the difference in price will have a massive positive impact on carriers’ operating margins.

Oil prices are in free fall after the OPEC meeting in Vienna failed to reach an agreement to cut output to combat sluggish global demand and rising US production.

In trading today, Brent Crude dipped below $70 per barrel, with some commentators predicting that the price could fall below $60 before the bottom is reached.

Many OPEC nations need the price to be at least $80 per barrel to meet domestic budgets. The 15 OPEC nations are engaged in a stand-off with US suppliers where oil companies have successfully used fracking to extract oil from shale formations in North Dakota and Texas, adding around four million barrels of crude oil a day to the global market estimate of around 75m barrels daily.

The significant extra supply, combined with weaker global demand and the easing of geopolitical conflicts, has dragged the price of oil down and now it has reached such a low that some OPEC members will hope that the fracking operations become uneconomic and prices return to the so-called ‘comfort’ level of around $100 a barrel.

The big fall in the price of fuel has come at a very good time for carriers which have struggled to get general rate increases to stick and, in fact, have seen freight rates erode even further.

For example, spot rates on the Asia-North Europe segment of the Shanghai Containerized Freight Index last week declined another $70 per teu to $739 – a level that, prior to the plunge of fuel prices, would have been regarded as uneconomic.

Now the danger for carriers is that they will redraw budgets based on current fuel prices and concede further freight reductions which could leave them exposed if oil prices head north next year.

Meanwhile, sulphur emission control area (SECA) surcharges proposed by carriers for 1 January, when tougher emissions regulations become law in North Europe and North America, may be increasingly difficult to justify – today the cleaner marine gas oil was trading at $615 per tonne, which is around the same price that HFO was when carriers were beginning to calculate the level of the surcharges, several of which have already been announced.