Case study explains how bunker price volatility is not just a time issue but a geographical problem, too
A case study from UK-based start-up BunkerEx shows that the cheapest bunker port on the same voyage can change every three days, meaning shipowners can suffer big losses by not constantly re-evaluating all options.
Recalculating all bunker options would take a huge amount of time, and this is precisely why software solutions such as BunkerEx exist that run the full calculation in seconds.
In practice a shipowner is not only exposed to the daily volatility in the spread but more likely the volatility over the sailing time between the two ports.
In an industry where the earliest one can typically fix is 10-15 days before estimated arrival across all ports and no hedging instruments exist for regional port differentials, commercial operators carry large price exposure that should be optimised.
Put simply, in the time it takes to sail between one bunker port to the next, the price spread between the ports often moves by up to $20/tonne.
As an analogy, it would be rare for owners and operators to request quotes for only one voyage option from their shipbrokers – instead, they request multiple broker quotes for multiple voyage options.
However in the bunker market, owners and operators regularly request bunker quotes from multiple brokers/traders/suppliers having assessed only one port.
Software such as that from BunkerEx assess multiple options.
Bunker price volatility: are you taking into account changes in price during the voyage to the bunker port?
BunkerEx gives the example of a vessel sailing to the Mediterranean to discharge a cargo.
With an open ship coming up, the chartering manager assesses different voyage options from shipbrokers, one of which is a cargo loading EAST MED and discharging USGC.
After accounting for their operational safety margin, the noon report shows the vessel does not have enough bunkers on board to reach USGC.
In the voyage estimate, the chartering manager calculates a stop for bunkers in the Mediterranean by collecting prices and fuel availabilities at major ports en route: Gibraltar/Algeciras, Ceuta, Malta, Piraeus, Kali Limenes and Augusta.
After considering the prices, deviation to each one, calling costs (for bunkers only), laycan, weather, added consumption and time opportunity cost for delivery and deviating, the company determines Piraeus as the best option as it is pricing lower than nearby ports.
After three days Subs are lifted and the ship is fixed, meaning they can now place a firm order for the bunkers in Piraeus. To be safe, the operator reruns the check and once again collects fresh prices, availabilities, congestion and weather reports for all the bunker options.
Piraeus prices have now risen relative to the nearby ports. Although Malta is the cheapest, the small deviation and risk of weather delay makes Gibraltar the new best option.
With the vessel now just eight days from Gibraltar, they are ready to place the firm bunker order but as a final check, the bunker ports are re-evaluated.
Once again fresh prices are collected and after only a few days, Malta has dropped significantly relative to the other ports. Availability and weather forecasts also look good, so after running the full calculation one more time, the bunkers are booked in Malta for a meaningful saving of over $10/tonne on the voyage profit and loss versus option 1 (Piraeus) and option 2 (Gibraltar).
According to BunkerEx, this is the essence of the app, which is now used by over 30 companies.