Will tanker operators absorb increases in IMO 2020 fuel costs to gain a competitive edge at the expense of profit, or pass the cost onto the customer? One operator has a clear strategy
In reporting its Q2 2019 results, Odfjell announced its IMO 2020 strategy is that fuel cost increases will be passed on to the customer. Speaking at a webinar, Odfjell senior vice president finance/chief financial officer Terje Iversen said bunker costs in Q2 2019 were US$39M, compared to US$41M in the previous quarter.
He noted the reason for having the bunker adjustment clauses in the contracts was the company is compensated for around 60% of its bunker exposure.
Regarding IMO 2020, Odfjell chief executive Kristian Mørch said “In Odfjell we have taken a very clear decision that we do not believe that scrubbers is the way to go. We are going to follow the intention of the rules and only burn low sulphur fuel oil.”
He noted the forward price of very low sulphur fuel oil has been falling and is now close to the five-year average price of high sulphur fuel oil. “What that means is that if you are a customer of ours, and carrying the cost of the increase through the bunker adjustment surcharge, the situation is not as scary… We believe the market will adjust and we will be able to purchase low sulphur fuel oil at a reasonable price and pass that cost on to the customer.”
The results in Q2 2019 were positive for Odfjell SE:
"We are pleased to report continued improvements in our results for the second quarter. The improvement in both spot and COA rates are still modest, but we continue to believe we are at an early stage in the recovery of the chemical tanker market. We expect the next quarter to be slightly affected by seasonal slowdown in the chemical tanker market, but we still expect to report figures in line with the second quarter," said Mr Mørch.