Post IMO 2020, the use of VLCCs for storage in the Singapore region is dwindling, but while old challenges like piracy remain a concern, the current threat stemming from the Coronavirus may prove an ever harder foe to counter
Singapore sits on one of the tanker trades busiest chokepoints, helping it develop into the world’s largest refuelling hub. It has a significant pull on fuel oil demand, but in the run up to IMO 2020 there was a clear slowdown in fuel oil imports.
The final quarter of 2019 marked a massive decline in high-sulphur fuel oil (HSFO) sales, as the industry transitioned into compliance with the IMO 2020 low-sulphur marine fuel cap (IMO 2020). Singapore saw sales of high-sulphur fuel oil plummet over a matter of months. In contrast, the sale of low-sulphur fuels skyrocketed in the final quarter of 2019, as noted in a report issued by BIMCO’s chief shipping analyst Peter Sand.
Mr Sand noted that preliminary estimates from The Maritime and Port Authority of Singapore indicated that 4.5M tonnes of bunker fuel were sold in December 2019, a 4% increase compared to December 2018 and the highest sale of bunker fuel sold in Singapore since January 2018. In Singapore sales of low-sulphur fuels rose by 51% month-on-month in December 2019, to 3.2M tonnes. This compares to the 1.3M tonnes of HSFO sold in the same month.
“The shipping industry has been riddled with market uncertainty in recent months, but the bunker sales in the port of Singapore provide one of the first readings as to how the industry has transitioned into compliance with the IMO 2020 regulation,” said Mr Sand. “We have now surpassed the first wave of IMO 2020 and hopefully the accompanying market uncertainty will diminish as we proceed into 2020,” he added.
The shift in sales was most noticeable in December 2019, when 2.7M tonnes of LSFO were sold, accounting for 59% of total sales, compared to 1% of total sales in the last couple of years.
Mr Sand also noted that HSFO still accounted for 28% of total sales, driven by bunkers purchased for scrubber-fitted ships. Many of these scrubber-fitted vessels are also the largest ships consuming relatively more fuel, which will surely facilitate stable demand for HSFO.
Two weeks into IMO 2020 and the fuel price spreads between LSFO and HSFO had narrowed. Mr Sand noted that at current price spreads, fuel oil costs have effectively doubled, putting heavy financial pressure on companies that must bear the cost burden themselves. The first mover advantage associated with scrubbers seems to hold true for the time being.
“Almost from one day to another, IMO 2020 has resulted in a massive increase in bunkering costs for shipowners and operators, costs which for many companies cannot be sustained for a prolonged period,” he explained. “Shipowners are trying to pass on the additional costs of bunkering to customers, but if the underlying supply and demand fundamentals are not balanced, their efforts may prove futile,” he said.
Setting the tone
As the largest bunkering hub in the world, Singapore sets the tone for the industry. The controlling body is the Maritime and Port Authority of Singapore (MPA) which controls all sea-going activities in the region. It recently issued a second edition of its instructions to address IMO 2020. In its ‘IMO 2020 Sulphur Limit: A Guide for Ships Calling at Singapore’, the MPA highlights three pathways: the first is to use compliant fuel; the second is to use scrubbers – ships with closed-loop scrubbers must show that the vessel is running on compliant fuel, how a neutralising agent will be procured and how scrubber residue will be disposed of while in Singapore; the third pathway concerns using non-compliant fuel. The ship must be able to show that a fuel oil non-availability report form (FONAR) was presented to the ship’s flag administration before leaving the previous port. The existence of a FONAR will automatically trigger a deeper inspection by Port State Control (PSC) and Flag State Control (FSC) inspectors. The vessel’s fuel will be subject to indicative fuel oil analysis (ie, portable fuel oil sulphur content measurement and detailed fuel oil analysis (sampling for laboratory test). The FONAR must remain onboard for 18 months, suggesting a vessel can be re-inspected during that period.
Singapore is home to several large tanker companies, including Hafnia and Ocean Tankers. For a while, the region hosted a fleet of large tankers used for storage, the most famous example being ULCC Oceania. Euronav has purchased 420,000 tonnes of 0.5% sulphur and 0.1% sulphur marine fuel from the wholesale market which is stored on the 2003-built Oceania, offering unique economies of scale. The rest of the storage fleet in the region is composed of VLCC and Suezmax tankers, with most close to the Straits of Singapore.
Tankers used for storage provide a special set of challenges. Despite not being in active trades, a skeleton level of crew is required to maintain essential mechanical items onboard, such as the main engine, auxiliaries and pumps.
Piracy: a growing concern
The large tankers used for storage also present special challenges for shipmanagers. Some of these vessels would have been looked after by one of Singapore’s tanker shipmanagement companies, the roster of which includes: Wallem Group; V.Ships; Anglo-Eastern; Bernhard Schulte Shipmanagement (BSM); Fleet Ship Management; Columbia; Eastern Pacific; Thome Ship Management; Interorient Shipmanagement; Ishima International Shipmanagement; Mare Management; and Neptune Shipmanagement.
These companies face the challenge of securing vessels in their care from the prevalent piracy in the Singapore region. According to the ICC IMB Piracy and Armed Robbery Against Ships 2019 Annual Report, 2019 saw a steep rise in incidents in the Singapore Straits. In 2018, there were three actual and attempted attacks on vessels in the Singapore Straits. In 2019, there were four times the number of piracy attacks in the Singapore Straits compared to 2018. In 10 of the 2019 incidents, vessels were boarded by pirates and in seven instances, hostages were taken.
Commenting on the incidents, ICC International Maritime Bureau’s director Michael Howlett explained that attacks in the Singapore Straits are still considered to be ‘low level’ and are usually limited to armed robbery. “This is a distraction and potentially dangerous for the crew in control of the vessel whilst navigating through these congested waters”, said Mr Howlett. “The IMB PRC is grateful to Singapore law enforcement agencies for responding promptly to some of these incidents.”
Still, in the same report, the ICC International Maritime Bureau noted that in the notorious piracy stronghold of Somalia, there were no reported attacks in 2019.
How to handle Coronavirus?
The latest challenge to face Singapore, and indeed shipping across Asia, is the outbreak of the 2019-nCoV Coronavirus in China. The epicentre of the virus is the city of Wuhan, which is a mid-size Chinese town of about 11M people laying five hours flying time from Singapore. Despite its location. Wuhan does have some shipping connections. There are seven shipyards on the Yangtze and Han rivers which bisect the city, of which Wuhan Nanhua Huanggang Jiangbei shipyard is perhaps the best known, having built asphalt carriers for Tarbit Tankers in the Netherlands and Federiet in Sweden. Another shipyard, Wuhan University Technology Guangda Shipbuilding, has eight Feedermax containerships on order with various Chinese owners.
As a major regional hub, for both business and tourism, Singapore faces significant contagion risk and with cases already appearing, Singapore’s high population density suggests more will follow.
Still, Singapore has experience of handling virus outbreaks. In 2003, SARS Coronavirus infected 238 people in Singapore and killed 33, including doctors and healthcare workers. Local authorities were ruthless in ensuring even the most trivial regulations were rigorously enforced to stamp out the problem. This example could now help authorities quickly control and quarantine those infected.
Singapore-based Thome Ship Management explained how the last outbreak was influencing the response to the current one: “The SARS pandemic prompted companies to re-evaluate their response plans. Lessons learnt from that pandemic were implemented into current response plans to ensure that we are more agile in our response to an ever-changing pandemic scenario.”
The MPA has moved quickly to limit the spread of the virus from seafarers, commencing temperature screening at all sea checkpoints, including ferry and cruise terminals, PSA Terminals and Jurong Port, for inbound travellers. Suspect cases are being referred to the hospitals for further assessment.
The Coronavirus is likely to have a significant short-term impact on Singapore. A great many of Singapore’s workers have Chinese origins and will have travelled home to China for the Chinese New Year. This holiday coincided with the outbreak of the Coronavirus and while the Chinese government has extended the Lunar New Year Holiday, there is a travel ban on workers returning, which will create stresses in the Singapore economy. But there is little in the way of alternative, as China’s Central Commission for Discipline Inspection made clear: “Anyone found not effectively carrying out President Xi’s instructions in the fight against the virus … will be punished.”