High bunker fuel, flat freight trouble chem shippers

20 June 2008 12:59  [Source: ICIS news]

LONDON (ICIS news)--Rising bunker fuel prices and flat freight rates could put many ship owners out of business before the end of the year, industry observers said on Friday.

Current market conditions whereby spot cargoes in the chemical industry are hard to come by have meant that the majority of transactions are done on a contract basis, which are covered by a bunker surcharge.

While some owners did attempt to raise freight rates at the beginning of the month, most were unsuccessful as competition in the market is rife, traders said.

“Unlike in other markets, there are always some owners who are willing to fill up space on a particular voyage and undercut the competition”, one broker said. “The result of which is that freight rates remain competitive.”

One Baltic-based broker outlined the problems ship owners faced, saying fuel costs for a 40,000 tonne vessel are around $30,000 a day.

Another trader stated that ship owners' operating costs had risen 20% since the turn of the year. The source doubted whether they could continue to absorb the costs without serious repercussions for the industry as a whole.

A UK-based owner said that the market was very quiet for spot cargoes in what was a very difficult period for ship owners.

Other bunker fuel buyers said prices were far too high and that they could not absorb any more price increases as 3.5% fuel oil was trading over $600/tonne FOB (free on board) ARA (Amsterdam, Rotterdam, Antwerp) for most of this week.

The crack spread, which shows the values of the refined product relative to the value of crude oil, was extremely weak in the fuel oil sector.

For high sulphur fuel oil, spreads were around minus $37-40/bblfell having fallen lower than minus $45/bbl earlier this month.

Kawai Wong contributed to this article
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By: Dan Horlock
44 20 8652 3214

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