Mixed views on COVID-19 impact on bunker demand

Is bunker demand falling as a result of the coronavirus pandemic? The answer to that question depends, to some extent, on who you ask and will vary between regions, ports, shipping sectors and bunker suppliers. Some ports and supply companies have recorded an uptick in bunker demand during the first quarter of 2020, others have seen little change while some have seen a decline. During April, however, some ports and regions have noticed a significant drop-off in demand, we learned during discussions with IBIA members about COVID-19 impacts at the end of April.

Consolidation a factor as global Q1 demand appears resilient

Statistics from Singapore and Rotterdam showed an increase in bunker sales during March, both year-on-year and from February. Panama statistics have suggested relatively steady Q1 bunker sales from last year. In the US, however, bunker demand may have dropped by as much as 20 to 30%, in particular along the east coast, according to one estimate. Ports in Africa we heard from during conversations with members were also seeing a fall in bunker demand, and we heard that bunker demand in Colombo, Sri Lanka, was badly hurt – and significantly down – despite the port being fully operational and open for bunkering.

It could be, some IBIA members suggested, that larger ports are gaining market share from smaller ports. Apart from competitive prices, this could be partly because they offer better availability of a full range of bunker products.

Some of the larger bunker market operators have seen steady or growing bunker sales in Q1 of 2020 compared to 2019. Some have seen fewer enquiries but stem sizes have gone up meaning overall volumes have nevertheless increased. Again, this may be due to consolidation as buyers seek out supply companies that they feel are financially secure and can offer a full range of products. They may be seeking out “safe havens” at a time when they are juggling with many responsibilities including more complex bunker fuel management considerations. At present, many staff members working from home also have to look after children that can’t go to school during lockdowns, and companies may have fewer staff available.

Despite overall negative market sentiment that the COVID-19 IMPACT must have hit shipping, and hence bunker demand, some of our members said the majority of master data until end of March do not show a significant dip in port calls globally. There was a significant dip in shipping activity in China for about a month from the middle of February, but other than that shipping activity has been surprisingly resilient.

The same was said about global bunker demand. “We do not see the loss of marine fuel demand as the sentiment out there suggest,” one IBIA member observed. That could change, as some of the COVID-19 impact is yet to be seen. Many are anticipating a drop both in shipping activity and bunker sales during the second quarter. By the end of Q2 we might, however, also see lockdowns having eased or ending, and demand may pick up again

With global trade down by 5% so far according to some estimates, you would expect shipping to drop by at least that. However, many ships are sailing with much less cargo or doing empty or ‘blank’ sailings to reduce available capacity and thereby protect freight rates. This could be why bunker sales are not falling that fast because ships are still sailing, but carrying less cargo.

Segmental differences and concerns going forward

Different segments of shipping have been impacted very differently by the COVID-19 crisis. Worst hit is the cruise ship segment, with passenger ferries also suffering. A report from the International Association of Ports and Harbours (IAPH) covering the week starting on 27 April noted that cruise call cancellations since March combined with the absence of international ferries has led to a 95% drop in passengers compared to the same week of 2019 in several ports.

Tankers have so far had an unexpected surge in income, as oil demand destruction combined with oversupply of oil and oil products has created a glut that needs transport or storage.

One aspect we can expect to see during Q2 is that the tankers used at floating storage won’t be using much bunkers. There are about 1,000 VLCCs in the global fleet of which at least half will likely continue to run, but those at anchor used as storage will not need much bunker fuel.

The cruise industry, which is pretty much in lockdown right now, does not have a huge impact on global bunker demand with less than 400 ships out of some 65,000 ships globally, although they are big consumers. One IBIA member taking part in the discussions said the sector uses maybe 15-18 million tonnes of bunkers per year.

One of the biggest impacts on demand could come from the container segment; a big fuel user. The sector has protected rates with by creating a significant amount of empty sailings, but many expect activity to slow down in Q2 with more sailings cancelled. Moreover, they may be slow steaming which will reduce both capacity and fuel use. Figures from IAPH surveys show the share of ports noticing a drop in containership calls has increased throughout April, although more than half of the ports reported stable or even increasing calls compared to normal. Sea-Intelligence has just reported that cancelled Asia to Europe sailings in Q2 means containership port calls will be dramatically reduced, with some of the most affected ports in Europe likely to see 30-40% fewer containership calls.

The bulk segment is a mixed bag. Demand for iron ore and other commodities carried in bulk has taken a hit. In South Africa, for example, terminals geared toward raw material exports have been more or less closed during the country’s lockdown as authorities focused on facilitating movements only of essential goods. Agri bulk, meanwhile, is “performing as normal” as it transports grain and other agricultural produce that most governments will support because it is essential goods.

When you combine slowing container ships using less bunkers with container cancellations, less demand from VLCCs (which are also heavy consumers) because a portion will be used for storage, and the virtual standstill in the cruise segment, it seems likely that there will be a noticeable impact on bunker demand during Q2.

A report from the energy research and consultancy firm Wood Mackenzie at the end of April supports the notion that bunker demand held relatively steady during Q1. It said the oil demand fall caused by COVID-19 lockdown measures has been sharp and deep, but with the big hit mainly seen on jet fuel demand (down 50% year-on-year) and gasoline (down 25%). It said demand for diesel and fuel oil – used to transport goods by truck, ship and rail – held relatively steady in Q1. Wood Mackenzie said it thinks overall oil demand may be close to bottoming out.

Time will tell how big the drop in bunker demand during Q2 will be, and whether the impact on global trade from damaged economies will mean a slow recovery. Much will also depend on what governments do in terms of economic stimulus measures, and whether low oil prices continue to cushion the blow on ships’ operational costs.

Unni Einemo
unni@ibia.net

Miraflores locks, Panama Canal (Photo: Unni Einemo)