22 May 2014

News from the Bunker - Fuel Supply Changes for Merchant Shipping  

Excise Rate Change and Additional Barges as Quality Claims Reduced

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SRI LANKA – AUSTRALIA – PANAMA – WORLDWIDE – Various happenings in the world of merchant shipping fuel supply this week as GAC Bunker Fuels and its local partner in Sri Lanka, Interocean Energy (IOE), notify us they have moved the bunker barge MT Kandy to Galle to meet growing demand for bunker supplies at the port on the southern tip of the island nation. Also there is to be a change to the fuel excise duty charge in Australia as from 1 August.

The GAC Group has operated in Sri Lanka for two decades with its Ship Supply base at Galle now having twelve craft serving ships passing off port limits (OPL) in a region which is a popular choice for bunker supply, principally due to its proximity to international east-west shipping lanes. Jointly operated by GAC Bunker Fuels and IOE, the MT Kandy is equipped to store, transport and deliver 770MT of IFO 380cst and 250MT of MGO fuel, along with 50MT of fresh water. Deliveries will be made within the port or at Galle anchorage and OPL.

The barge’s relocation from Colombo comes ahead of the launch of GAC Bunker Fuels’ new supply service at the nearby port of Hambantota, expected in the coming four to six weeks, in direct response to increased volumes, rising demand and expanding marine operations in the region.

Following the announcement of the Australian Federal Government's latest Budget earlier this month fuel excise duty will once again be indexed against the Consumer Price Index (CPI) after this policy was abandoned in 2000. The indexation will apply to all fuels and will have an impact on the shipping industry when an Australian coastal voyage is undertaken. Currently when a coastal voyage is undertaken duty is payable on bunkers consumed at a rate of $0.38143 per litre. This rate will increase twice yearly in line with CPI from 1 August 2014. The last published (March 2014) CPI figures are 2.9% over the previous 12 months.

Under the Fuel Tax Credit Scheme duty paid on bunkers is able to be reclaimed at a rate of, currently $0.31622 per litre, however this will decrease to $0.31285 from July 1, 2014 (this decrease was already known as part of the carbon tax legislation and is not as a result of the latest budget). At this point in time there is no mention as a result of the latest budget of any changes to the Fuel Tax Credit Scheme.

On this basis, the net effect is that from August 1 where bunker excise is payable as the result of a coastal voyage it will be levied at a rate higher than the current $0.38143 per litre and the available reclaim will remain unchanged (allowing for the expected reduction on 1 July) effectively operators paying bunker excise will be reclaiming less and therefore paying more.

In Panama, Danish headquartered bunkerage specialist OW Bunker has time chartered an additional barge to further strengthen its physical operations in a region which is seeing a change in status regarding the numerous developments which are occurring with the upgrading of the Canal.

OW Bunker’s new vessel in the region is the 3,778 dwt, double-hulled Star Goethals which is equipped for delivering a full range of quality products, including low sulphur and high sulphur fuel, as well as MGO. This complements the 3,255 dwt Star Baltic, which OW Bunker has been utilising since 2010. Both vessels have fast pumping rates to quickly and efficiently provide customers with a wide range of fully tested and independently verified marine fuels. Adrian Tolson, Regional Manager, North America, OW Bunker said:

“Panama’s marine fuel market is undergoing a period of change, driven by the widening of the Canal which will exert a shift in regional trade routes and impact fuel demands across the Americas. As these dynamics continue to evolve, OW Bunker is committed to helping ship owners and operators plan their fuel sourcing throughout the Americas, including Panama. Boosting our physical infrastructure by time chartering another barge, further enhances our delivery capacity and underlines our commitment to providing customers with flexible and efficient solutions in this pivotal location. Furthermore, by co-ordinating physical distribution for customers through our network spanning the south and west coasts of North America, Panama and wider Latin America, OW Bunker is well positioned to work with customers in maximising their operational efficiencies going forward.”

With regard to fuel quality OW Bunker set a target of reducing global claims to below 1% when it introduced its own Global Quality Standard (GQS) at the end of 2012 to ensure the quality of products supplied by its physical operations on a global basis. This week the policy proved to be working when it announced that it has reduced global claims on physical products to 0.9% for Q1 2014, down from an average of 1.6% in 2013.

As part of the GQS, customers are provided with a specification analysis on physical product orders that is delivered prior to the usual testing procedures conducted by an external fuel oil analysis provider, this ensures complete transparency in the physical distribution process. Jan Christensen, Vice President, OW Bunker, Physical Division, said:

“It is pleasing to see the steps that we have taken as a business come to fruition and begin to set new benchmarks for fuel quality within our industry. In addition to providing customers with peace of mind, it also reinforces how we, as distributors, can take more responsibility and control within the supply chain to manage risk, ensure operational efficiencies and deliver real value for money that goes beyond just the price of fuel oil. As part of these efforts to help customers better manage the total cost of vessel ownership, we will continue to focus on developing industry-leading operations and integrating them into our global physical infrastructure and network.”

As well as distributing products that are compliant with the latest ISO 8217 standards, and ensuring accuracy and clarity in Bunker Delivery Note (BDN) documentation, OW Bunker also ensures quality of physical products by taking full control of the blending process. This includes always using advanced online blending skills, which negates the need for tank blending, and makes sure that air is not injected into products. It also uses online technology to monitor fuel quality to ensure that the viscosity and density of the products supplied are within the appropriate specifications, both these methods also measure sulphur content very accurately. Jens Maul Jørgensen, Chairman, International Bunker Industry Association (IBIA), commented on the progress made by the company, saying:

“Not only are these impressive results in terms of claims reduction by OW Bunker, it is a good example of how bunkering companies can take responsibility for implementing new, practical measures that mitigate against the risk of off-spec fuels and increase accountability for ensuring quality. IBIA’s objective is to help the industry to meet the serious challenge of off-spec bunkers, and work collaboratively with all stakeholders within the marine fuel supply chain to improve quality standards and professionalism at every level. Part of this approach is to encourage transparency within the industry, and communicate ‘good practice’ such as that developed by leading companies such as OW Bunker. We welcome this open approach about the significant work that is being done to reduce claims.”

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