Falling bunker fuel prices pull down dry bulk and tanker freight rates

Falling bunker fuel prices are putting downward pressure on freight rates for dry bulk and tanker vessels operating in Northwest Europe, market sources said.

Freight rates Panamax coal route from Ventspils, Latvia, to Rotterdam, basis 70,000 mt, were assessed Thursday at $6.25/mt, down 25 cents from Wednesday. The drop came despite tighter tonnage list in the UK Continent and a generally positive sentiment in the Atlantic Panamax market. Industry sources said the lower rates are not the result of supply and demand fundamentals, but are the result of falling bunker prices in the Northwest Europe.

Bunker prices out of Rotterdam fell to $445.40/mt Thursday, the lowest level since September 29, 2010, when they were at $437/mt. This has driven down costs for vessels which plying this route, as they typically will ballast to the Baltic from UK, loading bunker fuel from Rotterdam, the regional bunkering hub.

“In the last 15 days, 380 CST HS bunker fuel prices fell off by $100/mt, it is a drama for suppliers,” a source said.

Cheaper bunkers in Rotterdam potentially affect any cargoes loading in the Baltic and UK Continent as each region is served by the same tonnage pool.

“Bunker prices are down and all routes are being recalculated. Even though market sentiment is up, some routes are lower,” a charterer said.

Bunker prices account for 70% of the cost of operating a dry bulk vessel and any significant changes in fuel prices will have a knock-on effect on freight rates.

The influence would be different for voyage and time-charter rates though. When a vessel is fixed on a $/mt or voyage basis, the owner bears the costs of fuel. Because of that some owners may agree to discount their offers when bunker fuel prices fall. In time-charter deals, the charterer pays for fuel and savings on bunkers could potentially translate into higher $/day hire rates for owners.

Time charter rates on trans-Atlantic round voyages have risen this week from $5,000/d to $6,500/d on Friday. This is mostly due to increased activity and healthy demand. The effect of weaker bunker prices is mostly being felt in the spot voyage deals and is yet to show up in the time-charter market segment.

MODERATE IMPACT ON TANKERS

Falling bunker prices also could affect freight rates in the dirty tanker market, although so far any impact has been muted. The main market to see a drop in rates on Thursday was the Mediterranean Aframax sector, where rates on the cross-Mediterranean route, basis 80,000 mt, fell 5 Worldscale points to w100.

Shipping sources said the lower price of bunkers could lead to additional small declines in freight rates.

“Some owners will be prepared to do lower freight rates because with the cheaper bunkers their Time Charter Equivalent (TCE) earnings can stay the same even with a lower freight rate. This means they can afford to drop their rate ideas,” said a shipowner.

The owner said the size of the decrease in rates owners are willing to accept is small.

“At the moment it’s just a couple of Worldscale points lower that a shipowner could do and keep their TCE at the same level,” said the owner.
Source: Platts