07AUG2019 - NEWS - 2020 Bunker Pricing Pains

With the IMO 2020 regulations approaching, it is important that commercial operators are aware of the potential impact that volatile fuel prices may have on their operations.  The effect the new MARPOL provisions will have on bunker prices is not yet clear though it is expected to be significant. The current price spread between fuel oil with 3.5% sulphur content and low sulphur fuel (0.5%) is estimated to be around USD200, according to Clarksons Platou Futures and the surge in demand for low sulphur fuel, coupled with concerns on refinery capacity, is likely to result in price rises and fluctuations while the market settles out. Many shipowners will be able to pass this cost onto their time charterers. However, under voyage charters, the owner is typically responsible for fuel costs. Bunker adjustment clauses are commonly adopted in voyage charters or contracts of affreightment where price instability makes predicting the cost of performance difficult. There are two common types of such clauses.