Shipping Fuel Costs: The Unseen Enemy In The Fight Against Inflation

Bunker prices are on the rise. This is not news in itself: it would have been surprising if the price of one oil derivative was down when the prices of all others were up. Yet it is becoming a cause for concern as higher bunker costs push maritime transport costs higher.

With much of global trade relying precisely on maritime transport, higher prices are adding to already substantial inflationary pressures. And there doesn’t seem to be light at the end of this tunnel.

Bunker prices climbed close to a record high earlier this month, with the average for very low sulfur fuel oil prices rising by 55 percent over 12 months to hit $731.50 per metric ton. Since then, prices have risen further. According to Ship & Bunker data, the average price for VLSFO among the world’s top 20 ports stood at $740 per metric ton. VLSFO is the most widely used marine fuel.

One reason for this price rise seems to be the overall rebound in demand for fuels as economies return to normal after lockdowns. Another is that very low sulfur shipping fuel oil is generally more expensive than the higher-sulfur versions. Yet the International Maritime Organisation’s sulfur emission rules stipulate that vessels either need to use VLSFO or install scrubbers to remove sulfur from their bunkering.

Higher crude oil prices are one more factor in the bunker price rise, of course, but another reason, however, spells more trouble. According to a Bloomberg report from this week, refiners are prioritizing gasoline and diesel production over bunker because of strong demand. And this means less crude will be available for the very low sulfur fuel oil that the majority of ships use.- READ MORE