Fuel shortages for ships are driving up freight costs, threatening global trade as maritime transport encounters significant new bottlenecks.
The supply gap in ship fuel is widening: Freight costs are rising again.
One of the most significant cost items in global maritime transport, ship fuel is facing a new bottleneck as the war disrupts refinery production and tanker flows. While the supply gap in the market is expected to grow in the third quarter, it is anticipated that this will also increase pressure on freight and imported product prices.
This time, the alarming headline in the global energy market is not crude oil, but the ship fuel directly used in maritime transport. The disruption of shipments due to the war in the Middle East, attacks on Russian refineries putting pressure on production, and refineries shifting towards more profitable products have led to a new tightness in the ship fuel market.
According to market calculations, a daily gap of 218,000 barrels is expected in the ship fuel and fuel oil market used in power plants in the third quarter. In the same period last year, this gap was only at the level of 6,000 barrels. The significant difference highlights how quickly the disruption in the supply balance has deepened.
The scale of risk for global trade is also noteworthy. Approximately 80% of world trade is conducted via maritime routes. Therefore, sharp movements in ship fuel prices affect not only shipowners but also a wide economic area ranging from container shipping to industrial inputs.
Refineries have shifted towards more profitable products.
The tightness in the ship fuel market is not solely due to geopolitical tensions. In recent months, refineries have prioritized the production of diesel, jet fuel, and gasoline, which have higher margins, while relegating ship fuel production to the background.
This situation further increases the pressure on an already shrinking supply due to the war. While conflicts in the Middle East complicate tanker traffic, attacks by Ukraine on Russian refineries have also created additional pressure on global processing capacity. Thus, both the processing of crude oil and the delivery of processed products to the market have become more difficult simultaneously.
While crude oil prices are typically monitored in the energy market, the price of ship fuel is one of the critical cost items for shipping companies. The cost of fuel used in the operations of ships stands out as one of the most volatile items within total expenses.
The increase in ship fuel has outpaced oil prices.
The tightness on the supply side has sharply reflected on prices. In Singapore, the price of very low sulfur ship fuel has risen by over 70% since the start of the Iran war. During the same period, the increase in Brent crude oil has remained around 40%, indicating that the cost pressure in ship fuel has risen faster than crude oil prices.
This divergence is of great importance for maritime transport. Shipping companies do not only consider oil prices in their cost calculations. The rising cost of the fuel directly used by ships raises the prospect of new price adjustments in freight rates. This situation can also increase costs for importing companies and ultimately for retail chains.
Especially in container lines, it is common practice to pass on the increase in fuel costs to customers through additional charges such as the 'bunker adjustment factor.' Therefore, the sharp rise in ship fuel may create renewed pressure for price increases in global goods trade.
The decline in stocks raises concerns.
Another development closely monitored by the market is stock levels. It is reported that fuel oil stocks in key centers such as Singapore, the Amsterdam-Rotterdam-Antwerp route, and Fujairah are approximately 30% below seasonal norms.
The decline in stock levels increases the risk that price increases will transition from a temporary movement to a more permanent pressure. Market players evaluate that if an unexpected new disruption occurs on the supply side, prices may react much more sharply.
Developments in Singapore, one of the world's largest bunker fuel centers, are therefore critically important for the global freight market. The tightening of supply in Singapore directly affects the cost calculations of carriers operating on Asian routes.
Asia emerges as the most vulnerable region.
The region expected to be most affected by the ship fuel crisis is Asia. The primary reasons for this include the greater dependence of Asian economies on energy flows from the Gulf and the region's central role in the global production and consumption chain.
Countries such as China, India, South Korea, Japan, and Southeast Asian nations are in a more sensitive position regarding the increase in freight costs due to their energy import and export-based production structures.
The rise in ship fuel prices not only increases the costs for maritime transport companies but may also affect the pricing of final products exported from these countries.
These developments are also significant for Turkey. Maritime transport has a critical share in Turkey's imports and exports. Particularly, the increase in freight costs for intermediate goods, electronics, machinery, and consumer products connected to the Far East may reflect on companies' cost structures, albeit with a delay.
The Gulf-sourced supply tightening has squeezed the market.
The Gulf region continues to be one of the key centers for ship fuel and fuel oil supply. However, shipments from the region have experienced a noticeable weakening due to the war.
It is estimated that fuel oil exports from the Middle East have decreased by approximately 45% from March to August. The decline in significant suppliers such as Kuwait has contributed to the growing supply gap in the market. Additionally, the tanker traffic becoming more fragile during the same period has made it more difficult for supply to recover.
Therefore, the market is pricing not only developments on the production side but also the logistical security of the products. In other words, the root of the ship fuel crisis lies not only in the reduction of production but also in the inability to transport existing products safely and uninterruptedly.
The risk of new price increases in freight is strengthening.
In recent weeks, the freight market had signaled a limited relief with the normalization of routes on some lines. However, the new pressure emerging on the ship fuel front has brought back the question of whether the decrease in costs will be permanent.
If ship fuel prices continue to remain high, it is expected that shipowners and container lines will want to pass on the additional fuel-related costs to customers. This means that transportation costs in global supply chains may rise again.
As a result, the growing supply gap in the ship fuel market is becoming a new risk factor not only for the energy sector but also for global trade and inflation. The war's simultaneous disruption of refinery production and shipments may lead to a renewed increase in freight bills in the upcoming period.
Source: SeaNews Türkiye
