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Assessment of the competitiveness of ports as bunkering hubs: empirical studies on Singapore and Shanghai.

Abstract

Bunkering, that is, supplying ships with fuel, has gained strategic importance in port and shipping businesses. This article formulates a framework and a method for assessing the competitiveness of ports as bunkering hubs and includes empirical studies on the ports of Singapore and Shanghai. Ten attributes for the selection of a bunkering port were identified based on interview with practitioners. Through surveys, ship operators and managers ranked the importance of these attributes. Bunker quality was found to be the most important attribute. The respondents also assessed Singapore and Shanghai ports based on the ten attributes. The performances of both ports were analyzed according to their score on each attribute and the total weighted scores. Singapore was rated a better performer in the assessment. Besides Singapore's naturally strategic location, which attracts large cargo volume, the fundamental reason for its excellent performance is its liberal market structure, which results in attractive pricing and efficient practices. In this study, recommendations are given to port authorities and operators, with special focus on ports of Singapore and Shanghai.

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Bunker fuels, also known as marine fuels, are the fuels used by ships' engines. They are produced from the blending of distillate and residual oil. The worldwide market for bunkers has been estimated to be around 175 million metric tons (Jameson 2007). Bunker costs represent almost 50 percent of voyage costs (Stopford 2009), and as the price of crude oil rises with time, this percentage has grown. Lately, it has been shown that bunker prices have direct impacts on freight rate (Stantley 2007) and shipping companies' profitability (CI-Online 2008). As a result, sophisticated models are increasingly utilized by shipping companies to help them identify the optimum bunkering locations for their vessels.

Port of Singapore is the largest ship refueling center in the world, with total bunker sales of 34.9 million tons in 2008, and the busiest port in terms of ship arrivals, reaching 1.6 billion gross tons in 2008 (MPA 2009). Shanghai port, on the other hand, is the world's busiest port in terms of cargo throughput, handling 582 million tons in 2008 ("Shanghai Unveils" 2009). With annual bunker sales of 3 million metric tons in the whole of China, growth in bunker sales volumes in Shanghai is still lagging behind the growth in port activity (Jameson 2007). Riding on an increasing potential of ship refueling demand at its port due to the growth in trade volumes, Shanghai demonstrates the potential to develop into a major bunkering hub.

Due to the comparable amount of shipping activities at each location, it is worth assessing the competitiveness of the ports of Singapore and Shanghai as bunkering hubs based on current activities in their bunkering industries, as well as projections of bunkering activities at both ports. Furthermore, there is a dearth of academic research in the field of bunkering, thus presenting good reason to venture deeper into the relatively uncharted field of bunkering research.

This article attempts to fill the void in previous research. We will formulate a framework and identify the most important attributes of ports' competitiveness as bunkering hubs and subsequently assess the performance of the ports of Singapore and Shanghai as bunkering hubs at present and in the future. The literature review covers the following three areas: bunkering issues in general, assessment of port competitiveness, and prior studies on the ports of Singapore and Shanghai. From this review, gaps in the previous research are identified.

Bunkering Issues

To date, few studies have been devoted to the topic of bunkering. Alizadeh et al. (2004) identified the significance of bunker price fluctuations and examined the effectiveness of using petroleum futures contracts to hedge against bunker price fluctuations. Cariou and Wolff (2006) studied the relationship between bunker adjustment factors and bunker prices in Europe and Far East shipping markets. Chang and Chen (2006) used knowledge-based simulation for bunker barge allocation and presented the case study of the port of Kaohsiung.

The biannual Singapore International Bunkering Conference (SIBCON) is an important platform for participants from the shipping, oil, and financial industries to identify and discuss the major issues in the contemporary bunkering market. The relevant key issues discussed at SIBCON are as follows. China was recognized as a major driver of bunker price in the region and was expected to develop into one of the most robust fuel supply and trading markets in Asia, based on the analysis of China's economic growth, oil industry, port congestion, and bunker supply (Stebbins 2004). Delays in the bunkering process, shortage of bunkers, and off-specification bunkers were identified by ship owners as the most significant problems in bunkering. Debunkering, delays, and disputes often resulted (Teekay Shipping 2004). Low sulfur bunker increasingly attracted the attention of classification societies (Holmvang 2006), port authorities (Mam 2004), ship owners (Bomqvist 2006), bunker associations (Adams 2004), and refining industries (Heng 2006). The availability of low sulfur bunker could be a key factor affecting port competitiveness (Wilson 2004).

Port Competitiveness and Attractiveness

Many studies have assessed the competitiveness and attractiveness of ports. Of the more recent articles, we chose the following because they provide relevant methodologies that can be adapted in this research. Some are written in the context of Association of Southeast Asian Nations (ASEAN) and China, which is closely related to the scope of this study.

A survey of shippers from Southeast Asia showed that efficiency, shipping frequency, infrastructure, port charges, responsiveness, reputation, and location were regarded as the most important criteria for port selection (Tongzon 2002). Based on a survey of Chinese shippers, Tiwari, Itoh, and Doi (2003) used a discrete choice model to study the port selection behavior in China. They concluded that the proximity of shippers' location to ports, berth availability, and total TEUs handled played important roles in port selection. Guy and Urli (2006) examined port selection by shipping lines in New York and Montreal using analytical hierarchy process (AHP). They found that port infrastructure, service level, port location and cost were the most significant factors. Also using AHP in assessing port choice decisions, Ugboma, Ugboma, and Ogwude (2006) focused on the perspective of shippers in Nigerian ports and found that efficiency, shipping frequency, port infrastructure, location, port's reputation, and responsiveness were considered critical factors. Ng (2006) assessed six ports in Northern Europe using a questionnaire whereby he surveyed 30 top liners to rank the significance of 20 factors affecting port attractiveness. The liners also graded the six ports' performances based on the 20 factors. The survey results indicated that besides monetary costs, other factors such as time, efficiency, geographical location, and quality of service affected a shipping line's choice of port for container transhipment. Tongzon (2007) assessed the competitiveness of ASEAN ports as logistics hubs by surveying manufacturers and third-party logistics providers in the region. Wiegmans, Van Der Hoest, and Notteboom (2008) conducted interviews with liners revealing that they attached great value to often neglected factors, such as feeder connectivity, environmental issues, and the port's total portfolio. Port competitiveness was also studied from other perspectives, such as political risk (Tsai and Su 2005), cost competitiveness (Lam and Yap 2006; Lam 20n), slot capacity analysis (Lam and Yap 2008), and supply chain (Magala and Sammons 2008).

Ports of Singapore and Shanghai

Pinder (1997) appraised the performance of the Singapore bunker supply industry after the government deregulated the market in 1985. He concluded that the deregulation was highly effective in terms of market expansion and efficiency. Li and Gray (2002) assessed the importance of recent developments with regard to Port of Shanghai as a logistics hub. He argued that the development of shipping and port-related industries around the Yangtze River area would lead to a growth in Shanghai's potential as a hub port, with its share of cargo from the Asia region increasing dramatically. Tsai and Su (2005) compared the competitiveness of the two ports from perspectives other than bunkering services. Singapore was ranked, out of five Asian ports, as the port with the lowest political risk, while Shanghai was rated relatively unreliable and unsatisfactory with regard to port development and management policies.

From the literature review, three gaps in previous research are identified. First, Ng (2006) pointed out that "port users usually make their decisions based on 'packages' provided by different ports"; however, bunkering services were not included in the criteria of any of the above assessments. Second, to our knowledge, there is no study that assessed a port as a bunkering hub in a systematic and comprehensive way. This gap is in contrast to other studies reviewed in this section that assessed ports as cargo transportation hubs. Nevertheless, we can adapt some of their methodologies and approaches. Third, although the significance of China in the global shipping and bunker market has been identified in papers and conferences, there is so far no research devoted to the bunkering market in China and its relative position to other traditional bunkering hubs such as Singapore.

Methodology

The assessment of bunkering ports is within the context of supply management. Hence, other than the above studies, references on supplier evaluation criteria were drawn from the literature, in particular Simpson, Siguaw, and White (2002), Talluri and Baker (2002), and Talluri and Sarkis (2002) due to their application in supply chain management. This review helped to develop the major aspects of the assessment attributes, including quality, delivery, price, service, and management. Because of the limited research available specifically for bunkering ports, primary data was gathered from the industry in three stages. In stage 1, multiple attempts were made to secure in-depth interviews with industry experts. Twelve semistructured interviews were successfully conducted with two regulatory bodies, one marine consultant, four bunker suppliers/brokers, one Ship manager, and four ship operators who operate a range of vessels, including tankers, container ships, and bulk carriers. From the 12 interviews, three areas of analysis, namely bunker as the product, microenvironment, and macroenvironment were identified. Accordingly, a list of the ten most significant attributes for ship operators in their selection of a bunkering port was formulated. To ensure a holistic and balanced perspective, professionals holding managerial positions were selected from reputable international organizations in various stages of the bunker supply chain. They represented suppliers, customers, intermediaries, policy makers, and a professional advisor. The professionals, sought from both Singapore and China, were interviewed in their capacity as representatives of multinational organizations whose operations span the world. Thus, both global perspective and local knowledge were captured. A framework for bunker port selection decisions is depicted in table 1.

In stage 2, questionnaires were sent out to ship operators and managers. The questionnaire consists of two sections. Section 1 lists ten attributes of an attractive bunkering port based on the interviews conducted in the previous stage. Respondents were asked to rate the importance of the attributes on a scale of 1 (not important at all) to 5 (very important). In section 2, the respondents rated the performance of Singapore and Shanghai ports with respect to each of the earlier mentioned ten attributes on a scale of -2 (very poor) to 2 (very good). The questionnaires were in English, with the provision of a Chinese version for the Chinese companies to avoid any misinterpretation. A total of 167 questionnaires were sent out by e-mail and posted to a randomly drawn international sample of ship operators and managers from late 2007 to early 2008. The response rate was 24.0 percent, with 40 survey responses received from operators of various types and sizes of vessels of differing nationalities. The responding personnel drawn from the operations, bunker, purchasing, and technical services departments were the key decision makers in the selection of bunkering ports for their respective companies.

Descriptive statistical methods were used for interpretation of the survey scores, including analysis of mean, standard deviation, and ranking of the attributes. In equation (1) and In equation (3), the weighted average scores ([W.sub.n]) for each attribute (n) for the two ports were calculated by multiplying the corresponding importance score of the attribute ([A.sub.n]) by the average performance score of the respective attributes ([B.sub.n]) for the two ports. In In equation (2) and In equation (4), the weighted average scores for Singapore ([W.sub.SGP,n]) and Shanghai ([W.sub.SH,n]) were summed up to obtain the total weighted scores for the respective ports ([TW.sub.SGP] and [TW.sub.SH]). Upon calculating the total weighted scores for ports of Singapore and Shanghai, an indication of the overall performances of the two ports was discerned.

For Singapore:

(1) [W.sub.SGP,n] = [A.sub.n] x [B.sub.SGP,n]

(2) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

For Shanghai:

(3) [W.sub.SH,n] = [A.sub.n] x [B.sub.SH,n]

(4) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

In stage 3, interviews were conducted with a leading global shipping company, a barge operator, and a bunker broker to validate and obtain further insights from different perspectives of the market on the survey findings. A recent article on supplier evaluation criteria by Ho, Xiu, and Dey (2010) was also consulted. The analytical framework and empirical results were verified and supported. The three-stage procedure is rigorous and systematic; a combination of interviews and questionnaire survey is synergistic. As a whole, higher research validity and reliability can be attained.

Empirical Results and Statistical Analysis

The main findings of the survey are presented in tables 2-4. Table 2 shows the significance of the attributes in selecting a bunkering port. Bunker quality, market transparency, and bunker price competitiveness are the top three attributes considered by ship operators and managers. Reliability and punctuality of bunker suppliers as well as adequacy and efficacy of bunkering facilities are also major concerns of the respondents.

Tables 3 and 4 show the performance evaluation of the ports of Singapore and Shanghai, respectively, based on the ten attributes. Of the ten attributes, location and stability of political environment are rated the highest in terms of performance for Port of Singapore. It may be noted that although Singapore scores well for the stability of the political environment, this attribute ranks the lowest in terms of importance. Upon factoring in the importance weighting of the attributes, the location of Port of Singapore emerges as the best performing attribute above political stability. The respondents' opinions for the two attributes are not significantly different as reflected by the relatively low standard deviations. Reliability and punctuality of bunker suppliers, and the availability of low-sulfur bunkers are the two greatest shortcomings of the Singapore port. These attributes have relatively high standard deviations, reflecting diversity in opinions. Of the two lowest ranked attributes, reliability and punctuality of bunker suppliers is of greater concern due to its high importance ranking. For overall performance, Port of Singapore achieves a total weighted score of 44.53.

Though stability of political environment is ranked as the best performing attribute of Port of Shanghai, it is ranked the lowest in terms of importance, and opinions for this result are highly varied, as shown by the high standard deviation. Bunker quality, reliability, and punctuality of bunker suppliers and bunkering facilities are rated as the second best performing areas. Opinions about these attributes, except bunkering facilities, are not widely varied. Upon factoring in the importance weighting of the attributes, bunker quality emerges as the second best performing attribute for the Shanghai port, followed by reliability and punctuality of bunker suppliers, and bunkering facilities, price competitiveness and availability of low-sulfur bunkers are the lowest performing attributes of the Shanghai port, although opinions toward them are diverse. Price competitiveness is a significant concern for the Shanghai port because it is the weakest link that was ranked highly as the third most important attribute. In terms of overall performance, Port of Shanghai achieves a total weighted score of 14.07, which is significantly lower than that of the Singapore port.

Major Attributes in Bunker Port Selection

The top five attributes in terms of importance rated by the respondents in the survey are bunker quality, market transparency, bunker price competitiveness, reliability and punctuality of suppliers, and bunkering facilities. These are discussed in detail in this section.

Bunker Quality

Bunker quality is reflected by factors such as the flash point, pour point, energy content, sulfur, vanadium, aluminum, silicon, used lubricant oil, water contents, viscosity, and presence of sediments in bunkers (ISO 2005). Failing to consider such factors will lead to a series of operational problems.

Ships that consume bunkers with lower energy content require higher amounts of bunkers to achieve the same energy output. Especially during high price periods of bunkers, the energy content of bunkers has become a significant concern for ship operators. High viscosity of bunkers results in difficulties in the combustion process. High sulfur and sediment contents lead to problems such as clogging and erosion of the engine and tanks. All of the above factors result in damage to ships, and in turn increase maintenance costs. When the quality of bunkers is detected to be off specifications, debunkering is required; this is a costly operation that often leads to delays in ships' schedules. Such disruptions would generate cascading effects on other ports and the commodities onboard the ship that serve the supply chains involved. Vernimmen, Dullaert, and Engelen (2007) illustrated the significant differences in schedule reliability among shipping lines and trade routes, which led to higher safety stocks. Hence, in the context of bunkering, poor bunker quality can incur higher supply chain costs. Furthermore, the burning of bunkers with high carbon and sulfur contents increases the damage to the environment (Tusiani 1996).

Bunker quality issues may arise from certain phases of the bunker supply chain. As bunkers are the residue from refining activities, the quality of bunkers from sophisticated refiners is compromised because such refiners are able to extract a greater quantity of clean petroleum products, thus leaving behind residual bunkers with poorer quality. Local blending of bunkers gives more room for quality discrepancies as compared to importing bunkers in the packaged and finished form. Fraud and negligence of different parties involved may also affect bunker quality.

Bunker quality problems could be alleviated by the implementation of strict monitoring systems, international standards, and consistent practices, as well as by the improvement of technical support such as testing labs, equipment, and well-trained bunker specialists.

Market Transparency

Market transparency refers to the degree of corruption and collusion in the bunkering market. The bunkering industry has been plagued by malpractice that affects ship operators' confidence in the port of bunkering. The dishonest practices could lead to unethical acts of bribery among various parties, including surveyors, chief engineers, and barge operators. These practices result in discrepancies in bunker quantity and quality, which in turn disrupts operations and increases costs to ship operators and managers.

Market transparency is affected by the characteristics of the bunker market. For instance, intense competition among suppliers may encourage unscrupulous behaviors in the pursuit of higher profits as compared to cases of monopolistic markets. In general, a bunker market is more transparent when there is strict control from authorities with regard to the bunkering practices, or a strong presence of internationally reputable suppliers.

Bunker Price Competitiveness

Bunker price is an important attribute to ship operators. First, bunker cost is a significant proportion of the total operating cost for a vessel. Second, bunker prices fluctuate significantly. For instance, as shown in table 5, bunker prices in the Ports of Singapore and Shanghai increased by 53 percent and 55 percent, respectively, from January to July of 2009. Third, with the trend of ship size increasing, there is a corresponding increase in bunker consumption. For example, the largest container vessel to date, with a capacity of 11,000 TEU, can take on up to 16,000 tons of bunkers at one time. Hence a slight variation in the price of bunkers could lead to significant cost differences for ship operators and managers. Fourth, there are notable differences in bunker prices among the ports in the world (Bunkerworld 2009). Considering the large amount of bunkers taken on by each vessel, there could be significant potential savings for ship operators when capitalizing on the price differences, given operational constraints. Last, bunker price is a consideration for shipping companies in deciding the operating speed of their vessels, as shown in the following function of bunker consumption in relation to vessel operating speed: C=f ([V.sup.3]), where C represents bunker consumption and V the vessel operating speed. The relationship between speed and consumption is crucial for liner shipping companies due to their requirement for vessels' schedule integrity (Lam 2010).

[FIGURE 2 OMITTED]

Bunker prices show a strong positive correlation with crude oil prices as shown in figure 2. The local bunker market structure, whether a monopoly or an open competition, also greatly affects bunker price levels. Furthermore, large trading volumes lower the price due to economies of scale, while large storage volumes smooth the fluctuations of price by acting as buffers to the uncertainties in demand and supply. Imported bunkers are more costly as compared to locally produced bunkers; therefore, the higher the volume of imported bunkers in the local market, the higher the price level. In addition, the presence of both physical and derivatives bunker traders and brokers helps make the market more efficient and increase the market size, thus lowering the bunker price.

Reliability and Punctuality of Suppliers

Reliability and punctuality of suppliers is the fourth most important attribute in selecting a bunkering port. Prolonged bunkering operations result in a great loss of efficiency to ship operators. It could also lead to disruption of vessels' schedules, which in turn brings about serious repercussions in other elements of the supply chain. This is especially grave in the case of liner shipping as discussed in the bunker quality section above.

Two types of costs could result from poor reliability and punctuality: cost of extended port stay and the subsequent additional bunker cost of speeding up vessels to make up for the lost time. A six-hour delay in port could cost a liner operator USD60,000 to USD70,000 in extra bunker consumption to maintain the schedule. Such high costs could ultimately negate the savings achieved at a cheaper bunkering port. With such considerations, ship operators do not always choose the port with the lowest bunker price.

Determining the optimal level of reliability and punctuality must take into consideration a trade-off between the level of reliability and punctuality of suppliers, and logistics costs in maintaining such standards. The optimal level depends on ship operators' schedule and contingent requirements as shown in figure 5. For instance, when a ship runs on a very tight schedule, the ship operator chooses more costly but highly reliable and punctual suppliers. Hence most ship operators maintain a mix of bunker suppliers with different levels of reliability and punctuality.

Suppliers' reliability and punctuality may be compromised when there is a surge of bunker demand at any given time. These factors also depend on the efficiency and efficacy of bunkering facilities, which is discussed in the following section.

[FIGURE 3 OMITTED]

Bunkering Facilities

Bunkering facilities refer to infrastructure and equipment to support efficient bunkering operations in port. They include storage facilities, bunker barges, pumps, and bunkering anchorages. Bunkering facilities not only affect suppliers' reliability and punctuality, but they also influence the bunkering costs, as the number of barges and operating standards will also affect the bunker delivery costs (Cockett 1997). The adequacy and efficacy of bunkering facilities are attributable to the size and age of the bunkering fleet, hull configuration (whether double or single hull), pumping rate of bunkers, size of storage facilities, and availability of bunker anchorages. The last feature is especially important for ports with high traffic volume.

Port authorities' policies affect the development of bunkering facilities. For example, the port authority's decision on the timeline of phasing out single-hull barges may have dual effects. On the one hand, the replacement of single-with double-hull barges results in more technologically advanced operations that are able to pump at higher rates. On the other hand, continued usage of single-hull barges can sustain the barge fleet capacity. Free market competition motivates operators to continuously upgrade their facilities. The stage of port development also determines the standard of bunkering facilities.

Although most interviewees suggested that bunker price was the paramount consideration in selecting a bunker port, the survey results show that ship operators considered bunker quality and market transparency to be of greater importance. This inconsistency may be due to the fact that poor quality bunkers and lack of market transparency ultimately result in higher generalized costs, which cover both direct and indirect costs borne by ship operators. Furthermore, upon considering the five attributes and the factors that influence these attributes, there is evident interrelationship among them. A competitiveness assessment of bunkering hubs must therefore take all attributes and their interrelationship into account. The following sections assess and compare the performance of the ports of Singapore and Shanghai based on the five most important attributes in selecting a bunkering port. The analysis is based on the industrial findings and survey results.

Bunker Quality Comparison

With the scale from -2 to 2, Singapore port scores 0.92, which is considered "good," with a standard deviation of 0.82. Shanghai port scores 0.48, which is considered neutral to good, with a standard deviation of 0.59.

Port of Singapore

Seventy percent of bunkers sold in Singapore are imported and blended by local traders to meet the specific requirement of viscosity (MPA 2008). The blending phase could give rise to quality disputes as witnessed in past occurrences. Singapore is the first country with a national bunkering standard. In 1997, the Singapore Standard Code of Practice for Bunkering (CP60) was implemented. It specifies the minimum requirements for the operation of bunker delivery, including the sampling procedure and quantity measurement procedure (MPA 2006). CP60 is well received by industrial players and will be incorporated into an ISO standard. In 2003, the Maritime and Port Authority of Singapore introduced an Accreditation Scheme for Bunker Suppliers (ASBS) that incorporates Quality Management for Bunker Supply Chain (QMBS) to control the bunker supply chain from procurement to final delivery to vessels ("Onboard Barge" 2006). Such practices and standards are among the most comprehensive and effective in the world and are studied closely by other port authorities.

In 2008, there were 74 accredited bunker suppliers in Singapore providing bunkers of various quality as reflected in a wide range of prices available in the local market. Though the CP60 and ASBS are considered effective, they cannot eradicate malpractice from such a large pool of suppliers, which may explain the high standard deviation in the survey result.

Port of Shanghai

The Chinese maritime authority does not have specific regulations on bunker quality and bunkering practices. Unlike in Singapore, there are no requirements for bunkers to be sampled and surveyed in China. But this is changing with the onset of globalization. According to Chinese ship owners, it is now a common practice to carry out bunker sampling and surveying in Port of Shanghai.

The interviews indicate there is generally no cause for concern of the operators about the bunker quality in Port of Shanghai. Most of the bunkers supplied in China are directly imported finished products, suggesting that there are limited local blending activities. In addition, the bunker market is dominated by CHIMBUSCO, a government-linked joint venture between COSCO and Petro China. The quality of bunkers from the monopolistic supplier is assured and consistent. Coupled with the fact that bunkers are directly imported as finished products, these explain the low standard deviation for Port of Shanghai with regard to bunker quality.

However, bunker supplied in Port of Shanghai follows the ISO 8217:1996 standard. This practice is unlike those in Singapore and in many other ports that use the latest version of ISO 8217:2005 standard. The usage of the 1996 version may result in problems with charter party agreements, as many charter parties require compliance to the later 2005 version.

Market Transparency Comparison

In terms of market transparency, Port of Singapore scores 0.89, which is considered good, but with a high standard deviation of 0.98; while Port of Shanghai scores 0.12, which is considered neutral, with a standard deviation of 0.83.

Port of Singapore

The Maritime and Port Authority of Singapore monitors and regulates the bunker market to ensure fraudulence-free practices. In addition to CP60, CP77:1999 Code of Practice for Bunker Surveying was subsequently introduced, given that bunker surveying is a measure for upholding the integrity of the bunker market. In 2002, 40 bunker surveyors were convicted of bribery, which led to the introduction of "licensing schemes" and the ASBS to set guidelines for more aspects of the bunker supply chain so as to further tighten the control over practices and to upgrade and reinstill confidence in the bunkering industry. The licensing schemes involve licensing of bunker craft, craft operators, suppliers, and surveyors. To enforce these measures, compliance, quality, documentation, and spot checks are carried out.

The strong presence of influential and reputable international suppliers through the years has positively influenced the level of market transparency. This is because such companies have comprehensive internal codes of practice that help to ensure that their operations remain transparent and set the benchmark for other independent suppliers. Despite regulations being in place, the presence of a large number of bunker suppliers in the extremely competitive local market may still give rise to some fraudulent acts. This explains the high standard deviation that reflects differences in ship operators' opinions.

Port of Shanghai

According to a bunker broker interviewed, there are few complaints on fraudulent practices in Port of Shanghai. This could be due to the monopolistic nature of the market that brings about a higher price with reasonable margins for suppliers. Thus, there is less incentive for fraud. However, Port of Shanghai scores lower than Port of Singapore in terms of transparency, which may be due to the fact that bunker prices in Port of Shanghai are not determined by market forces. The contracted prices for different ship operators often deviate from the officially quoted prices to varying degrees. From some ship operators' perspective, the transparency of the market is questionable due to the lack of pricing information, hence the high standard deviation of the survey result in this respect.

Bunker Price Competitiveness Comparison

Port of Singapore scores 1.21, which can be interpreted as between good and very good, with a standard deviation of 0.70; while Port of Shanghai scores -0.08, which is on the low side of a neutral rating, with a standard deviation of 0.91. Table 5 shows the monthly bunker prices in the ports of Singapore and Shanghai for 2009.

Port of Singapore

Port of Singapore is among the cheapest bunkering ports in the world. The price fluctuates based on market dynamics and is taken as a benchmark price around the world. The competitive price of bunkers in Port of Singapore is, first, due to the high level of refining activities, with 30 percent supplied from local refineries and the remaining 70 percent from imported fuel oil cargoes (MPA 2008). Second, the large market for bunkers in Singapore enables suppliers to reap economies of scale and keep prices competitive. The huge volume of bunker sales is attributed to transhipment vessels and vessels making bunker-only calls. Third, the presence of a large pool of suppliers engaging in open competition in the market helps keep bunker prices competitive. Last, Singapore is the largest trading, storing, and blending hub of Asia; its active physical and bunker derivatives trading keeps its bunker market efficient (Raynor 2003).

Port of Shanghai

The bunker price in Port of Shanghai is considerably higher than that in Port of Singapore, with a maximum monthly difference of about USD45.5 per ton (table 5). The price in the Shanghai port is not derived from market dynamics of demand and supply. Rather, it follows the general direction of changes in Port of Singapore's price, although it does not fluctuate daily. This is unlike the case of Port of Singapore, where the daily price fluctuations reflect supply and demand changes.

The higher price of bunkers in the Shanghai port is the result of a few factors. First, there is a shortage of bunker supplies in China for three main reasons: (1) refining capacity is limited in the short run; (2) refineries adjust output in favor of distillate demand because of higher profit margins from distillate sales, leading to excess production of gasoline but shortage of residues; and (3) in light of exponential economic growth, the huge domestic demand for residual fuels to generate electricity is in direct competition with the demand for bunkers (Raynor 2003). Second, due to the shortage of bunker supply, there is a heavy reliance on finished bunker products imported from Korea and Japan at a premium price as compared to the price in Singapore. Third, market domination by one major player leads to an imbalanced market share with a monopolistic trait of high pricing power. The high standard deviation of Port of Shanghai's score could be attributed to the practice of posting prices, that is, the posted price is different from the contracted price because varying concessions are given to different ship operators. Hence, operators who receive higher concessions would have a more positive opinion about bunker price competitiveness in Port of Shanghai.

Reliability and Punctuality of Bunker Suppliers Comparison

Port of Singapore scores 0.74, which can be interpreted as quite good, with a standard deviation of 0.79; while Port of Shanghai scores 0.48, which is considered neutral to quite good, with a standard deviation of 0.51.

Port of Singapore

The fleet of barges serving the Singapore bunker market is one of the largest and most advanced in the world. This is due to the correspondingly large presence of bunker suppliers in the local market. However, due to overwhelming demand, the fleet has proven inadequate at times, especially during peak bunkering period. With barges in Singapore using the parcel system, in which one barge carries bunkers in parcels designated for multiple vessels, a delay in bunkering at one vessel may lead to a snowball of delays in subsequent bunkering operations.

Although a handful of suppliers may not be of high reliability, they are able to offer attractively low fees by allowing for some slack in the bunker supply chain. This offer could fit the requirements of certain ship operators who are willing to forgo reliability of bunker suppliers in the hope of lowering operation costs. On the other hand, the availability of highly reliable bunker suppliers can satisfy operators' contingent needs. Therefore, a wide spectrum of suppliers in terms of service reliability can be beneficial to the attractiveness of Port of Singapore from the operators' perspectives. This also explains the high standard deviation in the ranking of reliability and punctuality.

Port of Shanghai

In general, the volume of bunkers lifted at Port of Shanghai is significantly lower than that at Port of Singapore. There is also less congestion in bunkering at the Port of Shanghai, and thus the reliability and punctuality issues are manageable. However, due to the lack of advanced bunker barges and the lack of competition among suppliers, there is limited motivation to maintain a high level of reliability and punctuality of bunker supply services. This explains the relatively neutral score for this attribute in the Shanghai port.

Bunkering Facilities Comparison

In terms of bunkering facilities, Port of Singapore scores 1.16, which can be interpreted as the high side of a good rating, with a standard deviation of 0.68. Port of Shanghai scores 0.48, which is considered neutral to quite good, with a standard deviation of 0.71.

Port of Singapore

As of August 1, 2007, the fleet of barges in Port of Singapore numbers 141, with a total tonnage of 401,462 tons (Hong Lain Marine Pte Ltd 2007). The fleet is relatively young and is upgraded regularly. This is due to attractive incentive schemes for suppliers to constantly upgrade as well as stringent regulations in place as of April 1, 2006, requiring barges 25 years of age or older to be phased out (MPA 2007). For instance, free port dues are given to new double-hull bunkering tankers for five years.

Bunker storage facilities are constantly being developed to support the ever-growing bunkering industry in Singapore. This development includes the recent commencement of operations at Hin Leong's Universal terminal and Chemoil's Helios terminal. Development of offshore storage facilities has also been an explored option in Singapore, where land is scarce. This is beneficial for bunker traders due to the proximity of offshore storage facilities to the anchorages, where 60 percent of bunkering takes place.

Port of Shanghai

Port of Shanghai does not perform as well as Port of Singapore in this aspect. The barges that operate in Port of Shanghai are considered outdated. Suppliers are not motivated to upgrade their barges due to the lack of competition and government schemes that encourage them to do so. However, as the volume of bunkers lifted is not overwhelming, the standard of facilities available at Shanghai port is sufficient to meet the demand from ship operators. Also the presence of other large-scale facilities such as berths and storage tanks may explain why, when it comes to bunkering facilities, the Shanghai port does not score as poorly as it does on some of the other attributes.

Recommendations

In general, port operators and authorities who are considering the development of their local bunkering sectors may utilize the assessment method in this study. They may focus on the identified attributes and prioritize their resources according to the importance ranking. The concept of generalized costs should be kept in mind by port operators for two reasons. First, reduced generalized costs improve the competitiveness of the port. As bunker cost is part of the generalized cost for port users, bunkering issues should not be overlooked. Second, the bunker cost itself should be considered in the light of the generalized cost concept because both direct and indirect bunker costs, identified by the study, will have significant impact on ship operators' bottom line.

Port of Singapore

The Port of Tanjung Pelepas (PTP) in Malaysia could be seen as a strong competitor to Port of Singapore in terms of bunkering. This is due to the proximity of the two ports, absence of restrictions in bunker supply, and comparable bunker prices. A major liner operator, whose operational base was drawn away from Port of Singapore to PTP, now carries out 75 percent to 80 percent of its regional bunkering activities in PTP, with the remaining 20 percent to 25 percent still carried out in Singapore port. Since a large portion of the operator's cargo handling is done at PTP, bunkering can be carried out simultaneously at PTP, which saves time for the operator.

Indian ports on the international trunk trade route, with the necessary port facilities and backed by a newly developed refining industry, may develop into bunkering hubs. Should efforts be committed to the development of bunkering infrastructure and facilities, Indian ports can become competing bunkering hubs in the Asian region ("Kochi Drops BOT Route" 2003).

Therefore, it is important for Port of Singapore to keep abreast with the developments in the region to maintain its leading position as a bunkering hub. This effort would entail capitalizing on its strongest attributes--strategic location and stable political environment. On the other hand, the weak areas have to be improved, namely, the reliability and punctuality of bunker suppliers as well as the availability of low-sulfur fuels. Strong focus should be given to the reliability and punctuality as it ranks highly in terms of importance, and yet is the second worst performing attribute of the Port of Singapore. This problem may be alleviated through extensive studies into the bunker supply chain and optimization of the various processes involved. Since many ship operators choose a less reliable and punctual supplier at times due to cost constraints, it is important to enhance the overall productivity of the bunker supply chain and thus improve both cost efficiency and responsiveness. Constant scrutiny of the performance of the various parties in the supply chain will help in the adoption of the best practices.

In light of mounting environmental concerns and possible establishment of more sulfur emission controlled areas (SECAs) in the world, ship operators may increasingly turn to low-sulfur bunkers for their ships. Although such fuels are currently available in Port of Singapore, the use of low sulfur fuels is not enforced due to MPA's belief in the reliance on the free-market mechanism to determine the supply of low-sulfur fuels ("Singapore" 2006). As the certainty of such measures has yet to be determined, bunker suppliers should monitor the developments closely and make timely preparations for the future supply of low-sulfur bunkers.

Port of Shanghai

Currently, due to the unattractively high price, foreign ship operators usually bunker in Shanghai port only in emergency situations and for newly launched vessels from Chinese shipyards. For emergency situations, just enough bunkers are lifted for the vessel to sail to the next port where she will take the full bunker lifting for long hauls. In 2007, about 3 million metric tons of bunkers were lifted in the whole of China as compared to 31 million metric tons in Singapore. The world bunker market is estimated to grow at a rate of 1.5 percent to 3.5 percent annually until 2020 (Chemoil Energy Limited 2006). Considering the high profitability of the bunker market, developing Shanghai's bunkering industry is a strategically sound move.

Government investment in port infrastructure is expected to increase, as the municipal government plans to develop Shanghai into a maritime hub (Lu 2007). Though the infrastructure of the port is among the best in the world, the philosophy of market governance is still lagging in certain aspects. This is reflected in the protectionist nature of the bunker market in Shanghai. The monopolistic bunker market structure that reflects strong protectionist characteristics has been detrimental to the image of the port as a future maritime hub. Therefore, efforts to develop the Port of Shanghai as a maritime hub should also include improving the bunkering sector, which is often overlooked by Chinese port operators despite its importance.

To develop the bunkering industry, measures should be taken to improve on the uncompetitive bunker price. Bunker price was ranked third most important as a consideration by ship operators, yetit was identified in the survey as the weakest link for Port of Shanghai. Various ship operators interviewed expressed that they would be more willing to lift bunkers at Shanghai port if the price was comparable to other ports in the region. The highly ranked attributes, which include political stability, bunker quality, bunkering facilities, and reliability and punctuality of bunker suppliers, should also be enhanced, considering that the scores for these attributes are still lower than the corresponding scores for the Singapore port. The following specific measures can be adopted to develop Port of Shanghai's bunkering scene.

Due to the unique characteristics of the port development in China, where the central and municipal governments play a pivotal role, the Chinese government should play a more active role in the bunkering sector. The most important recommendation is that the government open up the bunker market and take steps to ensure that free competition prevails by allowing more domestic and international players to enter the market and carry out their business under a free market mechanism. A flexible pricing system closely reflecting the dynamics of a free market would emerge and, as a result, prices would be expected to fall to competitive levels and exude transparency and predictability. In addition, establishing blending practices to reduce Shanghai's reliance on imported finished bunkers could lower the price of bunkers further.

With the entry of China into the World Trade Organization, the bunker industry, as with all other industries in China, is expected to open up to international competition, while its monopolistic nature dissolves with the increasing competition. However, for strategic reasons, it is still important for Chinese bunker suppliers to retain a certain market share. Drawing references from the Chinese automobile industry, the transition to an open bunker market could be made less drastic for the Chinese suppliers if they were to enter into joint ventures with international bunker suppliers. International standards and practices would be adopted as a result of such linkups. For example, in terms of quality measures, the ISO8217:2005 standard should be adopted instead of the current ISO8217:1996.

The incorporation of four local bunker supply companies in 2006 is a good sign that China's bunker market is opening up gradually, though the process is still in the early stages. As there are restrictions against the four suppliers, CHIMBUSCO still commands a dominant position in the market. The government should play a more proactive role to promote the competitiveness of the bunker market and accelerate its transition to a free market system.

Other recommendations to develop the Shanghai bunkering industry include incentive schemes to encourage the continuous upgrading of bunkering infrastructure and equipment, storage facilities, and special port dues for foreign vessels bunkering in the Port of Shanghai. Also, more trading and broking activities in both the derivatives and physical bunker market should be encouraged in Shanghai. The market will be more efficient and active, which provides ship operators with attractive options to secure their future bunker positions as well as minimize the risk of price fluctuations in Shanghai. Hence, the attractiveness of Shanghai port as a bunkering port will be enhanced.

Conclusions

This article develops a framework for the competitiveness assessment of bunkering ports. Ten significant attributes were identified and ranked based on industrial opinions. The top ranking attributes warrant more consideration when developing a bunkering hub. This study will be of value to researchers, practitioners, and policy makers who have an interest in the bunker, shipping, or port businesses, such as shipping companies, port operators, port authorities, and various parties in the bunker supply chain. The parties in Singapore and Shanghai would be particularly interested in the findings, since the mentioned businesses are strategic to both.

The Ports of Singapore and Shanghai were assessed based on the identified attributes, and the best and worst performing areas were identified. The competitiveness assessment framework can also be applied to other bunkering ports due to the generic nature of the attributes. It is found that port of Singapore is a better performer than port of Shanghai. Besides its naturally strategic location, which attracts large cargo volume, the fundamental reason for its excellent performance is the liberal market structure, which results in attractive pricing and efficient practices. The MPA plays a subtle role in regulating the bunker market, so that the bunker market is market driven, but still upholds a stringent quality control system. The Shanghai port has attracted comparable cargo volumes. The key to possibly matching Port of Singapore's success in the bunkering industry lies in the opening up of its bunker market. The bunkering industry should not continue to be overlooked in Shanghai, because the world's bunker market has proven to be increasingly lucrative and bunkering is an important element to a maritime hub. Coupled with adequate investments in bunkering facilities, equipment, and expertise, the port of Shanghai can possibly achieve a bunkering hub status in 10 to 20 years. Quality bunkering can also lead to more competitive generalized supply chain costs. With ports being increasingly regarded as a key element in the supply chain, focusing mainly on cargo related aspects in the existing port studies would be insufficient. More attention should be paid to bunkering and other supporting services in ports. This study should draw research and provide practical implications for stakeholders to improve their competitive position vis-a-vis those players in other competing supply chains.

Further research can be done on other bunkering ports in the world using the framework of assessment. This is especially important for closely competing bunkering ports around the world. Also, detailed studies into all aspects of a bunker supply chain can be done to improve the productivity of the bunkering industry. Lastly, due to the dynamism of the business conditions, we recommend that the study of the ports of Singapore and Shanghai be reassessed in the future.

Note

We would like to thank our colleagues in Nanyang Technological University for their help and support. Thanks also go to all the interviewees and survey respondents, for taking their time to participate in our survey.

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Table 1/A Framework for Bunker Port Selection Decisions

 Bunker as the Micro environment Macro environment
 product

Quality Bunker quality Availability of Transparency
 (1) low-sulphur (corruption-
 Availability of bunkers (9) free) (2)
 low-sulphur
 bunkers (9)

Delivery -- Reliability and Location of port
 punctuality of (6)
 bunker suppliers
 (4)

Price/cost Bunker price -- Transparency
 competitiveness (corruption-
 (3) free) (2)

Service -- Bunkering --
 facilities
 (adequacy and
 efficacy) (5)

 Quality of
 bunkering
 services
 (efficiency) (7)

Management -- Transparency Government
 (corruption- policies and
 free) (2) incentives (8)
 Stability of
 political
 environment (10)

Note: The numbers are assigned to the attributes in the survey

Table 2/Attributes Score and Ranking in Selecting a Bunkering Port

Index Attribute Average Standard Ranking
Number Score Deviation
(n) ([A.sub.n])

1 Bunker quality 4.85 0.50 1

2 Transparency 4.60 0.36 2
 (corruption-free)

3 Bunker price 4.58 0.77 3
 competitiveness

4 Reliability and 4.55 0.60 4
 punctuality of
 bunker suppliers

5 Bunkering facilities 4.23 0.60 5
 (adequacy and
 efficacy)

6 Location of port 4.18 0.70 6

7 Quality of 4.15 0.59 7
 bunkering services
 (efficiency e.g.
 pumping rates)

8 Government 4.00 0.84 8
 policies (e.g. quality
 control) and
 incentives

9 Availability of 3.88 0.91 9
 low-sulphur
 bunkers

10 Stability of political 3.80 1.02 10
 environment

Table 3/Performance Appraisal for Port of Singapore

Index Attribute Average Average
Number Score Score
(n) ([B.sub.SGP]) Ranking

6 Location of port 1.58 1

10 Stability of political 1.58 1
 environment

3 Bunker price 1.21 3
 competitiveness

5 Bunkering facilities 1.16 5
 (adequacy and efficacy)

8 Government policies 1.18 4
 (e.g. quality control)
 and incentives

1 Bunker quality 0.92 6

2 Transparency 0.89 7
 (corruption-free)

7 Quality of bunkering 0.82 8
 services (efficiency
 e.g. pumping rates)

4 Reliability and 0.74 9
 punctuality of bunker
 suppliers

9 Availability of low- 0.37 10
 sulphur bunkers
 Total Weighted Score
 for Port of Singapore

Index Attribute Weighted Weighted Standard
Number Average Average Deviation
(n) Score Score
 ([W.sub. Ranking
 SGP,n])

6 Location of port 6.60 1 0.50

10 Stability of political 6.00 2 0.64
 environment

3 Bunker price 5.54 3 0.70
 competitiveness

5 Bunkering facilities 4.91 4 0.68
 (adequacy and efficacy)

8 Government policies 4.72 5 0.77
 (e.g. quality control)
 and incentives

1 Bunker quality 4.46 6 0.82

2 Transparency 4.09 7 0.98
 (corruption-free)

7 Quality of bunkering 3.40 8 0.77
 services (efficiency
 e.g. pumping rates)

4 Reliability and 3.37 9 0.79
 punctuality of bunker
 suppliers

9 Availability of low- 1.44 10 0.88
 sulphur bunkers
 Total Weighted Score 44.53
 for Port of Singapore

Table 4/Performance Appraisal of Port of Shanghai

Index Attribute Average Average Weighted
Number Score Score Average
(n) ([B.sub.SH]) Ranking Score
 ([W.sub.
 SH,n])

10 Stability of political 0.68 1 2.58
 environment

1 Bunker quality 0.48 2 2.33

4 Reliability and 0.48 2 2.18
 punctuality of bunker
 suppliers

5 Bunkering facilities 0.48 2 2.03
 (adequacy and ef-
 ficacy)

7 Quality of bunkering 0.44 5 1.83
 services (efficiency
 e.g. pumping rates)

8 Government policies 0.40 6 1.60
 (e.g. quality control)
 and incentives

6 Location of port 0.36 7 1.50

2 Transparency 0.12 8 0.55
 (corruption-free)

9 Availability of -0.04 9 -0.16
 low-sulphur bunkers

3 Bunker price -0.08 10 -0.37
 competitiveness
 Total Weighted Score 14.07
 for Port of Shanghai

Index Attribute Weighted Standard
Number Average Deviation
(n) Score
 Ranking

10 Stability of political 1 0.90
 environment

1 Bunker quality 2 0.59

4 Reliability and 3 0.51
 punctuality of bunker
 suppliers

5 Bunkering facilities 4 0.71
 (adequacy and ef-
 ficacy)

7 Quality of bunkering 5 0.58
 services (efficiency
 e.g. pumping rates)

8 Government policies 6 1.00
 (e.g. quality control)
 and incentives

6 Location of port 7 0.64

2 Transparency 8 0.83
 (corruption-free)

9 Availability of 9 0.73
 low-sulphur bunkers

3 Bunker price 10 0.91
 competitiveness
 Total Weighted Score
 for Port of Shanghai

Table 5/Benchmark Bunker (380CST) Prices in 2009

Date Singapore Shanghai Price
 (USD/MT) (USD/MT) difference
 (USD/MT)

Jun 09 401.00 426.00 25
May 09 346.00 371.00 25
Apr 09 292.50 318.50 26
Mar 09 248.00 281.50 33.5
Feb 09 261.50 289.50 28
Jan 09 262.00 287.00 25
Jul 09 400.50 446.00 45.5

Source: Bunkerworld (2009)

Figure 1 Breakdown of Vessel Types Operated by Survey Respondents

Type of Vessels Number of Respondents *

Tanker 21 (35.0%)
Dry Bulk 12 (20.0%)
Container 10 (16.7%)
LPG/LNG 8 (13.3%)
PCC/PCTC 4 (6.7%)
Multi Purpose 2 (3.3%)
Cruise/Ferry 2 (3.3%)
Tugs/Barge 1 (1.7%)

Note: Number of respondents according to type of vessels operated
totals 60 because some respondents operate more than one type of
vessel.

Note: Table made from bar graph.
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Date:Mar 22, 2011
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