Image: Frontline

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Crude transportation specialist Frontline says in its annual report for 2017, released on Tuesday, that the rise in bunker costs was a key reason for the company's year-on-year (YoY) increase in voyage expenses.

For the year ended December 31, 2017, Frontline recorded a rise of $11.8 million that was primarily due to the jump in marine fuel prices, the company said.

In 2017, Frontline's voyage expenses and commissions amounted to $259.3 million, which was an increase of $97.7 million, or 60.4 percent, on the $161.6 million posted in 2016.

The other main reasons for the rise in voyage expenses and commissions were said to be increases of $80.4 million, $34.5 million and $8.6 million attributed to the delivery of various tankers and VLCCs.

Compliance costs

In its annual report, Frontline was also keen to stress that "we believe that all our vessels are currently compliant in all material respects with these regulations" when referring to air emissions standards.

At the same time, however, the company did warn that the upcoming 2020 global cap requiring ships to use fuel with a maximum sulphur content of 0.5 percent, plus existing Emission Control Area (ECA) rules not permitting the use of fuel with sulphur levels above 0.1 percent, "may cause us to incur additional costs".

Additionally, mandatory energy efficiency standards for new ships - where by 2025, all new ships built will need to be 30 percent more energy efficient than those constructed in 2014 - "could cause us to incur additional compliance costs", Frontline noted.

"If further ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency, EPA, or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations," Frontline also stressed.

Bunker swaps

In terms of bunker swap agreements, Frontline explained in its latest annual report that in August 2015 it entered into four bunker swap agreements whereby the fixed rate on 4,000 metric tonnes per calendar month was switched to a floating rate. The contracts ended in December 2016.

The fair value of these swaps at December 31, 2016 was nil. A non-cash mark to market gain of $1.9 million was recorded in 2016 and a loss of $2.3 million was posted in 2015.

Key financial results

As previously revealed in the release of Frontline's annual results on February 28, the company posted a loss of $264.9 million last year after achieving a net profit of $117.1 million and $154.6 million in 2016 and 2015 respectively.

Total operating revenues between January and December declined by $108.0 million, or 14.3 percent, to $646.3 million, whilst operating expenses rose by $270.8 million, or 47.2 percent, to $845.0 million.