WFS expects marine losses into 2017

US-based downstream marketer World Fuel Services (WFS) third quarter profits edged higher despite sharp losses in its marine segment. Third quarter net income increased $300,000 year on year from $42.7mn in 2015 to $43mn in 2016.

But the company's performance was unequal across its aviation, land and marine business segments. The company's operating income (income before interest and taxes) from its marine segment declined 41pc to $10.3mn in third quarter 2016 compared with $17.5mn during the same period last year. The land segment income also declined, falling 27pc year-on-year to $13.9mn while third quarter income from the aviation segment increased nearly 12pc from $47mn in 2015 to $52.6mn in 2016.

"The marine segment has suffered from the same macroeconomic issues that have plagued the segment for some time," said WFS chairman and CEO Michael Kasbar. "Poor market dynamics in shipping has weakened owner positions and further deteriorated market conditions," he added.

Propelled by increases in government fueling operations, the company's aviation segment posted record highs in both profits and volumes, said Kasbar. The aviation segment is poised for expansion as WFS begins the gradual takeover of 83 airport fueling operations from ExxonMobil affiliates in fourth quarter 2016. The company expects to complete the integration of new operations in Canada and France next week and the remaining locations throughout the rest of 2016 and into early 2017.

Total volumes sold in the marine segment in third quarter 2016 reached 7.6mn t, an 800,000t decline from 8.6mn t sold during the same period last year. WFS executive vice president and CFO Ira Birns attributed the reduced volumes to customers discontinuing operations and WFS' own reduced credit appetite in the face of weakness in the marine segment. These trends will continue and 4Q results in the marine segment will not be meaningfully different from what was seen in 3Q 2016, he said. "We are taking steps to cut costs, but don't expect to see the benefits of these actions until first quarter 2017," he added.

An extended downturn in the shipping industry has increased credit risks for marine fuels suppliers. In September WFS was named as a creditor when South Korea's Hanjin Shipping filed for bankruptcy protection in Seoul and the company was named in the complaint that led to the US Marshals arresting the containership Hanjin Montevideo in the port of Long Beach, California over unpaid bunker bills. WFS expects to recover nearly all of the $18mn account outstanding, said Birns, either through bankruptcy proceedings or else via marine liens or insurance payments.

WFS will be reviewing its participation in the marketplace in light of today's International Maritime Organization's (IMO) decision to reduce the sulphur cap of marine fuel to 0.5pc said Kasbar. "The IMO decision will change the fuel diet," he said, "there will be global imbalances in fuel supply and shippers will have to make choices." The company is also exploring LNG for bunkering.