The global trade relies heavily on the maritime sector, which facilitates the transportation of goods across continents and plays a vital role in the global economy. As the industry undergoes changes, it also encounters new difficulties. Recently, there has been a decline in trust and reliability in the bunker industry, which is worsened by the industry’s need to address the requirements of the International Maritime Organization 2020. Among these challenges, bunkering fraud stands out as a complex and costly problem that has affected the sector for a long time. Bunker fuel and related machinery expenses account for over half of a ship’s operational costs, making them crucial determinants of profitability. Nevertheless, the rise of the digital era presents an innovative solution to tackle this issue: digitalization. Through the utilization of technology and data, the maritime field can effectively combat bunkering fraud and usher in a new period characterized by transparency, efficiency, and confidence.

Understanding Bunkering Frauds

Bunkering fraud refers to deceptive practices in the marine industry related to the sale and distribution of fuel, known as bunker fuel, to ships. Bunkering fraud can take various forms and is often aimed at manipulating the quantity, quality, or documentation of the fuel being supplied to vessels. Here are some common types of bunkering fraud such as Quantity and Quality Manipulation Miss-declaration of Vessel Details, Document Falsification, Bypassing Regulations and so on.

1. False Documentation: Fraudulent documentation includes creating fake Bunker Delivery Notes or manipulating existing ones. This can involve altering quantities, fuel specifications, or signatures to deceive both buyers and authorities. Prevention with Digitalization: Implement digital Bunker Delivery Note (BDN) systems with encrypted electronic signatures and timestamps. Store BDNs on blockchain for transparency. Example: BDNs are generated digitally with encrypted electronic signatures from both the supplier and the receiving vessel. These BDNs are stored on a blockchain, providing a secure and unalterable record of the transaction. Any attempts to tamper with the document will be immediately evident.
2. Price Manipulation: Bunker suppliers might engage in price manipulation by charging higher prices for fuel than what was agreed upon. This could involve false invoices or price discrepancies in the delivered fuel. Prevention with Digitalization: Utilize blockchain-based smart contracts for pricing and payment. Ensure transparent, automated, and tamper-proof billing and payment processes. Example: Bunker contracts are executed as smart contracts on a blockchain. The agreed-upon price and payment terms are encoded into the contract. Once the bunkering operation is completed as per the contract’s specifications, the payment is automatically released to the supplier without any manual intervention.
3. Ghost Deliveries: Ghost deliveries involve billing for fuel that was never actually delivered. This type of fraud can happen when there is collusion between bunker suppliers and buyers or when there is a lack of proper documentation. Prevention with Digitalization: Implement real-time monitoring systems with secure data sharing among all parties involved. Example: A real-time monitoring system is set up where all parties, including suppliers, buyers, and port authorities, have access to a shared dashboard. Fuel deliveries are recorded in real-time, and any discrepancies or unauthorized entries trigger alerts visible to all stakeholders, preventing ghost deliveries.
4. Phishing and Cyber Fraud: In the digital age, fraudsters can use phishing emails, fraudulent websites, or other cyber tactics to steal sensitive information, compromise transactions, or gain unauthorized access to bunkering systems. Prevention with Digitalization: Implement robust cybersecurity measures, conduct employee training, and use secure communication channels. Example: Bunker companies use encrypted communication channels for all transactions. Regular cybersecurity training sessions educate employees about phishing risks. Multi-factor authentication (MFA) is mandatory for accessing critical bunkering systems.
5.  Unauthorized Access: Fraudsters may gain unauthorized access to bunkering systems or processes to manipulate data, quantities, or other critical information. Prevention with Digitalization: Implement stringent access controls, regularly update security protocols, and monitor system activity. Example: Access to bunkering systems is limited to authorized personnel only, with role-based permissions. Regular security audits identify vulnerabilities. AI-powered anomaly detection systems monitor system activity and flag any unauthorized access attempts.
6. Underreporting Income: Bunker suppliers might underreport their income to evade taxes or fees. This fraudulent practice can result in financial losses for governments and local authorities. Prevention with Digitalization: Utilize transparent digital payment systems and implement audit trails. Example: Bunker companies use blockchain-enabled payment systems. All transactions are recorded on the blockchain, providing an auditable trail of payments received. Any discrepancies between reported income and recorded transactions trigger investigations.

Areas susceptible to fraud in bunkering: Fuel Discrepancies

The realm of maritime fuel trading has a history of opaqueness. Bunker fuels represent over 50% of vessel operational costs, rendering fraudulent activities and inadequate supply chain management impactful on the profitability of vessel owners, charterers, and fuel suppliers alike. In July 2023 , an incident of fuel discrepancies contamination in Houston caused 11 ships to lose propulsion and over 100 ships to face adverse effects.

Inaccurate Fuel Density

Marine fuel transactions are predicated on weight but executed by volume. An erroneous density reading on the Bunker Delivery Note (BDN) that overstates volume relative to actual weight leads to quantity discrepancies, culminating in financial losses. Research indicates that approximately 33% of Very-low Sulfur Fuel Oil (VLSFO) samples analyzed exhibited a density mismatch between BDN declarations and lab-tested fuel densities. Such disparities are indicative of “short bunkering.”

Temperature-Volume Relationship

Similar to density inaccuracies, another frequent misconduct area lies in the interplay between temperature and volume. Petroleum products, including fuel, undergo substantial thermal expansion, necessitating careful consideration during substantial deliveries. Deliberately understating initial temperatures and subsequently exaggerating final temperatures during measurement can readily engender volume discrepancies.

Water Contamination

Water presence within fuel is not uncommon and can stem from factors like tank condensation. However, empirical evidence indicates that purposeful water introduction adversely impacts both fuel quantity and quality. Unfortunately, precise water quantification during delivery poses challenges, with accurate measurement only possible post-settlement. Costs linked to elevated water content extend beyond authentic fuel losses, encompassing expenses related to disposing of water separated by the vessel’s oily water separator (OWS). Such disposal expenditures are on the rise across global ports.

Deliberate Collusion

The simplest bunkering fraud form emerges through collusion between suppliers or barge crews and ship crews, resulting in fuel delivery below purchased quantities.

Bunker Fuel Complexity

Bunker fuels inherently harbor impurities, even in their cleanest form. These fuels necessitate distillates and additives, termed “cutter stocks,” to mitigate viscosity for optimal ship engine operation. Striking a delicate equilibrium between enhancing fuel quality and avoiding contaminants detrimental to ship engines is pivotal. Incidents in 2022, such as those in ARA, Fujiriah, Singapore, and Houston, underscored the fallout from unauthorized refrigerant oil disposal into bunker batches. Consequences encompassed disabled ships and scarcity of replacement engine parts, exerting significant global shipping repercussions for months.

How digitalization can prevent each type of bunkering fraud:

Inaccurate Fuel Density: Digital platforms can integrate real-time data from sensors that monitor the density of fuel during bunkering operations. These sensors can provide accurate measurements that are automatically recorded on a blockchain-based ledger. Any discrepancies between declared and actual densities can trigger alerts for immediate investigation, deterring fraudulent practices. Example: An IoT sensor is installed on the fuel transfer line to monitor the density of the fuel in real time. This data is instantly recorded on a blockchain-based platform. If the declared density on the Bunker Delivery Note (BDN) doesn’t match the sensor’s reading, the system alerts both the supplier and the vessel’s crew. This transparency discourages suppliers from providing inaccurate density information.

Temperature-Volume Relationship: IoT sensors can also monitor temperature changes during bunkering operations. These sensors can be integrated into the digital platform to ensure that temperature-related measurements are accurate and in compliance with standards. Any inconsistencies can be flagged, prompting further verification. Example: During bunkering, IoT sensors continuously measure the temperature of the fuel. The digital platform uses this data to calculate the volume of fuel delivered based on temperature adjustments. If temperature readings are inconsistent between the initial and final measurements, an alert is triggered for investigation, preventing volume discrepancies due to temperature manipulation.

Water Contamination: IoT sensors can be equipped to detect the presence of water in fuel. Digital platforms can record water content data and compare it to established standards. Additionally, the platform can incorporate advanced analytics to identify abnormal water content levels, flagging potential water contamination issues for investigation. Example: IoT sensors with water-detection capabilities are placed in the fuel transfer lines. These sensors monitor water content levels in real time. If water content exceeds a certain threshold, the digital platform immediately notifies the vessel’s crew and the supplier. The fuel delivery is halted until further checks are conducted to ensure water contamination is addressed.

Deliberate Collusion: Digital platforms can create transparency by connecting all stakeholders involved in the bunkering process, including suppliers, ship crews, and regulatory authorities. Each bunkering transaction can be digitally recorded, making it challenging for colluding parties to manipulate records without detection. Regulatory oversight can also be integrated into the digital platform to deter collusion Example: A digital bunkering platform is adopted by both the supplier and the ship’s crew. Each bunkering transaction is digitally recorded with timestamps, quantities, and involved personnel. This data is stored on a blockchain that cannot be altered. If the delivered fuel quantity doesn’t match the documented quantity, the platform generates an automatic alert, discouraging collusion between parties.

Bunker Fuel Complexity: Digital platforms can be utilized to ensure the traceability and quality of additives used in bunker fuels. Smart contracts on a blockchain can enforce adherence to additive standards. Additionally, real-time data from IoT sensors can monitor the blending of cutter stocks to ensure that the right proportions are used to maintain fuel quality. Example: Digital platforms can include a comprehensive record of the additives used in bunker fuels. Suppliers provide data on the type and proportion of additives used, which is recorded on a blockchain. When bunkering occurs, sensors validate the presence of the declared additives. Any discrepancies trigger alerts, ensuring the correct blending of cutter stocks and reducing the risk of contamination.

Digitalisation to avoid Bunkering Frauds:

1. Bunker Delivery Note (BDN) Digitization: Implement a digital system for generating and managing Bunker Delivery Notes. This includes using electronic signatures and timestamps to ensure the authenticity and integrity of the document. Digital BDNs can be securely stored and easily accessed, minimizing the risk of fraudulent alterations.
2. IoT and Sensors for Quantity Measurement: Utilize Internet of Things (IoT) devices and sensors to measure fuel quantities during bunkering accurately. IoT-enabled meters can provide real-time data, reducing the chances of tampering or discrepancies.
3. Blockchain Technology: Employ blockchain to create an immutable and transparent record of all bunkering transactions. Blockchain’s decentralized nature ensures that once data is recorded, it cannot be altered or deleted, creating a trustworthy audit trail.
4. Data Sharing and Integration: Encourage data sharing and integration among various stakeholders, including bunker suppliers, buyers, and port authorities. This collaborative approach can help identify and address inconsistencies or discrepancies in the bunkering process.
5. AI-powered Fraud Detection: Implement AI algorithms to analyze bunkering data and identify patterns indicative of fraudulent activities. AI can flag unusual behavior, such as significant variations in fuel consumption or delivery quantities, raising red flags for further investigation.
6. Real-time Monitoring and Surveillance: Utilize real-time monitoring and surveillance systems to oversee bunkering operations. This can involve using cameras and sensors to keep track of fuel transfer and ensure compliance with established protocols.
7. Digital Identity Verification: Implement digital identity verification mechanisms to ensure that all parties involved in the bunkering process are legitimate and authorized. This can help prevent unauthorized access to fuel or manipulation of transactions.
8. Secure Payment Systems: Use secure digital payment systems that offer protection against fraudulent activities. Employing blockchain-based smart contracts for payments can enhance security and automate the release of funds upon successful completion of bunkering operations.
9. Regular Audits and Inspections: Conduct regular audits and inspections of bunkering procedures, both internally and by independent third parties. Digital records and data make these audits more efficient and effective.
10. Training and Awareness: Educate employees and stakeholders about the risks of bunkering fraud and the importance of adhering to digital processes. Encourage a culture of compliance and ethics throughout the organization.

Conclusion

Bunkering fraud presents a significant peril to the integrity, financial viability, and sustainability of the maritime sector. The adoption of digitalization presents a revolutionary remedy to counter this obstacle. By incorporating digital innovations like IoT, blockchain, and data analytics, the industry can ensure openness, responsibility, and efficiency throughout the bunkering procedure. As the maritime domain sets forth on a path toward digital transformation, it possesses the chance to safeguard its prospects while bolstering its pivotal function in worldwide trade. As the momentum toward digitalization gains momentum, the global trade network stands at a crucial juncture in its history. In this journey toward a more digitized future, the primary challenge now is for stakeholders to unite and commit to utilizing all accessible tools and frameworks, constructing a network of reliable sources to establish a secure and dependable ecosystem for the years ahead.

– Riya Yadav