World Bunkering Magazine Feature : Still playing a vital role

Spring 2012

As some shipping companies struggle to survive, how are bunker traders faring? Bunker traders have played an important role in the global bunker business since the seventies but, World Bunkering has been asking, is this changing?

The managing director and CEO of International Bunkering Middle East DMCC, Carsten K Ladekjaer responded: “The role of the bunker trader has not changed as such in my view. It has rather become even more vital to the industry than ever before. We are still adding the same value to the market as before only now the need for us has increased. As I have mentioned on previous occasions we feel that our business partners have become more appreciative of having us around, and of course we are very pleased with this.”

So how can traders cope with increased counterparty risk as more large shipping companies get into financial trouble? Mr Ladekjaer replied: “This literally seems to be the multi-million dollar question these days. Unfortunately we cannot rely entirely on good old-fashioned luck. The route description to steer through these challenging times for a bunker trading company contains a proper fine-tuned credit management system being in place, a wealth of market experience amongst the people making the credit decisions, an ocean of up-to-date information on what’s going on and what’s not, access to sufficient financing, and finally a fully motivated and professional team of employees. All of the above is required in order to sort the good deals from the sour ones and still it’s not an easy task.”

As pressure on margins continues will there be consolidation in the market, with fewer traders? He said: “Surely this will be the result of the current market situation. Those armored to weather the storm may come out winners and those who are not may have to close shop or at least scale down their activities. The term ‘counterparty risk’ has been taken to a whole different level these days and everyone is watching everyone. International Bunkering is blessed by being a financially very strong counterparty. This means that our business partners have great trust in us. Others less fortunate may not be able to benefit from the advantages this provides and as a result they may lose market share.”

He added: “We continue our strategy of growing at a controlled and natural pace, which goes in-line with the general increase in demand from our increasing number of valued clients. We have therefore opened a liaison office in Mumbai and more recently International Bunkering Pte Ltd in Singapore was established. As such our focus is now on growing our business via those new units as well as the office in Dubai. Having said this, I would like to stress that with a multicultural staff from around the globe our focus remains to serve clients from all over the world with bunkers and lubricants all over the world.”

On whether more consolidation is likely, Asean International chief operating officer Zain Jamal commented: “In order to achieve their given targets, traders appear to be making trades on significantly lower margins without even considering the finance consequences or the risk factor components of the associated shipping company involved. To avoid this, traders in today’s times must be well versed in market trends and have extensive historic evidence on counterparties to avoid financial default on payments. If this scenario continues, in the UAE it is certain that many trading houses may face the threat of failure, targeting the same clientele and causing more frequent consolidation of market share by geographic area, to minimize costs.”

As well as being an oil company and refiner, Spanish-based Cepsa trades its products directly to customers from all over the world and to all sectors, at the main Spanish ports, Gibraltar and Panama. As a supplier, Cepsa sells as well to traders at those ports. World Bunkering asked what difference the 3.5% sulphur cap would make to traders. A spokesperson said: “The new limit implies that for some refiners to manufacture this quality the crude slate has to be altered. Sometimes this is not profitable, and therefore the overall availability can diminish somewhat. For Cepsa, as a refiner, there have been no complications at all, since its refineries are configured to distillate sweeter crudes and we can offer 3.5% quality fuels without any problem. Regarding imports, in our areas we have not encountered major differences in the overall situation.” So how concerned is Cepsa about the prospect of the 0.1% cap in 2015? The answer was: “Cepsa will be ready for this milestone as it has enough production capacity to service the demand if it remains at levels similar to those we see today for 1% sulphur.

World Bunkering asked: “How can traders cope with increased counterparty risk as more large shipping companies get into financial trouble?” According to Cepsa the principles are “few and clear: a good credit assessment, complying with the credit limits derived from the assessment and continuous monitoring of each client’s position”. “But in practice,” the Cepsa spokesperson conceded, “in the present situation any credit assessment is subject to be surpassed by the stark reality, or the assessment might be such that only limited sales might be carried out within its limits. Therefore, not only is best practice paramount, but the financial capacity to cope with defaults will be necessary, and some players might not be able either to cope with those defaults, or to apply limits allowing a minimum level of sales.”

So will there be consolidation in the market, with fewer traders, as pressure on margins continues? “Most probably. We can imagine scenarios where small and medium-sized traders will join to put together resources and become more competitive, or simply to avoid disappearing.”

And is the role of the trader changing? Cepsa thinks so. “In some cases we see traders that are already developing activities as consultants and/or brokers. Also, it is becoming more and more frequent that big traders act as financiers for their customers.” While not consolidation in the real sense of the word, global supplier and trader of marine fuel, OW Bunker, has recently launched a new unified German brand, OW Bunker Germany. The move follows the merger of Wrist Bunker Supply and Wrist Worldwide Trading, companies within the Wrist Group, OW Bunker’s parent company. OW says that the new entity will incorporate the two distinct trading and physical supply divisions under one brand, capitalizing on OW’s global market-leading position.

“The new brand provides scale to the business, as one of the largest bunker suppliers in Germany, and capitalizes on the global credibility, capabilities and infrastructure of OW Bunker, which has a reputation worldwide as a leading marine fuel supply organization,” said its executive vice president, Götz Lehsten.

“In these tough economic times, customers want to work with suppliers that have the financial strength and stability, as well as quality products and services to help them develop the best and most viable fuel procurement solutions that meet the specific demands of their businesses. The OW Bunker brand carries this credibility,” continued Mr Lehsten.

Added 14 May 2012 in the category: Spring 2012
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