Regional Bunker Companies Struggling as Top 10 Players Increase Market Share

The top 10 bunker companies are getting bigger, analysts have noted.

Regional bunker players are struggling to compete under increasingly intense competition, according to Bunker Holding CEO Keld Demant, with the international bunker industry now in a phase that will see growth for some companies, and elimination for others, Shipping Watch reports.

Demant says bunker companies can be classified into three groups, where at one end of the scale there are small, local, players that are strong in a single port, and on the opposite end there are large international companies.

"Between these two types of bunker companies we have a veritable mass of companies who work regionally. They're the ones who are struggling," said Demant.

"The large middle group must decide whether they want to have the capacity to grow amongst the ten biggest, whether they will settle for being a local player, or whether they will become one of the large companies."

While some of those players will fail to survive, the outlook for the smallest players is more positive.

"These will likely be fine," he said.

Demant, whose company is aiming to be the world's biggest, says this transitional process started about a year and a half ago, and has been helped along, but not caused, by last year's collapse of OW Bunker.

It is a process that has not gone unnoticed by others in the industry.

"In 2005, the ten biggest bunker companies controlled around 20 to 25 percent of the market. Today that's over 50 percent," an analyst at a leading global bunker company, who asked not to be named, told Ship & Bunker.

"And not only are the biggest players getting bigger, if you look at the smaller players, they are getting smaller."

The Low Bunker Price Effect

On the back of crashing oil prices, bunker prices this year have fallen to multi-year lows, which in turn has enabled smaller players access to more product than their credit facilities would otherwise have allowed.

Last month Aegean Marine Petroleum Network Inc. [NYSE: ANW] (Aegean) President E. Nikolas Tavlarios noted during the company's earnings call that the sustained low pricing had enabled competitors to "aggressively offer incremental sales that will always be beyond their credit capacity," with the resulting increase in competition creating "a tighter margin environment that has made an impact across the industry." 

However Demant believes this to be "a temporary effect."

"We're still dealing with relatively large sums of money in this industry," he said.

"If you don't have economies of scale and the necessary capital to position yourself in the best way possible, then it can become a battle that can squeeze the last drop of blood out of some companies.

"This is a development which has clearly intensified over the summer. It is also linked to the fact that most places in shipping aren't going through lucrative times. Costs are being examined all across the shipping industry, and this is a challenge for many of the small bunker companies."

Last week, Ship & Bunker reported that Bunker Holding had received a new loan facility valued at $650 million, which has taken the group's accumulated funding to over $1 billion.