Bunker One: A New Direction for Bunker Trading or a Natural Step Towards the Inevitable?

Thursday November 23, 2017

If nothing else, news last week that Bunker Holding (BH) has quietly established a new company to manage its biggest clients has proven to be quite the talking point for the industry. Not least because so far, very little is publicly known about what appears to be a significant move by a significant industry player.

While there has been no press release or other public fanfare to accompany the launch of Bunker One, Bunker Holding has confirmed to Ship & Bunker that the London and Singapore-based outfit will focus on the long-term management of BH's major customers and look to win new business from "top tier" global customers.

The news comes after Bunker Holding's Henrik Zederkof told Ship & Bunker in June that he was heading a new venture for the Group that was "strategically very essential and furthermore an important part of the future Bunker Holding Group."

"It is hard to say what exactly this will develop into given that very little information is available, but the approach is interesting and commendable. At first blush, it reminds one of the Pareto 80-20 rule, which stipulates that 80% of a business's revenue will come from just 20% of its customers," industry veteran Steve Leonard told Ship & Bunker.

"By the sounds of it, BH is zeroing in on its key account management, the assortment of clients that bring the most strategic value to their business. Bunker trading companies have historically had a very broad and flat approach to marketing their goods and services to their client base. They talk about a differentiated focus towards key clients but there is little practical evidence to that. Truth is, most have never grasped that selling to your top tier clients requires a dedicated, focused and specific skill set not necessarily borne by all the traders in the organization. It differs immeasurably from the routine day to day."

Top Tier Customers

There has already been speculation in Danish media as to who some of the so-called top tier customers may be, but the fact that a buyer at a major carrier who Ship & Bunker spoke to earlier last week had not heard of Bunker One suggests the selection process might not be as obvious as it might seem.

"The metrics used to identify your top customers are complicated and differ from one vendor to the other. Revenue, for instance, on its own can be a smokescreen as to the real value; nothing more common than a big client by revenue who just happens to be the least profitable, least loyal and most difficult to deal with," said Leonard.

"Another challenge is making sure the company doesn't lose the advantages of scale it has built over time."

One thing that sets Bunker Holding apart from most other bunker companies is the sheer number of separate brands it has that through its sub-companies can, in theory at least, all compete with each other for the same business. BH says one of the goals of Bunker One is to give its major global buyers a consistent, high level, global service while at the same time removing the potential for frustration by them receiving simultaneous approaches from several BH group members.

"That frustration has to be reined in, and what better way to do this by reengineering how to sell to their top clients in a more effective and efficient manner," said Leonard.

"But could this also be being driven in an effort to consolidate brands?"

Tough Market Conditions

Bunker One's arrival also comes during an extended period of tough market conditions and industry-wide restructuring, while the need for change is also being driven by IMO 2020 and the new 0.50% global sulfur cap on marine fuel that is set to come into force in just over two years' time.

Industry commentators argue these challenging market conditions have been particularly acute for traders, with sources last year telling Ship & Bunker that traders needing margins of $3-$4/mt were doing business for as little as $1/mt.

Even after a series of staff cuts and office closures were made across the industry at the end of last year and into 2017, Adrian Tolson, senior partner at consultancy 2020 Marine Energy, believes there are still too many traders and their role in the industry will diminish.

Indeed, while establishing Bunker One may be a necessary move for Bunker Holding, Tolson does not see it having a major impact on the inevitable.

"The bunker industry has changed. This process of disintermediation we are seeing, with buyers looking to go as direct as possible and cut out the middle men, it has hurt traders. Today, the big buyers in particular have different relationships with suppliers than they have in the past and they have improved their buying process," Tolson told Ship & Bunker.

"So, there is pressure from disintermediation and pressure from IMO2020, and at the same time a need for better global co-ordination - something that always seems to have been a problem for big sellers. In this regard, I think Bunker One is a response to these pressures that makes sense. And having a one-stop shop where you can by bunkers and tie that together with derivatives, that has value, particularly post 2020.

"However, if buyers are focused on dealing directly with the guy that puts the oil on the ship it doesn't help, and that change in the transaction chain is coming. There is consolidation on both the supply and ship-owning side, and it is inevitable that over the next decade or so we will see bigger customers and bigger suppliers. The role of the trader in that is difficult to understand. Bunker One will no doubt help in the shorter term; it's something they have to do and it might even slow the inevitable. But in terms of changing the course of where the bunker industry is heading, it may be, frustratingly, a day late and a dollar short."

As for the here and now, Leonard says the entire industry needs to work on finding ways for closer internal and external collaboration.

"Especially with the changes we know are ahead, we also need better supply chain management, more efficient purchasing processes and systems, and as important, innovation. To that end, at the very least this shows that BH is working on how to navigate the current difficult market conditions and, more important, how it is positioning itself for 2020," he said.

"By inference alone they deserve an A for effort in putting forth a strategy to overcome the current market conditions, which is more than you can say for their competitors. Hopefully we will hear more."