Inside Opinion: Is Savvy Trading Causing Reduced Bunker Volumes in Singapore?

Did you see the article Ship & Bunker ran earlier this month suggesting trading volumes were down up to 25-30% in Singapore in 2013? Interesting wasn't it?

I have pontificated at length about the state of the markets and various goings on in everyone's favourite Lion City in recent times. It's hard to get around it. It is, after all, the biggest and most important bunkering port (read: "hub" in Singlish) in the world. So for traded volumes to be down so much is quite a big deal.

I'm afraid it's just a market effect. Bunker traders who have Singapore teams doing Singapore business no longer regard Singapore as such desirable volume to attain and maintain. Its high cost and low margin. Assuming you have no contract barrels in play you need to get rid of, the reasons are easy to map out.

Too Many Claims

One – that claims are just too numerous. There are just too many suppliers chasing too little volume and so there is too much shorting going on.

There are a few surveyors a little too friendly with the wrong people to be wholly impartial, and as such claims are a shooting match. A sad few wily owners know this and become claim happy, withholding payment on legitimate stems making spurious claims hoping the trader will agree a commercial settlement for lower than the cost of the invoice. It happens.

At some point the big traders step back, realize how much they are spending on defending these claims and have a serious think about whether Singapore is as attractive as it used to seem in terms of building volumes and market share. What's the point?

Big Stems, Low Margins

Two – that Singapore is a stop off for a huge slice of world shipping, and so there are some big stems floating around. The traders not interested in playing the volume game in Singapore quite rightly look at the many 2,000 mt enquiries where the market is expecting to fix at a buck or even fifty cents a tonne or less, every day, and wonder whether it is worth it.

Big bunker companies are huge organisations and the actual cost of doing a deal in terms of back office, invoicing etc is well over a thousand dollars for most, and considerably more for some I would guess, certainly once credit reports and the above Point One and such are factored in.

Why would you take this stem on for what amounts to break even or even a small loss, if you aren't that bothered about building volumes? Exactly. You leave it.

And what of the price of credit? How much interest would you expect to pay if you borrowed US$2m from the bank for a month or two? A lot.

How much do bunker buyers pay to borrow these sums? Not a lot, I can tell you.

Credit Risk

So gigantically competitive has Singapore been and is still today, that the market won't let you cost your credit risk into the deal. You try to do the 2,000 mt stem and add ten or twelve dollars to cover your $1.2m credit risk and see what happens. You have companies doing it for a dollar margin who will be lucky to break even.

Meanwhile your customer thinks you are greedy for asking such a ludicrous amount over the market and if you carry on not getting anywhere near the market level, you may well eventually stop seeing their enquiries due to a perceived lack of support.

But we cannot criticize a shipowner for taking the lowest price. This mismatch is merely an effect of market competition, nothing more.

Hard Won Cash

So if you want to do the business - not just in Singapore - then low margins are a fact of life. Some stems get done at cost. That's how it is. 

But why should the bunker traders use their cashflow to support the customers in what amounts to a short-term high-ticket bankloan, just for the sake of getting the order over the other guy who quoted higher?

I'd suggest the big and successful bunker traders have mastered the art of using cashflow wisely, and increasingly I've noted a tendency in the last three or four years for the big boys (a lot of them at any rate) to leave the big volume deals alone in places like Singapore and Fujairah precisely because they have better and more intelligent things to do with their piles of (very) hard won cash.

The big bunker companies that will be the most successful in future are the ones who think commercially about every deal and who are unafraid to walk away from an enquiry if it doesn't make them a worthy amount of money.

A section of the Singapore business is so stupidly competitive that the business case is as flimsy as the strappy glittery tops the Orchard Towers designer denizens wear. So I'm told.

Some is good. There are still margins to be made but selection is key, and so is using the relationship with your customer. Do him a favour in Singapore and he may repay you with a tasty enquiry somewhere you are physical or can leverage some serious margins. You choose your deals.

Singapore is not a broadsword market any more. It is one that requires agility and a lot of market savvy. If you have that, then it is still a profitable place to do business despite everything and volume need not define things there.

Speaking in wider terms, I think success can no longer be measured in volume alone.

It's funny how people don't talk as much about the biggest bunker companies and their respective rankings by mentioning volumes any more isn't it?

Size and volume is not all that matters. It's what you do with it that counts.