I have had a lot of messages the last weeks asking me to refrain from negative comments towards traders so this week I am going to focus on what traders do good.
Firstly, traders provide a valuable service in financing the operations of small and middle tier ship owners by providing credit lines and extending credit terms. This can be done in a variety of ways and some will even offer transparency of pricing and a fixed margin based on the risk and number of days that need financing. On the odd occasion we need a trader we work in this way.
The best traders are also adept at pooling volume and achieving economies of scale for their purchases. Although, some have been quicker to the party than others. The same goes for term contracts and being able to put together inventive structures to lever volume and profit.
The buying departments of the blue chips have been rubbing their hands now for a number of years as credit becomes cheaper and cheaper with the big 3 fighting for their business between them
On a market where owners are struggling with freight rates margins for traders rise as the demand increases. Recent years would have been happy hunting ground for traders in the past. The problem has come where banks/insurance companies are scrutinising portfolios more carefully and requesting a more balanced book of business with a better risk profile. This has caused most large traders to chase the blue chip business to reduce risk and increase turnover. The buying departments of the blue chips have been rubbing their hands now for a number of years as credit becomes cheaper and cheaper with the big 3 fighting for their business between them. Some have seen tonnage fall, others rise but what has been clear across the board is that margins have dropped considerably. Just compare an annual report of today with one 10 years ago.
So what is the solution to falling margins? Some have opted for cost reduction whereas others have gone for technological solutions which means the same just longer term. A prominent trader has taken the interesting step though of creating a 'key account management' business unit. This I believe to be a clever and interesting move. A trader that offers a one stop shop with a good level of service is a very attractive proposition and it should bode well for them.
What traders do not do well though is pretend to be brokers! We have seen the rise of such hybrids in recent years offering to give a 'transparent service' with the added benefit of tons of credit. Sounds too good to be true doesn't it.
both traders and brokers can do an excellent, separate and complimentary job in the market
I wrote a number of weeks ago about the differing mentalities of brokers and traders. If you are using a 'hybrid' currently can you be sure you really need to use the trading arm in all instances. Buyer beware!
As 'Brokers only' a significant part of our job is to manage the available credit for the owner by careful planning with our supply partners. Occasionally, we do use a trader at a transparent margin and our trading partners do a fantastic job giving support when called upon. The difference is we are open with the owner why a trader is needed and transparent with how much the trader earns for the service provided.
Where there are similarities with one of the new trading entities is with our 'key account management' principles. Our owners have a one stop shop for all questions bunkering and we conduct periodic analysis and review of our performance. The key is in the relationship and portfolio management aspects of the business. The trader in question has taken some of the key principles of being a successful broker but without being a hybrid! An interesting concept and one aligned with our philosophy.
In summary both traders and brokers can do an excellent, separate and complimentary job in the market. We are very happy to have strong relationships with a number of traders and use their services when required. It is key though that a broker stays a broker and a trader a trader as their natures are completely different.