Successfully Benchmarking Your Bunker Buying

Paul Hardy, NSI

Every company adopts a different approach to purchasing/benchmarking. These vary from "I don't mind who you use as long as it's x under the market" to highly structured approaches.

The most successful I have seen are those monitoring parameters such as operational performance of barges and vessels, claims ratios, % of claims settled, quality monitoring as well as price. Hand in hand with benchmarking comes the audit trail.

The approach that leaves the owner most exposed is a straight shoot out on price. These companies usually receive a larger share of quantity/quality issues and less loyalty when market turns against them and they need a favour.

The other issue with benchmarking purely against one of the large price reporting companies is occasional lack of understanding of how some markets work. For example in some Baltic ports there are different potential pricing models for winter and summer seasons. In some years we see large discounts in winter as the number of ships dry up and ports are awash with product. In summer, the traffic increases and so do prices in line with supply and demand. It would thus be foolhardy for a cruise line to expect winter pricing during a summer season. Part of the buyer and brokers job is to give a 'realistic' overview of the market to the principals by managing expectations of what is achievable based on market conditions.

A brokers main job is to evaluate the supply chain and to guide the owner to fix with the company with the greatest operational integrity and fair and sustainable pricing. A large broking house manages pricing through close relationships with suppliers being given the nod when a supplier is long on product and needs to sell. By and large a good broker does not use traders and goes direct to suppliers. There are occasions though where this relationship can be quite fruitful if the trader has long term barrels they can price independently from the local supplier.

Where the water is sometimes muddied is where hybrid broker/traders over egg the benefit of using in house trading arms. We see this regularly happening and is why we are purely and always will be brokers only.

Other owners look more long term on price and aim to lock pricing in advance of lifting to have security over budget. Typically liner and cruise companies adopt this approach and benchmarking could be looked at in terms of flexibility achieved in contract negotiation and pricing periods. The decision to lock prices is often a treasury rather than a purchase function in these cases. The buyer consequently may well be judged more closely on supply chain management and operational efficiency of the supplier. Again, a broker can perform a valuable role in contract structuring and monitoring of suppliers performance.

In term of benchmarking the benefit of using a broker is they can produce bespoke reports for customers showing management how the market has been covered, where the vessels have been fixed, how the risks have been minimised and how claims have been managed and settled. A number of large owners have employed essentially their own broking team in recent years and this works very well. As a broker though I must make the case for good independent management of bunker enquiries and supply chain. There are technological tools out there that can help with this benchmarking and as a forward looking company we are at the cutting edge of these developments.