FEATURE: LQM Merger - End of an Era, or Dawn of a New Beginning for Bunker Broking?

Dan-Bunkering's surprise announcement last week that it would be absorbing the brand of brokerage LQM was significant for a number of reasons.

For one, it marked not only the end of one the biggest brokerage brands in the industry's history, but the end of one of the last remaining global bunker brokerages altogether.

Following KPI Bridge Oil's merger last year with OceanConnect Marine, it also means that along with Glander International Bunkering, three of Bunker Holding's biggest brands are now all operating with a hybrid broker/trader model.

The LQM Story

LQM was founded by Gerry and Barbara Van Geyzel in 1982. Based out of Connecticut, at its peak the US-focused pure brokerage enjoyed a global reach and eight-figure annual volumes.

It was also a true industry pioneer in its use of technology, having developed web-based tools such as BunkerDashboard and later BunkerVision, along with the likes of a bunker pricing and news service for mobile devices a good decade before other players followed suit.

LQM Website in 2011 highlighting its mobile information service. Image Credit: LQM

Bunker Holding acquired LQM in July 2015 for an undisclosed amount, although in 2014 much of the technology components of LQM were spun out into a separate company, ClearLynx, that Gerry Van Geyzel still heads today.

"It diversifies Bunker Holding beyond trading, providing a pure broker solution to customers who require it and strengthens our presence in the US market for blue-chip, high-volume customers," Bunker Holding CEO Keld Demant said of the acquisition at the time, adding that it was 'crucial' that LQM remain neutral to the market so it would remain a broker-only business operating as a separate division under Bunker Holding.

It was also hoped that, among other things, the acquisition would help expand LQM's broker business in Europe and Asia.

But these would turn out to be difficult times for the industry, with 2016 proving to be a particularly tough year. Bunker prices in major hubs doubled over the year, volumes had fallen and margins had shrunk to as little as $1/mt. It seemed most every marine fuels company was looking to trim back staff and diversify.

LQM's response was for the first time in its history to move into trading, ending its status as a pure brokerage.

"This is a natural evolution for LQM as we respond to the needs of our customers and the realities of today's bunker market," then LQM CEO Marisa Femenia, told Ship & Bunker at the time.

In the coming years as the market improved, LQM continued largely unchanged until October 2019 when Daniel Rose, formerly of Integr8 and OceanConnect, was brought in as LQM's new London-based CEO to drive a global expansion.

Despite much ambition, the move was short-lived.

Just over a year later, in January of this year Bunker Holding closed LQM's London office, with Christoffer Lassen, chief commercial officer of Bunker Holding, explaining that "the past year has brought both unforeseen and unprecedented challenges to the entire industry.

"To ensure we remain agile and keep a competitive edge, we are continuously scaling and optimising all aspects of our business.

"Consequently, we must know when it is the right time to scale down for some of our services and activities to ensure consistent overall growth."

Rose then moved to a different role in parent company Bunker Holding, and LQM's Paris office was also shuttered earlier this year.

Two years on from the ambition of Rose's arrival and as LQM approaches what would have been its 40th anniversary in the industry, its remaining presence in the US is now folded into marine fuel trading firm Dan-Bunkering and the LQM brand is no more.

Why Dan-Bunkering?

The exact reasons behind the decision to merge LQM into Dan-Bunkering are yet to be revealed, as indeed why Dan-Bunkering was chosen and not one of the other 60+ brands under the Bunker Holding umbrella.

At first glance two other key Bunker Holding brands, Glander International Bunkering and KPI OceanConnect, might have taken on LQM more easily as they already include brokerage elements in their business.

But in choosing Dan-Bunkering for the merger, a notable consequence is that it brings three of Bunker Holding's most prominent global brands all under the hybrid broker/trader model.

The move "will put us in a position where we can add even more value to both clients and suppliers," Claus Bulch Klausen, CEO of Dan-Bunkering, said in a statement announcing the change on October 11.

"The result is that no matter how our clients would like their procurement to be covered we can cater to it."

While Bunker Holding has declined to comment any further on the move beyond last Monday's statement, Gerry Van Geyzel told Ship & Bunker that the two firms have enjoyed a longstanding history.

"I'm not sure why they've moved to fold it into Dan-Bunkering, when LQM had its own brand, had its own customers and had its own credit lines, unless it was possibly to get some cost synergies," Van Geyzel said.

"We were always at LQM very close with Dan-Bunkering, and I think the offices in the US were relatively closely associated."

As a number of readers have noted since the announcement last week, it has not gone unnoticed that the merger's timing comes as Dan-Bunkering faces a potentially uncomfortable period with a Danish court hearing coming up this month over allegations of EU sanctions breaches. It should be noted that Bunker Holding has consistently denied the allegations, saying its internal investigations have revealed no evidence of anyone within Dan-Bunkering or Bunker Holding knowing about the alleged sanctions breaches.

Pure Brokerages Disappearing

It is no secret that pure brokerage houses have been in decline for some years now, and perhaps the Dan-Bunkering merger needs no further explanation beyond the fact it is simply following this very obvious trend.

"Over the last four years we have seen a shift by a number of former competitors from a pure broker-only model to that of a hybrid model," Paul Hardy, head of business development at brokerage NSI, told Ship & Bunker following news of the merger.

"We now see NSI as the only truly global broker left on the market."

As regular readers of Ship & Bunker will already know, while Hardy sees a clear place in the market for brokers and traders, he is not a believer in the hybrid model.

"At NSI we always saw the two functions of broking and trading as distinctive and separate.

"There is a need for good trading partners for some owners, and at NSI when our owners need a trader we concentrate on providing credit in a transparent way where margins are visible at all times.

"The lack of transparency a hybrid model brings was always the sticking-point for us.

"A trader's job should be to maximise margin for its shareholders, and a broker's job is to take a small fixed commission for providing market insight and price discovery."

Of course, all this raises the question as to what then is driving the decline of the once ubiquitous pure bunker brokerage?

"All the traders that came into the business all in a way originated as brokers. When I started there was KPI, Glander, Bunker Fuels, Clarksons and Gibsons," Gerry Van Geyzel told Ship & Bunker.

"We were all sort of brokers that performed a service for shipowners. And over the years, when the prices became volatile and they went up, and the market went from being major-dominated to independents and national oil companies, you needed information. The broker became the facilitator.

"But in time the traders felt that the brokerage commission was not worth the necessary cost to build the networks and the global footprint, so went into trading because suppliers were not necessarily ready and free to give credit to every shipowner that gave them an enquiry. So it was a very good transition into that trader model because they did perform a service, they did build a footprint, and they did build expertise on the ride."

The collapse of OW Bunker at the end of 2014 demanded a very abrupt rethink of how the global supply chain interacted. At the time many predicted it would bring about the end for bunker trading and be a boon for brokers, so in hindsight it is somewhat of a cruel irony it is the brokerages now facing extinction.

Many tough years have been weathered since OW, and with the exception of the IMO 2020 transition margins are simply not what they used to be.

In that time traders have also evolved considerably to keep pace with a rapidly growing array of legal and compliance requirements. They are by the very definition, doing more for less.

"From what I'm seeing, the trader margins have become razor-thin now. You look at the logical extrapolation of that and say, well, I'd rather broker with no risk than trade for the same rate with the risk. So where is that intersection of the best model going forward?" says Van Geyzel.

"Yes, there are going to be hybrids and I think they will remain because some owners just don't want to be traded, especially the larger clients. For companies like Bunker One and World Fuels, I think having brokerage teams and having trading teams is essential because credit is critical."

Benefits of the Hybrid Model

Soren Holl, CEO of KPI OceanConnect, is understandably a supporter of the hybrid model after the merger of his firm KPI Bridge Oil with brokerage OceanConnect Marine last year.

"At KPI OceanConnect we want to be able to offer the hybrid model to our clients and business partners," he told Ship & Bunker this week.

"Some would like to have the broker model, some prefer the trader model, so basically being able to accommodate what is required for the market is natural to us.

"With the merger, we have strengthened that position by adding a number of colleagues who were traditionally doing broking."

For Holl, the advantage is the flexibility it offers the firm's customers over whether to choose for a deal to be facilitated via broking or trading.

"It is the client who decides how we want to do the business," he said.

"Of course, there are many different aspects; some prefer to have a legal counterpart with the supplier, it's all depending on the purchase and strategy from the client.

"For us, it's important that we can add value to the chain."

He also rejects criticism over the potential neutrality questions for a firm offering to act as either broker or trader.

"I do not understand the criticism, because there are two different models and both can provide value to the chain in different ways," he said.

"There are some of our clients that prefer to do broker business, we have the majority of our business in trading.

"If there is a shift, we will move with the shift but it all boils down to what can you offer, what value propositions do you have."

Bunker Brokers: Dawn of a New Era?

So just what does the future hold for the global pure broker model? Sure, the pessimists might tell you that it's always darkest just before it goes pitch black, but there are some very real signs that rather than being snuffed out entirely, pure broking is instead on the verge of a renaissance.

Industry consolidation and growing complexity from IMO 2020 and beyond means buying bunkers is a more complex task than ever before. In recent years this has led to owners being urged to form bunker buying alliances, the most recent being in July when speaking to Ship & Bunker, Hafnia's Peter Grunwaldt renewed his call for buyers to pool their resources.

But the article also prompted readers to question where the line was, if there was one at all, between "buying pools" and a group simply acting as a brokerage.

"When I look at companies forming alliances now like the Hafnia's et cetera, they're all pretty much offering the service of, 'Listen, I'm a vessel expert, I've got a certain volume, I've got the teams, I know what I'm doing, give me your volumes and I'll buy it for you for a certain fee and it's all transparent," Van Geyzel told Ship & Bunker.

"I think in a way that is the future also, where the small and medium owners just do not have the resources to buy in a very challenging market. So the market is going through some major changes on the buy side as well as the supply side."

Another potential driver for bunker brokerages is the recent embracing of decarbonisation efforts for the shipping industry.

With IMO 2020 out of the way, it should be noted that these goals have been rising in ambition considerably in recent months. IMO's original target of a 50% reduction by 2050 is now countered by a growing chorus of voices from within the industry (Bunker Holding included) saying by that date it is possible to achieve complete decarbonization. Now, heavyweights Amazon and Ikea are among those now calling for carbon neutral shipping by 2040, echoing the sentiment of other major shippers earlier this year.

"I look at the next 15-20 years and it's going to turn the whole industry upside-down, because you're going to be changing vessels, barges, shore structures, fuels and then adding in all the elements of pricing, insurance credit and just being able to get fuel when you want it based on your tanks," Van Geyzel told Ship & Bunker.

"I'm looking at it from a technology perspective, but I do see the value of a physical broker versus an online one in the market ahead which is going to be more challenging for bunker buyers, as well as for suppliers, with all these multiple and very high-priced fuels coming into the market. I do think that there has to be that human expert that adds as a complement to the technology to help buyers and suppliers.

"Human supply and purchase experts will always be enabled by technology and they should look to adopt technology to anticipate and solve the challenges that the industry needs for the coming disruption in the supply chain ."