Interview With a Bunker Buyer: COFCO International Freight

Capt. Ulunay Terzi is the Global Head of Freight Operations for COFCO International Freight with the global responsibility of all freight operations. COFCO buys around 1 million tonnes of bunkers a year handling around 2,000 stems for around 600 vessels globally.

He has over 25 years' experience in the maritime industry including; ship management, newbuilding supervision, procurement and fleet management. Prior to joining Chinese state-owned COFCO, for 15 years he was the Operation Manager with Kiran Shipping. His experience also includes 10 years at sea rising to the rank of Master, including time served on-board bulk carriers, tankers, general cargo vessels. 

Capt. Ulunay recent spoke to Ship & Bunker to share his views on some of the industry's key topics from the perspective of the bunker buyer.

Both bunker buyers and suppliers are consolidating.

First of all, thank you very much for your publication Top 10 Bunker Sellers in the world, it created lot of discussion in the industry and became the "talk of the town". You pointed out that 20% of the global volume goes through the top three players, and I work with each of these as well as some others from the list.

As the supply side is consolidated, I see the same thing from the buying side too as probably the largest 10 buyers in the world also account for 20% of the total. We have our own buying desk, so we don't make use of brokers as we are capable of establishing direct relationships with physical suppliers in our key ports with virtually unlimited credit lines, and for some other less frequent ports we use traders, all of our bunker counterparties are indeed from your Top 10 list.

Malpractice extends to the commercial side too, and we look to avoid unscrupulous actors.

There is a section on Ship & Bunker, "Tricks of the Bunker Trade", which I read and get my team to read too to be aware of what can go wrong. We avoid these kinds of players as a start, and take counter-party due diligence, know-your-supplier seriously. In order to be added to our list of vendors, we need to be sure about the financial strength, commercial excellence and the real delivery capabilities. Also, in old fashioned style personal relationships are important too.

I must say, your "tricks of the trade" articles only look at the technical side, while there are a lot of tricks on the commercial side too that we hear of often. We vet our suppliers carefully and remove suppliers where we are not comfortable or have suspicions about their integrity.

In order to work with COFCO, the supplier or trader needs to be straight. As COFCO, we have a supplier code of conduct and as it outlines, we demand from our suppliers to support us in achieving a supply chain and procurement practice with a high degree of integrity and is socially responsible, environmentally sustainable and economically profitable. Also, we have a confidential integrity hotline, and we don't tolerate any deviation from responsibilities for conducting business with the highest standards of ethics.

When we buy bunkers it is not just about price, it is about value.

While best price is a qualifier of course, it is not the winner. I rather define it as value, and we look at the real final cost of bunkers because this directly effects the voyage bottom line. There are three legs to this; quantity, quality and service.

Quantity is challenging especially operating generally short term chartered-in vessels as we are exposed to many different crews, thus in order to safeguard our interest we need to be sure of the supplier not engaging in malpractices as much as we are careful about the vessel selection. This is especially so going forwards because with 2020 the price impact of this will be even greater.

Quality is also key. Yes, time-chartering vessels are like renting cars and there is a presumption about the charterers lacking care for quality, but at least in our case this is not true. It is in our interest to put in the best quality fuel to avoid vessel operational problems and claims. Our dedication to select premier suppliers is also a factor why some owners are giving us preferential treatment.

The third leg is service quality. What good does cheap prices make if your vessel is stuck because there is no barge availability, delays and unprofessional service? If a ship loses a day or more waiting for the supply, this becomes extremely expensive fuel instantly and it's rarely fully compensated through demurrage claims. We rather use suppliers with global positions, who then have wider solutions and abilities available to them if something goes wrong. Disruption of any sort is money, and it causes operational difficulties. It puts unnecessary stress to the chain including our work force.

When it comes to scrubbers, it is all about the maths.

Now it is about price. Environmentally, using VLSFO or scrubbers yields the same result. We look at the holistic picture: which vessel will give us the safest and most cost-efficient option. It is all about maths at the end of the day. We won't pay unnecessary premiums for a scrubber fitted vessel.

There are increasing questions over available credit in the supplier network.

For us, credit isn't an issue as we have more credit lines available to us than we can use. That was part of our strategy in anticipation of higher prices, we worked together with stakeholders to increase our lines. It is easy for us, because we are a safe account with state ownership.

However, I like to look one step further and I query, what credit lines are available to our supplier network? Are they sufficiently supplied with credit to service our needs? Because otherwise without us knowing, there may be another trader involved in the chain or financing the deal which doesn't go through our checks and may not meet our standards.

We are a sharp payer and always to terms on 30 days, but if a trader should take the money from us but concludes the deal on 60 days basis with the supplier, this exposes us to a counter-party risk. We don't work with traders or suppliers who doesn't have sufficient means to access credit sources themselves to supply our volume.