Bunker buyers have a growing range of models for how to arrange their purchases. File Image. Image Credit: Ship & Bunker
Among the many topics discussed in these pages throughout the year, two articles in particular stand out in terms of the amount of reader feedback we received.
The first was in July, when Ship & Bunker talked to Hafnia's Peter Grunwaldt about bunker buying alliances; the second was our coverage of LQM's merger into Dan Bunkering and the apparent decline of global bunker brokerages.
Many had questions on how exactly buying alliances differed from the traditional brokerage and other models, while our discussion on the decline of the once-ubiquitous global bunker brokerage raised the question of what exactly is a modern global brokerage?
Indeed, are buying alliances simply the 'new and improved' broker model?
And where there was once only physicals, brokers and traders, buying alliances are emerging alongside another new type of player, the hybrid broker/trader.
In this article, Ship & Bunker will look at exactly what these different models offer, how they contrast and complement each other, and how things may continue to change as the industry heads down its path to zero emissions.
What is a Bunker Broker?
Brokers are one of the traditional intermediaries in the supply chain who buy fuel on behalf of an owner or operator. They take a fixed, transparent fee to find the best price, or the most suitable purchase, from the range of options available to them. Their role is purely advisory, without taking on risk, although can include functions such as negotiating credit terms with suppliers on behalf of a buyer.
Paul Hardy, NSI
There are fewer barriers to entry and exit working with a large traditional broker.
From a legal perspective, deals conducted through a broker link the physical supplier and buyer directly; the buyer pays the supplier and the broker separately invoices for their services.
A key value brokers bring to the market is in the information they have to hand -- a good broker will need to know the market situation at all of the top ports on a daily basis, and have the contacts to find out about the more obscure ones at short notice. Larger brokers can also take advantage of pooling volumes from multiple buyers to leverage larger discounts than individual buyers would otherwise get.
Historically, brokers took a sizeable role in the bunker market but more recently have struggled in competition with traders. As the marine fuel mix changes in line with decarbonization efforts they could, however, become a key element in the more complex markets to come.
We're not operating a model where we have to fight to get the requisition from the buyer, and then place a stem in whatever port they have chosen
"I would argue that there are fewer barriers to entry and exit working with a large traditional broker for the client," Paul Hardy, head of business development at brokerage NSI, told Ship & Bunker.
"This means the client can monitor performance and vote with their feet if they are not happy.
"This in turn drives the broker to stay 'ahead of the game'."
Hardy also differentiates between different sections of the brokerage market.
"There are a number of small companies which work with limited numbers of clients with, many offering more of a 'financing' broking service i.e. catering for those companies able to pay on 60-90 days," he said.
"This is a very different model to that of market transparency, coverage, and accountability a large broker gives to a blue chip shipping company.
"Each company has its own market and use."
What is a Buyer Alliance?
Buyer alliances represent a much smaller section of the market, but look likely to expand as smaller shipowners struggle to compete in an increasingly complex market.
These organisations operate by pooling demand to create economies of scale. Peter Grunwaldt of tanker pool manager Hafnia told Ship & Bunker how his firm came to get into collective bunker buying.
"Some of the pool members were reaching out to us and asking if we could also buy on behalf of some of their ships - on a broker basis," he said.
"Traditionally the owners have not been very aware of, and/or able to, utilize the value their short represents to the seller.
"Also, if you are a relatively large shipowner, buying bunkers in 50-100 different locations annually you quickly dilute your bargaining power, meaning you won't be able to build decent contracts, and get many benefits out of your size.
Peter Grunwaldt, Hafnia
If you pull together a lot of owners you're starting to create value to both the buying and the selling side.
"However, if you pull together a lot of owners you're starting to create value to both the buying and the selling side, and all of a sudden there's a whole new dimension to it.
"When you're a part of a big buying alliance, you gain a commercial leverage that otherwise wouldn't be possible – you instantly become an important counterpart for the seller."
To some extent buying alliances could be confused with brokers -- they take a similar passive role in the buying process, essentially providing guidance on who to buy from. The payment structure has a similar transparency, with customers paying suppliers directly and then paying a transparent, predictable commission to the buying alliance at the end of each month.
Jesper Jervild of brokerage Liberty Marine Fuels said trust was a key element in making buyer alliances work. He also argued that many of the benefits cited for the buyer alliance model also apply to brokerages.
"The advantage is that theoretically the members of the bunker alliance gain more buying power in the market," he said.
"But such alliances can also become a bit complicated as there is an obvious conflict of interest risk.
Jesper Jervild, Liberty Marine Fuels
it's essential that the partners of a bunker alliance trust the founders as they are often in the same line of business
"So, it's essential that the partners of a bunker alliance trust the founders as they are often in the same line of business."
Hafnia's Grunwaldt said he views the role as more complex than that of the conventional broker. He also said the transparency of the model made any potential conflict of interest unlikely to be a problem in the long term, with a wide range of segments represented in the alliances.
"We're not operating a model where we have to fight to get the requisition from the buyer, and then place a stem in whatever port they have chosen," he said.
"We help them in the planning phase ensuring the right port is selected, and hopefully get the timing of the purchase correct, picking the supplier best placed for the job.
"We have our focus on this, as opposed to an operator who has to operate ships and keep him/herself aware of what's going on in the bunker market; it's just not possible to do both things efficiently.
"On top of that, we help our clients with advise on legislation, sanctions, environmental updates, fuel quality, IMO rules etc.
"Being part of a big shipowning group gives us access to in-house technical, operational and legal advice which all members benefit from, which sets us apart.
"Recently the BW Group, together with 5 other founding partners, opened the Global Centre for Maritime Decarbonisation (GCMD) which I think a lot of our clients would love to know more about and benefit from our involvement in.
"My point is that there are a lot of features you get being part of a buying alliance you don't get elsewhere."
What is a Trader?
Traders are the main type of intermediary in today's bunker buying transaction chain, connecting buyers with suppliers but not in the same direct way as a broker does. Indeed, the bunker buyer may not even know who the physical supplier is until after the deal is agreed.
"A trader solidifies the advantages of the different players evaluated above," Mikkel Vestergaard of Dan-Bunkering told Ship & Bunker.
Mikkel Vestergaard, Dan-Bunkering
The trader is the sole legal counterpart facing both the supplier and end user.
"As an intermediary in the bunker buying transaction, the trader is the sole legal counterpart facing both the supplier and end user, creating a transparent chain and one point of contact for both the local supplier and end user.
"The intermediary reaps the benefits from all the previous described models, such as aggregating buying power through volume, global outreach etc, being a legal counterpart, position holder, bunker planning expertise, technical service etc."
While many of today's traders play an advisory role for their customers, a key function and differentiator of the trader is to provide credit. For the physical supplier, this means they know they will get paid quickly for the fuel and will not have to extend credit themselves to buyers, or have to chase late payments. Buyers get to take advantage of having credit extended to them.
In return, traders charge a $/mt fee for the purchase but unlike a brokered transaction, it is not transparent what this fee is. This fee is almost always higher than the brokerage fee, as traders take on significantly more risk as full participants in the transaction.
"Contrary to a broker, the trader is able to enter supply agreements – on spot or term – with the suppliers creating a different dynamic compared to that of a broker or buying alliance having to fight for the dollar on the specific day the inquiry is live," Vestergaard said.
What is a Hybrid Broker/Trader?
Few of the largest bunkering firms could be described as pure brokerages or trading companies any more. Many are now running hybrid models, incorporating both broking and trading elements and choosing which to deploy depending on market conditions and customer demand.
The model works because there is demand for both elements at different times, according to Gerry Van Geyzel, founder of brokerage LQM and now CEO of ClearLynx.
"There are going to be hybrids -- I think they will remain because some owners just don't want to be traded, especially the larger clients," he told Ship & Bunker earlier this year.
Soren Holl, KPI OceanConnect
There are two different models and both can provide value to the chain in different ways.
"For companies like Bunker One and World Fuels, I think having brokerage teams and having trading teams is essential because credit is critical, and I think having that human expert be the outsourced sort of bunker buyer for them is very important."
But one question hanging over the hybrid model -- and one raised frequently by the remaining pure brokerages in competition with these firms -- is the extent to which hybrids can offer the same impartiality as traditional brokerages.
"I clearly see a role and a need for the pure broker model," Sandra Ennor, founder of brokerage Transparansea Fuels, told Ship & Bunker by email.
"I am not a fan of the hybrid model as it does not allow for the transparency that is needed in this market.
"This is a lesson that we learned from OW but I see this industry regressing a bit here."
Earlier this year Soren Holl, CEO of KPI OceanConnect, set out to Ship & Bunker his response to criticism of the hybrid model.
"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.
"It is the client who decides how we want to do the business."
Are buying alliances the new brokers, then? The answer would appear to be that they operate in some very similar ways, but supporters of buyer alliances point out some differences in the service they provide.
The question hanging over the bunker industry now is how these rival models are likely to fare in increasingly fragmented and complex markets.
While the merging of LQM into Dan-Bunkering earlier this year signalled a further shrinking of the global brokerage model, it's clear that many brokerages are still doing strong business and look likely to expand in some cases. Defining global brokerages as those with offices in multiple countries gives a picture of a business in decline, but looking more broadly at the many smaller brokerages that do business all around the world from a single office, this section of the industry is still in rude health.
Sandra Ennor, Transparansea Fuels
This market is poised for new solutions that are going to need to match the technical advancements that are on their way
Jesper Jervild was among those still seeing still strong demand for brokers.
"We see more and more customers looking for brokers," he said.
"The increase in our business is a testament to that.
"We believe some firms go from pure brokering to trading simply to increase their margins."
But Dan-Bunkering's Vestergaard gave a more gloomy outlook.
"There is no doubt that the broker model is under pressure," Dan-Bunkering's Vestergaard said.
"The inherent weak link in the broker model is the necessity of having to put a trader in between for financing when credit can not be facilitated by the supplier.
"Why not just work directly with the trading company?"
For NSI's Paul Hardy, those that succeed will be the firms that can offer most transparency to clients.
"Those doing the job in a highly audited and structured way will be equally frustrated by those that damage the reputation of the various segments through price gouging or not offering the full market coverage in terms of suppliers," he said.
"It is very common for the best pooling, collectives and brokers to cooperate and work together. Long may this continue."
And Sandra Ennor of Transparensea argued that all of the models will need to evolve to deal with the more demanding market of the coming decades.
"This market is poised for new solutions that are going to need to match the technical advancements that are on their way," she said.
"The models of today, whether they are pure brokerage, hybrid or buying pools, won't be enough.
"The entire industry needs to elevate itself from the perspective of expertise, technical knowledge and professionalism.
"We will see new models that don't currently exist be developed to meet the needs of tomorrow. This is not a market for amateurs."