Bunker Brokers: Dying Breed or Rising Stars?
Historically, it was the bunker broker who enjoyed direct relationships with major oil suppliers and independents, sourcing and arranging for bunker nominations around the world. The broker would represent both the sellers’ and buyers’ interests of the fuel sale equation, making sure everything was in good order and the price was right. Today, bunker brokers are few, but they will be rising stars after the new sulfur rules take effect in 2020, and they will play a valuable role in sourcing compliant fuel for small and mid-size shipping companies.
Until the 1990s, customers were the end-users and typically paid suppliers directly, while the brokers received standard commissions from the suppliers. The price offers were valid for the entire working day -- sometimes overnight -- and the only complexity was the high competition that buyers created by passing inquiries through several channels. The commercial way of conducting business and pricing was supply, demand and pure competition. Brokers played such a substantive role in the marine fuel procurement process that the ones with reputations for high quality service were sought out and grew into larger companies.
During the 1990s, it became inevitable that the various supply chain roles would transform, as the shipping companies’ needs advanced, mainly in financing. Risk management tools were born out of the derivative markets, which would secure positive end year balance sheets. Larger solvent companies had the luxury to play in the “world casino” that was the derivative market and offer cheap financing to end-users in place of suppliers. Re-selling facilities, therefore, were much more profitable than brokering.
Customers’ timely payments were the key to a broker’s strength, because the supplier rested easy providing bunkers to a ship that would pay it after sailing in 30 days. If the supplier didn’t want to take that risk, the trader would step in and finance the deal. The broker was still integral as he arranged the deal and followed it up. There was less concern about third party and customer risks because there was a long term trust amongst the parties and there was the value of word by mouth referrals and customer payment performance reputation. Generally, whether they were direct or not with the end-user was just not a concern, and professional brokers and traders were mindful not to stray onto each other’s turf.
The 2008 financial crisis practically eliminated bunker broker firms. Fewer suppliers offering credit lines were building up traders’ positions and disregarding the need for brokers. Many brokers re-invented themselves as traders and found jobs in large trading houses. The few small-size broker firms that did survive had a high degree of transparency and flexibility, and sustained excellent direct client and supplier relationships throughout the changing environment in the shipping and bunker industries.
The dynamics of the bunker industry are now more complex than ever. So how can brokers prosper?
Today, bunker end-users now have to be more alert to crude fluctuations and more aware of changes and daily news from numerous sources. They have to prepare and present more information in order to obtain bunker financing , and they must know the counterparties, - all this while running their ships in an even more regulated and competitive industry. Does the new bunker buyer have the necessary trusted and tested network? Can the bunker buyer really keep up and cover the market with all these tasks and swift changes?
Accurate information based on facts and transparency are mandatory for appropriate decision making. Professional bunker brokers still have experience and access to a large world-wide network of physical supplier and traders. This all can be utilized in the upcoming 2020 IMO regulations capping sulfur content. Not all traders have direct access to all suppliers anymore because they work under regional buying departments.
Bunker brokers are few, but they will be rising stars amidst the chaos come 2020, and will add value to small to medium size shipping companies. They serve as buffers, stabilizers and quality control in a very unstable business environment. Bunker brokers also may serve as outsourced bunker buying agents. They understand the “casino-like” nature of bunker buying because of years of pricing instability. Buyers will not have time to play this game when sourcing low sulphur 0.50% product, and brokers are well positioned to help.
Irene Notias is the Managing Director & Sr. Purchasing Agent for Prime’s Bunkersplus Services.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.