Almost exactly 14 years ago, I made a well-publicised speech and penned a series of articles raising the question as to whether we were at that time living in the ‘Golden Age for Independents’. And if not, that we were in an era that at the very least provided huge opportunity for independent bunker suppliers.
October 24, 2021
Clearly, part of my reason for optimism was that the company I was then working for, the world’s leading independent, had seen a period of unprecedented growth where we had been able to acquire significant assets and generate profit at unprecedented levels.
2007 was also a period when independents were supplying as much as 40% of the global bunker market, sharing the space with mostly national and major oil companies and a (very) few oil and commodity traders. Independents had prospered and grown in what was of course a period of commodity shortages and rapidly rising oil prices, which was nearing the zenith of the economic boom of the first decade of this century. This would of course start to fracture by the middle of 2008 only to collapse, as we all remember, at the end of that year.
Looking back, it’s hard not to see this era in nostalgic terms. However, was this ‘golden age’ just an illusion? After all, there were still real barriers and challenges faced by independents that needed to be
overcome if businesses were to grow and prosper in the future. Those challenges are quite familiar to today’s independent bunker suppliers, and many clearly became insurmountable despite efforts to fight
inevitable changes in the industry.
So, what of those challenges.
Lack of financial resources and an unwillingness to reinvest in both
businesses and balance sheets were a problem in 2007 and are even more of a problem today. Credit and banking relationships were actually much easier to find in 2007 and are now increasingly
challenging as the years have progressed from one supplier-driven crisis to another. The independents of that era who invested in their businesses and balance sheets by building or buying barges and terminals are generally among the survivors today.
Reputational issues, including a lack of transparency, clouded the independent suppliers’ brand image in 2007 and this is still a common theme today. We have seen many independents exit the supply market
in Singapore because their reputations were tarnished by a history of bunkering short cuts and shortages. While some argued that this model was essential for the survival of the independent supplier, it is interesting how few have survived! This business model is getting old very fast; it was old in 2007 and it should really be over
Inertia, unwillingness, and an inability to expand beyond immediate geographical limitations were common then, and remain so now. While there have always been examples of single port suppliers being
successful over many years, the inability of a supplier to grow into multiple ports ultimately challenges its capability to survive. Cyclicality means some bunker ports will often not expand or contract at the same time, so diversity of port offerings becomes important. Bigger suppliers in multiple ports will generally have the strength to survive a crisis.
The lack of capability to innovate has always been a challenge in an industry where many suppliers grew from the “corner store” to the “supermarket” model. The skills to operate as a supermarket and foresee the next transition were rarely apparent. We certainly have the same problem today as we manage the energy transition in conjunction with the digitalisation of the industry, whilst holding on to the practices and principles of a bygone era.
Commoditisation has always been a challenge for bunker suppliers and despite a brief respite, after the OW Bunker collapse, when owners sought out direct supplier relationships, bunker traders have actively aggregated demand and dominated the attention of the buy side. Today, most independent suppliers are barely known by most shipowners (this suits some suppliers who decided to give up worries over marketing and finances as an acceptable trade off ) allowing for
their control by the large traders who are universally their largest customers, and often their bankers! Traders often market themselves against independent suppliers, stressing the danger of working with the smaller riskier option, and so suppliers have naturally become marginalized from their customers.
The marginalization of independents has become modus operandi for the majority of bunker traders, and so over time independents have been replaced by other growing physical suppliers, and more recently by the rise of the commodity trader as a bunker supplier. Commodity traders forced out or acquired many independents, and the bigger suppliers left no space as both operated with economies of scale and tolerance for long-term smaller profit margins. As we moved through the last decade, these trends continued apace inspired by a desire to participate in environmentally-driven fuel specification changes and in more recent times within the energy transition. This even brought with it a shortish revitalization of the major oil and national oil company role in the bunker supply chain. Many independents’ roles are already confined to history, and the threat of new participants from commodity trading and future alternative fuels remains very real and will potentially erode the position of the remaining players.
So, the major challenges of 2007 remain the major challenges of today. If anything, it is even more challenging now, with the profitable parts of independent bunker operations often reduced to a smaller group of transparent and legitimate operations in small and medium sized markets.
Independents’ share of bunker volumes today is probably less than 15% of the global market, which is a considerable reduction from 14 years ago. In fact, it might be hard to find very many suppliers that even fit the definition of an independent supplier that we would have used in 2007. So many have now evolved into hybrid businesses where bunker traders have small physical operations, and physical suppliers have developed active bunker trading houses. And while the exact size of the independent market share is clouded by these hybrid operations, there is no question that the role of the bunkering independent has shrunk.
So, what of the future? In a world of bunkering that demands price competitiveness, high fuel quality, transparency, high levels of service, financial strength, the ability to evolve and transform as leaders within the energy transition – can the independent supplier survive? Aside from the larger operators that understand these challenges and requirements, it seems at best an uphill struggle for the many, with a number having already given up.
However, there is still opportunity. Every day we read a new story of a major oil company divesting from its position in fossil fuels and from its interests in bunkering which, after the short-lived excitement of IMO 2020, are now confined exclusively to LNG and in the longer term to renewables and zero carbon fuels. As they exit, their oil assets will be sold, and it is likely that those that buy will not want to be in the retail bunker business, but instead look to sell their production. For the independent, this could go a number of ways because the oil could be sold to the commodity trades, via bunker traders or as a better course to the smaller independents.
Those independents that have survived the last 14 years have generally done so because of their investment in their own businesses, and mostly in barges and occasionally in terminals. This experience and background in the logistics of retail bunker delivery is invaluable because the industry is not going away and many of the new entrants – commodity traders or bunker traders – have neither the interest, expertise nor credit knowledge to engage in the retail bunker market. This will hopefully mean a good number of the independent suppliers continue to play a crucial role in the future.
However, they also need to be wary that the energy transition will provide a significant threat to a potentially even more rapid decline in independent supply. New fuels with new and more expensive barge technologies, which suppliers currently have minimal experience of, will create a need for new logistics providers to enter the supply space. Realistically these are not the independents we currently know, requiring a significant and meaningful change to the current status quo, without which they will risk their existence in the bunker market in the next 10 to 20 years.
Whether we believe the independent supplier we knew in the first part of this century still exists is one question, and up for debate. However, the independent of today is certainly a very different animal and exists in a different environment; generally smaller, operating mostly in niche markets, likely in survival mode, and sometimes operating in more challenging larger markets where they are potentially on the edge of legality. Some independents may be profitable, but many are not earning the returns they need to, or used to, in the past. Long term survival will be about providing a logistic service for newcomers to the market and for traders that have already taken over their sales volumes. The “golden age” may be over (if it ever existed) and while we are in a period of decline for independent suppliers, there is hope that investment in developing expertise and knowledge and the ability to quickly evolve will ultimately provide opportunities and a lifeline into the energy transition.
Adrian Tolson is the Director and Lead for BLUE’s Insight practice, and one of the shipping industry’s leading marine energy experts. With 35 years of experience, he has both detailed knowledge and insight into the supply and demand side of marine fuel, and into bunkering infrastructure development.
In 2015, Adrian founded maritime consultancy 20|20 Marine Energy, which was acquired by business, brand and communications consultancy, BLUE, in 2019. Adrian leads BLUE’s Insight practice, which provides commercial advisory, research and intelligence services across the key areas of transformation within the maritime industry. This includes the changing marine energy supply chain, digitalisation and the drive for decarbonisation and sustainability.
Adrian has led numerous global business development projects across the marine energy supply chain. This includes assisting ship owners and suppliers on fuel procurement and supply strategies in a post 2020 world; the development of bunkering infrastructure projects for clean and new fuels; as well as working with the financial and investment community on the opportunities of the future marine energy landscape.
Adrian’s experience spans leadership roles with some of the industry’s largest marine fuel suppliers, including Chemoil Energy, where he was responsible for successfully driving the company through to IPO; and as Vice President and General Manager of OW Bunker where he established its physical supply operation in the USA.
Adrian was elected to the board of the International Bunker Industry Association (IBIA) in April of 2020
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