Facing the Challenges of 2012
Date: January 2012
By Søren Christian Meyer, Global Sales Director, OW Bunker FACING THE CHALLENGES OF 2012
Fuel suppliers’ responsibility in conjunction with mutual, cross-industry collaboration is central to creating stability within a volatile market
2012 will be a trying year for the shipping industry; many sectors continue to face the challenges of low rates due to overcapacity, which has impacted profitability in container and tanker markets, with analysts now also predicting potential loss making conditions in the dry bulk sector. The insolvencies that we saw in 2011 will inevitably continue, as will alliances and further consolidation as owners and operators look to deliver some form of return on investment for their shareholders. Of course, it is not just ship owners and operators that will suffer, as there will also be consolidation within the bunker market, as suppliers, particularly the smaller ones become increasingly squeezed, as their customers look to reduce margins.
However, with fuel costs hitting record highs, the current economic volatility presents a significant opportunity for fuel suppliers to show their true worth, and the important role that they play in alleviating some of the pressures that their customers face.
All aspects of the supply chain, and the total cost of ownership within it will come under scrutiny as ship owners and operators forensically analyse where costs can be reduced and efficiencies gained. With fuel oil accounting for a large proportion of operational expenditure, it is here where attention must first be focused.
Credit, or rather lack of it, will be the biggest challenge for 2012. With banks reluctant to dip into their liquidity, ship owners face significant issues. From the perspective of the supplier, this isn’t about being commercially naïve, but rather taking a balanced approach to managing credit lines with customers, in a responsible, and where possible, favourable and accommodating way that is empathetic to the challenges that they face.
In doing this, there must also be an understanding from ship owners and operators of the risk that fuel suppliers face in doing this. Within some factions of the industry there is a feeling that it is the bunker market that drives high prices. Clearly this is not the case. Indeed there needs to be recognition for the financial exposure that fuel suppliers face in taking a more favourable approach to credit. While it is necessary, it is a brave stance to take with a market that is in financial turmoil. This is why it is only right that a fair and appropriate margin is taken. Profitability for both suppliers and owners/operators is central to the future success of the market, as well as survival within the current economic climate.
Clearly there needs to be a mutual collaboration between both parties, based on transparency and trust, which will provide the foundation to build closer, and more partnership-based relationships that will reap rewards for the long-term. Not every fuel supplier will be able to achieve this. Clearly it requires a stable and robust business model, as well as a strong financial infrastructure and good relationships with the banking community. It requires a detailed global strategy and effectively managed risk management systems and processes. It also requires a fundamental understanding of a customer’s organisation, their business strategy and growth prospects, as well as financial circumstances. Transparency is not an easy concept for some to accept, but it is necessary. And it is something that must be done if we, as fuel suppliers, are to help our customers weather the storm.
Of course this concept must be conducted within the wider context of implementing a wider fuel procurement strategy for customers; a total bunkering solution that maximizes both efficiencies and profitability.
In developing better and more advanced relationships that are founded on understanding customers’ organisational and operational objectives, contracts can be developed that meet the real needs of their businesses. It’s a win/win situation; the customer has more cash and a better operation, and as a supplier, we have a contract, which provides the opportunity for a long-term relationship. With the current volatility of fuel prices, there are a number of options that can be developed depending on a particular ship owner’s or operator’s appetite for risk and how they see the market developing.
At OW Bunker, we have developed a number of contract solutions that can be tailored to correlate with a customer’s business strategy and their assessment of future prices. Products that include fuel optimisation with a guaranteed minimum or maximum price, products that limit volatility, as well as fuel optimisation with a floating guaranteed price. Depending on the chosen product, customers can take volatility out of the market and stabalise cash flow, they can lock in savings depending on the direction of the fuel market, and they can provide the maximum protection for their business. The most important aspect is that they have choice. Yes, fuel prices are high, but by having a close relationship with their fuel supplier, they can put in place a strategy that limits their exposure to this volatility.
In an industry that has seen such change over the past few years, and with further transformation on the horizon, it is vital that we create as much stability as possible. Traditionally, the relationship between the ship owner and fuel supplier has often been seen as strained. Bunker companies were not viewed in a professional light, a reputation that in some cases was justified. But we have seen improvements in the last few years and continue to drive a new era of professionalism. New standards have been set. From guidelines that ensure the correct formulation of fuel oil, to innovations that significantly advance the way that fuel is delivered and monitored, to generic expectations of how business should be conducted properly.
Ultimately, these new benchmarks have been driven by the transformation of the shipping industry, and our customers’ need to respond to their customers’ demands; increasing efficiencies, reducing costs and limiting their environmental impact. It is a paradox, because this hardship is serving to create a better industry.
Understandably for many, this is a bitter pill to swallow. But it is the global economic uncertainty and increased environmental pressures that has forced the level of scrutiny on the way that business is conducted. And within this, it has become clear that fuel suppliers play a critical role in helping ship owners and operators adapt and redefine themselves in line with the changing dynamic of the industry; there is recognition for the value that we can deliver to a ship owner’s business and operation.
So, while there is inevitable concern over the future of the industry and the economic uncertainty that exists, we must look positively for the opportunities that change - which, in many industries is seen as the ‘norm’ – inevitably brings. For fuel suppliers, the focus must be on ensuring strength in our business models, ensuring that they exemplify stability, and are robust enough to support ship owners and operators through these trying times. Growth is still achievable through controlled expansion, focusing on areas where customers need us and providing them with products and services that meet the demands of the new age that we now operate within. Undoubtedly it is a challenge, but it is one that can be met, and will provide significant rewards for those that are successful.
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