The science of bunkers and what fuels it, for shipping people on the go.
By Irene Notias, Director, Prime’s Bunkersplus Services
For her “All About Bunkers” series of annual articles for allaboutshipping.co.uk
The business of buying bunkers may seem simple and yet it is complex because one is buying a commodity. There are many variables in the process and knowledge and strategy are key to cost effective prices. Prices are directly linked with oil futures, credit, quality, quantity, customer service and several counterparties.
Buying the fuel for a vessel’s consumption is competitive-intensive, time consuming and can be (pun intended) more exhausting than the delivery of it.
The best way to describe the process of buying bunkers is by contrasting it to buying gas for a car and then comparing it to buying dinner at a fast-food American Diner because both are facilities that run 24-hours every day, sell several products, cater to customers needs, payment is basis credit, if the food stinks, there are claims, and everything operates in fast motion because like the customer who is dining, the vessel has to get somewhere soon.
It is not as easy as buying gas for one’s car though, you hook up, pay cash (using your pre-approved credit card) and are on your way within minutes.
Bunker purchase process and delivery takes days, involves a lot of people, and it is planned. Most importantly, unless you have pre-approved credit, you may be stalled. Especially nowadays where bunker credit is a growing issue and banks and credit insurance fuel the entire process.
The marine bunker supply value chain stakeholders are inter-independent and there is a standard inquiry procedure that is followed. The buyer forwards a bunker inquiry to the supply chain participants who each play a distinct role.
For instance, the physical supplier is the source and responsible to deliver the product to the vessels. While the Trader is the re-seller and acts like a credit card providing credit with extended payment terms and the Broker acts as Agent to the customer helping negotiate and manage the inquiry process and after delivery needs.
There are no firm price lists of the day. Price Offers are different for each inquiry because many variables come to play while prices change in minutes being driven by crude futures movements. To get a price it might take anywhere from 10-60 minutes or days if there is no credit line.
Buying bunker fuel is like playing Blackjack waiting for the right number to surface.
For many Traders and Suppliers to be price competitive and get the deal, they must have volume, take positions and hedge. Their business deals are linked to the derivative markets. To have cash some suppliers must pledge the Purchase Orders to Banks and customers receive Notices of Assignment – another complication.
For the buyer, it’s all about who gives the lowest price to fix the deal. For the Supplier and the Trader, it’s about who’s paying for this deal. The “who’s paying the bill” for any seller is as relevant as timely deliveries are for any shipowner. Therefore, the price offer is not entertained until after the buyer’s account’s credit is checked and accepted. The days when a reputable broker picked up the phone to influence the setting up or increase of a bunker credit line based on hearsay are over.
To be accepted sellers perform due diligence collecting audited financials and know your customer reports because they are being financed by banks who in turn must have clearance by credit insurance who evaluate based on empirical data and algorithms.
Physical suppliers do not have it any easier because they must pay cash at the refinery when they are lifting product to deliver to a vessel, that will use it up or complain about it before they get paid in 30 days. So, it is understandable why it is crucial for them to know their customers credibility is consistently reliable. Trading companies step in and fill the gap of credit line however, they are seeing difficulty up ahead when price of bunkers increase again. There is only so much financing available.
What an irony it is that for the last 3 years all were concerned with the availability of IMO compliant low sulfur fuel but not the financing part of it.
Remember the anatomy of a bunker deal is basis a unique relationship dynamic, knowledge, technical and commercial practices and comprised of a pricing mechanism based on derivatives and lots of trust — founded on empirical information.
Principals must care to pay consistently within the agreed terms, whether those terms are 15, 21, 30, 45 or 60 days because money fuels their vessels to go round and the more they delay, the more the cost.