Bunker suppliers need to change their business model

Oct 05 2018

Physical fuel suppliers need to fundamentally transform their traditional models of supply in order to survive, claimed Adrian Tolson, senior partner of consultancy 20|20 Marine Energy.

Speaking ahead of SIBCON 2018, Tolson believed that as margins continue to dwindle, suppliers need to look ahead to not only to a post 2020 world, but also beyond, as the industry’s fuel requirements to deliver sulfur compliance converges with regulatory pressure and targets to reduce GHG emissions from shipping. 

In conjunction, they must also utilise technology developments and access to data and intelligence to create sophisticated relevant models for the future marine energy supply chain.
“Physical suppliers need to break out from the traditional model of solely delivering huge quantities of commodity in traditional large bunkering hubs with small margins as a means of hopefully staying in business and making a living; it is a negative downward spiral that will lead to insolvency. 

“Even the current trend of looking for niche higher margin markets will be challenged and are not solutions to even medium-term sustainability. And any windfall profits for physical suppliers post 2020 will be short-lived, with the main beneficiaries being the large commodity players, which will lead to a quick return to declining margins. 

“They must understand that the marine energy supply chain is fundamentally transforming, and they need to not just stay ahead of the curve, but show leadership by driving it, as there are opportunities for those that can lift their heads and be visionary,” Tolson stressed.
He also said that in a pre-2020 world, bunkering companies first need to position themselves as more than just basic suppliers, looking at every opportunity within the physical supply chain to add value, beyond the typical storage, distribution and supply process. 
“Right now, some shipowners and operators still require guidance on what compliance solution they are going to adopt, which we know will be mainly distillates and blended VLSFOs, interspersed with scrubbers. However, what they really need is help in structuring their purchasing habits, utilising technology, data and intelligence so that their procurement and buying process is fully optimised. 

“This can yield 1% to 2% in fuel cost savings, which is significant when we consider the dramatic increase in prices post 2020. Suppliers, as well as bunker traders need to be able to provide this level of consultancy, which takes their value-add way beyond price per tonne, and also creates the foundation from which they can evolve their positioning and offering in a post 2020 world,” he said.
Specifically, Tolson believed suppliers needed to look to the future, five to 10 years beyond 2020, where the regulatory challenges in meeting low sulfur targets converges with the requirement for the industry to reduce its GHG emissions and appropriately contribute to the 1.5% to 2 deg C global warming targets, defined in the Paris Agreement.
“The reality is that to meet 50% GHG reduction targets by 2050, the industry will have to move to clean energy sources, from hydrogen-based fuels, biofuels, wind, to battery power and so forth; distillates and hybrid products just won’t exist. There will clearly be an evolution to this over time, but physical suppliers need to consider what their role and position in this new world looks like now, and begin the process of building a business model and brand that can deliver it and is fit for purpose.
“There is a real opportunity for the creation of a future fuels company that combines a strategic consultancy offering with a physical supply of products to meet 2020 sulfur compliance needs, underpinned by investment in new sources of clean energy that delivers against the shipping industry’s future sustainability challenges. And on top of this they need to understand and identify technology and other advanced solutions, such as blockchain, that we’re already seeing come into the market, which can be integrated into the energy supply and procurement process to improve efficiencies and ensure transparency and ethical practices. 

“Ultimately, fuel suppliers have an important role to play, but they need to be bold and adapt now, and implement the obvious changes to business models that are required,” he concluded.



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