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In February, Bunker Holding announced that all its physical supply businesses had been brought together under the new Bunker One brand, with Peter Zachariassen at the helm. Lesley Bankes-Hughes spoke to Bunker Holding CEO Keld Demant to find out more about the rationale behind this decision and Bunker Holding’s future plans, and to canvass his views on the health – or otherwise – of the global bunker industry in the run-up to the next tipping point of 2020.
In previous interviews with Bunkerspot, Keld Demant has spoken at length about the changing role of the bunker trader following the OW Bunker bankruptcy in 2014 and the growing pressure on margins caused by a sustained and protracted global economic downturn which has been keenly felt by shipping.
However, with the disclosure that Bunker One’s focus is to be on physical supply, asking about this decision seemed to be a useful starting point for the discussion.
‘If you are good at something – and we think we are pretty good at back to back trading – then, of course you want to protect and develop that,’ says Demant. ‘But you have to accept that at a certain time you might get a share of the market that is so high that if you try to force growth there, you might jeopardise your own position.
‘Therefore, our analysis said that if we wanted to grow, then we needed to look back in the value chain and look into physical.’
Having decided to embark on this course of action, ‘we looked at a couple of possible M&As, but they didn’t prove to be interesting,’ explained Demant. ‘So, we thought let’s build a position organically.’
Persuading Peter Zachariassen to take on the leadership role at the embryonic Bunker One was a key stage in that building process, but perhaps the real catalyst was the group’s ownership structure and how that will play out in the years ahead. Bunker Holding is one of a group of companies under the ownership of Selfinvest ApS, whose sole owner is its founder Torben Østergaard-Nielsen.
‘A little less than a year ago, it became very clear that the company is to stay within the family ownership,’ said Demant.
‘Two daughters are now part of the ownership and they have a very good understanding of how they will own [the company].
‘So, I would say that a combination of having this reassurance that we can plan and build for the longer term, having the right people on board, as well as the room that OW left open, meant than now we could prepare for something bigger and prepare for launch.’
The ‘security’ of family ownership also allows for longer term strategic planning, he emphasises.
‘This is one of the beauties of being family-owned; that you don’t have to think just about the next quarter. You can plan for much longer, saying that this is where we see the market going in the next 5-10 years, and so we can plan for that.’
The Bunker One business model
The idea of a new business grouping or venture within Bunker Holding was first mooted publicly in early 2017. At that time, Demant’s disclosures referred to a project which was being overseen by former Dan Bunkering CEO, Henrik Zederkof. However, Demant now offers clarification over this other new venture – which is also branded as Bunker One.
Each Bunker One business is a separate legal entity within Bunker Holding, he says. Henrik Zederkof is in charge of the Bunker One global accounts operation, targeting major clients, while Peter Zachariassen has responsibility for the newly integrated physical business.
‘Of course, you may say why the same name?’ says Demant. ‘But there is a very close connection, because some of the biggest players that Henrik and his team are taking care of, require a certain physical presence to put more of their eggs in our basket.
‘So, you could say that the new Bunker One physical [operation] actually supports Bunker One global accounts, and vice versa, so that’s why they have the same name.’
The accounts that sit within the Henrik Zederkof-led Bunker One business were previously identified as Corporate Global Accounts (CGA) and, Demant explains, they are accounts that are too big to be handled by individual Bunker Holding trading entities.
‘The people in Bunker One Global Accounts are specially trained and have a different mindset,’ he says. ‘These accounts attract long term agreements; it’s a different mentality.’
Growth potential
Demant confirms that Bunker Holding’s back to back trading operations will continue as before, and there are no plans to bring these businesses together under a single brand. The group’s broking business will still sit with LQM, although he notes that: ‘There is still a requirement from some of LQM’s clients for some type of trading, so that is why they are capable of trading while [operating] as mainly brokers.’
Looking ahead, Demant sees that group growth is most likely to be seen on the physical side, but it will be a ‘slow burn’ business evolution.
‘I would say we probably could not go on growing trading, and so as we grow in physical – and we are planning to do so – the split [with trading] will move to being more equal.
‘However, it could take another 10-20 years before they are equal, and I don’t see a major shift in the short term; trading will still be substantial, and the physical part will grow over time.’
Outlook for bunker trading
Bunker trading remains in a state of flux, Demant believes, with an increasing polarity between the large global traders and the smaller, geographically niche companies. The latter will survive, he suggests, but it may require cooperation agreements or joint ventures with larger businesses, perhaps on the IT or compliance side, to facilitate their continued survival.
For the ‘in between companies’, life could be tough, says Demant. ‘I foresee that they will have major challenges; now, and even more so in 2020, when I think we will see fuel costs maybe 50% higher.’
In the fallout over OW Bunker, a good many bunker industry commentators suggested that the large commodity/cargo traders would increasingly be looking to move into the marine fuel space. Demant still sees them on the sidelines, but he is not so sure of their future intentions.
‘If you take the cargo trader who may be looking at a move into bunker trading, it seems to me that he is still waiting to see where the market going.
‘I think the cargo trader is perhaps seeing bunker trading as a potential second market; and the bunker trader is saying – no, no, we still need to buy at competitive prices.
‘Two years back, I would have said [the cargo traders] are probably coming, to become the new mini-majors. But today I am not so sure.
‘I think they are more the new majors, meaning that what they want is to dispose of a product in a reasonable quantity; I don’t really see them moving [into the bunker sector], but I do see that the existing large bunker traders will be able to service the entire market in the future – that’s the way I see it going.’
Over the past 12-18 months, the role of the trader has been forensically discussed in the media and at industry events, and a number of Bunker Holding trading entities have emphasised – in the wake of the OW Bunker bankruptcy – that their invoices are not pledged to financial institutions. Demant says that this approach still holds true for the group’s trading operations, but he acknowledges that the situation may not be so clear cut on the physical supply side – partly because of the perceptions held by shipowners and operators.
‘For us as a trader, being unpledged is still important. For a physical supplier, it seems as though it doesn’t matter, so while we haven’t changed anything, we haven’t made up our minds [on the issue].’
In terms of Bunker Holding’s global market share, Demant says the group is still ‘closing the gap on number one [World Fuel Services].
‘Our latest analysis says that we have around 9% of the world market. I would say that we could increase that market share very easily, but right now we are very selective in what we are doing.
‘But we will probably be in double digits in the next financial year.’
Preparing for 2020
To a significant extent, Bunker Holding’s near and longer term corporate strategy has been driven by the inevitable demands of the impending 0.5% global sulphur cap in 2020. For an industry which has been for so long under the commercial cosh, this regulation brings with it a raft of compliance and fuel availability issues.
For Demant, preparation for the deadline will define those who will fail and those who will thrive.
‘There is no doubt that if you are not very well structured and very well financed for 2020, it will be very tough.
‘But I also think that the shipping industry has to realise that it is part of this and accept that it might cost 50 cents more to get a quality service – but it will definitely be worthwhile.’
Shipowners are – finally – beginning to rehearse the compliance options, he says, while emphasising that those who are mulling the feasibility of LNG as a bunker fuel have missed the boat in term of ordering newbuilds for 2020.
The supplier/buyer relationship
He does, however, see new and encouraging signs of dialogue across the bunker supply chain in the run up to the regulatory deadline.
‘At the IBIA dinner [in February], for the first time I have heard both the selling and the buying side saying that we can compete on equal terms. I think this type of attitude is really strong and what the industry really needs.’
The relationship between bunker suppliers and shipowners is becoming markedly closer, suggests Demant.
‘It is much more open, and we are much more in a partnership now. We need to assist them, and even though it has been a tough year, people have opened up and said, okay, let’s find a way forward together.’
Without doubt, ‘2020 is on the agenda everywhere,’ he agrees. ‘For example, we have been asked by a Danish bank to talk to a group of international shipowners about the subject, so it is top of the list right now.’
In terms of fuel compliance options, Demant suggests that in the first six months after 2020, the market will be relatively soft and fuel choices are hard to predict.
‘But if you look at any market in this world – no matter what it is – supply and demand always control it.
‘So, if high sulphur fuel oil is a commodity that has a big over supply, the market will dictate that it becomes cheaper.’
Similarly, scrubber uptake is not going to change overnight, he says. ‘And the next thing is, if you invest in a scrubber, then is that investment something you can recover if you sell your ship?’
Tackling the compliance challenge
In terms of ensuring compliance with the 2020 regulations, Demant is not wholly convinced that the IMO PPR 5’s recent proposed ban on the carriage of fuel oil is the solution.
‘I don’t think I am actually the right one to judge that,’ he says, ‘but if you talk about competing on fair terms then it is probably is the most efficient way to do it, but if it is the right one, I honestly don’t know.’
So where does the responsibility for compliance sit, and how can it best be effected?
‘I would welcome a standard bunker contract,’ he says. ‘It could be a BIMCO one, but the important thing is that it has be to be on fair terms, with everyone knowing a set of rules – and then the world will adjust. Clear rules, that’s the future.’
BIMCO is currently working on a revision of its standard bunker contract, and the difficult issue of avoiding double payment for fuel supplied – as so graphically illustrated by the multiple OW Bunker court cases still going on in various jurisdictions – is proving to be difficult to resolve.
‘I am sorry to say that the only way to avoid double payment is to know your counterparties,’ Demant emphasises.
‘You must make absolutely sure you know who you are doing business with, and I think if you are trying to regulate that by law, then you will find more problems than solutions.’
As things stands, however, Demant believes that the creation of the Bunker One offering will position the Bunker Holding group to meet anticipated market challenges.
‘Are there some companies who are on the edge right now? Yes. Will they be more challenged? Definitely. Will they go out of business? Some of them.
‘For us, the Bunker One concept is driven by customer demand. At its launch, our customers said, finally – we have been waiting for this for so long; we want to do business with a company who will be there tomorrow and who can support the business that we will be doing.’
An interview with Peter Zachariassen of Bunker One is published in the February/March issue of Bunkerspot magazine
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