Decoding the Black Box: Will technology deliver?
12th October 2015 15:12 GMT

During the lively World Fuel Services second quarter earnings conference call earlier this year, an analyst from Merrill Lynch likened the marine fuels business to a ‘black box’.  Fair or not, the industry has had to continuously fight this perception, with limited success, I might add. As we close in on the one-year anniversary of OW’s collapse, pieces of the puzzle are still being compiled in Aalborg, millions of dollars in unpaid bunker bills remain locked in escrow, while courts and jurisdictions around the world redefine maritime lien laws with no immediate end in sight, the question remains: Did we learn anything?  

OW’s demise should have created a defining moment for the industry: ship operators would reconsider the entire fuel procurement process, evaluating the role of intermediaries; majors would reassess the risk rewards; suppliers would recognize that too much of their exposure was tied to too few traders; intermediaries would be required to re-market themselves, while banks, credit insurance providers and legal analysts would reassess their presumed liens and covenants over credit facilities. Added up, these events would be the industry’s paradigm shift. Right?

Regretfully, it was not to be. Despite the turbulence, headlines and prognostications of the OW debacle, only a handful of companies were materially impacted. We had all overlooked the real fallout, namely the precipitous fall in oil prices. Ship operators, despite miserable freight rates, were now relieved that their largest line-item cost was slashed. Traders benefitted by filling the OW vacuum, even cherry picking OW assets. Brokers benefitted with those ship operators who wanted no part of buying through an intermediary. Amazingly, the doomsday scenarios of going to 0.1% sulphur fuel never materialized; gasoil was now cheaper than the 1% it was replacing. OW was a distant memory. Even new players decided to get into the business. If we define situations as real, they are real in their consequences.

Despite this, there is a sense that market participants are looking to change the status quo. Like many other industries, marine fuel supply is undergoing a renewed effort in behavioral, financial and operational discipline to increase volume and revenue at improved costs, focused on managing risk. Technology is playing a role in this effort and we are about to witness an unprecedented and inevitable level of transparency the market sorely needs.

A number of still nascent platforms like Inatech, STEM, FirmCounter, and OilOffer have been rolled out, reminiscent of the dotcom era when on-line auction sites appeared then quickly disappeared as the market was not ready for change. Today, market participants are becoming far more connected through cloud-based tools resulting in greater visibility into all tiers of the market. How decisions are made and how strategic opportunities are evaluated require laser-sharp data analysis capabilities which in turn will reap greater procurement agility. New technology is replacing the old technology of relationships, phones, e-mails, and spreadsheets. 

According to the research firm Pitchbook Data, venture capital firms have pumped more than $1 billion into transportation logistics start-ups since 2014, twice the amount invested in the five years prior. Companies like ShipServ, PostPoint, Flexport, Coyote Logistics, and Freightos are a just a few examples. While none of these offer fuel services per-se, they all provide a sea, air, or land transportation logistics platform for buyers, sellers, shippers and service providers to interact in an open and transparent manner.

One entrant in the marine fuels industry is ClearLynx, the brainchild of Gerry Van Geyzel, the former owner of LQM Petroleum Services. ClearLynx is a fully transparent dashboard where participants in the supply chain can price, plan, buy, and sell marine fuel. The skeptics, and there are many, will maintain that fuel procurement is too complex a process and too dependent on longstanding relationships for new online entrants. Reality check: technology is already transforming how fuel is purchased.

Indeed, there will always be a need for ancillary products like credit, risk management, technical expertise and claims management and to that end, traders will continue to provide these services. But to do so they will have to adjust their business models. The successful ones will be judged by their ability to integrate technology and mold their organizations to what the market wants, not by trying to convince the market they have what it needs. If they don’t find a way to work with the new technology, they will surely face a loss of market share.

*Steve Leonard wrote the above for the September 2015 issue of the Bunker Bulletin , the Platts Bunkerworld magazine.

Steve Leonard,
12th October 2015 15:12 GMT

Comments on this Blog
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