Insights on the complexities of bunker procurement

Bunker procurement stands out as a critical and challenging task in the complex world of maritime operations. As noted in our recent whitepaper, bunker procurement is a high-stakes activity for operators, involving around 250 million tons of fuel across over 300,000 transactions annually. In fact, fuel costs represent the second largest expense on the profit and loss statement of a voyage, typically accounting for 50-60% of the total operational costs, underscoring the pivotal role of effective fuel management in maritime economics. Each transaction significantly influences operational efficiency and financial performance, highlighting the critical nature of these activities.

Additionally, there is a notable information asymmetry in the market; while the buy-side is highly fragmented, the supply side remains relatively consolidated, posing unique challenges in achieving equitable and efficient procurement outcomes.

Bunker procurement requires operators to make strategic decisions to effectively optimise costs, meet compliance standards, and manage risks associated with price volatility, supply reliability, and regulatory compliance. Three of these key decisions include:

• What to buy: From HSFO and LSMGO to alternatives like LNG and biofuels, each option balances cost, performance, and environmental impact.
• When to buy: Making purchases at the right moment can lead to significant cost savings, necessitating a keen understanding of market trends and future price movements.
• Who to buy from: Selecting a reliable supplier can ensure operational efficiency and compliance with environmental regulations.

The growing complexity of the market complicates these decisions: from an increasing variety of fuel products, to a burgeoning number of suppliers and traders, to the introduction of new entrants offering credit services. This is compounded by a lack of transparency and effective communication among vessels, charterers, operators, and bunker buyers, often leading to inefficiencies and missed opportunities.
 

Key bunker procurement decisions

Successfully managing bunker procurement in this dynamic environment demands an approach that blends strategic decision-making with insightful market analysis and robust supplier relationships. It's a delicate balancing act that requires operators to be agile, informed, and strategic to navigate the intricacies of bunker procurement effectively.

What bunker to buy

Choosing the right type of fuel is a critical decision that influences both the operational efficiency and environmental footprint of a vessel. The decision encompasses evaluating fuel options such as heavy fuel oil (HFO), very low sulphur fuel oil (VLSFO), marine gasoil (MGO), and alternative fuels like biofuels, LNG, and more considering their cost, availability, and compliance with environmental regulations.

Additionally, ensuring compliance with time charter contracts is paramount, as the selected fuel must meet the stipulations agreed upon with the vessel owner, aligning with both operational capabilities and contractual obligations. Operators must ultimately weigh the benefits of each fuel type against their specific operational needs and sustainability goals.

Selecting a fuel that aligns with global emissions standards while ensuring the vessel's performance can lead to significant cost savings and contribute to the maritime industry's broader goal of reducing its environmental impact. This process involves a deep understanding of the trade-offs between fuel cost, energy content, and emissions profile to make an informed choice that supports both operational and environmental objectives.

When to buy bunker

Navigating the volatile seas of fuel prices demands strategic timing in procurement decisions. Purchasing fuel at the opportune moment can unlock significant cost savings, highlighting the importance of a deep market insight and predictive understanding of fuel price trajectories. The bunker market is particularly susceptible to rapid changes due to factors like oil price fluctuations, geopolitical events, and changes in regulations, making the timing of purchases even more critical.

Effective communication between operations and bunker buyers is crucial, requiring them to operate from a single source of truth about the vessel's schedule to maximise the lead time available for procurement.

Operators must stay informed on global oil market trends, geopolitical influences, and supply-demand shifts to make sound purchasing decisions. Utilising digital tools that provide market forecasts and real-time pricing data can enhance this decision-making process, enabling operators to capitalise on favourable market conditions. The ability to anticipate future price movements and act swiftly can be the difference between securing fuel at an optimal price or facing unnecessary financial expenses, making timing a critical component of effective bunker procurement strategy.
 

Who to buy bunker from

Similarly to deciding what to buy, choosing the right supplier is also a pivotal decision in the bunker procurement process. A reliable supplier will not only provide high-quality fuel at competitive prices, but also ensure timely delivery, adherence to stringent regulatory standards, and offer favourable credit terms. This selection process demands thorough vetting, taking into account the supplier's track record, financial stability, and capacity to meet specific fuel requirements.

Having accurate market intelligence on who the active suppliers are in each port is crucial; it ensures operators cover the entire market, or at least understand the potential cost or missed opportunities from not engaging with all available suppliers. Access to this information allows operators to make more informed decisions, potentially leading to better terms and enhanced supply chain efficiency.

Operators must also consider the supplier's commitment to sustainability and their ability to supply alternative fuels that comply with global emission regulations.

Ultimately, the choice of supplier goes beyond cost considerations; it's about forging partnerships that support the ship operator's broader operational and zero emissions goals, ensuring that every fuel purchase contributes positively to the efficiency and sustainability of maritime operations.

Embracing the digital transformation to unlock efficiency

On its quest for a more streamlined and transparent bunker procurement process, the industry is turning to digital solutions to overcome these existing challenges. The transition to a data-driven approach offers a path to significantly enhance operational efficiency and ensure market transparency concerning fuel quality, quantity, and pricing. However, the shift brings its own challenges, particularly in managing and analysing the influx of big data to derive actionable insights.

The critical step towards a solution lies in harnessing advanced digital technologies. Implementing platforms that aggregate, process, and analyse vast datasets enables operators to gain a comprehensive view of the market. These digital tools are instrumental in transforming raw data into valuable business intelligence, thereby facilitating strategic decision-making and fostering a healthier business model.
 

Optimised procurement decisions

Internal transparency is crucial for understanding the procurement team's actions, ensuring alignment with company policies and regulations, and safeguarding against reputational damage. By leveraging digital platforms, operators can maintain visibility over their procurement processes, enhancing compliance and strategic planning. This digital approach aids in making informed purchasing decisions and also paves the way for significant cost reductions. Savings achieved through improved procurement efficiency can subsequently be directed towards initiatives that drive the industry closer to its zero emissions goals.

This synergy of digital solutions and meticulous internal oversight will unlock new avenues for operators. By making smarter, data-informed decisions, the maritime sector can expect to see a reduction in operational costs and a greener path forward.

How ZeroNorth can help

Consolidating and optimising the bunkering process, ZeroNorth Bunker turns millions of live data points into actionable recommendations. Digitalisation and transparency are at the core of our offerings, advancing the green transition for the entire shipping industry. The integrated solution facilitates data-driven decisions at every step across the value chain through Bunker Planning, Bunker Tramp and Liner, Bunker Supply and Trading, Bunker Pricing, and e-BDN solutions.

Our solutions enhance decision-making and customer engagement by providing suppliers, traders, and brokers with a user-friendly interface and customisable dashboards. With a holistic view of bunker procurement and analytics, users can offer personalised solutions, build trust, and establish long-lasting relationships with their customers.

By harnessing the power of digitalisation and data analytics, ZeroNorth empowers maritime operators with the solutions they need to transform bunker procurement into a strategic asset that drives operational excellence and advances sustainability goals.