With IMO 2020 drawing closer, some dry bulk and shipping firms are realising that the time has come to bring oil trading talent in-house.
Dry bulk shippers are searching for oil traders to help navigate through the market change that the International Maritime Organisation’s IMO 2020 regulation will bring. Under IMO 2020, vessels will no longer be able to burn 3.5pc sulphur fuel oil, but will be limited to fuel with a sulphur content no higher than 0.5pc.
The situation facing them is not a simple one to prepare for. New low-sulphur marine fuel blends will be made available by the time IMO 2020 comes into effect, but exact availability is still unknown. Price is also surrounded by uncertainty. While many of the big refiners ¬– including majors such as BP, Royal Dutch Shell and Total – have pledged to make new blends available, there is no clear indication of how much more expensive they will be.
The uncertainties surrounding price and availability have to be faced up to if shippers decide against the fitting of fuel scrubbers to vessels or the future use of an alternative fuel such as LNG. Looking at what will need to be done under IMO 2020 is leading many companies with large, rolling fuel requirements to the conclusion that organisational change is needed.
Firms moving dry bulk are increasingly examining their capabilities, and are asking much the same question: what is the best route to bringing oil trading talent in-house?
The buying of fuel, and the hedging of price risk, is normally part of the procurement function of bulk shipping companies and the vertically-integrated operations of those involved in activities such as mining and agriculture. Under the current status quo, in-house procurement teams buy oil through third-party traders and hedge price risk with the help of derivatives teams at banks or brokerages, while being advised periodically by management consultants. This situation looks set to change.
Bulk shippers and those with similar fuel requirements are realising that the markets they depend upon – and which already present risk – are about to become more complex. The new fuel blends will trade at higher prices than traditional high-sulphur fuel oil, but cost is not the central driver behind the desire for change. Many companies have considered moving fuel procurement and risk management in-house before, and IMO 2020 is being spoken of as the final reason to make the change.
These firms are looking for traders with particular skillsets and backgrounds to manage fuel price and exposure risk, and optimise fiscal flows and storage. Our conversations with the market are filling out what such a candidate’s profile might look like. The profile is likely to include long-term experience in trading both fuel oil and middle distillates, (as the fuels offered under IMO 2020 are likely to trade more like distillates than fuel oil), as well as in blending. Fuel oil expertise is essential, of course, as the traders will need exacting knowledge of blend specifications and compatibilities. But crucially, they are ultimately needed to fill a knowledge gap in the wider supply and demand landscape, where many of these firms only have an outlook that encompasses the dry bulk landscape.
Another important element of the candidate profile is that he or she would likely be someone who carries considerable length of experience and professional achievement. This is what will make it possible for them to be in a role where stability of trade flow is of the essence, rather than the quest for big commissions. This is important because the shippers and dry-bulk firms in question do not intend to set up profit-focused trading operations. Their goal is to optimise fuel procurement and manage price exposure from inside their businesses, and to commercialise the operations surrounding them. It is also key that they have the extensive track record to carry the gravitas to engage with – and influence decision making by – senior management.