Is Strategic Sourcing the Best Route to Smarter Bunker Procurement?

Spend Matters welcomes this guest post from Gaurav Singh, consultant at GEP.

Since the internet became commercially popular in the early 2000s, companies have made attempts to change the way the market trades bunkers.

We’ve come a long way since 2000. Now we’re used to conducting transactions online in our everyday lives and have seen the rise of the “digital ship.” But although shipping was expected to be among the first industries to embrace technology, it has ended up as the last one to adopt new ways of doing business.

According to a report published earlier this year by Allied Market Research titled “Bunker Fuel Market: Global Opportunity Analysis and Industry Forecast, 2017-2023," the global market was valued at over $97 billion in 2016, and is projected to reach over $142 billion by 2023, growing at a CAGR of 9.6% from 2017 to 2023.

The Asia-Pacific region dominates the bunker fuel market, both in terms of volume and value, and it is expected to continue to maintain this trend throughout the forecast period. With the rise of independent suppliers, there has been a major shift in the way the business is conducted, and due to high prices, market volatility and continually evolving regulations, optimization of procurement strategies has become inevitable and mandatory.

Will technology help optimize bunker procurement?

Over the last two decades, technology has mostly taken over the nature and quality of consumer experiences in our everyday lives. We are now used to carrying smartphones and have come to expect that all the information we need is right at our fingertips. Today we order just about anything online and can get instant confirmation and real-time updates until the item lands on our doorstep.

We are so dependent on technology that we probably won’t book a flight without checking all options on price comparison websites, and this usually results in our saving a few bucks. And we are starting to see these dependencies translate into our workplaces. But shipping companies frequently procure bunkers without knowing whether there are better options available, or how to find them. It's about time the bunker market catches up: real-time updates, clear audit trail, documents in one place, benchmarking and reporting. Technology could help make us all smarter in terms of where and when to source bunkers.

Smart shipping companies are already benefiting from strategic sourcing procurement in their businesses. It doesn’t matter if bunker prices double, as all other shipping companies will also pay the higher prices and even the freight rates will go up. This industry works on relative bunker pricing rather than absolute pricing. Savings of around 2-3% are already being realized by some of the best-in-class shipping companies. With bunkers typically representing over 60% of a vessel's operating cost, a good procurement strategy could have a very significant impact in today’s highly competitive environment.

Here are some of the potential benefits of strategic sourcing in bunker procurement:

  • Centralized systems for bunker management activities
  • High transparency between suppliers and buyers
  • Fuel consumption estimates
  • Effective reporting tools
  • User access to real-time information on prices, supplies, quality and quantity
  • Better control over inventory
  • Improved spend visibility and spend management

These key benefits will help shipping companies to get smarter about which ports to bunker in, when to enter the market and which suppliers to work with.

Today, shipping companies are overloaded with information, but they aren’t capable of making use of all the data available to them when planning. Most of them just don’t have the expertise in house to apply smart technology in pursuit of strategic procurement. Observers of this industry will be watching to see how many of them ultimately decide to partner with tech-driven companies to finally start realizing the benefits of a data-driven and strategic sourcing approach to bunkering in the near future.

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First Voice

  1. Capt Crunch:

    Youve missed at least three key points. Saltier dogs than me are currently sharpening their cutlasses.

    The Marine Bunker Supply Industry is absolutely riddled with corruption and fraud of all kinds worldwide at every point in the supply chain.

    “It doesn’t matter if bunker prices double, as all other shipping companies will also pay the higher prices and even the freight rates will go up”
    Nonsense: what about Hedging? Voyage charters? The effect on different routes?

    Oh and OW bunker. Discuss.

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