AN INTERVIEW WITH BUNKERSPOT
As published by Bunkerspot on 14th April 2020.
KPI Bridge Oil’s CEO talks to Bunkerspot about the rationale behind the link-up with OceanConnect Marine (OCM) and how the bunker sector is navigating the IMO 2020 transition.
In the run-up to the introduction of the 0.50% global sulphur cap on 1 January, one of the key talking points in the bunker industry was that the great fuel ‘switchover’, with its attendant significant price hikes for IMO 2020-compliant fuel, would put smaller and medium-sized suppliers – traders and physicals – under increasing financial pressure. This, it was suggested, could be the catalyst for a burst of more intense M&A activity in the sector, as smaller players with strong client lists perhaps begin to feel the credit squeeze and thus become attractive acquisition targets for some of the financially stronger and larger bunkering names.
In the event, the first headline acquisition news in the sector in 2020 was not a David and Goliath alliance but the merger of two of the industry’s biggest and long-established bunker companies, KPI Bridge Oil and OceanConnect Marine, to form a new 170-strong company operating across 15 locations globally. As the deal announcement noted, the new entity, branded as KPI OceanConnect, ‘will have an established foothold in every major maritime hub and time zone.’
News of a change of ownership for the Glencore-owned OCM was perhaps not the biggest surprise – there has been much speculation over the years that the global commodity trader, which acquired OCM through its purchase of Chemoil, was seeking a buyer for the firm. Chemoil itself had bought the OceanConnect marine fuel business in 2011 for a reported $25 million.
In the days ahead of the merger announcement, which came during IP Week in late February, the Bunker Holding group had been widely touted as OCM’s buyer but the disclosure that an individual company in the Bunker Holding stable would be taking over OCM had not been foreseen.
Søren Høll, the current CEO of KPI Bridge Oil, is expected to lead the merged operation and he emphasises that his company led the negotiations over OCM from the beginning. The synergies between the two companies are clear, according to Høll, in terms of office locations and commercial approach. ‘We speak more or less the same language,’ he says.
Clear operational synergies
The new alliance also adds four new locations to the KPI Bridge Oil existing line-up – Dubai, Hamburg, Hong Kong and Japan.
OCM has certainly been building its footprint in the Asian market over the past couple of years. In February 2018 a Singapore-based Korean supply team joined the company and in January 2019 a move to new offices in Singapore signalled OCM’s growth ambitions.
‘Singapore will be the hub of our Asian operation and we intend to expand aggressively with additional talented people,’ OCM’s Global Managing Director, S.I. Shim, said at the time. One year on, and Høll says he continues to see growth opportunities for the expanded business in Asia.
In terms of the rationale behind the purchase of OCM, bringing together two ‘very mature brands and employers’ makes sound commercial sense, he says.
‘Where we crossed paths with OCM in the past we saw that there was a good match in the type of customer profiles,’ he notes.
‘There is also a good match in how [OCM] would like to approach the market for a more partnership-based business in the long term.’
The proposed merger is still waiting for the green light from the regulatory authorities, which could take a few months. Once the go-ahead is received, the integration of the two businesses will begin and while the details of this remain to be hammered out Høll is keen to stress that the interests of the employees in both companies are paramount.
‘Our people are our strongest asset, and all the team members in each company will have an important role to play in this merger,’ he stresses.
‘It is important for us to keep the focus on employees – for them to develop and succeed – so that is our approach going forward.’
He continues: ‘We have such experienced teams that once they are integrated then we can develop and expand the existing partnerships that we have with clients, and I also expect – and that is my ambition going forward – that with the combined great knowledge that we will have within our group that we can establish new partnerships with our clients.’
While the integration of the two companies is still in the planning stage, Høll also emphasises that ‘the current OCM management will play a very important role in the new management going forward.’
Firm message on invoice pledging
Although Høll is unwilling to put a figure on the annual bunker volumes of the new entity or to be drawn on the price paid for OCM (most industry experts suggest it was significantly below the $25 million price tag of the Chemoil deal), he did confirm that KPI OceanConnect will not be pledging its invoices to its banks – which has been the clear message from Bunker Holding trading companies since the demise of OW Bunker in November 2014.
‘We will merge and create a new company, KPI Ocean Connect, and the business will be as KPI has been in the past, so business as usual – no pledging,’ he says.
What OCM is also bringing to the table is its AuctionConnect fuel purchasing platform. Developed some 20 years ago, the site was updated in July 2019 to become ‘IMO 2020-ready’. At the announcement of the platform’s revamp, OCM highlighted new features such as proxy bidding, mobile compatibility, split deliveries and delivery barge vetting – upgrades which were said to be in response to requests from existing users.
Last October, Per Funch-Nielsen also joined OCM from 20|20 Marine Energy and his remit includes the promotion of the AuctionConnect platform.
Høll says it is not yet decided how the platform will evolve under the new ownership structure.
‘It is a little bit too early to jump to any conclusions,’ he says. ‘I find it quite interesting and it is definitely something that we will explore and see how we can position it going forward.
‘That’s the best answer I can give at the moment, but it will remain in our company, KPI OceanConnect.’
In terms of sourcing fuel for clients, Høll says KPI Bridge Oil uses Bunker Holding’s physical supply arm, Bunker One, in some locations – when it makes commercial sense.
‘[Bunker One] fits in the same category as our other external partners, and that will continue with the new company.
‘We have to bring the right competitive offer to our clients, and the main issue for us is to attract the deal and get the deal, whether that is with Bunker One or any other external partner.’
Weathering the credit squeeze
Turning the questions away from the OCM acquisition to how KPI Bridge Oil has weathered the IMO 2020 ‘storm’ and Høll says the company’s preparations ahead of 1 January appear to have served it well.
‘During most of 2019 we have been communicating that we would see an increase in prices between 30%-50% and, looking at some of the financing we have done so far, it has turned out that we have had increases of between 35%-40%.’
He agrees that the market has seen shortages of both high and low sulphur fuels, on a regional and port basis, across the IMO 2020 transition.
‘We knew that would happen, but we didn’t know exactly in what terms, but I think it came as a surprise to a lot in the industry how tight the avails were.’
He also says that expectations of an increased demand for credit from owners and operators have been borne out – across all types of vessel segments and clients – and he sees the potential for more M&A activity in the bunker sector.
‘I definitely think there will be more consolidation in the market – it’s just a question of when and with whom,’ he says.
‘We have seen a support to owners and buyers with lower prices in the last few days and the premiums have come down as well, but there is no doubt that increased prices will put pressure on less funded players in the industry.’
Looking ahead, he believes there may continue to be a shortfall in credit availability. As such, ‘the strongest and the fittest will survive in that game,’ he says.
He suggests that a lot of buyers have been reluctant to close contracts over the past 4-6 months and their focus has been on fuel availability as much as price. He also suggests that price volatility will begin to ease off during the second quarter of the year.
‘The market has had to find its own feet again with premiums, etc., but I think we will see an increased demand for contracts once the buyers feel confident that this is the new norm for the market.
With the IMO 2020 hurdle crossed, the shipping industry is now faced with the bigger challenge of meeting the IMO’s 2050 greenhouse gas emission reduction targets, so how does Høll see the new KPI OceanConnect positioning itself in the alternative fuels sector?
‘We definitely don’t close our eyes to the future, but our main focus is definitely on the market and the industry as it looks right now,’ he comments.
‘We have a very good platform with the merger, and I am very, very confident about the future – I am looking forward to it both as an employer and for the company itself.’