Global bunker fuel supplier Aegean Marine focuses on four-pronged growth strategy
Global bunker supplier Aegean Marine Petroleum Network’s new leadership team is pursuing four main strategic initiatives — rationalizing the company’s global platform for asset optimization, executing cost saving initiatives, capitalizing on key business development projects, and generating new revenue streams — to grow the business amid challenging market conditions, the company said during its second-quarter earnings call.
“During the quarter we continued to see challenging market conditions across the shipping and marine fuel space. While demand for marine fuels remains high for Aegean’s network, margins were under pressure through a combination of low oil prices, depressed commercial shipping freight rates, and fierce competition on the supply side,” Jonathan Mcilroy, who was promoted to the position of president of the company in July, said during the call on Friday. “We continue to see very price conscious buyers planning their buying extremely carefully and negotiating hard to capture the lowest price possible across their fleet.”
On the commodity side, the sustained low oil price environment continues to create opportunities for smaller, less well capitalized players to compete for incremental tonnage, putting pressure on overall margins, he added.
Many of these smaller players, suppliers, and back-to-back traders compete on the regional level. While less capitalized and less geographically diverse, they are less encumbered by overheads and are able to offer very aggressively on certain parts of the business, he added.
One of the company’s priorities is to optimize its presence in key operating hubs and to maximize asset utilization and efficiency, Mcilroy said.
“In this context, we are moving assets out of congested areas where they are underutilized or underperforming and move them to other areas within the network where they can be better utilized and with higher margins,” he said.
“At the same time, we are studying options regarding selling or leasing assets to third parties. As a result, we expect to achieve significant cost reductions,” he said.
The company has already implemented measures that will result in annualized savings of about $7 million as of Q3, 2017.
“We are targeting another $13 million of cost reduction by the likes of reshuffling older vessels to the network and controlling other administrative and trading costs,” Mcilroy said.
In Singapore, Aegean remains a physical supplier. However, the company has simply changed its model by using barging contracts for deliveries as opposed to its own vessels, he said.
It has moved two barges to cold lay-up in Singapore, he said, adding that those vessels are under negotiation to be chartered out of third-party contractors.
Aegean has also reduced headcount in the Singapore office by 15 members of staff, who were linked mainly to vessel operations and back office functions, he said.
Mcilroy said that the company had also laid up vessels in other markets.
In Fujairah, the fleet has been reduced to two vessels, he said, adding that two other vessels have been placed in hot lay-up with option for their deployment under time charter to third-party operators.
“Looking at wider fleet deployment, six vessels were placed out on profitable time charters with third-party operators worldwide. Another six vessels are in various states of lay-up with four of those vessels at advanced stages of negotiation for profitable mid to long term time charter employment at the close of the quarter,” he said.
Aegean is also implementing ongoing rationalization of fleet deployment securing better rationalization of operated barges in a number of core markets such as Gibraltar, he said.
NEW REVENUE STREAMS
The company is aiming to generate new revenue streams through improved cargo sourcing, the utilization of storage facilities and expanding into new markets, Mcilroy said.
“We seek to enter new areas or to maintain our presence in key hubs by teaming up with local operators through various forms of partnerships and cooperation. This enables us to maintain and expand our presence and market offering while optimizing our expenses and cost structures,” Mcilroy said.
In Q2, 2017, Aegean announced the launch of a new service center in Savannah, Georgia, the third-largest container port in the US. This strengthened the company’s presence on the US East Coast.
Also in Q2, Aegean established a bunker trading office in Dubai with a team of two experienced traders with the support of an operational assistant.
“The group has a long history in Fujairah and Khor Fakkan as a physical supplier and adding a back-to-back trading team is the next step in expanding our relationship with customers and suppliers in the Middle East and the Indian subcontinent,” Mcilroy said.
In July, the company commenced ex-wharf sales on a FOB basis from its Fujairah terminal to other suppliers in the region. It has also opened a representative office in Taiwan recently.
The company saw its sales volumes rise by 9.3% year on year to about 4.47 million mt in Q2 2017. Its net income adjusted for the sale of non-core vessels in Q2 2017 declined by 90% year on year to about $1.7 million, but the adjusted net income figure was 22% higher from the previous quarter, the company said last week.