December 21, 2021 [TankTerminals.com] – The tank terminal business has long been characterized by relative stability in its business environment.
Clients would take long term lease contracts and the terminals would be ensured of more or less stable revenue streams. Globalization of trade and ever increasing imbalances between supply and demand of petroleum products and liquid chemicals ensured enough demand for tank capacity. This era seems to be running at its end. The world has changed. Growth is leveling off due to various factors and this is increasing competition and variability of revenues. Terminals need to re-think their commercial strategy as its going to be less easy to secure stable and high margins.
Opportunities will always be there, but being able to fully take advantage is tricky
Chemicals and especially oil product markets will continue to be volatile going forward as it has always been. One might argue that the market grip of OPEC+ is unprecedented but sooner or later something will happen that will shake things up and this will definitely create opportunities for tank terminals.
Being able to act on these opportunities and getting premium prices during such upturns in the market will definitely make the difference between mediocre and good commercial performance.
A key success factor in this new market is to be able to understand the value of your tanks and setting the right price that resembles that value. Last year, when the pandemic hit the market and resulted in massive oversupply and crude oil prices went through the floor, tank capacity was extremely valuable.
However, looking at our own research, storage rates went up from about €2.00 to about €3.25, a mere €1.25 per cbm per month increase. This did not resemble the true value. Leaving the hardship of the pandemic aside, oil traders had their best year ever with record profits on contango storage plays. I guess the elevated storage rates were still quite below the true value.
Information asymmetry and how to deal with it
One of the main reasons why it is so hard to understand the true value is that a terminal’s clients have much more an better information to their disposal. Clients will be much quicker to adapt their mindset to changes in the market that terminals. There is a big information asymmetry as they call it, and terminals are at a disadvantage.
If only commercial managers at terminals knew and realized the implications of oil market dynamics in March 2020 and if only they had held off their clients a little longer. This would probably have lead to much higher rates. But how to resist the pressure of your clients that is negotiating one-on-one with you to close a deal? And how to determine and get a price level that is close to the real market value?
In a lot of markets organized auctions and electronic marketplaces facilitate trade and provide price transparency. They take away risks and uncertainties and lower hurdles to trade. The result is a much more efficient market where prices are much closer to market value.
What if the terminal industry would have a marketplace and how would it influence business? For one the resulting price transparency would be a good gauge of the current market value. Clients of terminals would compete against each other and bid up prices in times of shortage to a level close to the marginal
value. The other way around is also true. In a severe downturn terminals would compete against each other and offer prices around marginal costs. But probably the peaks will be much higher than in today’s markets whereas the lows will probably be less effected. Other benefits would be a much more efficient market, more price transparency, more options for market players, a greater reach and more liquidity and business.
Terminal Commerce tools for a level playing field
At TankTerminals.com we have the mission to improve liquid bulk industries through tools that support intelligent decisions. Together with Matrix Global we are now offering a Terminal Marketplace where terminals can offer and clients can bid on tank capacity. It will make the commercial process much more efficient and provide the commercial team with much more options to sell their tanks and will provide leverage over current clients.
If you have any questions after reading this article about improving your commercial processes, please contact our CEO Patrick Kulsen ( firstname.lastname@example.org ). For information on the Terminal Marketplace or the TankTerminals.com platform please visit www.tankterminals.com.
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