How to cite:

Eko Frastiawan, Iriawan Alex Ibarat. (2022). Proposed Business

Strategy to Develop the Ocean-Going Bunkers Business in Indonesia.

Journal Eduvest. Vol 2(6): 1.095-1.101

E-ISSN:

2775-3727

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Eduvest – Journal of Universal Studies

Volume 2 Number 6, June, 2022

p- ISSN 2775-3735- e-ISSN 2775-3727

PROPOSED BUSINESS STRATEGY

TO DEVELOP THE OCEAN-GOING BUNKERS BUSINESS

IN INDONESIA

Eko Frastiawan

, Iriawan Alex Ibarat

School of Business and Management, Institut Teknologi Bandung, Indonesia

Email: eko_frastiawan@sbm-itb.ac.id, alexibara[email protected]

ARTICLE INFO ABSTRACT

Received:

May, 26

2022

Revised:

June, 13

2022

Approved:

June, 17

2022

The global bunker fuel market is projected to reach $ 130,1

billion in 2027, growing at a CAGR of 3.1% from 2020 to 2027.

Asia-Pacific dominates the bunker fuel market, and Singapore

has been the world's pre-eminent bunker hub, with 22% of the

global bunker market. It is estimated to grow at a CAGR of

3.5% from 2021 to 2030. With this growth of the bunker

demand, Indonesia, which strategically lies on the world

maritime trade route, should be able to take this opportunity.

There are nearly 150.000 ocean-going vessels that pass

through the Indonesia seas each year, and around 11.000

vessels do loading-unloading cargo in Indonesia's ports or

anchorages. The business size of the ocean-going bunker in

Indonesia is $1.2 Billion/year or equal to 2.2 million Metric

Tons. However, only 4% (0,08 Million Metric Tons) were

bunkering in Indonesian port. Mostly they were bunkering in

Singapore, Port Klang, Zhoushan, and Hongkong. Estimated

Indonesia’s opportunity loss from bunker transactions is $1.1

Billion/ per year, while the opportunity loss from port charges

and other services is estimated at more than $1 Billion per

year. This final project will use a qualitative research

methodology consisting of desk research and field research

through in-depth interviews of the key informants. To

understand the level of competition and Indonesia's relative

position in the Asia Pacific bunker market, this research uses

an external analysis framework. Moreover, the internal

analysis is applied to understand the current competitive

Eko Frastiawan, Iriawan Alex Ibarat

Proposed Business Strategy to Develop the Ocean-Going Bunkers Business in

Indonesia 1.096

advantage and list items to improve. This research

recommends the Value Innovation strategy, which started with

the cost-leadership focus strategy in attracting the ocean-

going bunker consumer and is supported by increasing

perceived customer benefits. This research suggests focusing

on ocean-going ships that load and unload cargo at Indonesian

ports as the target market. This research also proposes the

business strategy using 7P’s marketing mix approach. It

consists of raising product specifications to a global standard,

eliminating VAT components, reducing shipment costs,

remapping supply points, increasing awareness of the global

market, developing global skilled human resources, improving

the bunkering speed and quantity accuracy, and improving the

reliability of infrastructure.

KEYWORDS

Bunker, LSFO, Ocean-Going Vessels, Business Strategy,

Competitiveness

This work is licensed under a Creative Commons

Attribution-ShareAlike 4.0 International

INTRODUCTION

The research will be focused on analyzing business strategy from a marketing point

of view, especially for Low Sulfur Fuel Oil (LSFO) as the product most widely used by

ocean-going vessels and seven market spots with the highest market potency of the ocean-

going bunker (Deshpandé, Farley, & Webster Jr, 1993). The objective of the research is to

find out the relative position and the current competitiveness of Indonesia in the

competition of the ocean-going bunker market and to propose a business strategy for

Indonesia’s fuel company to improve the competitiveness of the bunker business in the

Asia Pacific market (Wahyuni & Ng, 2012)

According to the report published by Allied Market Research, the global bunker

fuel market reached a value of $ 120.1 billion in 2019 and is projected to reach $ 130.1

billion in 2027, growing at a CAGR of 3.1% from 2020 to 2027 (Maramba, Chatterjee, &

Newman, 2019) Asia-Pacific dominates the bunker fuel market and is expected to continue

to maintain this trend throughout the forecast period. This is attributed to numerous factors

such as the presence of a huge consumer base and an increase in maritime trade activities

in the region. For decades, Singapore has been the world's pre-eminent marine fuel hub,

accounting for 22% of the global bunker market (Doshi, 2015) According to the report

published by Allied Market Research, Singapore’s bunker fuel market size was valued at

$17.6 billion in 2020 and is projected to reach $24.5 billion by 2030, growing at a CAGR

of 3.5% from 2021 to 2030. Unfortunately, the growth of the bunker business in the world

and in Singapore has not been utilized by fuel companies in Indonesia. Based on data

released by the Coordinator of the Ministry of Maritime and Investment and is supported

by actual data downloaded from marinetraffic.com, there are nearly 150.000 ocean-going

vessels that pass through the Indonesia seas each year, and the 11.000 of them, do loading-

unloading cargo in Indonesia's ports or anchorages. The business size of the ocean-going

bunker in Indonesia is $1.2 Billion/year or equal to 2.2 million Metric Tons. However, only

4% (0,08 Million Metric Tons) were bunkering in Indonesia. Mostly they were bunkering

Eduvest – Journal of Universal Studies

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1.097 http://eduvest.greenvest.co.id

in Singapore, Port Klang, Zhoushan, and Hongkong. The estimated opportunity loss from

bunker transactions is $1.1 Billion/ per year, while the port charges and other services will

be more than $1 Billion per year (Bunker, 2020).

Figure 1. Vessel traffic in Indonesian territory

This research will collect data from primary data through interviews with some key

stakeholders and secondary data from some sources including journals, textbooks,

published reports, and articles. The business analysis will consist of external and internal

environment analysis and then it will provide a summary of the competitive advantage. In

formulating the strategy, this research will formulate a business-level strategy.

RESEARCH METHOD

This research will use a methodology of qualitative research that consists of desk

research and field research. Desk research includes primary data and secondary data using

books, journals, articles, government documents, and official websites related to this

research. Field research is based on depth interviews of the key informants such as global

bunker traders, ship liners, and salespersons of Indonesia fuel suppliers. Data collected in

this research was obtained through some interviews. It gained valuable information to

analyze the global practice, customer expectations, and current domestic competitiveness.

This research used simple tabulation to identify the answers from the respondents in each

interview. The findings are divided into two categories and some sub-categories based on

the result. The category is based on the similarities and differences of the findings that are

translated from the responses. This interview involves 12 respondents from a trading

company, shipping liner, and Indonesia fuel supplier.

The business analysis will consist of external and internal environment analysis. In

the external analysis, this research will use competitor analysis, PESTEL’s framework, and

Porter’s Five Forces model to analyze the industry and the competitive forces that surround

the firm from the outside. While in the internal analysis will use the VRIO Analysis and

Value Chain Analysis. After doing the analysis, the author will provide a summary of the

competitive advantage of the firm in this business. The second step is formulating the

strategy. In this step, the research will formulate a business-level strategy.

RESULT AND DISCUSSION

The interview in this research discovers that spot buying is the most common

relationship approach in the global bunker business. They do not want a long-term contract

because the bunker price fluctuates daily, and the end-users (ocean-going vessels)

frequently change routes. It also found three critical factors when a shipping

Eko Frastiawan, Iriawan Alex Ibarat

Proposed Business Strategy to Develop the Ocean-Going Bunkers Business in

Indonesia 1.098

company decides where to bunker: the destination port, bunker price (bunker cost), and

product availability. Customers frequently request credit transactions without a guarantee,

according to the findings. They also request surveyor services during the bunker to reduce

quantity disputes between seller and buyer (Fang et al., 2014). Traders are still the primary

point of contact and source for shipping liners looking for bunker prices, product

availability, and so on. Among those who have done bunker in Indonesia, the average

frequency of bunker is 3 to 5 orders per month, with customers providing one week’s notice

of order confirmation. Bulk Carriers are the most common ocean-going vessels that bunker

in Indonesia, with Jakarta, Surabaya, and Balikpapan being the most frequently requested

ports for bunkering. It corresponds to port traffic and the availability of LSFO products in

the nearby fuel terminal (Malmros, 2013)

During the interview session, the researcher also asked about the respondent’s

comments and expectations on bunkering in Indonesia. It finds that the ocean-going vessels

are willing to have a bunker in Indonesia because they have activities in the domestic port

(Campbell, 2016). While loading or unloading cargo, they expect to get a competitive

bunker supplier as well. It also discovers that they are still willing to have bunkers in

Indonesia, if the bunker is at least $ 5 /MT higher than the Singapore price, few of them

still tolerate $ 20 /MT. However, if Indonesia and Singapore's price gap is more than $ 20

/MT, the vessels will prefer to search for another port for bunkering. In terms of payment

terms, all respondents expect to have credit transactions with no guarantee. Bunkering

quantity accuracy is also important to customers. They avoid having quantity disputes with

the bunker supplier because it is time-consuming to resolve. The competitiveness of port

tariffs (port dues) is also an important aspect of the bunker business because, in the end,

customers will calculate the total bunker cost, which includes not only the fuel price but

also other costs such as agency tariffs and port dues.

Figure 1 Buyers’ Expectations on Bunker Price

Considering the dominance of the domestic bunker market share and the goal of

capturing a larger market by leveraging Indonesia's geographical position in world shipping

lanes. According to the Ansoff Matrix, the Market Development strategy is the best strategy

for increasing bunker sales. It aligns with the Porter’s Generic Strategy approach that

recommends the Value Innovation strategy, which started with the cost-leadership focus

strategy by eliminating underutilized supply points and reducing cost factors such as taxes

and delivery costs consumer (Pathak, n.d.). This approach is followed by increasing

perceived customer benefits thru raising the standard of product specifications in

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accordance with the global standard ISO 8217 and creating market awareness about the

readiness of the bunker business in Indonesia (Guo, 2017). In choosing the best segments

and designing strategies for profitably serving chosen segments, this research uses a

customer-driven marketing strategy (Ifediora, Igwe, & Ukpere, 2015). The proposed

segmenting, targeting, and positioning are as follows:

1. Segmentation: Ocean-going vessels who are doing activity in Indonesian territory:

container, Bulk Carrier, Cargo, Tanker, and Cruise ships.

2. Target: Ocean-going vessels who are doing activities (cargo load/unload, transfer)

in the port of Jakarta, Surabaya, Balikpapan, Merak, and anchorage of Taboneo,

Muara Berau, and Nipa and they need fuel for the bunker.

3. Differentiation: Country that has a wide coverage area of product supply point

(LSFO)

4. Positioning: New alternative of competitive bunker hub in the Asia Pacific

Based on the interview findings and observation of the current competitiveness of

the ocean-going bunker business in Indonesia, the researcher proposes a marketing mix as

follows:

1. Product: Provide the customer with a regular test of the LSFO product with ISO

parameter that meets ISO 9217 parameters, even though the government does not

regulate it. Indonesia.

2. Price: Reduce the vat (value-added tax) component in the fuel price negotiate

transportation costs with mobile bunker agents, particularly in the Balikpapan area,

at 20% off the current rate.

3. Place: Relocate the LSFO supply point by removing LSFO products from Ambon,

Makassar, and Panjang and creating availability in Nipa / Batam, Tanjung Gerem,

Taboneo, and Muara Berau.

4. Promotion: Apply a marketing communication mix that focuses on increasing

ocean-going market awareness about the competitiveness of doing bunkers in

Indonesia and collaborating with global traders for broader market penetration.

5. People: Develop salesperson and operational team capabilities regarding bunker

business and operations according to global standards

6. Process: Improve the speed and accuracy, by upgrading the pumping rate of the

barge and applying mass flow meters as measurement tools to avoid the quantity

dispute.

7. Physical evidence: Improve the reliability of supporting infrastructure for ocean-

going bunker services such as floating storage facilities, pumping rates, and

laboratories.

CONCLUSION

Based on the discussion in the previous chapters, the following are the conclusions

to answer the research questions.

1. Indonesia’s current competitive advantage in facing the competition in the ocean-

going bunker market in the Asia-Pacific region:

a. The level of competition in the ocean-going bunker business in the Asia

Pacific market is relatively high.

b. Indonesia’s competitive advantage is the existence of a product supply point

with broad coverage.

c. The 7P marketing mix parameters that are not yet competitive with other

Eko Frastiawan, Iriawan Alex Ibarat

Proposed Business Strategy to Develop the Ocean-Going Bunkers Business in

Indonesia 1.100

bunker hubs, are ISO certification of products (Product), imposition of VAT

on bunker prices (Price), the proximity of product supply points to market

point (Place), payment term (Process) and measurement device (Physical

device).

2. The approach strategy to develop ocean-going bunker business

a. The strategy used was based on a cost-leadership focus strategy by

eliminating underutilized supply points and reducing cost factors such as

taxes and delivery costs.

b. It is aligned with a strategy to increase perceived customer benefits in order

for it to be successful (Value Innovation strategy) by raising the standard of

product specifications and creating market awareness and new supply points

close to the market.

3. The proposed business strategy to improve the competitiveness and increase the

sales of ocean-going bunker

a. Indonesia must focus on the target market, namely ocean-going ships that

load and unload cargo at Indonesian ports.

b. According to the 7P marketing mix approach, the proposed strategy to

increase competitiveness and sales of ocean-going bunkers in Indonesia is

as follows:

 Product: Raising the product specifications to global standards

 Price: Eliminating the VAT component and renegotiating the cost of

transporting fuel

 Place: Remapping the LSFO supply point to be closer to the market

 Promotion: Increasing market awareness about the competitiveness of

doing bunkers in Indonesia and collaborating with global traders for

broader market penetration

 People: Developing capabilities of bunker business and operations to

global standards

 Process: Improve loading speed to consumer's vessels and adopt the use

of mass flowmeters

 Physical Evidence: Improve the reliability of infrastructure for ocean-

going bunker services.

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