Monday, December 14, 2015

Moving the World's Commodities

Here is an interesting story about one of the world's largest commodity trading firms, Vitol:

Simply put, Vitol is one of the biggest trading companies on the planet. It is the ninth largest corporation in the world by revenue, behind only Shell and BP from the FTSE 100, and comfortably ahead of Volkswagen, Apple and Chevron. Last year Vitol’s sprawling empire raked in $270bn in sales.
The firm is among handful of mega-trading houses, that have been quietly operating in the shadows at the heart of global trade and commodity markets, keeping the world economy running with a constant supply of fuels, base metals, chemicals and foodstuffs.
The rise of these companies has coincided with the commodities super-boom of the past 15 years and the seismic shift in world trade from west to east. As China, India and Brazil have become the new international powerhouses, Vitol, and its rivals Glencore, Trafigura, Gunvor, and Mercuria, have emerged as the powerbrokers pulling the levers of the global economy.
Yet despite its size and reach, very little is known about Vitol or what it really does. This has fuelled accusations of secrecy, reports of dodgy deals with corrupt regimes, criticism of its tax affairs, and growing questions of whether its grip on world markets is too great....
The scale of Vitol’s operations is mind-boggling. Last year, it made more than 6,000 journeys and traded 128 million of tonnes of crude oil. On a good day, it can move 5 million barrels, more than China’s total daily output. It also shipped 26 billion cubic meters of natural gas; 8.9 million tonnes of LPG; a million tonnes of naphtha; 34 million tonnes of coal; and 600,000 barrels of physical gasoline a day. At any one time, it can have more than 200 ships on the world’s oceans, roughly the size of the US navy’s battle fleet.
Profit margins in commodities trading are ultra-slim, often less than 1pc on each trade. But thanks to Vitol’s sheer size and scale, it does not take long for the profits to rack up. That means bumper pay days at the employee-owned firm.
In 2014, pre-tax profits doubled to $1.67bn, $1.2bn of which was shared between the company’s 300 or so employee shareholders. While much of the oil industry, including the majors, has been laid low by the slump in oil prices, last year was one of the best in Vitol’s history.
Wow.  Those guys have done a ton of work in Kurdish Iraq, Libya and other unstable warzones and hellholes.  Considering my small amount of experience with the logistics of a small manufacturing firm in a stable nation, I can't imagine all the hassles and headaches moving all those commodities through some of those disaster areas.  While it is clear they are able to get more than their share of the pie, I have to give them credit: they are doing much more actual work and productive activity than most folks on Wall Street.  

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