Regardless of market trends, trading operators are always in high demand. Their exposure to the realities of the supply chain makes them one of the most versatile and indispensable members of trading desks. But the role has evolved significantly over time, partly due to increased supply chain disruptions in recent years, the growth of digitalization and the constant need to improve risk management and maximize commercial value. Against this backdrop, the pool of talent with designated skills and expertise has become limited.
The role of trading operators was historically described purely in logistics terms. As part of the front office, trading operators are typically responsible for managing the lifecycle of a trade once it is closed. This ranges from coordinating vessels’ arrivals and loading activities to avoiding delays and addressing issues related to technical fault and bad weather. They usually specialize in one product and act as a ‘middle-man’ between back-office and front-office teams.
Their insights into the physical complexities of the value chain also means that they are best placed to minimize costs and manage a wide range of risks, from new tax and compliance regulations to technical setbacks. For instance, during the early part of COVID-induced restrictions in 2020, in addition to delays caused by the shortage of manpower at ports, trading operators had to add rigorous health checks to their protocols, which caused more delays than expected. Increasingly, operators are becoming the go-to experts when it comes to customs, tax, legal and contractual issues.
Over the past years, trading operators have been especially in demand from companies building their trading desks from scratch including national oil companies (NOCs) like Abu Dhabi National Oil Company (ADNOC) and Saudi Arabia’s Aramco. These NOCs have been competing with major trading houses like Trafigura and Glencore to attract talent from around the world.
Products’ value
Given their unique position, trading operators are increasingly expected to take on active roles to optimize Profits and Losses (P&Ls). This is especially seen in trading houses like Vitol, Trafigura and Glencore, while in vertically integrated companies like BP, Shell and Total, the role can be seen as more ‘standardized’ with a primary focus on optimizing operations of physical assets and logistics. In some cases, in energy companies, the responsibilities of trading operators can be combined with other roles to increase internal efficiency. For instance, some shipping operators who are responsible for chartering vessels can also work as trading operators who focus more on products and content of the vessels.
Consequently, compensations offered by trading houses, majors and utilities have varied significantly to reflect the differences in responsibilities of their trading operators.
The role can often be seen as under-valued given that they can be so focused on logistical aspects, especially within majors. “The specific role that trading operators undertake in facilitating activities across the value chain also means it has been difficult to move across to trading jobs or other areas of the business, especially in bigger vertically-integrated companies with rigid structures or procedures,” said Shanez Fernando, Associate at HC Group’s Liquid Fuels Practice.
Many have thrived in smaller companies with fewer barriers to decision-making and more entrepreneurship. In some trading houses, trading operators are expected to be much more alert on market trends and therefore be able to make decisions that will contribute to the bottom line.
Trading operators can be involved in operations to optimize the negotiations leading up to a trade, for instance to assess its economics, run compliance queries or even engage with traders on the other side of the negotiation table.
This is providing operators with deeper insights into the value of the product in volatile markets. For instance, the gas price rally seen in global LNG markets since 2021 has resulted in consumers looking to import alternative fuels such as coal and oil products for power generation. This has highlighted the need to plan changes in the way products are used and how this might impact the route and schedule of deliveries on the ground. In this context, trading operators are increasingly requested to develop their knowledge in various fields, from product blending, storage to multiple transportation options to execute the trade, including barges, vessels, pipelines, trucks and trains.
Regulatory risks
The job of trading operators is also heavily impacted by regulation. Aside from wider global banking regulations like Dodd-Frank and Basel which have amplified the complexity and cost intensity of commodity trading activities both directly and indirectly, the past decade has seen the introduction of commodity specific legislation. In Europe, these include the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) for the petrochemical industry and the Regulation on Energy Market Integrity and Transparency (REMIT). REMIT is a mechanism for reporting and preventing wholesale energy market abuse in force since 2011.
For operators, this has meant an increase in compliance requirements and more rigorous auditing when managing the logistics and execution of trades, additional areas of responsibility and knowledge which was previously outside their normal sphere of operations.
More recently, in the Middle East for instance, those responsible for routing cargoes of oil products have been faced with the implications of international sanctions against Iran, a major exporter of oil. Trading operators had to undertake the necessary due diligence work with counterparties to develop their understanding of the physical movement of oil products in the region and make sure they were not breaching sanctions by purchasing illegal cargoes. This underlines the need for operators to be strong problem solvers to mitigate risks in times of crisis. In addition, in the context of the Russia-Ukraine conflict, operators are having to boost reporting and monitoring on high-risk activities.
With regards to the energy transition, shipping operators are also increasingly having to monitor the carbon footprint of their chartered vessels, something that would ultimately have to be factored into transport costs by trading operators. Other key regulations include more product-specific regulations on biofuels feedstock trade.
Digitalization
Arguably, technological innovation continues to impact the day-to-day tasks across trading benches. Centralized trading systems are now accessible to in-house departments such as traders, operators, trade financiers and accountants. The development of new applications has enabled a higher degree of accuracy in aspects such as shipping route calculations and weather forecasting which have helped operators achieve considerable cost-reduction and efficiency gains in the process.
Looking to the future, a disruptive technology that promises to address inefficiencies in the commodity trading industry and create opportunities for trading operators is blockchain. For instance, London-based consortium VAKT has developed a blockchain-based platform focused on oil trading with post-trade processing that is intended to eliminate paper, improve efficiency, and transform trade finance options. VAKT was created by BP and other oil majors Equinor and Shell, trading houses Gunvor, Koch and Mercuria, and banks ABN Amro, ING and Société Générale.
The increased use of technology has been seen as a potential threat to some front-office tasks. But if anything, trading operators are deemed to be the least obsolete given their key roles in negotiating with multiple counterparties and in addressing last-minute, real-life setbacks. Data still requires vetting against the physical, on-the-ground realities of trading operations, many argue.
To conclude, the value of trading operators is deeply rooted in their drive, curiosity, experience and understanding of their product market. The position can still offer limited perspectives for upward promotion in some large companies. Instead, some see more benefits in switching market products and geographies in their next move, especially in the context of the energy transition. Indeed, in increasingly interconnected energy markets, developing knowledge across commodities could prove an invaluable asset for a career progression to more senior roles requiring holistic expertise of the energy complex. - FS/SF
For queries related to HC Group’s activity and insights into trading operators’ roles and other front-office positions, please contact:
Shanez Fernando, Associate at HC Group’s Liquid Fuels Practice.
Laura Berger, Director at HC Group’s Liquid Fuels Practice.