Trading: the keys of Timchenko's Gunvor's success
Very few people outside oil circles have ever heard of Gunvor, a Dutch company with trading desks in Geneva and Singapore, even though it is now the third largest oil trader in the world with an annual turnover of around 70 billion dollars and profits “in the hundreds of million” according to its Chairman Torbjorn Tornqvist. (see the Financial Times article 14/05/08).
The oil trading success story of recent years
The company was created in 1997 as a niche player focusing on exporting Russian oil through Estonia, relying on the expertise of its two founders (Torbjorn Tornqvist and Gennady Timchenko) in the oil business, the Russian market, and transit logistics as well as connections in Estonia. Mr. Tornqvist has traded oil across the world for over twenty years, beginning his career at BP. Gennady Timchenko was one of the first Russians to export oil to Europe. Many in the oil industry consider him to be one of the pioneers of the oil trade between East and West, and he created the first new export routes for Russian oil after the break-up of the Soviet Union.
It is very interesting from a trading point of view to see how Tornqvist and Timchenko used their experience to build a logistics system able to overcome the different bottlenecks which were seriously harming Russia’s oil export, since the country had (and still has) quite poor infrastructure. This allowed Gunvor to take maximum advantage of overcrowded pipelines and thus transit oil extremely efficiently. A real case study!
Gunvor also invested in oil storage facilities, railway transportation as well as port facilities and terminals, therefore ensuring a comparative advantage over their competitors (this is how John D. Rockefeller got rich, too). Today, Gunvor is associated with a railway oil transportation company (Transoil) and has its own tanker fleet, which allows it to keep costs very low. (On this there is an excellent article, if you read German, in Capital, 12/02/2009)
Gunvor’s business has grown steadily since its founding, but especially so after the Yukos group was dissolved and taken over by Rosneft. This is because Rosneft, contrary to Yukos, did not trade its own oil. Suddenly, Rosneft needed to outsource the sale, transportation and delivery of huge volumes of oil, and Gunvor (as well as Glencore, Vitol, and other traders) dramatically increased their volumes. Gunvor is now in a position to rival these other great oil traders.
In 2007, the company had an annual turnover of about 70 billion dollars and profits of several million dollars. Gunvor has thus become the third largest oil trader in terms of turnover behind Glencore (142 billion dollar turnover) and Vitol (146 billion dollar turnover). I call these the “Big Three”.
Thanks to its knowledge of the Russian market and its logistics, Gunvor also trades one third of Russian oil exports. Perhaps because of this, rumours circulate that Gunvor is somehow linked to the Kremlin (some even say Timchenko and Vladimir Putin are in the same Judo club). I personally don’t see how such a strategic company could NOT be closely watched by the political authorities (remember what I said about French Total, or even Aramco?). What is certain (from my point of view) is that Gunvor’s management is professional and, if we look at its history, its success does not seem surprising or strange: they have continuously offered Russian suppliers the best price. Of course, other traders have complained about this…
The company’s future also seems sound. Indeed, as the company has become larger it has begun focusing on the Asia and West African markets, where they already have a strong presence. It is a pity the company is not publicly traded, or I would buy some of its stock today!
Anyway, this means that Gunvor is a company to keep an eye on, as it promises to become a huge actor in the global oil trade. I’ll keep that eye for you.