Risk marketing

As part of one of the world’s largest hydrocarbon trading companies, we distribute more than 11,000 metric tons of bitumen products to 30 countries daily (equivalent to paving 350 km per day) and serve over 1,600 customers.  We understand that when the price of raw materials fluctuates, it can make it very difficult for contractors to manage their projects. Bitumen is often the largest contributor to road construction project costs and can take up a significant portion of the planned budget. By establishing a partnership with Shell, a contractor can benefit from fixed prices for more than four months.

One of the greatest challenges facing contractors is estimating material costs, specifically bitumen. In 2008 the global oil price fluctuated between $80 and $150 per barrel which was way beyond the expected price and this troubled many parties. Project realisation costs skyrocketed from the initial budget plan and to make it even worse, many contracts were threatened with termination.

Shell's latest innovation is Risk Marketing, a price mechanism that offers contractors certainty when it comes to budget planning. Shell is offering Risk Marketing to its customers in Indonesia where, in line with Government policy, there is pressure to accelerate the development of infrastructure to promote the economic development. Shell already has a strong track record in Indonesia, providing high quality and reliable products to contractors. Our commitment to the development of Indonesia's infrastructure is underlined by a customer reward programme and the establishment of the Shell Bitumen Solutions Centre in Bangkok.

When it comes to budget planning, bitumen receives the greatest proportion and contractors are increasingly challenged to create and execute projects in more careful and clever ways. The fluctuation of material prices can make it difficult for contractors to carry out their projects, hence the need to mitigate the risk of price fluctuations.

When energy prices fluctuate, Shell aims to provide fixed prices and a reliable supply of goods that will ensure:

• Contractors can plan budgets accurately;
• Contractors have a priority supply of high-quality Shell bitumen products; and
• Contractors have Bitumen Price Indications for the next month and for up to one year ahead.

Risk Marketing does not necessarily provide a better price, but focuses on offering certainty of price, thereby ensuring the contractor is able to control costs and revenue. In the event that the floating price is lower than the fixed Risk Marketing price, the agreed volume and committed price must be honoured. 

The Shell Bitumen team in Indonesia

PT. Marga Maju Mapan (3M) recognises the benefits of Risk Marketing. This construction services company has used Shell bitumen since 2001 and they have comprehensive experience in road construction projects from scrapping, filling and levelling to overlay works, both on toll roads and protocol/arterial roads in DKI Jakarta areas.  The Risk Marketing mechanism offered by Shell Indonesia provided significant beneftis to 3M.

As the only company offering and introducing Risk Marketing, PT. Shell Indonesia also provides another facility whereby the contractor need not provide any initial deposit and gains a hedge against price fluctuations which can be caused by several unexpected factors.

The Cipularang Toll Road project (increased from 67km to 120km) and the Jakarta-Cikampek Toll Road widening project in Bekasi (Barat-Cibitung Section) both provide excellent examples of the application of Shell Bitumen. "Shell Bitumen’s quality is reliable and is of excellent value," Suwondo explained. In summary, the Bitumen Business Manager of PT. Shell Indonesia, Hendrik Tunriallu said that PT. Shell Indonesia is aiming to become an infrastructure partner for all customers. "With our commercial and global capabilities, we believe that we can provide the best solution to infrastructure challenges in Indonesia," he said.

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I am very satisfied with this RM mechanism. With a fixed price, it is easier for me to perform the core of my job – to focus on performing, supervising and maintaining the quality of my road projects, rather than being bothered with tedious price negotiations. I can sleep more soundly now. Besides, Shell is the only supplier providing consistent quality through its dedicated terminals and single source of supply. - Suwondo, Administration and Finance Director of PT. Marga Maju Mapan

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To find out more about Shell Bitumen Risk Marketing, please get in touch.