This article is a continuation of the previous article titled: How To Start A Diesel Supply Business In Nigeria: The Complete Guide. There I introduced the diesel supply business, how you could venture into it, profit from it, and make the most of your time as one of the top diesel suppliers in Lagos to tank farms, organizations and much more.
The diesel supply business, also called the AGO (Automotive Gas Oil) supply business, in Nigeria can be challenging. Though not as bottle-necked as the crude oil business in Nigeria, AGO sellers in Nigeria usually have a tough time closing a deal.
It usually starts with an organization, an AGO buyer with a vessel, or a tank farm making a request for AGO to be supplied to their facility. They make this known to their AGO buyer mandates and give them a set of predefined procedures. The seller mandates acting on behalf of the AGO buyers in Nigeria then put out an advert on social media, Petrofinder, and the likes for AGO to be supplied, or by reaching out to well-known AGO facilitators or brokers to make the supply happen. The AGO facilitators usually have a seller’s mandate they reach out to who then gives them a quote.
Now here’s where the hassle starts:
The Reason AGO Deals Don’t Easily Close
1). Unreasonable Prices:
When AGO buyers in Nigeria want to get AGO transhipped to their vessels or as a tank farm delivery, they send out word for a supply and would usually peg a price to it. If for instance, the buyer anticipates a price of $380 Less $10 per metric tonne for the purchase—where $10 is the commission to be shared 50-50 by the buyer and seller’s facilitators, meaning the real cost is actually $370—finding AGO sellers in Nigeria who would sell at that price becomes a problem.
There are different grades of diesel, based on their sulfur contents. The NNPC’s preferred sulfur content as at August 1st, 2017 for any AGO that comes into Nigeria is a maximum of 50ppm (0.005%), while most people still import AGO that have sulfur contents as high as 3,000ppm (0.3%).
When AGO buyers in Nigeria want to buy AGO at $380 Less $10 per metric tonne and most AGO sellers in Nigeria want to sell at $420 Less $10 per metric tonne, closing a deal becomes difficult.
If the supply for a TTT (Tanker To Tanker Transhipment) or STS (Ship To Ship) transfer is required, it could cost =N=128 less =N=2 per liter, but a tank farm delivery would then cost about =N=136 less =N=2 per liter.
Now the problem is some AGO buyers in Nigeria would want a tank farm delivery to even happen at =N=128 Less =N=2, thereby ignoring the logistics cost.
When the AGO buyers in Nigeria and AGO sellers in Nigeria agree on a mutually reasonable price, closing a deal becomes a lot easier.
2). Differing AGO Buyer & Seller Procedures:
Asides just the price per liter or metric tonne of the AGO, the transaction procedures are the biggest reasons AGO deals never close.
AGO buyers in Nigeria usually have a predefined procedure they want to follow. AGO sellers in Nigeria also have a predefined procedure they also want to follow. And when both the buyer and seller cannot agree on a mutually acceptable procedure to follow, the deal collapses.
Sometimes, the AGO buyer would request that the AGO seller presents proof of product after an SPA (Sales and Purchasing Agreement) is signed, and the AGO seller would instead request that the AGO buyer first places a financial instrument to prove they have the funds to purchase.
Another scenario that plays out is that some AGO sellers in Nigeria cannot provide proof of product because they’re selling from an NNPC allocation. Since they don’t own or control the vessel, they can’t provide the proof, but can instead provide the vessel name and IMO number. But most AGO buyers in Nigeria would rather want to get some proof, which in reality can only be gotten from those who import.
What most AGO buyers in Nigeria don’t know about dealing with AGO sellers in Nigeria selling through an NNPC allocation is they don’t have to pay for the product till the AGO is in their vessel.
For example, here’s the TTT procedure one of our genuine AGO sellers which we facilitate through uses to sell AGO gotten through NNPC allocations:
1. Buyer counter-signs SPA and return with their;
(a) vessel details to include: (CPA, Q88, Charter Invoice, ATL addressed to Seller) and ensure THEIR INSPECTOR IS ON BOARD
(b) Captain’s Thuraya number.
(c). Buyer’s Supercargo Name and Phone Number.
2. Buyer sends SCANNED COPY of a N10 million Bank Draft (written in favour of Seller to support logistics when vessel long-sides for transshipment of product). Hard copy must be deposited with Buyer’s Bank Manager in Lagos.
3. Seller confirms the Bank Draft with Buyer’s Bank Manager in Lagos and instructs the Captain of the cargo laden Vessel or Direct Loader to open communication with Buyer’s vessel captain for a mutual point of STS.
4. Buyer’s vessels hook-up with Seller’s mother OR NNPC Shuttle vessel for trans-shipment of product into Buyer’s vessel. (Buyer’s Bank Officer releases the Bank draft to Seller if applicable). Buyer must ensure that Fenders and hoses are available on their vessel for this operation.
5. Buyer’s Bank Manager releases the N10 million Bank Draft to Seller for him to cash it for logistics and security.
6. Trans-shipment of product on Buyer’s Vessel takes place immediately. Buyer’s Inspector onboard conducts Q&Q test and send the report via email to the Bank officers of both parties within 12 hours.
7. Buyer’s Bank SWIFT payment for the entire cargo into Seller’s Account. Buyer’s vessel is FREE to sail away with the cargo hard copy of any cargo document.
As seen here, the buyer only pays for the product after it has been transshipped. This is a great procedure for both AGO sellers in Nigeria and AGO buyers in Nigeria. But despite its simplicity and security, paranoid AGO buyers in Nigeria still insist on other factors which destroys transactions.
If the procedure an AGO buyer in Nigeria and an AGO seller in Nigeria chooses to go with comes to a unison, a deal can easily close.
…How Do You Find Real AGO Sellers And Buyers In Nigeria?
1). Proof Of Product Or Not:
Depending on whether the AGO supplier is selling from an NNPC allocation or not, a proof of product may be required or not. If it’s an NNPC allocation, you can ask the AGO seller to present the vessel name and IMO number for tracking purposes. This way, AGO buyers in Nigeria can know if the vessel exists since the proof of product for an NNPC vessel can’t easily be verified.
The best part for AGO buyers in Nigeria buying from an AGO seller that’s selling through an NNPC allocation is that they don’t need to pay until the cargo is in their vessel. Making it even more secure than buying from an AGO seller who imported and presented proof of product before the buyer is now forced to block funds before the transaction commences.
If the AGO is imported, the AGO seller could be prompted to produce a proof of product after the SPA is signed. Since they own the product, it should not be a problem.
2). Proof Of Finance:
Before most AGO sellers in Nigeria will setout to make a tank farm delivery in Nigeria or a TTT/STS transfer, they sometimes want funds to be blocked by the AGO buyers, after which the AGO seller would post a performance bond of usually 1% for AGO transactions.
If most AGO buyers in Nigeria can prove their financial capability to AGO sellers, most transactions would close easier.
3). Malicious Procedures:
Sometimes, some AGO buyers in Nigeria would claim to pay a 5 million Naira indemnity fine if the AGO seller sends NOR (Notice Of Readiness – Which usually costs money. e.g 1.5 million Naira) and the Seller does not respond within the agreed time.
The problem here now is some AGO buyers in Nigeria only want the procedure to be signed into a separate indemnity agreement, instead of raising a 5 million Naira bank draft that becomes cashable after the NOR has been sent.
AGO sellers in Nigeria are too streetwise and know that any AGO buyer in Nigeria that refuses to raise a bank draft or manager’s cheque has no intention to pay if they violate. And so, would rather not deal.
There are also several other malicious procedures that AGO buyers and sellers in Nigeria come up with, and when one realizes the second party is trying to play a smart game, they call off the transaction.
To know if an AGO buyer or AGO seller in Nigeria is real, the procedures must be clear of any malicious suspicion or intent, and so, both parties must fully be on the same page.
The Different Ways To Sell AGO In Nigeria
1). TTT/STS Procedure: In TTT (Tanker To Tanker Transmission) or STS (Ship To Ship) transfers, the AGO seller transfers the AGO to the AGO buyer’s vessel after the transaction is fully settled. The AGO buyer then transports the AGO with his or her own vessel to their facility.
2). TTO Procedure: In TTO (Tanker Take Over) transfers, the AGO buyer will take over the vessel, offload the product at their destination, and return it to the AGO seller.
The other two very common procedures AGO gets supplied with in Nigeria are CIF (Cost, Insurance, & Freight) and FOB (Free On Board).
How Payment Is Made for AGO Transactions In Nigeria
Payments are made through various means like wire transfers, bank to bank transfer, or any other agreed means of payment.
The Price Of AGO In Nigeria
The price of AGO in Nigeria per liter or metric ton is usually determined by market forces, the quality of the product being sold, and who you’re buying from.
How To Find AGO Sellers In Nigeria Through Intermediary Facilitators Or Brokers
To enable an AGO transaction go smoothly and safely, AGO buyers in Nigeria may need to work with a facilitator. This is an individual that understands how to facilitate an AGO deal and also get the best possible price and procedure.
Getting genuine AGO sellers in Nigeria directly can be extremely difficult for an AGO buyer looking for a specific procedure and price, but going through a facilitator or broker can help you execute a transaction faster and easier.
How Are AGO Broker Commissions Calculated?
This excerpt below was curated from our other AGO article located here.
“Asides a broker who first gets a quote from the AGO supplier before laying out a final price to the AGO buyer, there’s a standard way the facilitators’ commissions are calculated. This standard method is based on tank farm deliveries from vessels and is widely used in many countries around the world.
For instance, if the seller plans to supply AGO to a tank farm for 130 Naira per liter when facilitators are involved, the amount would be 132 Naira Less 2 Naira. The 2 Naira now, would be shared between the brokers on both the buyer’s and the seller’s side.
So if there was only one broker on the seller’s side, the broker gets a full 1 Naira per liter. If there are two brokers on the seller’s side, they each get 50 Kobo per liter. The same applies to the brokers on the AGO buyer’s side.
If the commissions to be shared by the brokers on the AGO buyer’s side and the AGO seller’s side is 1 Naira instead, the amount would be 131 Naira less 1 Naira. Meaning both sides share 50 Kobo each, while the real cost of the AGO is 130 Naira.
But while this is the international standard method, an AGO broker could still go out of their way to get a quote from the AGO supplier at let’s say, 128 Naira, and markup with an extra 3 Naira, while submitting a final quote of 133 Naira less 2 Naira to the AGO buyer. This way, the broker doesn’t just make a 3 Naira profit per litre on the AGO supply, but could also make an extra 1 Naira per litre on the seller’s commission end, or even a full extra 2 Naira per litre, depending on if there’s any broker on the buyer’s end, making it a full 5 Naira per litre as a profit.
So if an AGO broker gets an AGO supply order from a tank farm for 10,000 metric tonnes, which is about 11,299,435 liters, at a full 5 Naira per liter profit margin, the broker could make 56,497,175 Naira as a profit from the transaction.
The great news is that tank farms mostly only order a minimum of 10,000 Metric Tonnes. They could order 50,000 Metric Tonnes or even as high as 100,000 Metric Tonnes, making any facilitator in the middle of the transaction able to make a large sum from successfully closing a deal, based on the maximum amount the AGO buyer or tank farm is willing to pay per litre, or based on the international brokerage method and how many brokers are involved in the transaction.”
To Sum It
Finding genuine AGO sellers in Nigeria and genuine AGO buyers in Nigeria that’re willing to both agree on a procedure and price can be difficult. But ensuring both parties are able to come to a reasonable agreement is key to closing as many credible transactions as possible.
If both parties would always work with great intentions when they approach any transaction, closing an AGO deal would be a lot easier.
What are thoughts on how to find genuine AGO sellers and buyers in Nigeria? Let me know by leaving a comment below.
An Important Point
Closing an oil deal is hard—whether AGO or crude oil—and so, buyers and sellers go around in circles and waste a lot of time in the process. As stated in this article, a lot of AGO deals never close because of a disagreement in price and/or a disagreement in the transaction procedure.
Getting AGO sellers in Nigeria with reasonable procedures is where we come in. And we have several AGO sellers in Nigeria that can deliver to tank farms, vessels, and even organizations.
We ensure we vet them to know their backgrounds and authenticity, before going on to list them as one of our sellers which AGO buyers in Nigeria can purchase AGO for their tank farms, facilities, organizations, vessels, and a whole lot more.
Whether you’re in any part of Nigeria like Calabar, Port Harcourt, Kaduna, Lagos, or are on the West African coast in countries like Ghana, Cameroon, Benin Republic, and more, and need genuine AGO sellers in Nigeria to cover your AGO needs, Startup Tips Daily Media, through her sister company, Globexia, can cover all your AGO supplies to tank farms, vessels, and more.
In addition to our AGO supply business in Nigeria, we’re also crude oil facilitators, can help you execute a successful crude oil purchase from Nigeria, and can also represent your interests as your crude oil buyer mandate or crude oil seller mandate.
If you’re only a scam, don’t waste your time, as the conversation wouldn’t last too long after a few questions and demands to prove your authenticity have been made from our end.
Professional Due Diligence Checks In Nigeria By Globexia
International buyers are always wary of doing business with Nigerian based businesses because of the high risk of disappointments either in the form of time wasted or money lost, and as such, are highly sensitive of any organisation that presents them a trade offer.
To curb this problem and help international buyers make comfortable and confident trade decisions, Startup Tips Daily, through her sister company, Globexia, has set up an in-depth due diligence check consulting service that will help international buyers get in-depth information on any organisation looking to do business with them. Some of the information the international buyers stand to gain from the in-depth due diligence exercise that will be carried out by Globexia’s team of experienced lawyers in Nigeria are:
- Verification of Company Registration
- Verification of Export Licence
- Verification of Export Activity
- Verification of Past Certificates of Origin
- Verification of Past & Present Bill of Ladings
- Verification of International Passport / Driver’s Licence of The Exporter
- Verification of Bank Verification Number (BVN)
- Verification of Tax Documents
- Verification of Financial Health of The Company
- Verification of Mining Licence
- Physical Verification of Office Address With Pictures & Videos
- Physical Verification of Mining Site With Pictures & Videos
- Full List of Registered Company Directors
And much more based on the client’s requirements.
You can read more about the service here.
If you simply want general commodity trade consulting in Nigeria spanning through Due diligence & proper verifications of both parties, understanding the entire Nigerian commodity trading industry, identifying and completing all due trade registrations, clearing & forwarding of the commodities, market research/feasibility study reports, and much more, Globexia Limited is the right partner to talk to.
We look forward to hearing from you.
Do fill the contact form below.