Lub manufacturers face up to new challenges

The lub oil business is in transition. The market is ever more competitive, and more powerful engines are testing lub performance to the limit.

Lub oil manufacturers agree they are operating in an increasingly competitive market. Most anticipate that consolidation and rationalisation within the oil majors as a whole – and within the subsets of these companies that are lubricant manufacturers – will continue in response to the formation of `mega-majors` in the marine fuel and lubs business. Typifying the consolidation and rationalisation in the industry is the recent agreement between Texaco and Chevron to form Fuel and Marine Marketing LLC (FAMM), a joint venture combining the global residual fuel and marine lubricants marketing businesses of both companies.

FAMM will, say the partners, have annual sales of 170 million barrels of fuel, and 80 million gallons of marine lubricants, operating from 25 offices worldwide. Projected annual revenues of the new organisation are $2-3 billion. The creation of the joint venture will, says FAMM, provide customers with better services and a wider range of products, and will position the new company for growth in the marine fuels and lubricants businesses.

According to Peter Russell, international marketing manager at Castrol Marine, consolidation in the industry could be taken to mean reduced competition and hence higher prices. In practice, however, this has not occurred because lube manufacturers cannot increase prices at a time when shipowners are facing intense downward pressure on costs.