Our client, an international metals producer, wanted to provide evidence to support the commercial terms underpinning their product marketing services to a joint venture partner.
Introduction
Effective marketing is critical to value generation for many producers, particularly in value adding and speciality products. However, the nature of marketing support services and the associated commercial benefits and execution costs differ widely across operations, and are often highly opaque. This renders like-for-like comparison of fees across marketing agents, traders and other entities with sales and distribution chains highly challenging.
CRU Consulting helped to provide an independent and robust evidence base that will support the clients negotiations of the marketing fee structure as part of a contractual review of the prevailing commercial marketing and off taking terms.
Data: CRU
Our recommendation
Based on robust benchmarking and analysis of marketing fees and services, we concluded that the existing terms were broadly in line with wider market norms. Given this, we recommended that the commercial terms enshrined in the existing marketing framework agreements be maintained.
Our methodology
CRU Consulting undertook a detailed review of the existing commercial terms underpinning the marketing agreement, including a full description and analysis of the functions, assets and risks borne by the client under it. This helped provide a framework with which to benchmark the marketing fee against relevant analogues, recognizing that the relevant marketing fees need to be appropriately adjusted for differences in the service offer under comparator cases.
We subsequently undertook a series of interviews and analysis of internal data sources as part of a review of marketing fee analogues. This approach was complemented by broader desktop research including, for example, analysis of the gross margin ratio for third party traders of relevant metal products.in order to measure the value added by traders to the commodities they purchase.
Data: CRU
Our results
Drawing on our analysis of functions, assets and risks, and multifaceted approach to the subsequent benchmarking of marketing and intermediation fees across the market, CRU Consulting identified a range of data points which generally highlighted the reasonableness of the commercial terms in the prevailing marketing and offtake agreement.