Rewarding risk
29th January 2013 11:19 GMT

Many games played in a casino involve a bank and a multitude of players. The bank faces a risk from each player, but its risk is rewarded by the the rules of engagement which give the bank a slight advantage, meaning the bank remains in profit in the long run.

In the world of shipping, it seems many banks have lost their appetite for risk and have left the casino. 

Step up the bunkering sector. According to bunker players, shipowners would need to find between $15 billion and $20 billion if they were asked to pay for their fuel in cash upfront, instead of weeks later. Credit risk is not new to the industry, but because of the sums involved and the heightened risk of bad debts, the rules of the game are changing.

Bunker sellers are demanding recognition for the risk they face when extending credit for fuel purchases. In effect, they are providing a financial service that banks have become reluctant to give, allowing them to put a higher margin on the prices they charge to bunker purchasers.

The interest of any bank loan will depend on loan size, repayment terms, and the creditworthiness of the customer. It seems reasonable that bunker providers should do the same.

This is bad news for the shipping companies that are struggling the most, as they might find few bunker companies willing to extent them credit, and when they do - it will be at a premium. Several bunker companies say they have taken a conservative approach to credit management since the fallout of the 2008 financial crisis hit shipping.

Suppliers need turnover, however, and there are signs that some bunker providers have benefitted from extending credit to financially challenged shipowners. Indeed, some have increased their profit margins during 2011 and 2012.

In this nervous climate, we have heard some suppliers say they are working closer with clients to assess them. Bunker credit managers will be more favourably disposed towards shipping companies that are transparent about their financial situation.  Such relationships can provide a life-line to shipping companies that need a  liquidity partner willing to support them when the banks will not.

On the flip side, several bunker companies are prepared to take swift action against non-payers through the courts. Ship arrests seem particularly effective for securing outstanding bunker bills, providing the owner can find and guarantee the funds at short notice. If the owner doesn't pay, an arrested ship may ultimately be sold to pay off creditors. Banks are usually first in line for the proceeds of such forced auctions. The bunker supplier could lose out if the sale doesn't create enough funds to pay unsecured creditors.

If bunker providers play the role of banks in the shipping casino, there has to be something in it for them. When the chips are down and the stakes are high, those carrying the risk will expect proportionate rewards.

*This text first appeared as a Commentary in the November/December 2012 issue of the Bunker Bulletin, the bi-monthly Bunkerworld magazine.


Unni Einemo,
29th January 2013 11:19 GMT

Comments on this Blog
Darragh Lenihan - Freight Investor Services Pte. Ltd.
30th January 2013
Hi Unni,

Interesting blog, ship owners need to be educated on the price of hedging in the OTC market.

Here is a hedging calculation example I show to shipowners/charterers.

BUNKER SWAP: February 380 valued at $640.00

SIZE: 1000mt

640,000 x 1000 = $640,000 worth of hedge.

The margin required to hedge this amount with SGX;

= $ 25,600 -$27,000*

* call them on +65 62368827 if you don't believe me.

Benefits:

Fuel is has never been more expensive
Hedge OTC leads to complete transparency on price,
Get the best possible rate, save money, lock in risk.
Mustafa Muhtaroglu - Enerji Petrol Denizcilik ve Ticaret A.S (Energy Petrol)
2nd February 2013
Unni, it is one of most interesting stage in bunker industry that such comments are coming from you, so far, no supplier or bank have touched this matter, thanks for that. Nowdays bunker suppliers are most important (in some cases only) bodies in shipping who gives credits to shipowners. However, they are not having any securities like banks normally would have and suppliers are not really getting enought margin or premium for what they give. Without bunkers suppliers and credits they give to shipowners, shipping markets would be much more difficult for them. Mustafa Muhtaroglu. Energy Petrol Istanbul
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3rd September 2016
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3rd September 2016
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