Founded in 2005, Ocean Intelligence is a leading marine credit analysis company. Specialised in the marine fuels sector, Ocean Intelligence’s mission is to provide effective and innovative credit risk management solutions to support the shipping sectors in making exactly the right counterparty credit decisions and maximising sustainable business opportunities.
Raymond Tan is Managing Director for Petromedia Singapore and Managing Analyst Ocean Intelligence Asia.
Ray contributes to this blog as a means to provide insight into the latest and most meaningful developments in Maritime Credit Risk Management.
Ray has over 10 years analyst experience, of which he has spent eight specifically in maritime credit and risk analysis. This includes working as Senior Risk Analyst at Euler Hermes.
There was a diplomatic row between Singapore and one of its longest and oldest trade partner in South East Asia, Indonesia, recently.
It came to light that the Indonesian Navy had decided to name one of its new frigates KRI USMAN HARUN, after marines Usman Haji Mohamed Ali and Harun Said. It was the same two marines who were convicted and subsequently hanged for a 1965 bombing of MacDonald House on Orchard Road.
The incident happened at a time when Indonesia's then President, Sukarno, was opposed to the formation of Malaya, which Singapore was a part of from 1963 to 1965. The hanging of the marines saw some 400 agitated students in Jakarta ransack the Singapore embassy, attack the consul’s residence and burn the Singapore flag, and bilateral ties remained tense for several years.
Eventually the relationship warmed over the years, Singapore's first Prime Minister, Lee Kwan Yew, even visited the graves of the marines in 1973 in an attempt to close the chapter. The naming of the frigate did open some old wounds and reminded fellow Singaporeans like myself that our security and national defense cannot be taken for granted. The threat to national security is real in this ever evolving world.
The distance between the Arctic Circle and Singapore is over 7,000 miles. Although, seemingly navigable, Russian traders and settlers have been exploring parts of it as early as 11th century, the viability of the Arctic shipping route came into prominence in the past 10 years.
It would cut shipping time by close to 10 days and obviously representing cost and time saving for all shipping companies. How does this relate to Singapore? And why would Singapore be interested in getting a permanent observer status in the Arctic Council?
The opening of the Arctic shipping routes will definitely be a threat to Singapore's status as an important shipping hub. The route effectively bypasses Singapore for East-West shipping.
The one key similarity between these two incidents is threat. Threat to national security, threat to status and threat to "business as usual". Bunker suppliers and traders by offering unsecured credit lines to their clients often face the threat of default from their clients. Given that the shipping markets had been in the doldrums in the recent few years, several big collapses have happened since 2008. So what can be done to nullify this risk?
I am of the opinion that the risk of default cannot be completely nullified if businesses want to maintain profitability, after all, the whole point of being in business entails some calculated risk and hopefully some reward at the end of the process.
Through the few years I have spent in the bunker industry, I have met several businessmen or traders whom had been seriously burnt by the default of payment from their clients. One of them had to close his small trading operations due to a single default, another one told me that a single bad deal had effectively wiped out years of accumulated profit for his business.
How do we then mitigate the risk? When I pose this questions to various traders and suppliers, the most common answer had actually been this "I have known the owner and his business for a long time, he can be trusted". There is nothing wrong with this approach, the key to credit risk management is to first of all, know your customer.
A good credit management team or system should be able to find out the nuances of each of the client's operations, most importantly, focus on the business risk aspect apart from the traditional financial and operational risks. The traditional credit analysis model relies too heavily on balance sheet analysis and track record, but we tend to forget that a repeat of the good performance relies on many extrinsic factors, some of which are beyond the counterparty's control.
Maybe it is time to rethink our tried and tested way to analyse credit.