Joking apart, November 7, the day it became clear OW Bunker had collapsed, may become known as the industry's 11/7 - a day that changed everything in our niche industry.
To mark 11/7, I have tried to identify 11 things that will change and seven things that we have discovered about our own feelings, albeit before the dust has had time to settle.
Change 1) Life will get more difficult for bunker trading companies as the majors and large independents are already cutting their credit lines.
Change 2) The illusion of "safe risk" is out of the window, there is no such thing. People were indeed talking about OW’s adventurous and aggressive risk management manners – but all were blinded by the illusion of size, image and perception. Now, there is no confidence and trust amongst the market players.
Change 3) Banks and financial markets have become sceptics and will be less willing to invest in this unfamiliar and at times dangerous industry.
Change 4) Buyers attitudes, until now, have been focused on price. No matter what the vendor's reputation or methods, buyers were only interested in price. They even 'tolerated' - in some markets - short deliveries and quality issues related to the origin of the product. Now there are signs of buyers choosing to go to physical suppliers only and then only to those who are reputable. Bunker credit management no longer has room for the archaic back office attitude of focusing on dated and estimated financial figures. Now it is 'counterparty risk', applied to buyers and sellers alike. Many companies casually ignored researching their suppliers. Already there are requests mounting on Ocean Intelligence’s order book for credit and due diligence reports on suppliers. “Knowing your customer” is important but maybe “knowing your supplier” is even more so!
Change 5) Never was there a time, as far as I can ascertain, when the bunker industry made tabloid newspapers, mainstream media or the main news on the television. Now, people outside of the industry may think that bunker traders are Ferrari-driving playboys. Just like the perception on investment bankers after the collapse of Lehman Brothers. As with investment banking, the bunker industry has only made the headlines as a result of a disaster.
Change 6) Credit insurance will be different - premiums will inevitably be higher and getting cover may not be so easy.
Change 7) Now with many bunker industry professionals without employment in expensive places like Monaco, Dubai and Singapore, in the future players will think twice before accepting an offer far away from their security zone.
Change 8) Some smaller companies exposed to this big bang will not be able to survive. More insolvencies are likely. Directories will change because some of the established names we have today will not be there tomorrow.
Change 9) Companies will take internal measures to stop rogue traders and the clever ones will implement better knowledge and control mechanisms. Internal espionage will be more important than ever.
Change 10) "Credit matter of trust in principals" has been underpinning the bunker industry for decades, now it will be the era of securities and cash. The notion of trust in principals will erode.
Change 11) A final thought. With credit risk management gaining importance, bunker companies are going to employ new bunker credit professionals, people able to bring a fresh insights. Current bunker credit management is in the hands of a close-knit network, thriving on recommending each other to positions.
Everybody in the industry has suffered the impact of the OW Bunker collapse. From the buyer to seller, to refiner or financier, everybody will feel discomfort. The sense of "No, this is not possible" has been undermined. Everything is possible now.
So what are the seven things we discovered about oursleves? Here is a random selection of reactions from people with whom I have spoken:
Wow! How did this happen? Surely they were too big too fail!
No, that cannot be happening. It is untrue and I will just pretend nothing has happened and it will be okay for the moment.
Those Danish companies were "ruling" the bunker market in close bond with each other. Now what?
What if my company goes bankrupt too? Am I safe? Are we okay?
This is not good for anyone and it will be hard times ahead. Maybe it is time to change industries.
I said so. I predicted all this would happen but nobody listened to me.
You never know what is going to happen next. I must maximize my earnings by any means possible.
So much for the reactions, but what, realistically, can the industry learn from this experience? No one can be oblivious to events such as these or fail to learn some lessons. But human nature forgets easily.
There is no other industry in the world that provides millions of dollars of unsecured credit in "good faith" and expects to be safe and sound. There are also very few industries as unregulated as the bunker industry. Even to run a small insurance brokerage firm you need a license from the local authority. But in the bunker industry trading companies can be set up from a kitchen table.
Now is the time for the industry to take credit risk - or more accurately, counterparty risk - more seriously. There is an English expression: 'Every cloud has a silver lining'. Maybe the silver lining of 11/7 is the possibility of industry correction?
just awaiting the dawn.
a health new development in world wide bunkering industry.
Ok let's first break it down to my key objection, which wasn't really an objection until I read the comments which seem to be missing the point. The issue is that to compare the OW debacle to one of the most heinous crimes of the last 100 years is very poor taste. The analogy is not good, it is belittling to all those who lost loved ones on that tragic day. Perhaps it is better to compare it to Lehmann or Enron, equally devastating collapses that sent shock waves through the global economy, but a terrorist act?
Consider it like this, OW is the demise of a, on the face of it, well run and respected business. That is all. It is a business failure, it is NOT life and death.
However, there are some good and astute points made by Can, I know he gets it, but there are also some massive misconceptions, about for example: the role of the credit manager; the phrase 'credit a matter of trust in the principals'; and that credit managers never look at their suppliers.
The truth is that Credit Managers do look at suppliers, they have to, mostly for reasons of due diligence (compliance / bank & insurer driven) and the well disciplined and knowledgeable of them have always done so. The role of the Credit Manager is to assess risk and to manage that risk. It is not to accept only a zero risk scenario. The good Credit Manager expects to take a hit, and calculates that into the equation. If they do not then they are commercially unaware and the business would fail. Finally, the phrase 'credit a matter of trust in the principals' is one that I have fought hard and long against, both inside the credit reporting sector in my time at MRC/Lloyd's MIU and later at Ocean Intelligence; and outside at Chemoil and Soyuz Bunkering. It is poor quality analysis borne of laziness in research or a misunderstanding of the real role of the Credit Report writer in respect of the Credit Report user.
No Credit Manager would EVER use the phrase, 'credit a matter of trust in the principals'. They want to know who the counter-part is and their decisions are based upon many information streams that lead the Credit Manager to a reasoned decision, one which is supportable and repeatable and moreover one which, as commercial businesses, they have to take.
Let's not forget, Credit Managers are not sat in ivory towers just handing out recommendations. They are living, breathing and in the case of OW (who to the best of my knowledge are in this position not because of poorly made credit / counter-party decisions, but rather poor management and control mechanisms) metaphorically dying by those decisions.
Metaphorically, I say, NOT actually; so I ask again is the 9/11 comparison really appropriate?
Clearly you have got my goat up because I knew people who were in NY on that infamous day! Some I have sadly not seen since.
So, as you might have a point, I'm going to change my 9/11 header as it takes the focus away from my real point.
My point about credit managers is this.
I was referring to the buyers' overall attitude to credit which was more about ignoring the financial safety of their suppliers. Owners and operators have been guilty of this in the past, I'm sure you'd agree. But the OW bankruptcy has changed all that. I have never written anything like ' Bunker credit managers do not check their suppliers'
My real point is: what does the OW collapse mean for credit teams? I mean, they had no direct involvement in OW's failure. The current credit managers in the sector have done well so far however, it might be because of the wide ranging effect of the OW case, fresh blood could be drawn into the bunker credit area to support the current credit staff.
Credit is a matter of trust and applies to the industry as much now as it did before.
Otherwise, how can you grant credit to companies that are incorporated in the Marshall Islands, Panama or any other offshore location and sometimes you do not have any financial statements related to them??
There are plenty like that in the sector, some of them are quite significant businesses with substantial requirements for bunkers and suppliers/traders to maintain credit lines for them based on their experience with those accounts, and trust in principals.
I can give you some names as examples, some of which are I am sure in your customer portfolio. However, this is a matter of a private discussion.
At the end of the day, I think what I've done is to a produce a post-crisis brainstorm rather than an analysis. Which I hope is of some use as, in my view, these echo the collective thoughts of a number of people in the bunker industry at present.
There was successful ad campaign in the UK which had the tagline: it's good to talk.
I think that's also true for the bunker industry and we bunker credit people should learn from this.
It was the analogy which got my hackles up more than anything else...
Thanks for changing the 'tag' line...
ps as you know, we are Soyuz Bunkering Group are supporters of OceanIntelligence and what it does. It is an invaluable tool. Sadly too few people use these tools properly.
Keep up the good work, and Can Besev.... Glad you were so very wise as to cut lines at OW....