Credit insurer: 'No such thing as risk-free trade'
14th November 2014 07:00 GMT

One thing the marine fuels industry can learn from the bankruptcy of OW Bunker is that there is no such thing as risk-free operations, says the Head of Asia Pacific region at Euler Hermes.

"The lesson here is that there is no such thing as risk-free trade," Fabrice Desnos of the global credit insurance provider told Bunkerworld in an interview.

"Even the most reputable companies are not immune to unexpected risks which can in extreme cases lead to sudden insolvencies."

According to Desnos, a business can limit risk by conducting a throughout investigation of a debtor's financial credentials.

"But there are also risks that businessmen can do little about, and against which he is largely defenseless," he notes.

There are also risks that businessmen can do little about, and against which he is largely defenseless.

"Economic swings, hedging position and human management failings make payment defaults arise from time to time."

Credit insurance, on the other hand, can act as a 'shock-absorber' to take up losses that otherwise will be borne by the supplier and limit damages to the economy as a whole, says Desnos.

"For companies trading on open account with their clients, the immediate risk is the payment default by their client," he notes.

"If uninsured, major corporate insolvencies can have in addition a spill-over effect on their subcontractors and suppliers network.

"It is not unusual that suppliers and banks quickly tighten the credit control which may squeeze liquidity down the supply chain."

With regard to the bunkering industry, Desnos believes that smaller bunker suppliers could be finding it difficult to finance their business moving forward.

This is due to cash flow issues resulting from the sudden collapse of OW Bunker.

"As in any such situation, there will be winners and losers," he observes.

"Smaller local suppliers who have been dependent on the trading houses to provide financial support for their cargo purchases will tend to be the most vulnerable and may have more difficulties absorbing the shock created by the loss of a major client.

"On the other hand, suppliers and traders in a stronger financial position may be in a position take the chance to capture market share."

Gabian Chew, 14th November 2014 07:00 GMT

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