- Marine fuel sellers essentially act as financing houses for ship operators which are dependent on this for their working capital and liquidity.
- At present, to obtain a bunker credit is tough in shipping industry.
- Changing dynamics to bunker credit is need of the hour.
- Analysts predict consolidation of bunker market.
Paul Hickin, Britt Russel-Webster and Tom Washington write for Platts on the fall of oil demand and its consequent impact on bunker credit. The banks and charterers take precautionary measures while giving credit. Trading losses make lenders to withdraw credit lines.
Shipping Industry sinks due to poor bunker crediting
Tough financial times bring the issue of credit lines to the forefront of the shipping industry. Crumbling oil demand and tighter credit conditions force the industry to take some hard choices. It includes obtaining or providing credit to broader questions around consolidation. Demand recovery as measures to combat the coronavirus pandemic offer only limited encouragement.
Less demand for bunkers
Weaker economic activity has meant less demand for bunkers. Therefore the same bunker players fight over a smaller share. Simultaneously, lower bunker prices translate into narrower margins.
One bunker trader noted that credit offices were more cautious as a result of the current economic uncertainty:
“I hear that it is getting harder to obtain credit approval for bulkers.”
“We are hearing more and more issues and questions popping up about credit,” one bunker supplier based in Northwest Europe said.
“We did get some information from our credit insurer that some credit lines will be lowered…At the moment it is more difficult to apply for a new credit line,” a second trader in the region said noting that activity on credit remained normal at present.
“Bunker players are shielding themselves by culling customers deemed riskier, even some that have been reliable for years. It makes life difficult for smaller bunker traders and small ship operators. At the same time, lower bunker prices are certainly a lifeline for so many sectors that have suffered a profound plunge in business, from container liners to bulk to cruise operators. Even the latter are still paying significant sums for bunkers for their idled ships,” said Jason Silber, Managing Director of SeaCred LLC, a marine credit reporting agency.
This all comes after a precipitous drop in oil prices saw the collapse of trading house Hin Leong Trading. It was hard-hit by trading losses from its lenders withdrawing credit lines. Hin Leong’s bunkering subsidiary, Ocean Bunkering Services, also canceled all fuel deliveries from April 18 onwards. It is an astounding move by Singapore’s third-biggest accredited bunker supplier by volume in 2019, according to Singapore’s MPA.
Peter Sand, chief analyst at BIMCO, the world’s largest international shipping association, suggests the industry is ripe for consolidation. “Everyone is doing its due diligence, one more time during times like this. Charterers, owners and banks putting up credit lines. As banks are likely to seek alternatives, to keep its exposure to industry — as it surely must be profitable business for them — banks are likely to support the bigger and fully globalized bunkering brands,” said Sand. “A consolidation of the bunker suppliers is inevitably on the cards.”
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Platts
