A bunker fuel broker has launched a new credit analysis service for buyers to use as they struggle to access the money needed to meet rising fuel costs from tightening emissions requirements.
London-based BunkerEx, a broker that started operating in November last year, has this week launched a credit service to help marine fuel buyers increase and manage their credit lines.
The International Maritime Organization’s global marine fuel sulfur cap is set to fall from 3.5% to 0.5% at the start of 2020, forcing most shipowners to switch from burning fuel oil to cleaner, more expensive alternatives. That rise in costs may cause significant problems for credit availability, CEO Ishaan Hemnani told S&P Global Platts Tuesday.
“If the fuel gets more expensive and people switch to marine gasoil and ultra low sulfur fuel oil, prices increase and credit lines get tighter,” Hemnani said. “If you have 700 mt of fuel delivered at a cost of $400/mt that’s $280,000 worth of fuel. But in 2020 say it becomes $700/mt — that’s $490,000 you need, nearly double the capital requirements.”
Bunker traders and suppliers are de facto providers of credit as well as marine fuels, as they usually take payment for their products several weeks after delivery. A more nervous atmosphere has emerged among credit analysts across the shipping and bunker industries since the collapses of fuel trader OW Bunker in 2014 and container line Hanjin Shipping in 2016, further tightening credit conditions.
“There is a lot of pressure on margins and business models, the whole chain is under pressure, shipowners, traders the whole way through,” a buyer said.
BunkerEx’s new service enables customers to track which of their verified suppliers customers have credit with. The program automatically suggests how many open lines of credit a buyer should have for good, competitive coverage.
“We set this up because we’ve noticed that credit is the single biggest hurdle stopping buyers dealing directly with suppliers, hence increasing their coverage and achieving a lower price,” the company said Monday. “Many bunker buyers can be stuck with just one or two suppliers because of credit, significantly lowering the competitiveness of their enquiries (and thus increasing their bunker bills).”
High sulfur fuel oil accounts for almost 70% of total marine fuel demand. But its portion of bunker demand is expected to plummet from as high as 5 million b/d at present to as low as 700,000-800,000 b/d, largely in favor of marine gasoil and similar products after the new sulfur cap comes into force in 2020, according to calculations by energy consultancy Wood Mackenzie.
Bunker suppliers are trying to mitigate the risk of defaults and vet customers carefully, bunker suppliers have said.
“The suppliers in 2020 will change,” Hemnani said. “Old suppliers may not be able to source compliant fuel, and new suppliers that can may enter the market in different regions.”
“For example, as a result of 2020 you may have three new suppliers which are supplying ULSFO in a specific port. BunkerEx will automatically alert you, suggesting you increase your coverage with these new suppliers and assist in opening lines of credit with them,” he added.
Source: Hellenic Shipping News.