April 28, 2014 1 Comment
Ship & Bunker Magazine have given me permission to reproduce this interesting Inside Opinion article.
Inside Opinion is an op-ed industry blog by Ship & Bunker’s anonymous maritime expert. With well over a decade of experience working in world’s biggest bunker markets, our industry insider offers an alternative view on the maritime industry’s talking points of today and tomorrow. Views expressed do not necessarily reflect those of Ship & Bunker, or any companies connected with the Inside Opinion blog.
Industry talking heads have been talking for a few years about a tightening in the credit insurance market. Most bunker companies (with a few notable exceptions, the world’s largest bunker company being one that springs to mind) insure their credit risk and it is mostly done via household name credit insurers you will very likely know the names of.
For some time now cover has been dropping and premiums have been going up. Credit is therefore more expensive to give out. Where there is any realistic possibility of a default or loss, the insurers will not even entertain the possibility of cover.
Increasingly the only accounts you are likely to get insurance cover on are the ones you will never need it on. Bunker companies are under pressure from their banks and trade creditors to have as high as percentage of credit insured as possible, so as cover levels drop the credit managers are under more and more pressure to push the levels up. It isn’t easy.
Typically, as a broad (and slightly irresponsible generalisation), accounts where it is not possible to obtain financials mean no cover or cover at levels so far below what you are trading at it is barely worth the bother.
The insurance companies will not typically look at fleet, deployment or freight CoAs in lieu of financials, so for example great swathes of household name Greek shipping companies have cover levels way, way below where you might expect. Yes, even the really huge ones.
Credit is a Right not a Privilege
There has been a feeling amongst some sections of the market generally that credit for bunkers is a right not a privilege, and that there is no need to work hard for it. Because bunker suppliers are in some instances desperate enough for volume that they are tragically willing to forgo proper due diligence for credit, the bunker companies who do do things properly and do request financials are at a disadvantage. So a lot of companies have a policy not to reveal financial information because there is little compelling them to do so.
It is the equivalent of demanding to borrow a million dollars from the bank at a ludicrously low interest rate for a short period of time but then getting uppity and insulted because the bank want access to your credit record information.
It is ridiculous of course, but it is merely an unpleasant by-product of the super-competitive markets we work in.
To carry on the metaphor, it is the further equivalent of leaving the bank who wanted access to your credit record in a huff, going next door to a different bank who will give you an even dafter rate, take you out for dinner and drinks somewhere obnoxiously expensive, complement you on your tie and not ask a single question about your credit record. You cannot blame anyone for “going next door”.
No Assets, No Owned Vessels
It happened to me just this week. A company approached us for credit for a stem – no assets, no owned vessels, a pure charterer only been trading for a couple of years. Offshore holding company owned, Hong Kong office, Chinese backed, request right out of the box apropos of nothing for three quarters of a million US$ credit on 45DD terms. I asked for some financials, and information about the fleet and employment of the tonnage, plus some indication of the level of cargo contract cover. They refused outright citing company policy.
Someone else fixed it later the same day for $2 margin per tonne. Mindblowing isn’t it?
The only ones who benefit really are the law firms who end up arresting the vessels because “the guys next door” had a stupid credit policy that played second fiddle to commercial ambition. We can only hope that in the future this sort of irresponsible credit policy is finally put out to pasture as expensive lessons are learned, re-learned and learned again for good measure, and the markets finally wake up to the fact that if you want credit for your bunkers you have to have some sort of transparency. Let’s just say I’m not holding my breath.
Reproduced with kind permission of Ship & Bunker (http://shipandbunker.com/)