Bunker Fuel Suppliers: Credit Risk

According to this article from Channel News Asia:

Prices of bunker or shipping fuel are estimated to have jumped by 80 percent over the past year in Singapore.

According to Ocean Intelligence, shipping companies have been increasing their credit lines to finance their operations and it warned that the fallout could hurt the industry.

Matt Cape, director of Ocean Intelligence, said: “(If) one company defaults on bunker payments, a bunker supplier could possibly fold. That, in turn, could have an impact on the insurance company of that bunker supplier and the bank that extends credit lines to that bunker company.

“Those banks and insurance companies will, in turn, put pressure on ship owners and suppliers and you’d have a vicious circle whereby the terms of credit are brought tighter and tighter, making fuel more expensive and making it more likely that ship owners will default.”

Numbers from Ocean Intelligence show that across the 11 major liner operators in the world, profits declined by about 58 percent from 2005 to 2006. The year before that saw a decline of only 2.5 percent.

While I feel for the ocean carriers and certainly want them to stay solvent, the real problem has to do with how they assess and manage their costs. I am of the opinion that many of them don’t really have a good handle on their costs or how to assess them for the future. From the same article:

Analysts have suggested that shipping companies invest in technologies to be more fuel-efficient and to consider changing routes or revising cost structures.