Credit Strategy - BIMCO Bulletin

Credit Strategy

The financial side of 2020 Shipowners and traders urgently need a credit strategy By Mette Kronholm Frænde, Communications Manager and Editor at BIMCO. Shipowners, charterers and bunker traders will need extended credit for 1 January 2020 as the price of low-sulphur fuel will rise – perhaps significantly. Engaging with bunker suppliers and credit agencies to prepare a credit strategy is a must. With little chance that freight rates in general will rise at the same level as fuel prices, a large proportion of the shipping sector will be unlikely to recover the significant rise in fuel costs via bunker adjustment factors, according to Douglas Raitt, Regional Consultancy Manager at Lloyd’s Register in Singapore. In this scenario, for small and middle-sized players, there are no guarantees that suppliers and banks will extend credits, and planning will be key. “It is not going to be easy. I think people are underestimating the challenge that will hit shipping. It is only going to intensify by the end of the year,” Raitt says. He adds that, although major players need a plan too, they will not be feeling the same pressure as the smaller ones in the industry – whether shipowner, charterer or bunker trader. “What I find surprising is that very little is talked about when it comes to a fuel-credit strategy. Everybody is talking about fuel quality and fuel management, but they are missing the point that fuel quality and availability is only an issue if you can buy the fuel in the first place,” Raitt says. Engage with key suppliers now I think people are underestimating the challenge that will hit shipping Fuel quality and availability is only an issue if you can buy the fuel in the first place Photo (top): iStock / chrissmith731 and voraorn Paul Millar, Head of Global Credit at Bomin Bunker Holding GmbH & Co, strongly advises bunker buyers to start preparing for higher prices now by engaging with key suppliers. “That is an absolute must. If I were a shipowner, a charterer or a bunker-trading house, I would start talking to my suppliers now. They will need more credit to cover the rise in fuel costs,” Millar says. “Some owners might be well advised to present their financial statements to the major credit insurers, to the credit agencies and to their major suppliers to give them the confidence that they are worthy of a higher credit line. If I were an owner, I would aim to be as open as possible about my finances and ownership structure. That would be a very sensible thing to do,“ he says. Extending 30 days credit terms to 45 Millar advises players to start putting a credit strategy in place now, or at the very latest to start in the summer. The Bomin group has already cut a number of credit lines for smaller traders because the group lacked confidence in their prospects. “At the moment, our emphasis is selling primarily to the bigger, otherwise known as low-risk, players out there. Going forward, we are likely to be more demanding than in the past when it comes to looking at financial statements and potentially asking for parental guarantees,” Millar says. For shipowners, Bomin could see credit terms extended to 45 days from the standard 30 days for customers that they know, trust and consider stable. “The large companies that we have confidence in will need the flexibility and accommodation on the part of their suppliers. It is the small and mid-sized players that I can see getting into trouble if they have not very carefully prepared a credit strategy and not had close conversations with their suppliers,” Millar says.