An Introduction to Bunker Credit Risk

Published Date

May 2010


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An Introduction to Bunker Credit Risk

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This is an essential tool for all those responsible for making credit decisions and assessing counterparty risk when buying or selling marine fuels. Presenting a complex subject in a simply-written and highly-effective format, this book also provides a comprehensive foundation for anyone involved in any aspect of credit management.

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Adam Dupré has over 24 years’ experience in company research, analysis and investigation for the maritime sector. He was one of the founders and later Managing Director of MRC Business Information Group (now LMIU) and, in 2005, he co-founded Ocean Intelligence. He has written and lectured extensively on counterparty credit risk assessment in the maritime sector and is a specialist on gathering commercial information on Chinese companies.

 

 

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Foreword

Preface

About the author

Acknowledgements

Introduction

 

Chapter 1 - The bunker market

Origins

A market is born

Enter the trader

Trading grows up

The supply chain

Fuel delivery

Some modernisation, but still an old fashioned industry

 

Chapter 2 - What is bunker credit risk?

Buy now, pay later

Sell your risk?

What can a poor buyer do?

Security? What security?

What price bunkers?

The Big Price Collapse

Where can you find bunker prices?

A volatile market

Different ways to prepare for the bad times

The pressure of competition

Credit risk – a necessary education

It takes more than numbers to understand the credit risk

 

Chapter 3 - The market today – structural risk

The constituent players – how do they work?

Flags of Convenience

One ship, one owning company

Limited liability

The debt is fixed to the vessel

Types of shipping business

Who is actually buying?

Greek shipowners

Norwegian shipowners

German shipowners

You must know the responsible principal

The make-up of the shipping industry

Wet and dry trades

Containers

Cruise shipping

Fishing

 

Chapter 4 - Background factors affecting risk

Market volatility

Cycles are essential to the health of world shipping

Historical example of shifting ship values

12 dry sector cycles since 1869

Some drivers of fleet expansion

Tankers since the 1970s

The dry sector over the last 20 years

The 2008 collapse

Non-market risk factors

The effect of hostilities

Political unrest

Piracy

US blacklists

IMO regulation

Emission Control Areas (ECAs)

Port State Control

Trading areas

Institute Warranty Limits (IWL) and government restrictions

Practical/operational constraints

Innovation

Financial innovations

FFAs and risk management

Why FFAs?

Paper driving physical – not healthy

Modelling risk

 

Chapter 5 - Review of shipping markets

Bulk carriers

The good times…

…and the bad

Was the 2008 crash foreseeable?

Subdivisions of dry bulk

Dry bulk sector risks?

The newbuilding disaster

Pushing the problem back

Real structural changes following world events

Asia not insulated

Shipping enters recession late and comes out more slowly

The number of ships on order

The China effect

A brief major bulks review

Foreshadowing the crash

Risk factors

More rapidly fluctuating rates

Capesize rates

Paper trading issues

COAs no longer a necessary good

Tankers

Changes coming up

Spot earnings

Build costs erode earnings

Fleet size reduction and sector recovery

Risk arising from loss of oil major approval

Political volatility of crude oil loading areas

Falling demand for oil impacts the tanker fleet directly

Changes in refining affects trading patterns

The Liner sector

Conferences

Review factors for liner companies

Falling consumer markets impact on the container trades

Movements in charter rates

Cost saving measures

Some good news, but not much

Newbuilding flood not quite so bad for liners

Basic risk factors remain income too low, costs too high

Container market realignments in the face of the recession

General economic conditions

Considerations on the world economy

Economic risk factors in key segments of the freight market

General considerations of threat/risk factors for shipping

 

Chapter 6 - Country risk 47

Time zones

Language barriers

Legal issues

Currency

Information

Current areas of concern

North Africa

West Africa

East & North East Africa

The Middle East

The Indian Sub-Continent

South East Asia

Australia, New Zealand and Oceania

North East Asia

The Americas

Europe and the Former Soviet Union

 

Chapter 7 - Tools for credit risk analysis

The underlying dynamics of risk in shipping

The boom to bust cycle

Shipping follows world trade

Markets down, credit risk up

Every case may be different

The credit risk analyst’s tool-kit

No formulaic answers

The tools available

1) The Internet

2) The press

3) Colleagues and networking

4) Specialist data vendors

5) Industry associations

6) The company itself

7) The specialist marine credit report

 

Chapter 8 - Making the credit decision

The basic question

Your own records

The specialist data vendors

Sovereign risk

What vessels? What trades?

The initial hypothesis

Trade press

Asking the market

Buy a credit report

Use as many sources as you can

Know for yourself as much as possible

A credit check list

 

Chapter 9 - A positive business tool

Sweating the debtor book

Putting pressure on the sufferers

Credit as long as it is due, not when it is not

Seeking out the higher margin payers

Selling to the higher payers as long as they are safe

Give credit, get something back

 

Chapter 10 - Securitising credit risk

Credit insurance

Where bunker credit insurance started

Parental guarantee

But it is always your responsibility

 

Chapter 11 - What to do if there is a default

Asset tracing and chasing

Ship arrest

Be careful

Where ship arrest can work for the bunker supplier

A question of jurisdiction

Find the best port to arrest

What you need to consider

 

Chapter 12 - Summary and conclusions

 

Appendix 1 - Credit check lists

Major oil company credit check list

Small ship supplier credit check list

Independent bunker trader’s risk breakdown

 

Appendix 2 - Sample credit reports

Sample 1: Ocean Intelligence: Yang Ming Marine Transport

Sample 2: Lloyd’s List Intelligence: Hapag-Lloyd AG

 

Appendix 3 – Bibliography

Technical and legal

General bunkering

Bunker markets

Credit issues

Ship arrest

Useful websites

Credit analysis

Associations

Information sources

 

Appendix 4 - Glossary of terms

 

Index

Petrospot is a dynamic independent publishing, training and events organisation focused on the maritime, energy and transportation industries.

It delivers the highest quality strategic information in the most comprehensive and convenient formats – via magazines, websites and books, or face to face in conferences, exhibitions, seminars and training courses.

Based in Oxfordshire, England, Petrospot was established in May 2003 by Llewellyn Bankes-Hughes (Managing Director). He is supported by Lesley Bankes-Hughes (Director – Publishing), and Luci Llewellyn-Jones (Director – Events).

Title: An Introduction to Bunker Credit Risk
Number of Pages: 113
Product Code: PT1005K
ISBN: ISBN 13: 978-0-9548097-5-1 (9780954809751), ISBN 10: 0-9548097-5-0 (0954809750)
Published Date: May 2010
Binding Format: Paperback
Book Height: 240 mm
Book Width: 140 mm
Book Spine: 6 mm
Weight: 0.20 kg

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