Following the fallout of OW Bunker there were many warnings from market participants about the risks which are involved with buying bunkers through bunker traders. In one of these warnings for example, the Swedish P&I Club, notified its members that “there is a fundamental risk for Owners and Charterers when purchasing bunkers through intermediaries.”
All this scepticism was the result of the “double payment” problem which became apparent with the OW case. According to this, if a bunker trader goes bankrupt, the Buyer may face two possible claims; one coming from the physical supplier and another from the bankruptcy estate. In order to avoid this problem, many Buyers decided to squeeze out bunker traders completely and deal directly with physical suppliers only.
However, such a categorisation of the counter parties does not really offer the required protection to buyers. In case the physical suppliers are pledging their account receivables with a Bank, the supplier’s bank and the bankruptcy estate may both have a claim against the Buyers. So, apparently, the risk between a physical supplier who maintains a pledge over its invoices is almost the same with a bunker trader without such a pledge.
Therefore, one could say that a trader with a good financial standing that does not pledge their invoices and who uses Tier-A suppliers for refuelling might be a better option than a small physical supplier who pledges their invoices with banks and might not be in apparent financial condition.
In an interesting article written a couple of years ago by Carsten Ladekjaer, at that time the CEO of KPI Bridgeoil and currently the CEO of Glader International, he expressed the opinion that the modern buyer of today needs to move one step ahead and evaluate its counter parties through a detailed KYC process.
According to Ladekjaer, it adds great value to any buyer knowing its counter-party and especially knowing their counter-party’s overall business model and any financing arrangements that they may have in place, instead of taking decisions which are based just on a generic categorisation.
If along with the business structure and financial background, we also add information about their past performance as well as information about the parties involved in the supply chain, transparency will be increased across the board and Buyers will be in a position to better manage their counter-party risks.
Such approach, if followed by more and more companies, will help the reputation of the overall bunkering industry, which is seriously damaged nowadays, to be improved. As Ladekjaer notes:
“It is something that the industry in general could benefit from understanding more about as there is, and has been, a massive amount of confusion in the market in the wake of O.W. and Dynamic Oil where the banks have chased the same money as the Bankruptcy Estate for a period of time, and where the law in various jurisdictions is not always crystal clear.”