Today, most ships burn bunker fuel. Typically, this is the dregs left over at the end of the refinery process. It is an environmental nightmare. It is heavy and toxic, doesn’t evaporate, and emits more sulfur than other fuels.

Like aviation, shipping isn’t covered by the Paris Agreement on climate change because of the international nature of the industry.

The Paris deal aims to limit the global temperature rise to below 2°C this century by reducing emissions. Instead, it is the job of the International Maritime Organization (IMO) to negotiate a reduction in emissions from the industry.

Reducing emissions from shipping is not an easy thing to do, agrees Maurice Meehan, director of global shipping operations with the Carbon War Room, an international think-tank working on market-based solutions to climate change.

The industry will simply say that they are doing a good job building more efficient vessels and retrofitting older ships. However, efficiency is only up because these ships are carrying more cargo. The biggest ships are emitting more pollution because they are speeding up.

Most of the pollution occurs far out @ sea, out of the sight and minds of consumers – and out of the reach of any government.

It has been estimated that just one of these container ships, the length of around six football pitches, can produce the same amount of pollution as 50 million cars.

The emissions from 15 of these mega-ships match those from all the cars in the world. International shipping produces nearly one billion tons of CO2 emissions, which is approximately 2% to 3% of global man-made emissions.

And if the shipping industry were a country, it would be ranked between Germany and Japan as the sixth-largest contributor to global CO2 emissions.

Despite its strength and significant role in world trade, the shipping industry is potentially vulnerable to an Achilles Heel where financing its bunker fuel procurement is concerned.

Without fuel, a vessel cannot budge. Money to buy it is an issue for small shipping companies hit by new regulations and depressed market conditions, and the conditions are constantly changing.

We also need to realize the relevance of helping our clients and customers sustain their enterprises, so vendors can have businesses too.

Physical supplier credit lines have become less available, while bunker traders credit lines have become tighter and toleration for delayed payments has been reduced.

Bunkerers are being careful about who they sell to. Credit managers are cutting credit terms from 30 days to 15, decreasing the amounts, and offering by cash in advance payments for new customers.

The head of global credit at BOMIN, Paul Millar, recently told Ship & Bunker that “we have cut some credit lines to zero for those mostly (low asset-low equity) in our portfolio even if they have been good payers and trouble-free to date.”

A claims manager at a large international trading firm and speaker at PLATTS’ last conference in November 2019 warned that the credit lines will be affected and the money that is available will be allocated to those accounts that show good management, honoring their agreements and healthy cash flow.

Even suppliers and traders are subject to lesser credit terms and financing from their banks. Banks know that the ship operators’ business has declined, and the value of the unhedged product has dropped a lot.

They consider this industry high risk and are not interested in investing too much in the bunker industry. So, vendors have found other ways to fund their activities and obligations, using derivative instruments such as hedging and pledging individual nominations.

Chain reaction dynamic Once driven by basic economic principles (supply & demand) and simple math (1+1=2), bunker fuel procurement has advanced to a unique dynamic interlinked with the derivatives and banking industries.

Instead, it is about buying a commodity in a virtual and ambiguous market, which is based on paper, which is linked to a bank, which is linked to an insurance company. Furthermore, the bunker price offer is subject to inquiry and valid for minutes at a time, calculated by an elaborate pricing mechanism.

To illustrate, in the last 20 years, some very attractive (low) price offers disappeared in moments for management approval or even a sip of a coffee, incurring unnecessary losses due to the crude futures market momentary spikes and last-minute unavailable credit lines.

The derivative market has slurped up so much cash from the interrelated markets worldwide, that most entities have become dependent on banks and funds.

Inevitably, consumer buying power (requiring credit) has shifted from end-user to the middleman, which is where the money is.

The ship-owning community should realize these unhealthy tactics and take actions to remedy them, especially after the unexpected and shocking OW Bunker bankruptcy, in November 2014.

This produced damaging domino effects for many shipping and bunkering companies. Owners experienced first-hand the problem of having to pay twice for the same bunker bill.

Both OW’s bank and contracted suppliers were chasing their vessels all over the globe, taking up time and energy and cutting into profits. Most owners submitted and paid two times. The lesson was quite expensive.

Commercially, the reseller should not be hedging the bunker contract without the buyer’s knowledge and consent, in writing, and should be discussed prior to price offering.

New Europe / ABC Flash Point Shipping News 2020.

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Taj Mahal
Taj Mahal
10-09-20 00:02

The largest part of this filthy derivative is sold @ the European port of Rotterdam in the Netherlands.