Procurement Methods and their Implied Risks

Transcription

1 Procurement Methods and their Implied Risks

2 Definition Counterparty Risk Counterparty risk or Default risk is the risk to each party that the one side will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. The specific focus in shipping is usually the risk that buyer will fail to live up to his obligations and pay for the fuel that he has ordered. No one anticipated the failure of a major Physical supplier/trader prior to OW. Post OW collapse more has been written and buyers are reviewing credit risk and reconsidering what is best way to procure fuel with the intention of minimising risk. Intention is to explore different Procurement methods and default risk further in this presentation.

3 Supply Chain REFINERY Producer/Exporter - Refiners/Fuel Oil Trader Storage or Refinery/Fuel Oil Trader/Bunker trader/physical Supplier Barging Barge operator/physical Supplier Receiving Vessel (Buyer) Owner/Operator/Management Company Sources of Credit in the supply chain 1) Refiner/Fuel Oil trader has to finance Physical supplier OR 2) Bunker Trader finances Physical Supplier to buy from Refiner or Fuel oil trader OR 3) Bank steps in and finances Physical Suppier with appropriate securities

4 Risk Outlook per Actor in the Supply Chain Refiner/Fuel oil trader increasingly concerned with counterparty risk of physical supplier and may have trouble getting credit insurance for these counterparties. Drying up as a source of financing, he sells more and more CIA to Physical supplier. Physical Supplier Concerned with the credit worthiness of end buyer. Historically has used traders to minimise counterparty risk and steered away from direct owner/operator risk but increasingly is spreading risk by extending credit directly to more end buyers. End Buyer Priority is to avoid exposure to having to pay invoices twice and at the sametime maximising price and service received from supplier/trader.

5 Pledging Physical Supplier Buyer Has to finance fuel oil from time of purchase to time of receipt of funds from buyer. Pledging of invoices The bank demands these recieveables to be pledged as security against the loans it has made to the supplier. Since collapse of OW the industry attention has been drawn to supplier financing arrangements. In particular the OW recieveables that were pledged to ING bank. Specifically where OW was a physical supplier with its own BDN unpaid invoices were subject to two claiments OW bankrupt estate and ING Bank

6 Physical Supplier Pledging Risks Buyer Perspective Financing With Pledging Buyer If the Physical Supplier financing agreement entails pledging of invoices to bank there is potentially two claims to buyer. The bank and the bankrupt estate of physical Supplier Physical Supplier Financing with no pledging Trader Financing with no pledging Buyer If there are no invoices pledged there can be potentially 2 claims in the supply chain, Physical Supplier, Trader. The point that many buyers fail to consider is that doing business direct when supplier is pledging can potentially lead to 2 claims if physical supplier were to default on his obligations. The bank and the bankrupt estate of the physical supplier. THIS IS NO DIFFERENT TO DEALING WITH A TRADER THAT DOES NOT PLEDGE

7 No pledging Risks Buyer Perspective Physical Supplier Financing without pledging Buyer If there is no invoices pledged then potentially there can only be one claim in the event of a default by either party Physical Supplier Trader Buyer If there are no invoices pledged there can be potentially 2 claims in the Supply Chain, Physical Supplier and Trader. The main fear from buyer prospective is that if Trader goes bankrupt and does not pay supplier the Buyer might have to pay the physical supplier to avoid the threat of arrest therefore paying the same invoice twice.

8 My Experiences After OW Bankruptcy At time I was the buyer for Swissmarine and had one claim. Vessel bunkered with OW rotterdam as a physical supplier on an OW BDN. Invoice was unpaid. Three parties claimed payment for the bunkers 1. Trefoil claimed to be Physical supplier and had supplied the vessel on an OW BDN. They produced customs documents behind the BDN as evidence they had supplied the vessel and asked for payment to them rather than OW. 2. ING bank claimed the invoices were pledged to them and therefore recieved demand for payment. 3. OW bankrupt estate asked for payment of the invoice as they were the counterparty with whom the deal was concluded. This situation is possible as Physical supplier has pledged their invoice to the bank and supplier has contracted job out to another Physical supplier and asked them to use their BDN. Therefore you have a OW counterparty and BDN yet 3 claims for payment.

9 Buyer Managing Counterparty Risk Doing Business only with the Counterparty listed on the BDN may not be the optimum way to manage your credit risk because: 1. If the physical supplier has pledged your invoice you face potentially 2 claims in the case of default. 2. A BDN is simply a document given to the barge or truck at point of load. The counterparty on the BDN is simply the name on the paper, behind this document depending on the T and Cs on which you have done Business there could be another party that could claim ownership of the fuel in the event counterparty as written on BDN defaults. 3. Many Physical Suppliers will insist on their own T and Cs. To avoid the risk of double payment is best do business on your own standardised Terms and Conditions adopting the appropriate clauses to avoid exposure to double payment risk. 4. Consider the credit worthiness of your counterparty basis his business model, credit status and what financing arrangements he has in place.

10 How do You Know Your Counterparties? 1. Ask your counterparties if they are pledging. 2. Investigate their Accounts and Business Model. 3. Understand what their position is in the supply chain. Doing business directly with the counterparty as stated on the BDN potentially can still lead to mutiple claims. Do NOT make artifical distinctions between Physical supplier and trader and assume one is more reliable thean the other based on a label. Investigate your counterparties creditworthiness before making choices.

11 Procurement Methods in Market Method Implementation / Owner /Charterer /Manager Operators Lead on Buying Proffesional Buyer/ops manager lead on buying Trader/Broker Pool Trader/Broker and Suppliers Direct Pool Direct ONLY

12 Procurement Methods in Market Operators Buy from a Pool of traders/brokers Operators Buy direct and through trader/brokers Nominated Buyer working Direct only Nominated buyer works thru a pool of traders/brokers Owner/Charterer/Manager Fuel Requirement Nominated Buyer working through a pool of traders Nominated Buyer working Direct only

13 DEFINITION OF SUCESSFUL BUNKER PROCUREMENT VALUE EFFICIENCY What you want to achieve? - MAXIMAL PRICE DISCOVERY TO ACHIEVE BEST VALUE PURCHASE - MAXIMAL FLEXIBILITY AND SERVICE - MAXIMAL RESPONSIVENESS AND COMPENSATION IN CASE OF CLAIMS What you want to avoid? - MINIMAL DELAYS - MINIMAL QUANTITY DISPUTES - MINIMAL QUALITY ISSUES - MINIMAL COUNTERPARTY RISK - LOWEST INTERNAL COST OF PROCUREMENT SERVICE

14 Ingredients of Successful Bunker Procurement EXPERIENCE LOWEST INTERNAL COSTS INFORMATION RELATIONSHIPS KNOWLEDGE DESIRED QUALITIES UNDERSTANDING

15 Which buying method works best? PRICE DISCOVERY/MKT INFO/KNOWLEDGE Operator buying through a pool of Traders/Brokers Internal buyer working direct only OPERATIONAL EFFICIENCY/ RESPONSIVENESS/ FLEXIBILITY

16 Ideal Procurement Stratergy Understand and review your counterparties financial status, limit the list of counterparties in order to keep the above task manageable. Impose your own terms and conditions on the seller. This gives you the opportunity to write out double payment risk and standardize all clauses to level of risk that is acceptable and approved by your organisation. Tailor your T an Cs to the standards you expect from your supplier/trader in particular with regards to Delays/Demurrage and Quantity claims which are the most common claims in the industry. Make sure a clear framework is in place within the organisation that governs how each bunker enquiry is managed.

17 Benchmarking/Monitoring Date of Nomination Grade Quantity Port Price 10/5/2016 RMG Sinapore 215 With the above data you can very easily benchmark all of your buying to the relevant cargo index.

18 Benchmarking/Monitoring Sing 380 US Gulf 3% Rott barges 3.5% Cif Med

19 Summary of Average Buying Differentials Ports Singapore(sing 380) Rotterdam(rottbrgs) Gibraltar(CIFmed) Fujairah(sing380) Piraeus(CIFmed) no data no data no data Panama(USGC 3%) La Libertad(USGC 3%) Callao(USGC 3%) Skaw(rottbrges) Shanghai(Sing380) Murmansk(Rottbrgs) Richards Bay(sing380) Hamburg(Rottbrgs) Yosu(Rottbrgs) Malta(Cifmed) Canaries(Cifmed) Black Sea Russ(Rottbrges) FE Russia(sing380) no data no data

20 No one solutions fits all. Procurement stratergy basically depends on your organisation and what risks your willing to take. No data available regarding the effectiveness of different procurement stratergies. Potential Study Opportunity basis price comparison THANKS FOR LISTENING AND ANY QUESTIONS