Americas News
Two U.S. Court Cases Could Shake Up Bunker Supplier Financing, Credit Decisions
Two recent court decisions in the U.S. resulting in physical bunker suppliers failing to have their maritime lien upheld, could have significant implications on both financing and credit decisions within the bunker industry, Adrian Tolson, Senior Partner, 20|20 Marine Energy has told Ship & Bunker.
In both cases, because the physical supplier had not contracted directly with the vessel operator, but rather with an intermediary (in both these cases the now defunct OW Bunker) the court found that they had no grounds to hold a maritime lien.
This is due to the fact that under the U.S. Commercial Instruments and Maritime Lien Act (CIMLA), one of the criteria for the lien to hold is that the bunkers are supplied "on the order of the owner or a person authorised by the owner."
In the cases in question, the fact OW did not deliver the bunkers was irrelevant.
"Bunker credit based on U.S. Maritime Law has always been underpinned by the basic Maritime Lien. The assumption was always that if you issued a BDR you had the lien. These two rulings dump that concept, and say that if you are not the contracted supplier to the buyer of the bunkers you basically have no lien," Tolson said.
"Particularly in the U.S., supplier bank financing deals have built into them the security of the receivables based on liens. Based on these decisions, if you are a bank you will be questioning and controlling the credit decisions suppliers make much more than in the past."
It should be noted that the physical suppliers involved in the two cases, O'Rourke Marine Services (O'Rourke) and Valero Marketing & Supply Co. (Valero), are either appealing or expected to appeal the decisions, which are also non-binding.
Nevertheless, should the decisions be upheld and ultimately a precedent be sent, it could have significant implications for the industry going forwards.
"If a physical supplier was to sell directly to a shipowner then this would be no issue, as the lien would still be there. But there needs to be recognition that credit may well be being given solely to the intermediary and not indirectly to the shipowner by lien," said Tolson.
"What it means for a supplier is that they have to be very comfortable with the credit of the trader in the middle, and of course the trader needs to recognize this and be very open with the supplier."
If nothing else, the situation highlights the need for all involved to fully understand the financial strength of their counterparty.
For the physical suppliers, Tolson says the decision strongly supports direct relationships with credit worthy ship owners, and strong traders where they are not.
As for traders, Tolson says they are "essential" to our industry, "but such legal decisions mean that their continued role depends on their financial strength."
