Bomin Talks Bunker Credit Decisions, and Why They're Getting More Complex

Bomin says knowing your counterparty is becoming even more important.

With ongoing poor market conditions, decisions on just how much bunker credit to give customers is becoming a more complicated process, Captain Joe Zhou, Bomin's Hong Kong-based Regional Credit Manager has told Ship & Bunker.

"The golden rule is knowing your business partner, who you are dealing with. It sounds quite simple but a lot is actually involved," he said.

"Knowing your counterparty has always been important, now it's becoming even more important, and transparency is critical. Bomin has good systems in place to ensure that we make the right decisions, but we know that we have to stay vigilant."

Zhou explains that there are some key elements Bomin looks at when making its credit decisions, such as how many ships the company owns, what its mortgages look like, and how long the company has been in business.

"Who runs the company is also very important as people have different ways of conducting business," said Zhou.

"If for example, it is a newly established company, I want to know who the owner is and where he worked. If they used to work for a reputable company that always paid well, we will have more confidence. But if they came from a company that always paid on 90 days, then we have to be more cautious!"

While some information comes from credit reports, Zhou explains that having their own market sources to talk to is also key to understanding the counterparty.

"You need to have the right information sources to make sure you get informed in a timely manner," he said.

"If you know the owner has a strong background and has access to strong financing sources, then there is less risk in providing credit.  On the other hand, some companies might look very strong, very big, like Hanjin, and boom, it's gone overnight. It's not straight forward."

The relative woes of various shipping sectors have been well documented in these pages, with dry bulk suffering from historic low freight rates earlier in the year, only for container shipping to arguably take the spotlight following the collapse of Hanjin.

Even so, Zhou says that sector-based blanket decisions on credit cannot be made.

"How a sector is performing matters, but we always evaluate on a case by case basis. You can't say 'no credit to dry bulk', if you do that it's not going to work – and not a reality of conducting business," he said.

"In the same sector, there are strong companies and weaker ones. We have many customers in the dry bulk sector, and they are good businesses, and we have good relationships, and they pay in line with the agreed terms."

In a similar manner, Zhou says that certain charterers that were traditionally seen as high risk are currently good customers.

"In this particular market you may prefer to work with such buyers because they have no debt burden, their operating costs are very low, and if they operate a ship smartly they can get good profits," he said.

"So you cannot adopt a broad brush approach, you need to look at each company on a case by case basis."

The key to the whole process, and clearly why it is important for suppliers such as Bomin to have a strong credit team, Zhou explains is that even knowing all these factors there is no formula to plug numbers into to get an "answer" to the question of how much credit to give.

"Credit management in this industry is quite subjective - you can't just use your computer to calculate it, that's not going to work. You have to have the right processes, and systems and checks in place, but it is also about the strength of relationship and transparency that you have with the customer that is also very important," he concluded.