Inside Opinion: Could the OW Bunker Collapse Cause a Domino Effect in Singapore?

"All day, all day. Watch them all fall down. All day, all day. Domino dancing." Pet Shop Boys Neil Tennant and Chris Lowe may have written those words 26 years ago, but they strike a particular chord today because they speak to what some are saying could happen to bunker companies in the wake of events last week.

They say London is the centre of the shipping universe, and the ripples from the recent O.W Bunker collapse were felt as keenly here as anywhere. But you know, the epicentre of these seismic shockwaves is not here in London, or indeed in Northern Denmark. It is in Singapore. And the aftershocks emanating from there are creating utter panic.

Could you have imagined a few weeks ago, hearing about traders phoning round Singapore supply market for a quote on thirty days for an average middle of the road shipowner and not being able to find anyone quoting? Astonishing.

Traders having to go back to the customer and tell him they need them to pay cash in advance as none of the Singapore suppliers are quoting on credit terms? Incomprehensible. Trying to figure out whether a certain supplier might be in so much trouble from the collapse of the world's largest physical bunker supplier that you are worried about paying him CIA in case he collapses before he supplies the fuel and leaves you high and dry? Unimaginable.

Yet here we are.

Yesterday was worse, at least today we saw some easing and some suppliers seeing sense and doing deals with all sorts of creative ways to cover themselves.

Gossip is Dangerous

There are times I hate the bunker market. The industry's stomach churning proclivity toward schoolyard tittle-tattle and brainless exaggeration has never been as tragically obvious as in Singapore in the last few days. Traders gossip. We know this. But gossip is dangerous, and this week, gossip and rumour-mongering can kill companies. Yet still the reckless rumours persist. I do wonder whether some of it is malicious - some taking the opportunity to spread misinformation about rivals and competitors into a paranoid market. Personally I think that is as disgusting as it is cynical. I hope you agree with me.

I think we all see the danger plain enough alright.

O.W went bust owing hundreds of millions to a large number of suppliers and traders in the market. More took a hit than didn't. Some got lucky, others not so. Those that have credit insurance are protected, others not and so are out arresting vessels and frenziedly trying to claw back some of the losses. These losses are likely, in most people's view, to drive one or two more suppliers or traders into bankruptcy.

Most in the bunker industry have suffered from low bunker prices, many have taken losses on inventory value (though not to the extent O.W are reported to have done we hope) and the poor freight markets have seen payment performance for customers slide in some theatres, whilst demand for extended terms has undeniably increased in certain markets.

So cash is tight. Credit insurance will be a lot more expensive come renewal time and a lot more compelling than it was for those that don't have it now. Bank support just got an awful lot more slippery and will be harder to secure for traders without assets in the future. Banks are less likely to go the extra mile now if the worst should happen and emergency bridging cash is needed. So we are, as an industry, ill-equipped to soak up big uninsured losses and if these should happen, bankruptcies look likely. These may well cause more bankruptcies. One by one the dominoes fall.

Apocalypse

Here's an apocalyptic view for you. Imagine one of the larger suppliers in Singapore announces they are owed an eight figure amount by a bankruptcy and are forced to shut up shop. A smaller supplier who does the majority of business for the larger one follows suit a couple of hours later. Two banks propping up the companies are out of pocket and step away from the rest of their Singapore portfolio of suppliers. Credit lines are stopped and overdraft facilities are renegotiated.

Panicking as a herd the rest of the banks follow suit, all wanting out permanently. Suddenly very few of the Singapore suppliers / traders can quote on credit terms, but the market demands credit so already-flimsy post-flow meter business case evaporates. The global traders won't use the ones that cannot offer credit. Too much risk, not enough reward. Overnight the Singapore supplier market is decimated. The suppliers not bought up by the mega-traders who have the cashflow and bank backing to offer credit terms wither and die.

Likely? No. I hope not anyway. But it is a lot more likely than it was a week ago.

So where do we go from here? Someone asked me today when we would be back to normal. I don't think we'll ever be back to normal. All we can do is make sure of our due-diligence, keep our ears and eyes open, be upfront and honest with everyone, reassure our creditors, give credit where it is due and hope for the best. We will not be one of the falling dominoes. I am 100% sure of that. But a view over the potential dominoes in the market makes for some pretty scary scenarios and some pretty pathetic rumours flying about in the days to come I'm sure.

O.W Bunker employed hundreds of people, most of whom had no fault in the collapse and most of whom will be out of a job and facing a very uncertain future at Christmas.

They may well not be the only bunker people out of jobs by then. Spare a thought for them at least next time you feel the need to pass on a tidbit of something "unbelievable" from the trading floor bear pit.