New ECA Rules Will Lead to "Consolidation Amongst Bunkering Companies"

"Having to further increase credit will act as a catalyst for more consolidation," says Lars Møller

Singapore-headquartered Dynamic Oil Trading is predicting the 2015 introduction of a 0.1 percent sulfur limit for marine fuel within Emission Control Areas (ECAs) will lead to further consolidation amongst bunkering companies.

Writing in an emailed press release on Tuesday, the company said it believes the regulations will cause an increase in the use of more expensive distillate fuel, meaning buyers operating within ECAs will require more credit to buy their bunkers.

This, according to Dynamic Oil Trading, will make liquidity and credit the single biggest challenge in the shipping industry when it comes to bunker supply.

"In today's bunker market, cash is king and those in the market who lack the financial strength and access to capital will find it very hard to compete and grow," says Lars Møller, CEO, Dynamic Oil Trading.

"This trend will become more acute following the introduction of the 2015 ECA regulations due to increased distillate use. Put simply, customers operating in ECAs and burning distillates to comply, will require significantly more credit than those operating outside ECA waters."

Consolidation

Møller explained that, while Dynamic Oil Trading was fortunate to have the available financial resources, many bunkering companies are already finding it hard to finance the shipping industry in its current form.

"Having to further increase credit will act as a catalyst for more consolidation," he said.

Current rules for vessels operating within ECAs mean they must use a marine fuel with a sulfur content not exceeding 1.0 percent by weight, or where permitted have an approved equivalent method of compliance.

From January 1, 2015 that limit will lower to 0.10 percent.

Møller further predicted that as the impact of the demand for credit increases, so too will the stringency over counterparty risk.

"As the amount of credit increases, so does the risk. The financial viability of who we provide credit to is critical, and the due-diligence that is conducted will be of paramount importance," he added.

"Of course at the centre of this is ensuring transparency and trust in the relationship between the supplier and the customer, as well as access to financial information."

According to data from Ship & Bunker today, in Rotterdam IFO380 was $585.50 per metric tonne (pmt) today, compared to $889.50 pmt for MGO.