IMO 2020 Shaping Up to be Bad News for Small and Medium Sized Players

Tuesday December 18, 2018

When it comes to IMO 2020, it seems there are very few things the industry can agree on.

One thing it can is that there is a considerable amount of uncertainty. For instance, knowing what products will be available and where, how much they will cost and what demand will be, is all still quite unclear.

"It's a bad situation for buyers," says Paul Millar, Group Credit Manager at Bomin.

"But it's pretty awful for sellers too. How do you present an offering to customers that you cannot commit to?"

Another point of agreement is that the new sulfur rules will put additional pressure on credit, and that's not just because the compliant 0.50% sulfur fuels are expected to be considerably more expensive than the current bread of HSFO bunkers being burned today. Buyers will also have to factor in a multitude of extra costs ranging from tank cleaning to dealing with a raft of new legal issues.

Speaking to Ship & Bunker recently, Millar says it's a dynamic that will favour the larger players and spells bad news for those who are small and medium sized.

"It will be interesting to see how the independent traders perform going forwards. I'm not worried about the big ones, they should do well. That is of course assuming oil majors are prepared to sell them their new compliant fuels," he says.

"The smaller suppliers and traders who don't have a great deal of working capital facilities are going to struggle as they won't be able to grant the same amount of credit for their customers. And if they approach the banks, who are already growing increasingly cautious over our industry, to extend their lines they are unlikely to get a favourable response. Those are the ones we'll keep an eye on and going forwards we'll probably do less with."

Millar believes IMO 2020 will be also be a little easier for established physical suppliers such as Bomin than it will be for the traders.

"If you're a supplier people call you wanting fuel for their vessel, rather than having to chase after business - which is what traders do - and this lets us pick and choose a bit more," he says.

Buyers

A similar picture is emerging for buyers, with a growing split in the market between those favouring traders and those wanting to go as direct as possible.

"The trend of owners who are financially strong and want confidence in who they are buying from will stick to going to direct. Others will have to go to traders," he says.

The new rules will also prompt buyers to have their own rethink on strategy, and in the post-2020 market the larger and better financed players that are in a position to do so could choose to limit the number of suppliers they buy from.

"It may well be you have a fantastic customer you've had a great relationship with for years, and now for 2020 they've changed their strategy and they want to go for low sulfur fuels from Exxon, Shell, or whoever," says Millar.

"So regardless of what's gone beforehand they may want to go to a smaller number of suppliers, just one or two, to minimise fuel compatibility issues."

Finally, the new environment will also see the majors rekindle their interest in the bunker markets.

"Their interest has been low for a number of years, and you can't blame them really because it's been low, zero, negative margins for many suppliers for far too long. With the potential for higher margins this is their way back in," he says.