Bunkerspot: An Equitable Share
In the post-OW-collapse world, vessel owners and charterer customers are now understandably more wary to deal with brokers and traders, who they believe might not pay physical suppliers who will, in turn, arrest their vessels. Thus, physical suppliers are now tasked with developing credit facilities and analysis as more vessel owners and charterers will seek to do business directly with physical suppliers. Banks are also increasingly cautious with lines of credit, concerned that the security they previously could rely on in receivables (i.e., bunkers) is not as secure as they once thought. While the situation may appear bleak, there is an opportunity here to reduce uncertainty and protect all parties’ interests in the bunkering transaction. One of the interesting wrinkles in sorting out the post-OW-collapse, is that the OW terms and conditions that applied to the relevant bunker supply transactions included a clause that protects the rights of the physical supplier to ultimately get paid. This clause in OW’s terms recognizes that where a physical supplier’s terms differ from the terms of OW’s customer, the physical suppliers terms control. So, in the cases where physical suppliers’ terms recognize a maritime lien against the vessels supplied, those terms become part of the contract with OW’s direct customer ordering the bunkers. Also important, the OW terms extend a direct contractual right for the physical supplier to be paid, if the broker/trader (OW) doesn’t pay the physical supplier.
The benefit that these terms bring to all interests in the bunker supply transaction is an element of certainty that incentivizes each party to continue to do business. Knowing that the physical supplier will ultimately get paid, and that if a broker/trader does arrest a vessel, that the vessel owner would not risk paying twice because the broker/trader would ultimately be awarded the margin it was to receive in commission, vessel owners can enter into transactions with a peace of mind. Properly drafted physical suppliers’, and broker/traders’ sales terms, allow for claims for the broker/trader’s margin, and at the same time the physical supplier’s bunkers value. This means that physical suppliers will continue to supply bunkers on the credit of the vessel and that brokers/traders will stay in business knowing that they will receive their expected margins, which coincides with the relative value the broker/trader supplied to the vessel through the bunkering transaction.
For more information on the impact of sales terms on the various interests within bunkering transaction and how to make sure that your particular interests are not impaired by certain terms and conditions, a PDF version of the full article by J. Stephen Simms is available here.