THINK TANK

The bunker market used to be a fairly convivial place to do business. Similar to other sectors in the City, lunchtimes and the hours after work were often spent in the company of fellow suppliers, traders and brokers. Bunker conferences were certainly more fun than formality, and most people genuinely got on with each other. Traditionally, disputes were settled between colleagues, applying a healthy dollop of commercial common sense. 

However, to an outsider following the travails of the market in the wash of the OW Bunker group failure, it looks now like a market beset by internecine warfare, with lawyers in the front line of battle.

Here’s a thought: instead of resorting to litigation to get OW-related bunker bills settled, why not agree to a reasonable split of monies based on what would have happened commercially in the supply chain anyway? I know the reasons, but work with me on this.

Take, for example, a very simple bunker nomination where there is a shipowner-buyer, a trader and a physical supplier. That is three contractual parties to two separate agreements which are, ostensibly, supposed to flow contractually back-to-back.

Let’s say that the shipowner purchases 500 tonnes of fuel. The price that the shipowner pays will be the price the physical supplier has sold the fuel at to the trader, plus the trader’s margin.

For the sake of argument, the 500 tonnes of fuel was sold by the physical supplier at $500 per tonne – a $250,000 stem by the trader. The trader sells the fuel on to the shipowner for, let’s be generous (and keep the maths easy), $505 per tonne. The shipowner owes the trader $252,500 for the 500 tonne stem.

Now let’s assume that the trader enters into administration before the stem is due to be settled-up financially down each step of the chain. And let’s also assume that what the three parties want, most of all, is not a legal cat fight about who is right in the eyes of a court, but to get the stem settled – and that could be quite straight forward.

The shipowner would pay $250,000 to the physical supplier (the base price of the fuel) and $2,500 to the trader (what would have been his margin had he paid the physical supplier). Thus, the bill for the stem is settled quickly and fairly, in a common sense-kind of way.

Naive? Possibly. An oversimplification of the OW situation? Absolutely. But it was necessary to have a start point and, in some cases, it might just be do-able if the suppliers, traders, buyers and financiers can, for a minute, take a step back and just look at the time and cost implications of dogmatically pursuing claims through the courts or arbitration tribunals, the decisions of which are anyway subject to appeal.

Litigating a way through the detritus of what was OW Bunker group is one way to go, but the cost of doing so should not be measured in financial terms only – a lot of time is being given over to sorting out claims when it could more usefully be spent focusing on business development in unrelentingly soft markets. A 3-way conversation, on the other hand, focused on settling up a couple of bills might take an hour or so. Or better still, how about doing it over a good lunch?

James Wilkes, Managing Director, Gray Page