In the shipping industry, rising bunker prices are putting suppliers and buyers under increased pressure. Maritime credit risk analysts said bunker suppliers now face growing credit risks. Prices of bunker or shipping fuel are estimated to have jumped by 80 percent over the past year in Singapore. According to Ocean Intelligence, shipping companies have been increasing their credit lines to finance their operations and it warned that the fallout could hurt the industry.
Matt Cape, director of Ocean Intelligence, said: "(If) one company defaults on bunker payments, a bunker supplier could possibly fold. That, in turn, could have an impact on the insurance company of that bunker supplier and the bank that extends credit lines to that bunker company.
"Those banks and insurance companies will, in turn, put pressure on ship owners and suppliers and you'd have a vicious circle whereby the terms of credit are brought tighter and tighter, making fuel more expensive and making it more likely that ship owners will default."
Numbers from Ocean Intelligence show that across the 11 major liner operators in the world, profits declined by about 58 percent from 2005 to 2006. The year before that saw a decline of only 2.5 percent.
It said these firms could also find it hard to expand, given the pressure on their margins.
Joey Chew Geck, associate director, Standard & Poor's Rating Services, said: "Because of the high borrowing to pay for higher bunker costs, they'll have less room to borrow for their capacity plans for newer fleets or renewal programs."
Currently, most ship operators try to offset rising costs with a bunker surcharge, but analysts said this may not really help in the long term if fuel prices keep rising.
There is, as yet, no financial numbers available to fully analyse the credit risk in the industry.
95 percent of traded goods around the world are transported via the sea and any disruption to operations could have adverse effects on the global economy.
Analysts have suggested that shipping companies invest in technologies to be more fuel-efficient and to consider changing routes or revising cost structures.
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