Image credit: Image file / Pixabay

---

London-based Freight Investor Services (FIS) says the upcoming global cap on the sulphur content of marine fuel in 2020 could lead to market players needing to extend their credit lines by as much as 40 to 50 percent.

This, FIS explains, was the "alarming realisation" from a panel of experts that included refiners, physical suppliers, shipowners and IMO representatives attending an industry seminar held at the Baltic Exchange in London last week.

FIS points out that 2020-compliant, ultra-low-sulphur fuel oil (ULSFO) can cost 40 to 50 percent more than current rates of standard 380 centistoke (cSt) product.

Using Rotterdam as an example, market levels seen during morning trading on February 21 were around $345-$350 per tonne for 380 cSt, according to Bunker Index price data, whilst ULSFO was being quoted at $523-$526 per tonne - 51 percent higher than the 380 cSt price.

"What this means is that anyone who is currently trading bilaterally could need to extend their lines of credit from 2020 onwards by 40-50 percent," FIS told Bunker Index, whilst adding: "How many credit providers will be prepared to extend credit levels by this amount when their clients balance sheets haven't strengthened, and its required simply because their operational costs have increased?"

"This is going to be a real issue and one that needs to be carefully addressed now [so] as to not disrupt daily operations come Jan 1st 2020," FIS warned.

FIS suggests that there are two solutions available to industry players: hedge less exposure (which FIS says results in higher risk) or move over into the cleared markets to hedge - and therefore avoid lengthy credit negotiations.

For more information on how to explore hedging solutions in the cleared market, FIS can be contacted on the numbers below.

Phone: +44 20 7090 1120
Email: info[at]freightinvestor.com