This MFA Blog, written by Shipergy’s Global Head of Credit and Compliance, Chris Morgan, explores the challenges bunker companies face in balancing operational processes and profitability while navigating significant geopolitical risks. The article aligns closely with the MFA’s work alongside Markel, highlighting the importance of effective credit risk management and insurance solutions in protecting margins and supporting sustainable business growth.
The Credit Gap: Something Wicked This Way Comes
Against all the noise of the market turbulence and geopolitical drama that has been a hallmark of 2025 and 2026, there are some trends that have become increasingly apparent in what we do, that do bear discussion. The feeling is that together they may be steering us all in a difficult direction.
1 – The first thing is the effect of hypercompetition. The over-supplied trading market, having pushed margins to near rock bottom levels, seeks new ways to compete, ie: offering longer and longer credit terms and “payment grace periods” at little or no premium to markets where financing is business critical. Shipping, in particular the dry bulk charter operator market, has not been slow to pick up on this. We’re now seeing companies asking for terms four, six or even more times their freight cycle term, and in many cases want a sharp reduction in interest for late payments loaded into the deal up front or once the invoice comes due. In many cases margins at this level drop below the levels where it makes sense to do the trade but it gets done.
The trading houses taking these deals on are using their access to cheap(er) financing to drive volume and promote market share. Thus a strata of the market comes to unhealthily depend on cheap financing for bunkers to use for things like freight, hire and newbuilding deposits. It stops being just about the bunkers.
2 – The next thing is a tightening up of trade credit in the market as suppliers and the major trading houses shorten terms and slash limits for the smaller traders in response to a higher oil price and climbing financing costs.
3 – The third thing is the increasing costs for financing itself. Bunkering’s well-publicised and occasionally slightly tawdry history of defaults and bankruptcies etc going back more than 20 years has seen many financial institutions retreat from the sector. Those that remain are quite rightly pricing the sector risk into their term sheets in a way, ironically, bunkering itself has been singularly unable to do. The cost is going up.
Right at the point where you have a market demanding longer credit terms and making it difficult to price a worthwhile margin into what you are doing, you also have increasing cost and tighter availability of credit supply to the market. The gap is widening. Traders sit in between the supplier and the customer to facilitate the deal on credit terms. We fill the gap. Fundamentally, that is what we do. So it follows logically that the traders that will struggle from here are the ones that either cannot bridge that credit funding gap the market demands, or more pointedly, cannot do so at a cost that makes sense relative to the margins on offer.
Generally, it is my observation that the most aggressive low margin exponents pushing margins to the deck are not the majors but are typically the smaller, more agile players with low operating costs for things like office space, credit insurance, wages and so on. It has become apparent that the conversation bunkering needs to have now is how these players are financing themselves to allow them to do these trades.
Ultimately the crux of it all is: what happens to all the cheap, no questions asked financing (much of which clearly doesn’t have credit insurance) in the market when we start seeing significant defaults, or perhaps a sea change in the compliance liability landscape following the EU’s Package 21 of sanctions?
What happens when the dependence of the market pulls too hard in one direction and the rising cost of financing/credit in the market pulls too hard in the other? What will befall those caught in the middle? Is this how the market corrects itself? We do not know yet.
You can maintain a rock solid AR book, price all your deals properly in relation to the cashflow you are working with, plan your credit splits accurately and stay away from operators that depend on you to finance their freight or who absolutely cannot pay your invoices unless they themselves are paid in turn. You can be disciplined in stepping away from deals that drop below your margin targets. You can do everything right, have all your policies and procedures working well. You can take all this to the financing banks and credit insurers and they’ll support you because you do things properly and that is how they like companies they invest in and support to work. The difficulty is that you cannot legislate for what goes on out in the wider market. And therein lies the problem.
Thus we see the path head forking, don’t we?
Which path are you going to take? We have an interesting couple of years ahead of us as an industry, that much is certain.
