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Asia shipowners hit with legal disputes over credit, bunker fuel issues

By Goh Shu Hui and Atsuko Kawasaki in Japan

July 11, 2012 - Shipowners in Asia have seen their legal woes piling up this year amid volatile bunker fuel prices, several sources said the week ended July 6. (See related chart: Singapore Ex-Wharf 380 CST ($/mt): May 24, 2010 - June 22, 2012).

In Singapore, the top bunkering port in the world in terms of volume, legal firms have seen a definite increase in more vessels being arrested in port this year compared with last year, said one lawyer with a leading firm specializing in marine industry disputes.

Exact figures were, however, not available, he said.

Bunker traders have also pointed to more vessels being arrested in Singapore's port, said one trading source.

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A lawyer said this year alone his firm was involved in arresting and releasing two ships in two matters in one weekend.

Another lawyer added that his firm had seen more activity this year on arresting and releasing vessels in the first quarter of this year, compared with Q1 last year.

Based on official statistics from the Supreme Court of Singapore, the number of ships arrested in Singapore's port was 84 in 2011.

In the first quarter of 2011, the number of ships arrested was 17. In Q1 this year, the number of ships arrested was 26.

In terms of the number of warrants of arrest filed, there were 95 warrants in 2011, and 21 warrants in Q1 last year, the Supreme Court data showed.

This compares with 31 warrants in Q1 this year.

Impact of bunker fuel prices

Despite bunker fuel prices falling the week ended July 6 to record lows -- hitting a 16.5-month low July 6 at $567.50/mt for the Singapore ex-wharf 380 CST grade -- the damage had already been done, with shipowners having suffered prolonged periods of rising fuel prices. (See related table: Daily price assessments ($/mt): July 10, 2012).

Singapore Ex-Wharf 380 CST ($/mt): May 24, 2010 - June 22, 2012
Click image to view full size Singapore Ex-Wharf 380 CST chart

At its highest point this year, the Singapore ex-wharf 380 CST grade was $744.50/mt on March 27, Platts data showed.

This level has not been seen since 2008 when bunker fuel was last seen in the $700/mt range.

Meanwhile, more companies have been tightening credit lines for trading bunker fuel, between companies and shipowners, with an increasing preference for payment by letter of credit, as opposed to open credit, said one Singapore-based trading source.

A letter of credit is issued by a bank, which provides more security than trading on an open credit basis, the source said.

Companies have also been more hesitant to trade with companies that are not part of their usual customer base, the source added.

Non-payment issues have resulted in companies being pursued for payment through the courts, said one legal source.

"Banks have been less hesitant about cutting credit lines and arresting vessels to enforce the mortgages over the past two years [and] this trend is likely to continue for the foreseeable future," he added.

On the outlook for the marine industry in the next few months, he said it would be "a tough call ... On the one hand, Europe looks very shaky. On the other hand, China is reducing its interest rate to help the economy grow. These factors affect trade and, therefore, shipping," he said.

"The marine industry, which is not in a great state now, will neither regress nor improve in the next few months," the source added.

Next page: Dismal demand for Singapore ex-wharf 380 CST bunker fuel

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