Tradewind Finance, an international trade finance firm with headquarters in Germany, has successfully entered the bunker market, delivering a USD 2 million credit facility for an international bunker trader.
What is bunkering?
Bunkering, or the process of replenishing a ship’s fuel supply, is an essential activity when it comes to maritime travel. It also goes hand in hand with the movement of goods around the world, ninety percent of which are shipped by sea to a given destination.
The bunkering process involves the transfer of fuel oil from a truck or barge into the fuel tanks of a ship typically stationed in or near a port. Safety protocols, ship-to-ship coordination, and precise measurement and transfer techniques all play a part in successful bunkering operations. These steps are taken to avoid the risk of an oil spill, or a client-supplier dispute arising from discrepancies in agreed-upon fuel amounts.
Cash is key
The bunkering business is marked by low margins and high volumes. To be profitable, therefore, requires maximizing fuel sales to marine customers. On top of the quantities that must be sold to generate profit, the crucial function of cash in the industry is noteworthy.
In the article titled, “Taking the Pledge”, by Mathias Steinø that appears in the April/May 2017 edition of Bunkerspot magazine, the importance of liquidity for a bunkering enterprise is stressed: “Supplying bunkers is a heavily cash intensive business. Access to cash is essential for bunker suppliers, and any bunker supplier who loses his creditworthiness may quickly face the risk of bankruptcy.”
In the case of Tradewind’s new bunker client, factoring is a natural fit for their oil operation. Designed to increase cash flow, factoring makes it possible for the bunker broker to access the capital to trade high volumes of fuel, allowing it, in turn, to increase margins.
A spokesman from Tradewind commented on the new financing relationship: “We are proud to provide a factoring solution for our new client, enabling them to expand their customer base using the additional cash flow from the facility. With the facility in place, our client can concentrate on growth, knowing their invoice collection is covered, and does not have to wait long periods for their buyers to pay. Factoring with Tradewind has taken care of this. Other bunker traders are currently looking very closely at using these factoring facilities, so we are excited at the prospect of expanding more in the bunkering business.’’
Benefits of Factoring for Bunkering Businesses
For bunker companies and others outside the industry that are involved in B2B transactions, access to cash is precisely – and conveniently – what trade finance is designed to provide. The working capital support allows companies to stay more than afloat and finance their growth aspirations. According to the World Trade Organization, an estimated 80 to 90 percent of world trade depends on trade finance. Although businesses of all sizes, including large corporations, utilize trade finance for cash flow optimization, the service can be particularly valuable for businesses that are small and medium in size and do not qualify for traditional bank loans.
In performing the trade finance service known as factoring, Tradewind, as the financial intermediary, buys a company’s receivables and can advance them up to 95% of the invoice value upfront, in cash, typically within just a short matter of days. This quick injection of liquidity enables suppliers to meet their short-term capital needs and pursue faster growth.
In today’s transactions, sales are often made on credit terms where payment is due from a buyer up to three months after an invoice is issued. One of the major benefits of factoring is that a company can receive payment right away; Tradewind, the financial intermediary, is then in charge of collecting payment from the customer upon invoice maturity. Without having to wait for payment, and with accounts receivable management taken off their plate, a company can focus on their core business, pay employees and vendors on time, and scale up their operations.
The Upshot
Whether delivering goods to a global destination or returning to the port of origin, refueling through a bunkering arrangement enables seaborne transportation – and all the things that depend on it – to be possible.
The global bunker market is due to increase to USD 240 billion by 2031. Tradewind is proud to have made their foray into this cash-intensive industry, where their solutions seamlessly increase cash flow for brokers and traders in oil who use the added liquidity to improve their margins.
About Tradewind Finance
Founded in 2000, Tradewind Finance maintains a network of offices all over the world, including Bangladesh, Brazil, Bulgaria, China, Hong Kong SAR, Hungary, India, Pakistan, Peru, Turkey, UAE, and the USA as well as the headquarters in Germany. Combining financing, credit protection, and collections into a single suite of trade finance products, Tradewind brings streamlined, flexible, and best-in-class services to the world’s exporters and importers.
