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KPI OceanConnect: Counterparty risk assessment in an era of market transformations

15 Dec 2021

Charley Davies, Director at international bunkering firm KPI OceanConnect, on Tuesday (14 December) published an opinion piece about the underappreciated challenge of counterparty risk during the market transformation towards decarbonisation. The article covers four core areas: counterparty risk, digitalization, future fuels and sustainability; and carbon offsetting.

Counterparty risk and the role of the trader

There is already a growing portfolio of fuels for shipowners to choose from, and picking the right one for each vessel requires financial and technical analysis. Alongside this evolution, there’s an increased need for counterparty risk assessment.

For some, it will be mostly related to capital access or claims handling and while for others there will be a greater focus on the transparency requirements that enable access to credit and insurance. There’s no doubt that the importance of working with a trusted partner and – most importantly – asking them the right questions is becoming more prominent in this era of marine decarbonization and as we continue to innovate with digital tools.

Digitalisation and the era of advanced technology

Digitalisation will be an important contributor to success moving forward. One of the core advantages of digitalization is its ability to streamline processes and enhance productivity. Though electronic workflows are commonplace in many areas of shipping, there are still endless opportunities in the marine fuels space.

At the forefront of this technology is our digital marketplace for marine fuels: KPI AuctionConnect. The platform provides full transparency to our counterparts. Buyers see prices drop in real time, and they can choose the most suitable fuel for their vessel.

The whole auction lasts up to 15 minutes, and the buyer has full access to the quality certificates and fuel analysis. 

The instant messaging between counterparts builds further on transparency, while ensuring clear communication between both sides.

With many countries continuing to prioritise remote working and relying upon online shopping, KPI AuctionConnect has achieved good traction. 

This further reinforces the need for digital tools, and KPI OceanConnect is in a leading position to provide the right solutions to support the bunkering industry on its journey towards a greener future. Digitalisation can support the transition towards a low-carbon future by enabling transparency and trust between counterparts, especially at a time where we start to explore different marine fuels.

Future fuels

There’s unlikely to be one dominant fuel in the coming transition. Container lines will have a much clearer sense of where and when they will need to bunker because they often operate on fixed routes, and can invest accordingly. However, those in the tramp trades are likely to face substantially more complexity in their marine fuels procurement and planning.

To thrive in this new market transformation, ship owners and operators will need to work with experienced marine fuels services providers and trusted counterparties that know their markets inside and out. Moreover, they’ll want to prioritise a partner that has a consultative approach, as well as the financial strength, independence, and flexibility to provide the right solutions to meet their current and future demands.

We’re fully committed to this sustainable transition, and are the first marine fuels company to set up an Alternative Fuels and Special Projects division. This has already been acknowledged by several clients and prospective partners who have recognised the need to augment their in-house knowledge. It’s been an exciting year for KPI OceanConnect as we have continued to recognise and implement impactful solutions that reduce carbon emissions from the shipping industry.

Carbon offsetting

In our conversations with clients, there’s an almost uniform desire to reduce their carbon footprint. However, in many cases, it’s not yet operationally feasible for them to decarbonize as rapidly as they would like. Green fuels, for example, are only available at scale in a small number of ports. Similarly, many vessels’ engines are only capable of using traditional marine fuels.

The shipping industry will become incrementally subject to the EU’s Emissions Trading System (ETS) under its “Fit for 55” proposals, possibly as early as 2023. The ETS will apply to intra-EU shipping as well as to ships calling at EU ports whose voyages start or end outside of the EU. Under the current proposals, shipping companies will need to surrender allowances for all intra-EU voyages and half for those which are global.

To meet this demand for progress, we launched our carbon offset program. Carbon offsets enable emissions and CO2 output to be balanced with the purchase of an equivalent offset that funds certified projects that generate clean and renewable energy. Moreover, it’s a “now” and “then” strategy because it supports the scale-up of renewable energy projects that can lead to the production of zero-carbon fuels.

In July 2021, we were one of the first marine fuels companies to complete a carbon offset transaction, which we did with an American seismic research vessel owner and long-term client. The voluntary carbon units were derived from a wind farm in Texas and verified by Verra Registry.

We expect more ship operators to offset their fossil fuel use while new fuel availability is limited. In the medium-term, we anticipate that offsets will remain important as the global fleet gradually transitions to engines that are future fuel compatible, and because many new fuels are likely to not be fully carbon neutral.

This reinforces the need to work with a trusted partner as we transition towards low-carbon energy to meet our 2030 and 2050 targets. Partnering with a transparent, innovative partner is hugely beneficial for shipowners and operators looking to be guided through the evolving market on the journey to decarbonisation. 

 

Photo credit: KPI OceanConnect
Published: 15 December, 2021

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