The Risk sources in the Shipping Industry along with current opportunities and future threats to the company’s core business
“Technically, shipping risk can be defined as the ‘measurable’ liability for any financial loss arising from unforeseen imbalances between the supply and demand for sea transport” (Stopford 2009). More specifically, shipowners may face eight different risk types during their operation in the tanker market.
These risks can be categorized into the following types (Kavussanos and Visvikis 2006):
Business risk: Is the risk generated by volatility in freight rates which cause uncertainty to the shipowner’s income, in other words fluctuations in EBIT (Earnings Before Interest and Taxes).It depends on the demand and the price of the product sold. It is influenced by (a) freight rates, (b) voyage costs (fuel costs, port charges, canal dues and broking commissions), (c) operating costs (manning, repairs, maintenance, stores, insurance and administration) and finally (d) exchange rates as income is counted in US dollars while costs are counted in current exchange.
Figure 6. Average earnings of all tankers - Brent & Arab Crude Oil Prices.
In Figure 6 we distinguish the bunker price fluctuations. Bunker is a derivative of Crude Oil and as it fluctuates it increases the volatility and the amount of risk exposure of the shipping company. More specifically as the chart depicts, when Brent Crude Oil goes up the Average Tanker Earnings follow the opposite
The safety aspect for risk management will evaluate the potential for human loss of life and or injury. The potential for major incident or accident, such as fire, explosion, or spill, including environmental damage. The necessity for security within the company is a highly need aspect of safety that can lead to risk. The revenues aspect for risk management will evaluate the loss of customer base, recovering of capital loss and recognizing uncoverable capital loss, and loss of opportunity in marketing of the product. The necessity for revenue risk management is key. The costs aspect for risk management will evaluate the costs that were incurred due to preventable problems. Also, costs due to increased warehouse space, vendor changes, and discount changes. A significant risk in cost for this company is the cost of legal defense. The legal aspect for risk management will evaluate regulatory compliance failures and actions that could result
Were there any inappropriate risks that should not have been taken? How can these be identified and mitigated on future shipbuilding initiatives?
Risk refers to a likelihood, probability, a chance that a loss may occur in a given organization. Most of the times, there is a high risk when there is vulnerability. In this case, vulnerability refers to a weakness that the organization has. Risk assessment refers to the process of identification of potential hazards and proper analysis of the expected losses if those hazards occur (Homeland Security, n.d.). Risk assessment as a way of profiling risk according to impact to the organization. Some organizations have business impact analysis exercises geared towards determination of potential hazards based risk assessment approaches. Organizations’ risk differ depending on the size and the type of business they are doing. The disparity in organizations’ risk call for different adaptation of risk assessment approaches. Even with the disparities of the businesses, proper risk management not only ranks the risks according to the seriousness but also identifies the best methods to control risks in an organization.
Shippers Ltd. had the following inventory situations to consider at January 31, its year end:
The foreword of this book is written by James Corbett, professor of marine science and policy and he writes " This text is designed to assist today’ s mariners, environmental scientists, and regulatory administrators. " And he concludes with "This text contributes to a better understanding of shipping and environment, and expands the horizons for twenty-fi rst-century shipping.".
Risk recognition and management are vital to the operation of this company (BHP Billiton 2015, p.20). According to the previous financial activities, there several significant risks influence BHP Billiton, which are commodity risk, foreign exchange risk, interest risk, transportation risk and sustainability risk.
Shipping being such a large industry with over 1.6 million seafarers globally, consisting of both officers and ratings from countries such as China, Philippines, Russia, Ukraine and India supplying the largest number of seafarers to the industry. The number of seafarers have been predicted to grow in the future with an increase in demand for both officer as well as rating.
Maritime Transport Industrial Sector include huge areas such as Ship Owners and Operators, Ship Agencies, Ship Broking / Chartering Services, Port Operations, Ship Bunkering, Marine Surveying Services, Ship building and Repair etch. These vase areas make the Maritime Transport Sector prone to accidents and lots of risks. For instance, there are lots of environmental impacts such as water pollution and contamination that can results in hazardous waste being discharge in the maritime ports which increases risk of illness, such as respiratory disease or cancer, causes significant damage water quality, and consequently affects marine life and ecosystems and human health. Some common marine incidents include offshore oil rig mishaps, cruise vessel
All over the world competition on the decisions made by management with regards to make difference, as we all see technological changes and advancements in every sector of the world this also goes for the shipping industry. This access of the computers and Internet make much more the possibility of market for a business to get more consumers into their online stores. Many organizations are resorting to the big shipping companies in the market and this shows how the relationship between major online businesses and shipping companies is crucial. Since this businesses rely on shipping this should be the fundamental focus of any shipping business. This relationship should extend to consumers so they know whom to go for when they need to ship anything. Low pricing and quality service is critical to thrive within the shipping industry. Furthermore, the unions are crippling
Ship charges are €6000 per bus and unloading at the port of Santos costs €94 per bus.
Furthermore, business risk is the possibility a company will have lower than anticipated profits or experience a loss rather than taking a profit (Business Risk, 2015). Business risk is affected by several factors including competition, input costs, sales volume, economic changes and government regulations. In addition to operating leverage, financial leverage and business risk, financial risk must also be considered. Financial risk is the possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet its financial obligations (Financial Risk, 2004). A firm that operates
Shipping is an important sector of the Cyprus economy. Consequently, shipping finance is an essential part of the Cyprus shipping industry. International and national financial institutions may shape the development of the shipping industry in the island. Apart from banking and financial institutions, another important dimension that should be taken into account is the provision of high-quality legal services.
Attempts to clearly describe supply chain risk management since the literature is replete with buzzwords that address elements or stages of this new management philosophy.
Every firm would love to invest in shipping industry due to large profits involved. However this would seem easy but practically it is lot more difficult and virtually impossible to establish in container line business. The problem pertains to large capital investments in form of vessel and container procurements and risk of operating vessels. Even if we take the examples of biggest companies
Marine Insurance Policy is split between the ships and the cargo. When coverage is for goods it is termed a Cargo Insurance Policy; when the ship is covered, it is termed Hull Insurance Policy. In relation to hull insurance, the peril of piracy is insured as marine risk under Institute Time and Voyage Clauses Hulls 1983 and the International Hull Clause 2003. In addition, the pollution claims or crew claims caused by piracy are covered by Protection and Indemnity Club (Gauci, 2010). In relation to cargo