The Risks Of The Shipping Industry

1426 Words Nov 23rd, 2014 6 Pages
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…
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