Despite shipping being considered as a risk, inherent in the way it operates, it’s the confidence in the ability and sound risk management that contributes to the commercial success in the shipping industry. This trend seems to have fallen in the last 12 months, according to an annual Shipping Risk Survey conducted by Moore Stephens.
Outcomes of a risk survey
The extent to which enterprise and business risk management is contributing to the success of their organisation was rated by the respondents to the survey at an average of 5.9 out of a possible score of 10.0, when compared to 6.8 in the 2017 survey.
Brokers returned the highest rating, followed by ship managers. For the first time in the four-year life of the survey, Europe was behind Asia in terms of geographical sentiment, but it was the Middle East which once again returned the highest figure (6.8).
Overall, respondents rated the extent to which enterprise and business risk was being managed effectively by their organisations at 7.3 out of 10.0, up from the rating of 7.1 recorded last time to the highest figure in the life of the survey. Charterers expressed the highest level of confidence in this regard.
How does demand impact?
Demand trends was cited by 17% of respondents (up from 16% in the previous survey) as the factor likely to pose the highest level of risk to their organisation.
Of which, the cost and availability of finance (up from 13% to 16%) was featured in second place, followed by competition, which was down from 14% to 13%.
Operating costs were ranked in fourth place at 9% when compared to 10% last year. There were also significant increases for bunker and fuel costs (up from 4% to 7%) and geopolitics (up from 4% to 6%). Meanwhile, supply of crew declined from 6% to 3%.
Geographically, demand trends remained the number one concern in Europe, Asia and the Middle East.
How well do they respond?
Overall, 73% of respondents (compared to 69% last time) felt that the senior managers in their organisations had a high degree of involvement in enterprise and business risk management. Meanwhile, 16% said that senior management’s involvement was limited to ‘periodic interest if risks materialise’, while 10% said that senior management ‘acknowledged but had a limited involvement in’ enterprise / risk management.
Overall, 36% of respondents (compared to 30% in the previous survey) confirmed that enterprise and business risk was managed by means of discussion without formal documentation, while 48% noted that risk was documented by the use of spreadsheets or written reports, compared to 45% previously. Third-party software was employed by 4% of respondents (14% last time) to manage and document risk, while 7% used internally developed software, as opposed to 10% at the time of the previous survey.
Faulty finance statements
The changes to legislation were deemed as the sole factor most likely that had resulted in a material misstatement in companies’ period-end financial statements.
Next came estimates of claims and provisions, vessel impairment, disclosure of commitments and contingencies, and loan covenant non-compliance.
Slipping into pitfall
Michael Simms, partner, Shipping Industry group, says: “Shipping is a high-risk industry, and one where inattention to the proper identification and management of risk can have catastrophic consequences. It is not possible to take the risk out of shipping. But it is possible to reduce the levels of risk by identifying potential hazards and then putting in place measures to eliminate or reduce them.”
He adds, “This is not the time for shipping to be taking its eye off the risk ball. The tone at the top is everything, the starting point for good practice and transparent management which can improve the confidence of investors and other stakeholders. Shipping businesses which fail to recognise and address their genuine level of exposure to threat are at great risk of both financial and reputational damage.”
Also, the level of risk posed by most of the factors which impacted their business would remain steady over the next 12 months, with the exception of demand trends, fuel emissions, bunker and fuel costs and geopolitics, which were all perceived to have the potential for increased risk.
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Source: Moore Stephens
