Outcome 5 part 2

Question 1

What are the types of risks as a ship owner/shipping company? List and describe (wouldn’t learn all of them, maybe 5 or 6)

Answer 1

1. Market risk – shipping markets face cyclical revenues; unpredictable
2. Operating risk – technical problems can lead to reduced earnings, repairs
3. Counterparty risk – are charterers creditworthy and full charter status known? Could have been sub-chartered
4. Competitive risk – May affect financial performance
5. Diversification risk – Market segments have different cycles, customers and ship types; if “all in” on one segment, risky
6. Operating and voyage cost risk – business model sensitive to cost changes?
7. Ship size and age risk – balanced age profile? New ships=high capital cost; old ships=high operating costs. Company equipped to deal with this?
8. Financial structure – stable enough to maintain debt payments regardless of market circumstances?
9. Workout risk – Can company deal with event of a default?
10. Management risk – Is company vulnerable in terms of succession and depth of management team?
11. Environmental risk – Pollution liability, must have insurance.