The Benefits of Proper Maritime Risk Management
3 Ways an Integrated Risk Management Tool Can Enhance Financial Performance for Maritime Organizations
Risk management is top of mind for business executives across industries and geographies. This rings particularly true for the maritime industry, which is notorious for its volatile markets, strong business cycles, capital intensiveness, seasonality, and other nuanced complexities.
Every day, maritime shipping professionals are faced with substantial risk tied to constant fluctuations in freight rates, bunker prices, vessel values, time charters, interest rates, foreign exchange rates, and more. These risks in turn have a profound impact on P&L, meaning they must be properly measured and managed.
While maritime professionals can’t predict exactly how the market will fluctuate years into the future, they can identify where they are exposed to risk and protect (or hedge) against that risk in order to offset the negative impacts of being over or understated against market realities. Although this process may look different depending on how you are operating in the market, industry professionals across sectors stand to benefit significantly from proactive risk management.
For owner-operators, their risk is associated with their physical assets, which can be hedged to offset losses that could result from unfavorable market conditions. For trading houses, well attuned to the many layers of risk associated with underlying commodities, fluctuating freight and bunker prices present additional risks that must be managed. For tonnage charterers, their risk is associated with the freight they manage, which makes up a significant portion of overall production and supply chain costs and therefore should be optimized to minimize overall spend.
Increasing liquidity on paper trades, paired with significant shocks to the market in recent years (including the current and future impacts of COVID-19), has moved industry professionals across functional roles to track exposure to risk more closely than they may have in the past. Given the current state of the market, those who proactively hedged their risk beforehand are much better off than those who did not.
With the industry’s expanding interest in and need for comprehensive risk management, let’s take a look at how a fully integrated digital solution can enhance financial performance for maritime organizations.
1.) Gain dynamic visibility into your market exposure
By deploying an integrated, digital system for risk management, you can automatically combine planned and actual voyage results with external price feeds (such as Platts, IHS, etc.) to instantly calculate your position and mark-to-market P&L. With all your data in one place, this view can be sliced by vessel type, cargo trade area, counterparty, trader, trade strategy, and more, for any given point in time.
2.) Understand potential impacts on P&L
The right system will also enable you to forecast various scenarios to your position to understand all aspects of your physical and paper trades and the potential impact on your P&L. By applying stress tests, you can see how your book is affected if the market was to fluctuate up or down. With a digital system, you have the instant visibility to understand if you are underperforming against the market so that you can quickly make the necessary changes to adjust your position.
3.) Integrate with the rest of your workflows
By integrating your trading and risk tool with the rest of your workflows, you eliminate duplicate data entry into chartering and/or operations systems, saving valuable time and resources. Data can automatically cascade through your workflows to help inform better decisions across the organization, giving a much more accurate representation of the result of the voyage.
Enhanced Risk Management with VIP Trading & Risk
The Veson IMOS Platform’s Trading & Risk Module is a proven risk management tool that provides your business with factual analysis to mark to market. By simplifying the calculation and analysis of your market exposure and unrealized P&L, your organization can spend more time executing in the market and proactively mitigating risk.
Have you heard? Veson Nautical’s ONCOURSE user conference has been moved to a fully digital setting in order to ensure the health and safety of our clients, partners, team, and community. ONCOURSE Online 2020 is a free, half-day virtual conference hosted on June 17, 2020 from 9:00 am – 12:45 pm (EST), featuring a keynote presentation, the launch of Veson University, a spotlight presentation of new product features, and more. Register today!