Confidence in Shipping Risk Management Drops
Confidence in the ability of sound risk management to contribute to commercial success in the shipping industry has fallen in the last 12 months, according to the latest annual Shipping Risk Survey from accountant and shipping adviser Moore Stephens.
Respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organization at an average 5.9 out of a possible score of 10.0, 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 organizations 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.
Demand trends was cited by 17 percent of respondents (up from 16 percent in the previous survey) as the factor likely to pose the highest level of risk to their organization. The cost and availability of finance (up from 13 percent to 16 percent) featured in second place, followed by competition, down from 14 percent to 13 percent. Operating costs were ranked in fourth place at nine percent compared to 10 percent last year. There were also significant increases for bunker and fuel costs (up from four to seven percent) and geopolitics (up from four to six percent). Meanwhile, supply of crew declined from six to three percent.
Geographically, demand trends remained the number one concern in Europe, Asia and the Middle East.
Respondents to the survey felt that 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.
Overall, 73 percent of respondents (compared to 69 percent last time) felt that the senior managers in their organizations had a high degree of involvement in enterprise and business risk management. Meanwhile, 16 percent said that senior management’s involvement was limited to “periodic interest if risks materialize,” while 10 percent said that senior management “acknowledged but had a limited involvement in” enterprise / risk management.
Overall, 36 percent of respondents (compared to 30 percent in the previous survey) confirmed that enterprise and business risk was managed by means of discussion without formal documentation, while 48 percent noted that risk was documented by the use of spreadsheets or written reports, compared to 45 percent previously. Third-party software was employed by four percent of respondents (14 percent last time) to manage and document risk, while seven percent used internally developed software, as opposed to 10 percent at the time of the previous survey.
On a scale of 1.0 (low) to 10.0 (high), changes to legislation were deemed the factor most likely to result 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.
Michael Simms, Moore Stephens partner, Shipping Industry Group, says: “The nature of risk itself is changing, not least with the insidious increase in levels of cyber-crime. And the need to manage risk effectively is the subject of increasing legislation, notably in the form of the UK Corporate Governance Code and more stringent requirements in other jurisdictions.
“Our survey reveals that shipping is responding on some levels to existing and new challenges relating to the management of risk, but falling short in others. The disappointing news is that the respondents to our survey emerged as significantly less satisfied than they were 12 months ago that sound enterprise and business risk management was contributing to commercial success.
“The findings of the survey suggest that shipping still has some way to go in order to significantly improve its risk management profile. This is particularly relevant if, as seems likely, we are beginning to see the start of a recovery in the industry’s fortunes after a 10-year slump. New opportunities will bring more – and some new – risks, and these will need careful management.”