MARITIME RISK MANAGEMENT OR “ DERISKIFICATION “

Posted by admin on February 23, 2010 under ISM Code | Comments are off for this article

 

In this article Captain Peter Cooney, Non-Executive Director of ConsultISM and former M.D.  of V Ships and Acomarit, shares some thoughts about the risks facing a ship operating company and challenges ship operators to examine just how well protected they really are to these many risks.

 

 

 

The intention of this paper is to consider, in entirety, risks associated with Shipping enterprises and how we deal with them and make us more resilient.

Shipping is a business venture which is laden with risks and very exciting. It is remarkable and interesting that so many global businesses choose to be involved in the transportation of the World’s trade. We can only assume that the justification for investment in shipping is that over time many people make money and that all of the people in shipping have a great time and a lot of fun. They also enjoy each other’s company.

Investors who contemplate entering a shipping venture have to consider, understand and deal with a variety of risks.

All strategic corporate decisions are in play, in terms of securing funds, on what terms, from where and in what structure.  Shipowners then have to consider at what time they acquire assets, be they new-builds or second hand vessels, or as the motor trade believes, pre-owned vessels.  It is clear that when taking these decisions they need to take a view on the risk appetite financially, but also in terms of their ability to deliver a result to shareholders and investors. They will also be considering Corporate governance.  An important part of the process is a full risk assessment, at all stages considering risk and reward, and insured and uninsured risk.  We would therefore assume that the shipowner and his management team would consistently review all potential risks, as they go, with planning both financial and operational.  I wonder how many have this discipline?

Many shipowners employ risk managers on the Board or as advisors, taking some responsibility and all organisations are, I suppose, trying to bring risk management into the mainstream of shipping activity. Shipping, as said, is a very risky business and has to make business like decisions, be as innovative as possible, take positive risks in order to maximize profits.

When sitting down as a management group an important element is to construct a  company which has all  the inbuilt skills and competences required but also to manage extraordinary events which happen. One thing is absolutely clear from our now considerable experiences in our shipping world is that unplanned eye openers will eventuate from time to time. It is necessary then to create a business model with the appropriate structure and organisation with the capacity and resilience to care for day to day business and the balls from left field. The very nature of our exacting business is that we certainly do not have all the resources, human and systemic, which are required to execute future plans and deal with the risks.

At corporate levels organisations will of course employ lawyers to protect against legal, contractual and documentary risks. They will also hire one or more ship brokers to advise on issues such as freight risk.  However, none of this may protect against counterparty risks etc.

Acquiring vessels is a complex and sometimes an unrewarding exercise which also needs a coterie of experts, or risk defenders in order that the asset is delivered meeting all expectations. Not an easy task in today’s market.

The reputation of a shipowner, or manager, or operating company, is critical, in terms of attracting funds for asset acquisition, in terms of trading vessels, not only to earn freight but to compete at all in some markets. A risk management process is important here and most owners will employ a P.R. expert to assist, and control and mitigate the risks associated.

Business continuity is an area which requires attention with the possibility of significant potential risk, not least of all the provision of office space, I.T. services etc.  It is important to have a Business Continuity Management (B.C.M.) policy, carry out a business impact analysis, risk and threat assessment and proceed.

These are only a few examples of risk in the shipping venture.  They all need to be de-risked   Call it what you like, it is “Deriskification”

If we assume that these are two fundamental components of a shipping enterprise, simplistically they are:

A)     Corporate, including all of the above. The ship is in the water and employable.

B)      Trading the vessel with all operational risk associated.

The assumption, a big one, I agree, is that the vessel delivered to the operator is in pristine condition with no inherent risks attached.  Unlikely you say.

My experience, at this point, is that people in shipping are more likely to be reactive rather than active or proactive and history supports this view. We wake up at three o’clock in the morning, following the phone call, with our eyes popping out because we recognise the risk and the impact of an incident, or less likely, but not impossible, we have been trained and educated, and we recognise the potential threat during the training process, and then our eyes pop out.

If we follow B) as identified above, we see an interesting picture of the overall risk profile developing.

When we consider that risk will always do its best to have a detrimental effect on the achievement of any objective take a look at a typical shipping venture, in an operational sense.

Firstly, shipping is a fully global business so we operate in an international environment with all of the issues which apply including legals, language, culture, time differences, political initiatives and not least of all, a shortage of skilled people, weather and piracy.  Within this backdrop we trade in a market where shipowners, over time, do not receive a fair return for their investment, efforts and risks and as we know there are many reasons for this.

Let’s now embark on a voyage around the risks associated with the management of the assets.  We have already managed risk to this point as best we can.  However, that does not mean that it has been fully identified, mitigated or gone away.  In fact much of the residual risk arising from earlier decisions is passed down to the operating level with imperfect vessels and so on, so managers have to take over a strange ship, quickly acquire the skills and competences required to trade the vessel; i.e., change management.  We need to resource the people in the offices and on board ship who can operate these assets in a risk averse way, which is not an easy job.

We probably have to outsource a number of roles which further complicates life and creates more risk, whilst recognising that the shipping community has become a major outsourcer, which has benefits but also a downside.

We need to care for the cargo, the very reason for the enterprise in the first place.

We certainly need to care for the environment for the reason that we should but also because if we do not, its eye popping time.

Care of the crew is a paramount responsibility and should be our number one KPI.

On top of all this we have to consider the complete operation of the vessel. Safety, security and in all respects be risk averse.  How do we achieve all this, considering human resources, repairs and maintenance, voyage and cargo operations and all other services required?

I would ask you to remember at this time that shipping has only one earning centre and many cost centres.

We broadly rely on two things:

1)      Sea Staff and supportive personnel of the highest quality and competence with a fully sympathetic and understanding senior management. 

2)      Dependable systems which also assist and de-risk the venture whereby these configured systems support both the hardware and the people.

These two critical elements are not a given.

Turning to the regulatory environment in which all of this has to function and considering this regulation and control of risk we arrive at the ISM Code and Safety Management Systems, bearing in mind that no two shipping companies are the same. What a challenge for the industry.

Considering (B) above, such a great deal relies on the impact of the full and effective implementation of these SMSs that I think we need to apply ourselves move to this element in the matrix of control factors in play. We also need to remember that we live in a World of constant change for example with a recent understanding that lawyers are becoming increasingly aware of the potential use that can make of the I.S.M. Code.  Instead of the Code acting as a shield, it is used as a sword to attack.

We recognise that risk management has an integral importance in an  SMS  and that RM is no more or less than an effective tool but only if we take a holistic view  and recognise that SMS is only as good as all of the inputs over, now a significant timescale, can we have faith in this system.

My assessment of all of this is that the best powerful and cost effective solution to control the eye popping experience and to keep us all out of jail, is to have this total faith in the risk control elements contained within an SMS.

One way to achieve this is to have a rigorous “ Health Check “ to  ensure  that , at least, the systems we employ which have become such an important risk tool are doing their job and not, as I am beginning to see, create and add to the risks involved.  It is worth noting that these additional risks are likely to impact both on the company and its people.

Best practice and excellence are fine but we  must not be guilty of ignorance or deception or be in denial  in respect of the Safety Management System and at all times be proactive, to avoid the eye popping, three o’clock call.  Shipping is not a game of poker.

 

ConsultISM has already provided ‘Health Check’ services to some of the most prestigious names in the shipping industry.   If you would like to discuss your requirements or how we can help you ‘de-risk’ your business please contact us on: enquiries@consultism.co.uk or +44(0)1434 605512