Welcome to the second edition of the 'risks for shipping companies' series. As you know, from episode 1, this is inspired by the frightening reading that was a shipping company's annual report. This time round we'll be looking at piracy, liability and competitive markets, and how these risks are conveyed in the report.
As you know, shipping operations can be financially affected by changing laws and legislation; the report warns its shareholders that compliance with new regulations can be costly. New rulings on air emissions, preventing spillages, and the economic issues surrounding ballast water management are also expensive additions to existing operations. Currently in the news is that reducing sulphur emissions will add extra expense onto shipping companies due to the fact that technology is simply not ready to reduce sulphur without a) cost and b) hiking up carbon emissions.
The introduction of the Maritime Labour Convention (MLC) can also incur additional costs to keep up with meeting new legislative requirements.
In recent years there has been an increase in acts of piracy, which again has financial implications for shipping companies. Insurance premiums increase in more piracy-susceptible areas, bringing more rising costs.
Shipping is a competitive industry; this involves competing for charters, and failure to attract new charterers can impact on financial positions. Also with high newbuild activity there can be a reduction of hire rates. With over-supply, there may be increased inspection procedures – for example seizure of goods, fines, and penalties.
If you think this is painting a bleak picture, we agree with you! The shareholders of this company must have been horrified when the report landed in their inbox. Like we've said before; who'd invest in shipping?! We'll be back next month with our third edition of the shipping company risks series.