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Shipping should do more to manage exposure to risk

BY its nature, operating merchant ships involves taking risks. The cynic might say shipowners risk their money while their crews risk their lives. The two sorts of risks are of course intertwined. And the analytical skills of an accountant are useful in assessing risk.

So we should pay attention to the third annual Shipping Risk Survey from international accountant and shipping adviser Moore Stephens, as long as we remember what risk feels like in a Force 11 off the Cape of Good Hope with the deck cargo shifting.

Moore Stephens says that the effective management of risk within the industry has improved slightly over the past 12 months. But shipping, it adds, still needs to up its game in terms of managing its exposure to risk, which is increasing and changing in nature, not least in terms of the threat posed by cybersecurity.

Ratings and demand

Cyberthreats are the big talking point now and we will come back to that. The accountant says that respondents to the survey rated the extent to which enterprise and business risk management is contributing to the success of their organisation at an average 6.8 out of a possible score of 10, compared to 6.6 last time.

Charterers returned the highest rating (8.8) in this regard, followed by owners (6.9) and ship managers (6.8). Brokers returned the lowest rating at 6.3. Geographically, Europe (7) was ahead of Asia (6.6), but it was the Middle East which returned the highest figure, at 7.8.

Demand trends were deemed by the greatest number of respondents to pose the highest level of risk, closely followed by competition and the cost and availability of finance. Demand trends were thought to pose the highest level of risk for owners, charterers and brokers, while for managers it was competition that topped the list.

Geographically, demand trends were the No 1 concern in Europe, Asia and the Middle East, while respondents in Latin America and North America identified competition as posing the highest level of risk.

Respondents to the survey felt that the level of risk posed by most of the factors which impacted their business would remain largely unchanged over the next 12 months, with the exception of ballast water management legislation, cybersecurity, geopolitics, operating costs and other changes to laws and regulations, which were all perceived to have the potential for increased risk.

Michael Simms, Moore Stephens partner, Shipping Industry Group, says: "Embedding proper and effective risk management controls into daily operating procedures is a huge challenge for companies in the shipping sector, where high risk levels are an accepted and fundamental part of the industry.

"This is particularly the case, as is now, when the industry is ultra-competitive and grappling with an imbalance in tonnage supply and demand, and when wider global economic conditions remain extremely tough.

"In such a scenario, it may be tempting for companies to take their eye off their exposure to risk in pursuit of retaining or securing new business. And although the survey suggests that is not the case, it also reveals that the standard of risk awareness and response capability in many shipping companies is below the required levels."

Then Mr Simms turns to the issue of the moment, noting: "The threat to cybersecurity within the shipping industry, meanwhile, grows apace.

"Ship operation is becoming an increasingly digitalised business, calling for cyber risk management both on board and ashore. IT systems and onboard operational technology are increasingly being networked and connected to the Internet, resulting in a heightened risk of unauthorised access to ships' systems and networks."

Electronic systems

As a diehard traditionalist, I would wonder to what extent the UK P&I Club's advice on maintaining traditional navigational skills, in case electronic systems fail, is being heeded? And where two ECDIS (Electronic Chart Display and Information System) sets are in use, how many ships have a back-up set of corrected paper charts?

Mr Simms says: "The effective management of risk is fundamental to both safety and commercial success in the shipping industry. The level of effective management of risk must continue to improve.

"The challenge for companies operating in the shipping sector is to balance risk awareness and risk management with the pursuit of commercial success in an industry which traditionally rewards success commensurate with the informed and acceptable taking of risk. Those who fail to meet this challenge may pay a heavy price in terms of performance, and even survival."

All very true, but let us not forget this applies very personally to the seafarers who keep global trade moving.