The Risk profile of a Shipping Investment
Charter Rate Volatility. The volatile shippingmarkets result in charter rates that are prone tofluctuation. The fund’s strategy is to employ thefleet under period arrangements thus managingmarket volatility. Volatility for short term employmentcan also be managed through a freight derivativesmarket.
Bunker Risk. Fluctuations in the price of marinefuels have a significant impact on ship’s operatingincome when trading in the spot market. Under aperiod charter this risk is born by the charterer.Nevertheless the manager will monitor closely thebunker prices and hedge when necessary.
Vessel Price Volatility. Ships are very prone tofluctuations in value due to movements within thesector’s market cycle. Mitigation of ship valuevolatility can be achieved by timed acquisition anddisposals of ships.
Charterers Risk. A shipping investment may lookattractive based on long term contract coverageat attractive rates. However the charterer’screditworthiness is crucial for the performance ofthe investment. Default by the charterer or delays inpayments are a risk that can be mitigated throughcareful selection of good names.
Interest Rate Risk. Since almost all shippinginvestments use medium to high levels of leverage,fluctuations in interest rates is another risk thatthe manager has to manage. Usually the mitigationof interest rate risk is achieved through interestrate swaps.
Company Performance Risk. Although marketcycles are the prime mover for shipping returns,substandard operating performance or poormanagerial decisions could result in a companyshowing inadequate profitability relative to thesector in which it participates. The Management willoutsource ship operations to Remi Maritime Group,which enjoys a long track record of operatingexcellence.
Foreign Currency Risk. As shipping is internationalin nature, exposure to currency fluctuations isinevitable. The management can therefore mitigatethis risk through foreign currency swap contracts.However the majority of contacts in shipping are USDdenominated.
