The Risk profile of a Shipping Investment

Charter Rate Volatility. The volatile shipping markets result in charter rates that are prone to fluctuation. The fund’s strategy is to employ the fleet under period arrangements thus managing market volatility. Volatility for short term employment can also be managed through a freight derivativesmarket.

Bunker Risk. Fluctuations in the price of marine fuels may have a significant impact on ship’s operating income when trading. Under a period 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 to fluctuations in value due to movements within the sector’s market cycle. Mitigation of ship valuevolatility can be achieved by timed acquisition and disposals of ships.

Charterers Risk. A shipping investment may look attractive based on long term contract cover against attractive rates. However the charterer’s creditworthiness is crucial for the performance of the investment. Default by the charterer or delays in payments are a risk that can be mitigated throughcareful selection of good names.

Interest Rate Risk. Since almost all shipping investments use medium to high levels of leverage, fluctuations in interest rates is another risk that the manager has to manage. Usually the mitigationof interest rate risk may be achieved through interest rate swaps.

Company Performance Risk. Although market cycles are the prime mover for shipping returns, substandard operating performance or poormanagerial decisions could result in a company showing inadequate profitability relative to thesector in which it participates. The Management will outsource ship operations to Remi Maritime Group, which enjoys a long track record of operating excellence.

Foreign Currency Risk. As shipping is international in nature, exposure to currency fluctuations is inevitable. The management can therefore mitigate this risk through foreign currency swap contracts. However the majority of contacts in shipping are USD denominated.