Risk management

Like all commercial enterprises, our activities are associated with certain risks. We have chosen to divide them into four main categories – corporate risks, market-related risks, operational risks and financial risks.

Information about these risks and Concordia Maritime's risk management is provided below and in the section Risk and sensitivity analysis in the Annual Report.

A description of internal control designed to manage risks relating to financial reporting are contained in the Corporate Governance Report.

Corporate risks

Corporate risks refer mainly to overall risks related to the actual management and operation of the Company.

Brand 

Brand risk refers to events that could fundamentally have an adverse effect on the confidence of customers, employees, shareholders and other stakeholders in the business. These may include malpractice, serious accidents or other incidents, as well as events of a more financial or stock-market-related nature.

MANAGEMENT: Concordia Maritime’s Board and management have jointly formulated and adopted a framework that defines guidelines on how Concordia Maritime should act as a responsible company and employer. The framework consists of internal regulations and guidelines connected to external principles and recommendations. The main regulations include Concordia Maritime’s Code of Conduct, the Sustainability Policy and guidelines related to the UN Global Compact Initiative.

Employees

Employee risk is the risk of Concordia Maritime being unable to attract and retain competent and committed employees. This ability to attract and retain such employees is crucial to driving development in accordance with defined goals. If Concordia Maritime does not have access to the right skills at the right time, the Group’s operations and results are adversely affected.

MANAGEMENT: Concordia Maritime’s own shore-based organisation is small and this means that there is normally a high dependency on a number of key individuals. However, this is counterbalanced to some extent by the close cooperation with several companies in the Stena Sphere. Nevertheless, we work actively to create a stimulating workplace that provides good development opportunities for employees.

Liquidity

Liquidity risk is the risk of the Company not having sufficient liquidity to discharge its obligations. In addition to liquidity to cover its current obligations, the Company also endeavours to have sufficient liquidity to conduct business that requires cash input.

MANAGEMENT: Liquidity risk is managed by ensuring a solid financial position, with competitive costs and management of market-related risks. To ensure the availability of short-term liquidity, overdraft facilities of USD 10 million and SEK 10 million have been arranged.

Financing risk

Financing risk is the risk that the Company will be unable to satisfy its need for new loan capital. 

MANAGEMENT: This risk is managed by fulfilling financial obligations, maintaining the already excellent relationship with banks, working to broaden the potential financing base to include new banks and institutions, and ensuring sound operation of the Company with good transparency and communication.

Investment risk

This is the risk that funds invested to generate returns will perform unfavourably in terms of value or return.

MANAGEMENT: The risk is managed by spreading investments across several different instruments and by continuous evaluation.

Market-related risks

Market-related risks are primarily risks associated with changes in the external environment and market. The Board and management have only a limited opportunity to control these risks in the short term but must still deal with them in the planning and  governance of the business.

Economic trends

Cyclical risks are risks of the general market situation adversely affecting the business or results. Shipping is a highly cyclical business. Demand for transportation of oil and refined petroleum products is determined to a large extent by the consumption of these products. This, in turn, is largely determined by the economic situation. All these factors affect freight rates. In the short term, the effects of economic fluctuations are greatest in the spot market, although they also affect the contract market and vessel values in the long term.

MANAGEMENT: Risks related to freight rates are largely managed through decisions on fleet disposition (incl. acquisitions and disposals) and choice of contracting method. The decisions are based on continuous analyses of cyclical fluctuations in the markets and their bearing on shipping in general and tanker shipping in particular.

Freight rates

Risks related to freight rates are risks of lower income due to falling freight rates. Freight rates in tanker shipping may fluctuate sharply from time to time. A decline in freight rates may be due to reduced demand for transport capacity or an increased supply of vessels, or a combination of both. A change in rates has a major impact on the profitability of the business. In a short-term perspective, freight rates on the spot market fluctuate significantly more than the rates on time-charter market.

MANAGEMENT: Risks related to freight rates are largely managed through decisions on fleet disposition and choice of contracting method. Spot market exposure is also managed through the pools in which the vessels operate. Decisions are based on continuous analyses of market trends in both the short and long term.

Oil price

Developments in oil prices can affect demand for transportation of oil and petroleum products. Low oil prices can have a positive impact on the global economy, leading to increased demand for oil and tanker transportation – and vice versa in the case of higher prices. Changes in oil prices also affect stocks and trading in oil, which in turn affects demand for tanker transportation. High oil prices can affect net income through  increasing costs for bunker oil.

MANAGEMENT: Risks related to oil prices are largely managed through decisions on fleet disposition and choice of contracting method. Decisions are based on continuous analyses of market trends in both the short and long term.

Political risks

Political risks relate mainly to the risk of political decisions having adverse consequences for international trade in oil and oil products. Concordia Maritime operates in a market affected by numerous regulations which may change due to changing external factors and/or political decisions. These include decisions on regulations for international trade, safety and the environment. The trend for international trade in recent years has been towards increased global free trade and fewer trade-policy-related restrictions. The main risk of changes would appear to lie in the area of safety and environment, where international and national laws, industry-related conventions, regulations and practice are continuously reviewed.

MANAGEMENT: To keep track of political decisions that have a bearing on Concordia Maritime’s operations, continuous external monitoring is conducted, both within the organisation, and in cooperation with partners and other stakeholders. In terms of sharper requirements in the area of environment and safety, Concordia Maritime’s fleet and strong focus on safety actually represent opportunities.

War/instability

Risks related to war and instability refer partly to the risk of restricted availability of oil and oil products, and partly to changes in transport demand. They also include risks related to pirate activity. This risk affects the industry as a whole and also Concordia Maritime.

MANAGEMENT: To address the risk of war, instability and piracy activity, continuous external monitoring is conducted, both within the organisation, and with partners and other stakeholders.

Operational risks

Operational risks are risks related to the management of the operational side of the business.

Damage to vessels

Risks related to damage to vessels are mainly associated with costs of repairing any damage caused, and loss of income due to off-hire – which can also result in more expensive insurance premiums.

MANAGEMENT: This risk is managed partly through strict procedures, scheduled vessel maintenance and comprehensive loss prevention measures during operating activities and partly through industry-standard insurance. The vessels are insured against damage and loss at amounts representing the vessels’ value. The vessels are also insured against loss of hire due to  damage or shipwreck. In addition, customary insurance for operating in specific waters is also in place.

Accidents and incidents

Accidents and incidents refer mainly to accidents at sea or in port (shipwreck, oil spill, collision etc.). This type of event could have far-reaching negative consequences for both the environment and property, and, at worst, could result in loss of life.

MANAGEMENT: This type of risk is managed through comprehensive preventive work with continuous training and reviews of procedures and processes. Protection and indemnity applies with

no limitation of amount, except for responsibility for oil spills, where the amount is limited to USD 1 billion.

Ship operation

Risks related to ship operation refer mainly to the risk of a lack of attractiveness to competent seagoing personnel.

MANAGEMENT: In order to recruit the best crews, a good reputation in the market is required. Concordia Maritime strives to be an attractive employer. Salaries and other forms of financial incentives are important parts of this work, and it is also crucial to provide a positive work environment and the opportunity for long-term employment.

Counterparty risks

The main credit risks are counterparty risks relating to customers, shipyards and other subcontractors and cooperation partners. Other financial risks are described in note 18.

Counterparty risks – customer credit

Counterparty risks relating to customers are primarily the risk of a customer being unable to discharge its obligations.

MANAGEMENT: Long-term collaboration, continuous monitoring and a stable financial position are significant factors when entering into agreements with customers. In the event of uncertainty about a counterparty’s financial position and capacity, a financial check is conducted by an external party. Where appropriate, the cargo can also be used as collateral.

Counterparty risks – subcontractors and partners

One of the main counterparty risks related to subcontractors and partners is the risk that contracted shipyards will fail to discharge their obligations – either due to financial problems or because they are unable to deliver on time.

MANAGEMENT: Long-term collaboration, continuous assessment and a stable financial position are significant factors in the choice of suppliers and counter-parties. In the event of uncertainty about a counterparty’s financial position and capacity, a financial check is conducted by an external party. Where appropriate, guarantees are also requested.

Financial risks

Financial risks, which are mainly related to currency and interest rates, are described in note 18 in the Annual Report and have therefore not been described in this section.