13 April 2023

Sailing Blind - 3 reasons maritime vessel risk is undermanaged by commodity traders and financiers

Commodity traders active in physically-delivered markets have always had to live with a degree of operational risk beyond their direct view or control, but historically, vessel-related risks have been a neglected area. However, with a range of risks spanning minor instances of lost cargo right through to major oil spills and shipwrecks, can this status quo continue?

We look at the key reasons maritime risk has historically been under managed by commodity traders and assess how tech, such as RightShip’s vessel screening software, is empowering traders to gets to grips with seaborne challenges.

1. Uncharted waters

The depths of seaborne risk are hard to grasp without vast amounts of maritime experience, something not found on many trading floors. A trader’s time is most profitable when spent trading, and trading firms, which possess neither the time nor maritime-specific expertise needed, will find it almost impossible to ensure in-house that due diligence is being carried out in such a complicated area.

Vessel screening is shaped by RightShip’s decades of in-house maritime experience. It combines a list of rule-based criteria with swathes of accumulated vessel data to provide trade risk managers with an automated solution with insight needed to simply, and efficiently, carry out their due diligence, without having to consider all aspects of maritime risk themselves.

2. Speed is profit

When speed is the name of the game, a degree of risk in every trade is always accepted. Traders are insulated from the specifics of vessels and logistics arrangements, and that is how they like it. Shipping is beyond their interest or expertise and detracts from valuable trading time.

Current in-house procedures are built to ensure that windows of profitability remain open and focus on risks that can be managed cost-effectively. However, if a sufficiently efficient solution were available, then shouldn’t approaches to maritime risk be reconsidered?  

Vessel screening offers the frictionless alternative needed. For any given trade, a trader can run the relevant vessel through and be given an automated instant thumbs-up or thumbs-down on the risk it poses, with edge cases flagged to the risk manager for approval, ensuring due diligence doesn’t compromise profit.

3. Over the horizon, out of mind

The consequences of maritime risks, taking place far out at sea, such as inadequate crewing practices, obscure vessel ownership and poor cargo storage can seem abstract. Yet, traders are exposed to these risks all of the time. From physical damage and losses to cargos, delays due to vessel detention and right through to major oil spills and shipwrecks maritime risks are real and severe.

In many cases, the consequences are only fully appreciated when the financial or reputational damage has already been done. By adopting vessel screening into risk workflow, traders and risk managers can operate with peace of mind, knowing they have put the necessary due diligence in place to a) protect them from such consequences and b) have the necessary proof to protect their reputation and balance sheets.

In short, despite facing a wide range of maritime risks, the management of these has historically taken a back seat for commodity trading firms. This has been partly driven by a lack of skills and expertise, but also through lack of awareness. However, RightShip’s vessel screening software can now provide traders and risk managers with the means to spark a sea change in maritime risk management. By adopting modern technology and best practices, they can cost-effectively manage a set of risks that have historically proved elusive, protecting profit and reputation with almost no interruption to trading activity.

Click here to learn how vessel screening can protect you from maritime risk.

Checkout RightShip Screening today