Risk Management
Active risk management is a cornerstone of NORDEN’s strategy to ensure stable, high earnings. The shipping industry is highly sensitive to market fluctuations, which can be seen from the at times severe fluctuations in freight rates and tonnage prices.
The overall risk management objective is to reduce the sensitivity of the Company’s earnings to cyclical fluctuations. The overall guidelines for financial and commercial risk management are set out annually by the Board of Directors. The framework for the risk management is conservative and is handled by the Company’s Finance Department in collaboration with the commercial departments, which report to the Board of Directors and the Management monthly.
Chartering vessels implies a risk as the Company assumes a liability to pay T/C hire for an agreed period of time. The risk is less than that associated with the purchase of a vessel, however, as the Company charters vessels for a limited period of their economic lives only.
The following risks are relevant to NORDEN:
Commercial risks:
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The risk of fluctuations in the prices of vessels.
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The risk of fluctuations in freight rates.
Financial risks:
- Foreign exchange risk - The risk that the fair value of or future cash flows from financial instruments will fluctuate as a result of changes in exchange rates.
- Interest rate risk - The risk that the fair value of or future cash flows from financial instruments will fluctuate as a result of changes in market interest rates.
- Liquidity risk - The risk that the Group will have difficulty meeting obligations in relation to financial instruments.
- Credit risk - The risk of counterparties in connection with financial instruments failing to repay their liabilities, thus incurring a loss on the other party.
- Other price risk - The risk that the fair value of or future cash flows from a financial instrument will fluctuate as a result of market price changes other than those attributable to interest rate risks or currency risks, regardless whether such changes are due to factors relating to the individual instrument or its issuer or to factors affecting all comparable insturments traded in the market.
- Capital management risk - The risk of an undesirable proportion of equity to net liabilities.
Other risks:
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The risk of incidents involving the Company’s owned vessels.
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The risk of a lack of IT functionality.
- The risk of not being able to attract and retain key staff.
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