Risk Management

Our market presence, combined with strong relationships with customers all over the world, gives access to market liquidity and insight that our competitors do not have.

This access to market liquidity and insight, combined with in-house research and so-phisticated trading models, is used to create further margins by taking calculated risk where we take positions in the market by booking vessels and cargoes.

Active risk management plays a central role in NORDEN’s goal for the Company to generate good risk-adjusted returns and maintain its financial flexibility also in weak markets. An important element is NORDEN’s diversification of its business by being active in both Dry Cargo and Tankers.

It is NORDEN’s policy to only assume material risks within the commercial aspects of its shipping operations i.e. freight and asset values. Other risk factors are mitigated by hedging the exposure or robust business procedures.

All NORDEN’s third-party contacts are screened daily on a number of potential risk factor issues, including sanctions lists, global law enforcement lists, vessel infor-mation and politically exposed persons.

Risk management in NORDEN

NORDEN’s risk management capabilities have been significantly strengthened in recent years with the establishment of both a Risk Committee under the Board of Directors and a separate Risk Management team.

The Risk Committee is responsible for assisting the Board of Directors in its over-sight of the Company’s risk management including developing frameworks for risk measuring, hedging and risk capital allo-cation. The exact amount of risk capital allocated to specific activities is deter-mined by the Board of Directors based on a recommendation from the Executive Management.

Risk committee

Value and risks reported on a daily basis

The Risk Management team consists of 6 people with background within mathematics, physics, finance and shipping. The responsibility of the Risk Management team is to identify, quantify, monitor and report risk use and limits to the Board of Directors, Executive Management and Senior Management.

During the year, the Risk Management team has together with the management and the Risk Committee defined a new and robust risk framework for Dry Operator which has significantly improved risk monitoring and formalised the connection between risk capital and risk limits. Based on an in-house developed risk system, accurate overviews of positions, market values and relevant risk measures are reported on a daily basis. Due to the dynamics of shipping markets, several risk measures are used, for example Value at Risk, stress tests and P&L flags. Similar risk frameworks will be established for Dry Owner and Tankers during 2019.To make sure that the Risk Management team is an integrated part of daily business, it is situated directly on the trading floor with the freight traders enabling the team to challenge their positions, provide regular and ad hoc analysis and advise on risk optimisation and reduction.

Risk measures

Historically, simulated Value at Risk is defined as the primary risk measure of Dry Operator. While Value at Risk is a robust and consistent risk measure, it also has its limitations. As such, it is supplemented by stress tests to capture extreme events and also P&L flags to reduce the potential downside from market trends. Both Value at Risk and stress tests will be used for reporting and interactions with profit centres and Management.  

 Financial Risk Management/Risk profile in details