Active risk management plays a central role in NORDEN’s strategy to ensure stable earnings. It is NORDEN’s policy to only assume material risks in relation to the freight markets and related risks (commercial risks). Other risks are reduced either through diversification, guarantees or by hedging the exposure when future risks are known.
The Executive Management is responsible for identifying material risks and developing the Company’s risk management. Exposures and the utilisation of the framework are reported to the Board of Directors on a monthly basis.
NORDEN’s activities expose the Company to a number of risk factors, the most significant of which are assessed to be:
- Freight rate volatility, affecting ship values and earnings from vessel capacity
- Credit risk on customers in relation to cargo and T/C contracts as well as banks and yards in relation to deposits and prepayments on newbuildings, respectively
Freight rates in the dry cargo market dropped significantly particularly in the second half-year of 2014. Even though markets are very volatile, it is currently estimated that dry cargo rates will continue to be at a relatively low level in the coming years. In the longer term, the dry cargo market is expected to improve, just as the long-term tanker market is expected to develop positively along with the development in the global refinery sector. However, large market fluctuations may occur. With regard to the Company’s credit risk, it is estimated that it is generally increasing due to the low freight rates, but that the Company’s counterparties are estimated to be relatively creditworthy. This has been ensured by NORDEN’s focus on cargo owners as counterparties in a number of years.