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
The shipping markets in which NORDEN operates improved particularly during the second half-year of 2013. Even though markets are very volatile, it is generally estimated that rates will be at a higher level in the coming years than in the past years. As a result of this estimate, the Company has chosen to increase its market risk partly by means of lower coverage of open ship days for the coming years and partly by means of contracting newbuildings and chartering tonnage. With regard to the Company’s credit risk, it is estimated that the Company’s counterparties are creditworthy. This has been ensured by NORDEN’s focus on cargo owners as counterparties in a number of years.
Overall, it is estimated that the markets in which NORDEN operates have not become more risky. This is counterbalanced by NORDEN actively increasing market risk and financial gearing. The increase in risk has similarly enhanced the possible upside to future increases in freight rates and vessel prices.