Risk appetites are relative in shipping. Due diligence should not be
THE perception of risk and your appetite for it, is relative in shipping. It is also partly geographic.
Discuss the relative merits of Russian trades in certain Mediterranean hubs and the general consensus will be that leaving readily available premiums on the table would make you something of a schmuck.
Have the same conversation in northern European boardrooms and fear of being exposed in the left leaning press as a war profiteer will dictate a very different conversation.
Risk thresholds vary significantly across trades, asset classes and how bold, brave or pathologically plucky a principal is feeling on any given day. But ultimately attitudes towards rules are determined by how robustly they are enforced.
The increasingly long lists of targeted entities and ships being produced by the US, EU and UK are forcing changes in behaviour, albeit not always in the direction intended.
Remember, Lloyd’s List’s first law of sanctions intervention displacement states that for every action shutting down one illicit activity, an equal and opposite reaction will result in that illicit activity appearing elsewhere.
Sanction one company, and the same shadowy figures will inevitably appear somewhere else.
Shut down one ship-to-ship transfer hub, and the fluid dynamics of sanctioned oil movements will simply see the activity migrate to the next safe harbour.
But sanctions to date have shied away from much of the greyer areas of activity that continues to be carried out at the edges of what could generously be described as legally and politically acceptable operations from mainstream players.
Risk appetite is about where you draw a line.
Some operators will bump up against the line, some will tentatively go over it once in a while. There are many that are ignoring it altogether and have concluded that rules that are not enforced are not worth worrying about.
Those lists of tankers sold into the shadow fleet* from European interests were dutifully collected and then placed into a draw and ultimately ignored.
Those suspicious attestations that claimed one price when all evidence pointed to a line having been crossed have never once resulted in a major Western owner being added to any sanctions list.
And this is not just about sanctions, where let’s face it, the grey areas are politically charged and potentially toxic to the extent that politicians will think twice about going after powerful businesses.
This is about the consistency of how rules are enforced and the behaviours that engender in different regions.
How many shipowners have been fined for pollution when their scrubbers are mysteriously not working or they are using high sulphur fuel when they should be using the ultra low sulphur variety?
Oil price attestations may be malleable, but bunker delivery notes are also not the single source of truth they should be.
In an era of fake certification, fake regulation and pay to play identities, how much trust do we place in the veracity of documentation presented as proof of compliance?
The point here is not to point fingers at specific rule skirters or those who play fast and loose with the regulators.
This is about how the commercial realities of shipping across large swathes of the market mean that decisions are conducted in minutes, or at best hours.
This is about why having an appetite for such risk is one thing, but being able to calculate the odds, at speed, requires more robust due diligence than is currently being applied by many.
But this is also about understanding how and where lines are being crossed and then asking yourself whether you have any exposure by association.
How far a quick and cursory “Know your Customer” check would penetrate into the knot of opacity and financial structures designed to protect those going over the line, is the question that every legitimate operator should be asking themselves.
While the inconsistency of regulatory scrutiny to date has created a culture of relatively regulatory arbitrage in shipping, that may not always be the case.
Risk may be relative, but shipping is deeply interconnected. Understanding your risk in relation to others’ perception, and the potential divergence between those two views, is about more than providing plausible deniability should the regulators come knocking.
Content Original Link:
" target="_blank">
