The shipping industry lacks progressivity and needs better risk management to overcome the challenging environment, Jan Dieleman, Head of Ocean Transportation at global dry bulk player Cargill criticizes.
Speaking at the 20th »HANSA-Forum Shipping | Financing« in Hamburg, Dielema[ds_preview]n talked about why the freight and asset slump in dry bulk is an opportunity for the whole shipping industry. Cargill’s ocean transportation business charters over 500 vessels and ships over 220 mill. mt of dry bulk around the globe per year, what makes it one of the largest industry players. »This storm which has hit us all is not only a commercial opportunity – it is an unprecedented chance for the whole industry to act and emerge from it being more reliable, sustainable and safe. We can achieve more and become stronger if we focus on solutions that reduce our credit and operational risk, and ensure sustainable practices that will be vital to the future success of our industry. This is the path that Cargill is choosing to take and I am here today to encourage you and your organization to consider doing so, as well«, Dieleman said.
After working in several commodities markets like agriculture and energy, he came to the conclusion that shipping is »much less progressive in implementing new solutions than many other industries and markets«. Shipping would be behind other markets because of the unnecessary risks it is taking throughout the supply chain. »We are seeing SPVs without transparent financials, long-term contracts without netting, and operating procedures which are neither standard nor consistent. It is a fact that currently, there are no industry-wide requirements for managing risk. Margining and netting are not a norm. In nearly all other commodity markets, they are«, he added. Shipping could learn from these best practices. »We need to collaborate to create common, widely-utilized risk mitigation standards. Doing so will benefit our entire industry and ensure we have the liquidity required to overcome challenging environments like the one we are in today.«
»Possible to avoid many defaults«
Dieleman is confident, that if more industry players would be committed to putting the parameters and assessments in place, many of the defaults and the liquidity challenges in the market could be avoided. To be operationally excellent, the industry should modernize standard business practices. »For example, we can implement electronic bills of lading to be more efficient. It is still very common practice in our segment to send paper documents by messenger and sign vast amounts of letters of indemnities with all its associated liabilities«, the manager added.
He concluded that »not acting to solve our issues in credit, operations, safety and sustainability poses tremendous risk.« Even if it may seem counterintuitive to act on them during these times, it would, in fact, be the perfect moment. »We have a limited opportunity to be agile to make the industry more reliable, sustainable and safe. I am convinced that it is possible if we work together.« Even small changes would have the potential to have a big impact, »especially if we are aligned toward our goals.«
