From Broke To Billions – Risk Management, Efficiency And The Secret To Success - gCaptain

Posted - By John Konrad On June 12, 2012 - gCaptain

Why are some shipping magnates among the wealthiest individuals in the world while others spend most of their time in bankruptcy hearings?
The answer seems obvious, the income of any successful business exceeds operating costs. This is true in every business but, in this industry, even the most successful ship owners operate just above the margins of profitability. So how do a handful of shipping magnates make their billions? The answer is effective risk management.
From shipyard fees to crew payroll the costs of building and operating a ship fluctuate wildly depending on the world economic conditions and result in fluctuations that dive deeper and rise higher than the rest of the market. The wealthiest shipowners, like John Fredrickson and the Chouest family, are not afraid to take risks. They build enormous fleets while their competitors are scrapping idle vessels, they self-insure and are not afraid to send their vessels into high risk environments. Some call these people reckless, but others understand that these individuals are not daredevils willing to roll the dice on their wealth and reputation, rather they are experts in the art of risk management.
Headlines blaze with tales like that of the world’s most successful ship owner, John Fredriksen, who, at the age of 27 made his fortune sending ships into the Iran-Iraq wars to pick up oil at great risk and huge profits. It’s understandable how taking this risk could make someone a small fortune but how has he maintained and built this fortune for nearly two decades? The secret lies in risk. Fredriksen studies events, weighs the outcomes and makes calculated decisions based on risk before making big, life altering, decisions but he also pushes this strategy down to the operational level. He calculates the risk of escalating maintenance costs and crew salaries with the same strategies he uses before operating in areas of piracy and war.
So what are the risk takers like John Fredriksen, Gary Chouest and even the more conservative small ship owners, like Richard DuMoulin, and large, like Maersk, foresee as the industry’s top risk?
Fuel prices.
Fuel is the number-one expenditure for each and every ship that spends most of her time at sea and accounts for between 30-40 percent of the cost of running a cruise ship and between 50-60 percent for most merchant vessels. With price swings exceeding $50 per barrel over the last five years, fuel is also a highly volatile commodity making it an ideal candiate for effective risk management.
 
Complete post at:
http://gcaptain.com/broke-billionare-shipping-efficiency/?48526