This document discusses risk management in shipping. It defines risk management as identifying loss exposures and selecting techniques to treat exposures. The objectives of risk management are to prepare for potential losses economically and ensure the survival of the firm after a loss. The risk management process involves identifying, measuring, analyzing, and treating loss exposures through techniques like risk control, loss reduction, retention, and insurance. Implementation requires a risk management policy and cooperation across departments.

1. RISK MANAGEMENT ESSENTIAL
IN SHIPPING
SHIPPING RISK MANAGEMENT
DSM 2314
MUHAMMAD NASHRULLAH 1140501098
NUR SYAFEERA SALLEHUDIN 1140501087
IZZATIQA ISMAIL 1140501093
TESALONITA ANAK PAUL 1140400793
NUR SYAFIQHA ADLEEN MOHD SHAFIE 1140501096
NURIN ATIQAH NORAZHAR 1140501089
IDI NURFAZLI RENE 1140501102

2. RISK MANAGEMENT
 Process that identifies loss exposures faces by an organization and selects the most
appropriate technique for treating such exposures.
 A loss exposure is any situation or circumstance in which a loss is possible, regardless
of whether a loss occurs.
Redja (1992)

3. OBJECTIVE OF RISK MANAGEMENT
 Pre-loss objective
- Prepare for potential losses in the most economical way (economical premium/safety programs)
- Reduce anxiety (threat of catastrophic lawsuit will causing greater anxiety than small loss from
fire)
-Meet any legal obligation (HSE issues)
 Post-loss objective:
-Ensure survival of the firm (firm can resume at least partial operation within some reasonable time
period)
-Continue operations
-Stabilize earnings
-Maintain growth
-Minimize the effects that a loss will have on other persons and on society

4. RISK MANAGEMENT PROCESS

5. IDENTIFYING LOSS EXPOSURE

6. Property
loss
exposures
Liability
loss
exposures
Business
income loss
exposures
Human
resources loss
exposures
Crime loss
exposures
Employee
benefit loss
exposures
Foreign loss
exposures
Intangible
loss
exposures
Failure to
comply with
government
rules and
regulations

7. Risk Managers have several sources of
information to identify loss exposures:
• Questionnaires
• Physical inspection
• Flowcharts
• Financial statements
• Historical loss data
Industry trends and market changes can
create new loss exposures.
• e.g., exposure to acts of terrorism

8. MEASURE AND ANALYZE LOSS
EXPOSURE

9. Measure analyse the loss exposures
Estimate the frequency and severity of loss for each type of loss
exposure.
Loss frequency Loss severity
Once the loss exposures are analyse they can be
ranked according to their relative important.
Loss severity is more important that loss frequency
 The maximum possible loss is the worst loss that could
happen to the firm during its lifetime.
 The probable maximum loss is the worst loss that is
likely to happen.

10. Risk management matrix
High severity
Low frequency
High Low
low
(Severity)
(frequency)
Low severity
High
frequency
High severity
Low frequency
Low severity
Low frequency

11. SELECT THE APPROPRIATE COMBINATION OF
TECHNIQUES FOR TREATING THE LOSS EXPOSURE

12. RISK CONTROL
 AVOIDANCE
The strategy of risk avoidance or elimination involves
elimination of risks at the source :
(a) chemical-related activities (e.g. banning production and transport of
chemicals),
(b) transport/distribution hazards and their effects (e.g. designing and
manufacturing stronger and more secure packages for the carriage of
materials and substances of class 7 – radioactive materials and wastes)
(d) causes and contributing factors accidents/ incidents involving dangerous
goods releases, their consequences.
(e)elimination of the maritime transport of certain chemicals, for example,
persistent organic pollutants.

13. • PERSISTANT ORGANIC
POLLUTANTS (POP):
toxic chemicals that adversely
affect human health and the
environment around the world.
 THE STOCKHOLM CONVENTION
(2001)
-purpose is to safeguard human health
and the environment from highly
harmful chemicals that persist in the
environment and affect the well-being
of humans as well as wildlife.
 ROTTERDAM CONVENTION
(Rotterdam Convention on the Prior
Informed Consent Procedure for Certain
Hazardous Chemicals and Pesticides in
International Trade)- hazardous
chemicals
 BASEL CONVENTION- hazardous
waste
OTHERS CONVENTION RELATE WITH
ENVIRONMENT
CONVENTION ON THE PREVENTION OF
MARINE POLLUTION OF WASTES AND OTHER
MATTER / LONDON CONVENTION 1972
-control pollution of the sea by dumping and
to encourage regional agreements
supplementary to the Convention. It covers
the deliberate disposal at sea of wastes or
other matter from vessels, aircraft, and
platforms
 MARINE POLLUTION (MARPOL 73/78)
 UNITED NATIONS CONVENTION ON LAW OF
THE SEA (UNCLOS)

14. LOSS REDUCTION
 refers to measures that reduce the severity of a loss after is occurs
 Mitigation: that means to make or become less severe or harsh, or moderate mitigating
risk control occurs when risk control measures reduce the severity of outcomes of the
events or subsequent events, should they occur

15. SELENDANG AYU SHIPWRECK
 The grounding caused the ship to break in half
 oil spill of approximately 336,000 gallons of fuel oil and diesel fuel that led to
an environmental cleanup lasting until June 2006.
 60,000 tons of soybeans on board also spilled into the Bering Sea.
 During the rescue operations a coast guard helicopter crashed and six of the
vessel’s crew died just moments after being rescued
 Non of crew wear immersion suites

16. IMPACT OF SELENDANG AYU
 At the time of the accident, the
International Convention for
Safety of Life at Sea (SOLAS),
chapter 3, regulation 32
(“Personal life-saving
appliances”), required a cargo
vessel to carry at least three
immersion suits for each lifeboat,
unless the vessel had a totally
enclosed lifeboat on each side.
 After the accident, the company
outfitted all its vessels with
immersion suits for all
crewmembers. In an amendment
effective July 1, 2006, the SOLAS
regulation was changed to require
one immersion suit for each
person on board a cargo ship.
 MARPOL (MARINE POLLUTION)
 United Nations Convention on the
Law Of the Sea (1982), UNCLOS
 POLAR CODE
International Convention on
Maritime Search and Rescue
(SAR), 1979
-Conference in Hamburg, was
aimed at developing an
international SAR plan, so that,
no matter where an accident
occurs, the rescue of persons in
distress at sea will be co-
ordinated by a SAR organization
and, when necessary, by co-
operation between neighbouring
SAR organizations.
International Convention on
Standards of Training,
Certification and
Watchkeeping for Seafarers
(STCW)
-the usage of radio
International Convention
on Oil Pollution
Preparedness, Response
and Co-operation (OPRC)
-dealing with marine oil
pollution incidents
nationally and in co-
operation with other
countries
- Environment impact
assessment
- Oil spill response

17. COLLISION
 SOLAS
-Lifeboat on-load release mechanisms
 Convention on the International
Regulations for Preventing Collisions
at Sea, 1972 (COLREGs)
-10 rules gives guidance in determining
safe speed, the risk of collision and the
conduct of vessels operating in or near
traffic separation schemes.
 ICC International Maritime Bureau
(IMB)
-maintaining and developing a coordinated
action in combating maritime fraud.
 Convention for the Suppression of
Unlawful Acts Against the Safety of
Maritime Navigation (1988), SUA
PROTOCOL
-Concern about unlawful acts which threaten the
safety of ships and the security of their
passengers and crews with reports of crews being
kidnapped, ships being hi-jacked, deliberately
run aground or blown up by explosives.
 The International Convention on
Standards of Training, Certification
and Watchkeeping for Seafarers (or
STCW), 1978
PIRACY

18. LOSS PREVENTION
Refer to measures that
reduce the frequency of a
particular loss

19. The Worst Fire of Oil Rig in Gulf of Mexico
 The Deepwater Horizon oil spill began on 20 April 2010 in the Gulf of Mexico
on the BP-operated Macondo Prospect.
 It claimed eleven lives and is considered the largest accidental marine oil spill
in the history of the petroleum industry.
 The explosion and sinking of the Deepwater Horizon oil rig, a sea-floor oil
gusher flowed for 87 days, until it was capped on 15 July 2010.

21. Occupational Safety and Health Act
 With the Occupational Safety and Health Act of 1970, Congress created the
Occupational Safety and Health Administration (OSHA) to assure safe and
healthful working conditions for working men and women by setting and
enforcing STANDARDS and by providing training, outreach, education and
assistance.

22. Oil Pollution Preparedness, Response and
Co-operation
 An International Convention on Oil Pollution Preparedness, Response and
Co-operation are required to establish measures for dealing with pollution
incidents, either nationally or in co-operation with other countries.

23. A Man Had Been Squashed By A Container
 A Myanmar man, who drove a forklift dead after had been squashed by a
container under a crane.
 The man who was working at Port Klang died after he got a very serious
injuries at his head and his part of the body.

25. Personal Protective Equipment
 Personal protective equipment, commonly referred to as "PPE", is equipment
worn to minimize exposure to serious workplace injuries and illnesses. These
injuries and illnesses may result from contact with chemical, radiological,
physical, electrical, mechanical, or other workplace hazards. Personal
protective equipment may include items such as gloves, safety glasses and
shoes, earplugs or muffs, hard hats, respirators, or coveralls, vests and full
body suits.

26. Accident of Straddle Crane
 This incident happened in Port of Auckland, however this incident does not
appear in any maritime news or magazines.
 The crane was accidentally turned upside-down after lifting a very heavy
container.

28. Limitations of Liability for Maritime
Claims
 Under the 1976 Convention, the limit of liability for claims covered is raised
considerably, in some cases up to 250-300 per-cent. Limits are specified for
two types of claims – claims for loss of life or personal injury, and property
claims (such as damage to other ships, property, or harbour works).

29. HOW TO PRE

30. RETENTION
•Active Retention
•Passive Retention
•Self Insurance

31. Active Retention
An Individual is
consiously aware of the
risk and deliberately plans
to all of part of it.
Passive Retention
Risks may be
unknowingly retained
because of ignorance,
indifference or laziness.
Self Insurance
A special form of planned
retention by which part or
all of a given loss exposure
is retained by the firm.

32. Advantages And Disadvantages
 Save on loss costs
 Save on expenses
 Encourage loss
prevention
 Possible higher losses
 Possible higher
expenses
 Possible higher taxes

33. NonInsurance Transfer
• Hold-harmless clause
• Hedging
• Credit Transfer

34. A transfer of risk by contract,
such as through a service
contract or a hold-harmless
clause in a contract
Hedging is a technique for
transferring the risk of
unfavorable price fluctations to a
speculator by purchasing and
selling futures contracts on an
organized exchange
Incorporation of a business firm
transfer to the creditors the risk
of having insufficient assets to
pay business debts

35. Advantages And Disadvantages
 Can transfer some
losses that are not
insurable
 Save money
 Can transfer loss to
someone who is in a
better position to
control losses
 Contract language
may be ambigious, so
transfer may fail
 If the other party fails
to pay, firm is still
responsible for the
loss
 Insurers may not give
credit for transfer

36. Insurance
 Insurance is appropriate for loss exposures that
have a low probability of loss but for which the
severity of loss is high.
- A deductible is a provision by which a specified
amount is subtracted from the loss payment
otherwise payable to the insured.
- An excess insurance policy is one in which the
insurer does not participate in the loss until the
actual loss exceeds the amount of the firm ha sto
be decided to retain.

37. Insurance
 The risk manager negotiates the terms of the insurance contract.
-A manuscript policy is a policy specially tailored for the firm.
-The parties must agree on the contract provisions, endorsements,forms and
premiums.
• The risk manager must periodically review the insurance program.

38. Types of insurance
• Hull And Machinery
• Protection And Indemnity
• Marine Cargo

39. Advantages And Disadvantages
 Firm is indemnified for
losses
 Uncertainty is reduced
 Insurers may provide
other risk
management services
 premiums are tax
deductible
 Premiums may be
costly (opportunity
cost should be
considered)
 Negotations of
contracts takes time
and effort
 The risks manager may
become lax in
exercising loss control

41. Implementation of a risk management
program begins with a risk management
policy statement that:
• Outlines the firm’s risk management objectives
• Outlines the firm’s policy on loss control
• Educates top-level executives in regard to the risk
management process
• Gives the risk manager greater authority
• Provides standards for judging the risk manager’s
performance
A risk management manual may be used to:
• Describe the risk management program
• Train new employees

42. • A successful risk management program requires
active cooperation from other departments in
the firm
• The risk management program should be
periodically reviewed and evaluated to
determine whether the objectives are being
attained
-The risk manager should compare the costs and
benefits of all risk management activities