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Considerations on the financial risks in shipping industry

Author

Listed:
  • Batrinca Ghiorghe

    (Constanta Maritime University)

  • Burca Ana-Maria

    (Constanta Maritime University)

Abstract

In general, business-risk management is concerned with the possible decline in the value of a shipping company due to an event, or a change, in any of the factors that affect its value. Fundamentally, the value of a company depends on the expected net cash flows from its operations. Therefore, any factor that may have a negative impact on the expected net cash flows is identified as a risk. Due to the capital-intensive nature of shipping and the fact that most vessel acquisitions are financed through term loans priced on a floating-rate basis, unanticipated changes in interest rates may have an adverse impact on the assets and liabilities of a company and can lead to severe liquidity problems and cash-flow mismatch, especially given the business-cycle dynamics of shipping markets. Consequently, interest-rate risk measurement and mitigation is an indispensable aspect of shipping risk management

Suggested Citation

  • Batrinca Ghiorghe & Burca Ana-Maria, 2011. "Considerations on the financial risks in shipping industry," Constanta Maritime University Annals, Constanta Maritime University, vol. 15(1), pages 25-28.
  • Handle: RePEc:cmc:annals:v:15:y:2011:i:1:p:25-28
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    File URL: http://cmu-edu.eu/RePEc/cmc/annals/25-v15.pdf
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    JEL classification:

    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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