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A new standard in risk management

Risk Management is Trickier Than Ever

The global shipping operations risk landscape has undergone a profound transformation since 2022, necessitating advanced risk management features and the ability to configure risk parameters for trade resiliency

Russia, the most sanctioned country globally, ushered in an era of unprecedented challenges for the maritime industry after invading Ukraine.

There was an increase in vessels being bought and sold, front organizations were established, and the dark and gray fleets emerged – all to help Russia circumvent the bans and regulations imposed against it. As methods to evade and breach sanctions evolve, bad actors are adopting these techniques for other illicit activities, smuggling not only oil, but also arms, narcotics, and people.

With the Iranian and Houthi attacks and hijackings, U.S. sanctions against Venezuela, and much more, protecting your reputation and staying on top of evolving risk is crucial. Risk management can help you stay ahead of emerging global threats to quickly identify maritime anomalies, better strategize, and clear more business opportunities.

Bad actors are becoming more agile and sophisticated in their deceptive shipping practices (DSPs) and attempts. The challenge is to maintain an equally adaptive and dynamic approach to risk management – one that can quickly identify new risks, define them as such, and monitor and respond to them.

Going a step further, entities can ensure that their risk management strategies align with their operational and strategic risk mitigation and growth objectives by adopting a configurable approach to risk management.

This will enable organizations to define and apply individual risk parameters that resonate with their specific needs, scenarios, industries, and teams. Windward’s Organization Defined Risk offers these benefits and is now generally available! (Read more below).

Streamlining Risk for Superior Maritime Trade Resiliency

As organizations, departments, and teams grapple with distinct facets of risk management, tailored risk insights and thresholds have become indispensable. Proactive, agile solutions that allow entities to autonomously define and align their risk profiles, while still keeping their business thriving, are critical.

This is underscored by volatile market dynamics, evidenced by the record number of vessel transactions, and the emergence of new typologies and behavioral trends that complicate compliance and strategic planning.

These factors are reshaping the maritime ecosystem, necessitating sophisticated risk management strategies to ensure operational continuity and security, safeguarding the resilience and success of maritime endeavors in an increasingly complex global trade landscape.

Where Does Risk Management Come In?

Risk management impacts many major stakeholders within the supply chain and maritime ecosystems, encompassing various sectors with their specific workflows. Recent events have highlighted the significant overlap among these areas, underscoring the impact of risk across all sectors. Effective risk management is no longer a luxury but a necessity, crucial for maintaining the integrity and continuity of maritime and supply chain operations.

Let’s take a deeper look at a few of the different types of risk below.

1. Sanctions Compliance Risk

Sanctions compliance risk is a potential threat or vulnerability that, if not dealt with properly, can lead to violations of sanctions regulations and negatively impact an organization’s reputation and business. Below are a few recommendations for managing your sanctions compliance risk efficiently and effectively.

Pre-fixture screening is important to truly know who you are doing business with. It streamlines sanctions screening, trade compliance, and in-depth case escalation prioritization. With Maritime AI™ technology that automatically flags DSPs in alignment with global regulations, stakeholders can receive real-time, personalized risk assessments and bottom-line decision-making recommendations to quickly clear more deals and enhance operational efficiency.

Post-fixture investigation and monitoring enable stakeholders to deep dive into escalated cases that cannot be quickly cleared and monitor their risk exposure throughout the entire journey of active deals and contracts. Maritime AI™, with advanced fleet visibility and proactive risk identification and management, can automatically generate lists of tailored vessels of interest (VOI), along with real-time alerts for potential threats matched to your predefined risk profiles.

For example, a leading energy company improved its monitoring processes during the early stage of the Red Sea crisis, saving its security team four hours a day (120 hours per month!).

Container tracking: with the unprecedented regulations applied to containerized goods as part of the EU sanctions packages against Russia, stakeholders involved in the transit of containers now need visibility and insights for building new compliance procedures. Sanctions screening and full voyage milestone visibility can prevent sanctions breaches, such as loading containers onto sanctioned vessels, or vessels with a former Russian flag, and/or engaging with companies in sanctioned countries.

Bunkering involves a high level of risk, particularly concerning credit. Bunkering organizations need to know who they are providing services to, understand where they came from, and know who they met with before to ensure the bunkering organization is not unintentionally enabling sanctions evasions and price cap breaches.

The EU 11th sanctions package stipulated that bunker suppliers were expected to go far beyond mere sanctions list screening. They had to have a comprehensive, risk-based due diligence process and monitor deceptive shipping practices and suspicious behavior. Failure to keep up could lead to major sanctions breaches, reputational harm, and other penalties.

2. Financial Risk

Effective financial risk management in maritime trade requires sophisticated technology to ensure transparency, compliance, and timely execution.

Pre-trade verification and compliance: prior to executing a trade, financial entities must verify the voyage details and bill of lading, and assess the risk associated with the vessel and the cargo.

Audit trail: maintaining a detailed audit trail is crucial for compliance and review purposes. Stakeholders must keep an exhaustive log of all actions and decisions made during the pre-trade phase, which can be exported for regulatory scrutiny, or internal audits. This ensures all processes are documented and traceable, aligning with global trade compliance standards.

Post-trade monitoring and adjustments: continuous monitoring is critical to identify and address any deviations, or emerging risks, after the trade. Tracking container milestones, predicting arrival times, and monitoring gate movements and vessel departures/arrivals is crucial for entities to strategically plan their finances. Ongoing vessel monitoring for DSPs, unscheduled port calls, and course deviations is essential. Any fluctuation in risk scores is closely monitored, prompting necessary actions to adjust strategies and operations accordingly.

3. Safety Risk

Marine insurance: risk management plays a crucial role in the marine insurance domain. Insurers annually assess the quality of vessels and the reputation of the companies they underwrite to determine the risks associated with insuring them. Beyond the operational risk exposure, insurance companies must have visibility into the behavioral patterns of the vessels they cover to avoid insuring ships that may engage in DSPs, or venture into sanctioned areas or war zones, which could pose severe financial and regulatory risks.

These assessments directly affect premiums and the scope of coverage provided under different types of insurance, such as protection & indemnity (P&I) for third-party liabilities, and hull and machinery insurance, which covers physical damage to the ship.

Marine assurance: marine assurance is specifically for energy and mining companies, and is deeply rooted in ensuring the safety and reliability of vessels engaged in these industries. On a per-voyage basis, dry bulk stakeholders examine a detailed checklist to assess a vessel’s condition and operational safety. These inspections aim to predict the likelihood of a vessel being involved in an accident, providing a dynamic and voyage-specific assessment of risks.

Unlike marine insurance, which evaluates risks primarily to set premiums on an annual basis, marine assurance requires confirmation of standards and safety before each voyage, emphasizing continuous evaluation and adaptation to ensure safety and sanctions compliance in the highly variable energy and mining sectors.

4. Security Risk

Government and law enforcement agencies may define risk differently. Still, the challenge remains the same. Identifying vessels based on relevant risk indicators and profiles, and responding to those potential risks to protect national borders and critical infrastructure, prevent maritime crimes, and stay on top of emerging and evolving threats.

Geopolitical disruptions: local flare-ups of violence or escalating tensions could have massive implications for what is considered risky. They give rise to new risk profiles, unknown, risky behavioral indicators, and new geopolitical realities that may also impact how risk is perceived and defined.

For example, the current crisis in the Red Sea requires the development of new risk assessments that take into account the possibility of attacks by Houthi rebels. In addition, behaviors that have traditionally been used as indicators of possible illicit behavior, such as dark activity, have been adopted by “clean” vessels as a means of protection. Any definition or assessment of risk must account for local disruptions and escalations as they develop, and their aftermath.

Smuggling: the illegal trafficking of arms, goods, or people is one of the most ubiquitous challenges faced by law enforcement and border protection agencies, with immediate and tangible security implications. As the first line of defense, agencies must quickly analyze and investigate multiple maritime entities simultaneously, including vessels, companies, cargo, ports, and more, to identify potential smuggling attempts before it is too late.

With thousands of (and often more) vessels inbound or approaching territorial waters, it is impossible to screen all of them. Identifying vessels at higher risk of smuggling, based on behavioral trends or single vessel indicators, is crucial to making mission-critical decisions, deploying resources strategically, and reducing false positives.

IUU fishing: illegal, unreported, and unregulated (IUU) fishing has emerged as a leading global maritime security threat. Aside from having a tangible economic and environmental impact, fishing vessels are often used to mask activities such as labor abuse, smuggling, pollution, and geopolitical expansion (“the great power competition”).

Defining deceptive fishing practices, based on a deep understanding of routine behavioral patterns of fishing vessels and seasonality, can indicate which vessels are at high risk of fishing illegally, or masking non-commercial activity. In turn, tracking the location and behavior of vessels flagged as risky for IUU and associated violations can help countries defend their territorial waters from encroachment and exploitation.

Critical infrastructure: the understanding of what constitutes a security risk is constantly evolving. The imperative to protect national territory and borders has expanded to include the protection of vital trade routes and critical national assets, such as communication and energy infrastructure.

The movement or presence of potentially risky vessels near and around these locations is of the utmost importance to governments and security agencies. Analyzing and tracking the behavioral patterns of vessels can yield crucial insight into possible risks, or threats to infrastructure. For example, behaviors that might not necessarily raise suspicion when seen elsewhere, such as slow-speed activities or loitering, or fishing/research activities, are of acute significance when occurring near gas pipelines or underwater cables.

Organization Defined Risk – Your Risk, Your Rules

Organization Defined Risk (ODR) from Windward is the first fully configurable risk type, defined independently by organizations according to their needs. It is now generally available and is applied across both dynamic (behavioral) and static (list screening) data sets.

For example, organizations will be able to define that all vessels that called ports in Myanmar during the last year will be flagged as “moderate risk,” or define an indicator for vessels with “moderate risk” that also conducted ship-to-ship (STS) engagements in the Mediterranean in the past 90 days.

Customization may appear adequate, but risk managers can only choose from predefined settings/parameters. For example, picking and choosing from a fixed “menu” of risks. A truly configurable approach empowers organizations to define and apply individual risk parameters that resonate with their specific needs, scenarios, industries, and teams (or, in keeping with the metaphor, to introduce new risks into the “menu”).

By configuring and defining these parameters, entities can ensure that their risk management strategies perfectly align with their operational and strategic risk mitigation and growth objectives. This level of configuration enhances decision-making capabilities, enabling organizations to integrate various risk indicators to make data-based, comprehensive decisions.

4 Optimized Risk Management Benefits via ODR

Tailored risk assessment: easily define and apply individual risk parameters to align with various company needs, scenarios, industries, and/or teams
Enhanced decision-making: integrate various risk indicators, for example, intersectional indicators, to make data-based comprehensive decisions
Competitive edge: demonstrate a proactive and sophisticated approach to risk thresholds according to various needs, generating new business opportunities
Unparalleled visibility: nominate local/specific risk profiles, as opposed to only global risk indicators, to gain immediate insight into the risk you care about

Redefine Risk Profiles with the Power of Configuration

Risk management is NOT a one-size-fits-all approach. Organizations, teams, and entire industries each have their own unique risk appetites shaped by distinct challenges, goals, and operational environments.

Customization vs. Configuration

Customization enables users to modify and personalize predefined settings, such as the look-back periods, the risk regimes in the system, or hot spots for IUU fishing. They get a set list of options and can personalize them.

Configuration is the process of defining those settings and parameters, such as a specific area with specific indicators, to be monitored over a specific period.

By allowing for the definition of risk according to an organization’s risk appetite, rather than solely adhering to regulations or global trends, configuration offers a more nuanced and effective approach to risk management. This shift not only aligns risk strategies more closely with organizational objectives, but also enhances the agility and responsiveness of entities navigating the complex risk landscape.

Must-Haves for Staying Ahead

In this era of unprecedented volatility within global trade, an ideal Maritime AI™ solution must be equipped with advanced risk management features to handle the industry’s dynamic demands adeptly. It should include a sophisticated compliance model with STS classification, location (GNSS) manipulations, global coverage, and full regulatory alignment in real-time.

The flexibility to configure risk and behavioral indicators according to specific organizational needs allows for precise control over compliance measures and business growth, enabling swift adaptation to the ever-changing global regulatory landscape. Exception management capabilities are also vital, so the system can identify and address anomalies proactively.

A trade finance API can play a pivotal role, by enabling stakeholders to mitigate potential financial risks associated with global shipping within their existing workflows and processes.

Together, these components form a comprehensive risk management solution powered by Maritime AI™ technology. This integrated platform protects against current and emerging threats and enhances decision-making processes through data-driven insights and predictive intelligence. Unlike generic solutions with predefined settings, a configurable solution is indispensable for navigating global maritime trade’s complex and shifting waters, ensuring resilience and strategic advantage in a competitive environment.

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