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COSCO Corporation (Singapore) Limited
Risk
Management
Corporate Governance and Transparency
may result in, or increase the rate of, material legal
and regulatory change, and changes to custom and
practices. These affect a wide range of areas and are
expected to have material and adverse impacts on the
performance and financial condition of the Group if they
are not pre-empted appropriately.
COMPETITION
The ship repair, ship building, marine engineering and
dry bulk shipping industries are highly competitive. The
primary bases for competition in the ship repair, ship
building and marine engineering industries are matching
of the customers’ demands with the capabilities
and capacity of a shipyard, the type and quality of
vessel, price, delivery schedule/availability and type of
equipment.
The Group expects to face increased competition
from existing competitors and new entrants into these
industries in the future. In the event that the Group is
unable to continually upgrade its shipyard capabilities,
the Group’s business, financial condition, results of
operation and prospect may be adversely affected.
The Group may face increasingly stiff competition,
especially under this era of global uncertainties whereby
some players have adopted aggressive pricing strategy
in order to secure new orders. The recent steep slide
in crude oil prices may result in significantly reduced
and slower demand for marine engineering products or
cancellation of contracts.
Increased competition in the markets have caused and
will cause contract values of new ship building contracts
to deteriorate thereby adversely impacting the Group’s
performance and financial condition.
CUSTOMER DEMAND
Customer expectations are increasingly demanding. The
Group expects greater scrutiny by customers before they
take delivery of vessels. This will, inadvertently, increase
the building costs of vessels. A failure to recover higher
costs could materially and adversely impact the Group’s
performance.
The Group has introduced enhanced modern
shipbuilding management system software to better
manage and to mitigate the risks of late ship-built
delivery and quality. A “COSCO Shipyard CIMS System
Maintenance and Operation Regulation” has been
developed and updated to ensure common practices,
smooth and stable operation throughout the various
shipyard subsidiaries.
MARKET DOWNTURN RISK
Over the past year, the global offshore market has
slowed down significantly due to weak global economic
conditions and the recent plunge in crude oil prices.
Many oil majors have started to cut expenditure leading
to fewer orders for deep water rigs. In addition, a number
of offshore rigs and supply vessels delivered in past
months have not secured contracts for lease yet. Under
such challenging circumstances, some customers
may delay or refuse to accept delivery of vessels upon
completion. Coupled with the shift in payment structure
from progressive payment to back-end loaded payment
upon delivery, this will adversely impact the cash flow
of the Group. As there are maintenance costs to be
incurred in the up-keeping of completed vessels, the
longer the lead time to find alternative buyers would
result in a greater negative impact to the bottom line of
the Group.
FLUCTUATIONS IN THE BALTIC DRY INDEX (“BDI”
)
The BDI is a benchmark of the dry bulk shipping industry
and is an indication of the price of moving major raw
materials by sea. It is generally recognised as an
economic indicator of the movement and volume of
global trade.
An increase in the BDI is generally considered to indicate
an increase in demand for dry bulk shipping, whereas a
decrease in the BDI is generally considered to indicate
a decrease in demand for dry bulk shipping, and the
capital expenditure of dry bulk shipping companies are
usually driven mainly by the BDI outlook.
