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COSCO Corporation (Singapore) Limited
Risk
Management
Corporate Governance and Transparency
MANAGING COST OF WAGES THROUGH
OUTSOURCING
Ship repair is a labor-intensive industry and an increase
in wages will have a significant impact on the Group.
The Group had been encountering increases in labour
cost. Other than having a permanent work force of
skilled employees on the payroll, the Group has adopted
a contract hiring system where unskilled or semi-
skilled manpower is hired on a contractual basis and
paid according to projects undertaken. While this has
benefited the Group because of the decrease in fixed
manpower costs, there is a risk of failure by these third
parties to deliver on their contractual commitments,
which may adversely impact the Group’s reputation and
performance.
RAW MATERIALS
The Group depends upon the availability, quality and
cost of steel and steel-plates from around the world,
which exposes it to price, quality and supply fluctuations.
Although the Group will take measures to protect
against the short-term impacts of these fluctuations and
of the concentration of supply, there is no guarantee that
these will be effective. A failure to recover higher costs
of shortfalls in availability of materials of the appropriate
quality could materially and adversely affect the Group’s
performance.
The Group manages this risk through constant
monitoring of the markets in which it operates and
continuous review of capital expenditure programmes
to ensure they reflect market conditions. A continuous
focus on operating expenditure is also an important
method of mitigating this risk.
The Group has developed uniform processes and
procedures with applications such as SAP to manage
procurement of raw materials. The Group also has
developed strategic alliances with certain selected
major steel mills and other leading companies on the
purchase of steel supply, bunker, marine valves, boilers,
engines and other related equipment to mitigate risks in
such supplies.
3. FINANCIAL RISKS
The Group’s activities expose it to a variety of financial
risks: market risk (including currency risk, interest rate
risk and price risk), credit risk and liquidity risk.
Risk management is carried out under policies approved
by the Board of Directors. The Board approves guidelines
for overall risk management, as well as policies covering
these specific areas.
MANAGING CURRENCY FLUCTUATION
The main financial risks facing the Group are fluctuations
in foreign currency, interest rate risk, availability of
financing to meet the Group’s needs and default by
counterparties and customers. Any of these financial
risks may materially and adversely impact the Group’s
business, financial condition, results of operation and
prospects.
The Group has established a management system
to address financial risks. Fluctuations in currency
exchange rates are closely monitored. The Group at
its discretion may employ simple forward hedging on
a systematic approach to meet its financial obligations
and both foreign and local currencies needs.
The Group does not engage in speculative foreign
investments. Strict compliance controls are in place to
ensure that procedures are adhered to and management
decisions are not made unilaterally.
The Group also engaged the guidance of the holding
company in managing its foreign exchange risk
exposure. The holding company has an experienced
Treasury operations team responsible for managing the
funding requirements and liquidity risks.
A detailed disclosure of the Group’s financial risks
can be found on pages 133 to 140 in the Notes to the
Financial Statements.
