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| Strategic risk taking |
| The Sanmar Shipping experience |
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| The sea beckons the adventurous
and the daring. At the design stage, ships are built to withstand
about 100 million waves of a certain formation in the Atlantic
Ocean over a period of 20 years. Nature’s fury is obviously
estimated empirically to determine ship strength and the risk
of failure. |
| The word ‘risk’ is
thought to be derived from the Arabic word risq or the Latin
word risicum. The Latin word originally referred to the challenge
presented to seafarers by a barrier reef, and so implied a possible
negative outcome. |
| Contrary to the popular association
of risk with bad possibilities, it is the uncertainty of the
outcome that lends suspicion to the probability. As a Simon
and Garfunkel song whispers, “... she said the man in
the gabardine suit is a spy, I said his bow tie is really a
camera...”. Indeed, suspicion is camouflaged in risk!
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| Bill Gates and much earlier Winston Churchill
(who once confessed he had written down the question numbers
and nothing else in a school examination) are admittedly two
of the best examples of risk takers who turned out to be successful.
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| Often, risk takers conveniently use the theory
of “inadequacy of argument” propounded by Edward
De Bono. The story goes of a bank robber who painted one side
of the getaway car white and the other side black. Witnesses
offered sufficient contradictions to confuse the jury, and as
a result the accused got away scot-free. |
| Obviously, the defendant had mapped out his
exposure to possible risks and managed to keep the booty. |
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| Finance managers grade investors
on a scale of risk aversion. It would only mean that the higher
the risk of the venture, the higher the returns the investor
expects out of it. Ex Barings trader Nick Leeson’s speculation
on Nikkei stock and the fallout of it are typical examples of
the truism, “There is no such thing as a free lunch!”
In other words, if you seek a higher return on your investment,
you must be prepared to accept the risks associated with it. |
| In another league, Steve Forbes,
the billionaire publisher, just quit the US Presidential campaign
after spending three years and $35 million of his own money
on the trail. Did Forbes analyse his risk or was he merely bold
if not beautiful? |
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| One wonders if Forbes ever considered being
a shipowner, because for the seafarers in us, $35 million will
fetch two new buildings in Japan, which can be operated in assured
markets. Bold we may not be as Forbes, but bald we will surely
be by the time we excitedly estimate our returns! |
| The Sanmar strategy of managing ships centres
on leveraging risk appropriately. The cyclical shipping business
is so global in nature that it leaves no room for a generic
strategy. Mapping risk in this industry involves an intuitive
understanding of the fluctuations of exchange and interest rates,
sources and depth of funding, sources of cargoes, oil and commodity
(both capital and finished goods) prices, trade policies, stability
of governments, vagaries of nature and above all concerns regarding
safety and protection of the environment. With the markets looking
up, Sanmar resolves to surge ahead with patience and perseverance,
and with integrity and commitment in this new millennium, setting
nagging doubts to rest. |
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“Oh dear! The mighty seas, such mystic blue,
but scary green and dull gray at times
so risky, so easy to rock the boat,
yet we sail ahead with all our hearts and our souls
to bring glory to our brethren,
and to our land.” |
| – An unknown 18th century Tamil poet. |
| – The author is Assistant Vice President-Technical,
Sanmar Shipping Ltd. |
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