The actions of bad actors and rogue governments continue to complicate regulatory regimes of the shipping industry, including the situation facing charterers.

In addition to the increasing challenges around sanctions evasion and illicit trade, Covid-19 and its economic impacts have led to new reputational and financial risks associated with global supply chains.

Events have shown that the challenge of maintaining global trade networks during a disruption may leave shipping organisations exposed to new counterparties that have unassessed risks.

Level-headed approach

During a time of rapidly growing commercial and regulatory exposure, it is important for businesses to have a level-headed response and act quickly to implement a robust “know your vessel” (KYV) programme.

This should happen through an organisation-wide dedication to compliance, a nuanced understanding of enterprise risk and a supply chain that properly ­balances efficiency and resilience.

The US administration’s 14 May Global Maritime Advisory provides detail on the level of vetting and other compliance actions expected of companies at risk of breaching sanctions.

But given that the maritime industry is subject to numerous international regulations, there may be inconsistent requirements, which could lead to disruptions in business.

If companies first assess their programme and understand the applicable regulatory regimes, they can more effectively implement additional approaches that are fit for purpose.

The bottom line of the US guidance is that businesses need to purposefully and dramatically strengthen their compliance activities.

Consistent due diligence

US treasury secretary Steven Mnuchin (left) and vice-president Mike Pence watch as President Donald Trump prepares to sign an executive order strengthening sanctions on Iran. Photo: D Myles Cullen/White House

At minimum, a KYV programme includes risk-based due diligence. This begins with collecting the necessary information from the vessel, particularly documentation regarding its ultimate beneficial owners. Where appropriate, this documentation should be verified and independently monitored for changes.

The goal is to develop a unique risk profile/score based on the risk assessment for each vessel and have policies and procedures to act on that information, while also being adaptable to business demands.

Once the overall regulatory and sanctions risks are assessed, a strong governance programme would lay the foundation for consistent due diligence, screening and approval processes prior to chartering vessels or engaging with a shipping business.

Expanding this foundation with nuance and clear guidance will allow the business to apply measures effectively and quickly on board new vessels. For example, businesses should outline parameters when each new vessel needs to be chartered, as well as controls around how quickly a ship can be approved.

Similarly, heightened levels of risk based on the nature of a contract, whether for a spot charter or a subcontractor, should be determined, to prompt more extensive vetting.

Finger on the pulse

Governance programmes must also reflect that ­initial screening and subsequent decisions do not negate the need to undertake an ongoing and routine review. Conditions are subject to change, and businesses need to keep their finger on the pulse of their vessels’ risk profiles.

These programmes are a commitment to supporting an organisation’s central mission and its ability to carry it out.

Ultimately, a robust governance programme can help ensure shipping companies know their vessels and feel confident with their level of risk. And should an issue arise, it’s important that you be prepared to respond effectively.

Michael Watt is senior director at Kroll, a division of Duff & Phelps
Do you have an opinion to share? Send details to