Risk Management

Managing and mitigating risk is what a physical commodities trader like Gunvor does, and it is a prerequisite for long-term success. Gunvor’s has a 20-plus year track record of effectively managing the risk within the ever changing commodities markets to ensure stable commercial growth and development.

A combination of policies and internal procedures addressing liquidityLiquidity is a term commonly used in the energy commodities trading sector, referring to the extent to which a specific market or asset can be easily bought or sold without... Read more, credit, country, exchange rate, price, market, operational, environmental, freight, compliance and regulatory risks is the foundation of Gunvor’s control and risk managementRisk management refers to the process of identifying, assessing, and prioritizing potential risks in order to minimize their negative impact on an organization or individual. In the energy commodities trading... Read more framework.

This involves various functions, including Risk, Controlling, Tax, Finance, Credit, Compliance, HSEC and the Internal Audit.

Within this framework, a range of risk management tools and policies are applied to minimise overall risk exposure, including but not limited to:

The Group has built an effective risk and control management framework with the expertise to navigate market fluctuations.

Financial derivative instruments to hedge commodity price and foreign currency exchange rate risks

Offsetting physical positions, acting as a natural hedge

Insurance to hedge various operational risks including freight-related, country and political risks

Ready access to sufficient capital and funding to prevent liquidity risk

Strict policies and procedures to manage counterparty relationships, fraud and regulatory risks

The main tool to manage risk across the company entities is a proprietary information system that consolidates trade positions, financial exposures and the trade profit and loss results globally on a daily basis. It allows the management to monitor the Group’s overall exposure and adopt any required measures on a timely basis. This information system is constantly refined and improved by in-house IT developers to integrate new products being traded, as well as new functions related to logistics, invoicing, tax and/or reporting.

Strict policies and procedures are in place and are subject to constant reviews. They range from hedgingHedging is a risk management strategy commonly utilized in the energy commodities trading sector to minimize exposure to price fluctuations. It involves taking offsetting positions in financial instruments or physical... Read more and trading policies to operational and compliance ones. In addition to the risk tools, such policies and procedures are key elements to manage counterparty relationships, fraud and regulatory risks.

Gunvor reduces supply chain risk by working with a large number of suppliers from a multitude of geographic markets, using our own infrastructure (vessels, terminals, and storage locations), and building long-term relationships with reputable logistics organizations around the world.

Strict policies and procedures cover hedging, trading, operations, and compliance, among other crtitical areas. Complementating Gunvor’s risk tools, such policies and procedures are key elements of managing counterparty relationships, fraud, and regulatory risks.

Risk Management Process

Gunvor has global risk management processes that identify risks that may impact profitability, including:

Commodity price

Interest rate

Credit

Capital

Liquidity

Operational

Currency

Centralised risk management and finance teams are responsible to monitor and manage risk exposures within approved guidelines. Risk, credit, finance, tax, and compliance functions engage regularly to ensure all risks are correctly captured and vet new projects when deemed relevant. External consultants are engaged from time to time to provide additional expertise.

Managing Supply Chain Risk

Gunvor reduces its supply chainDefinition: A supply chain refers to the entire process involved in the production, distribution, and delivery of goods or services, from the extraction of raw materials to the final consumption... Read more risk by working with a large number of suppliers from many geographical markets, using the company’s own infrastructure (vessels, terminals, storage locations), and building long-term relationships with reputable logistics organisations around the world.

Gunvor further monitors its supply chain and inventory using independent third-party organisations. Gunvor has extensive insurance for its physical inventory, for marine cover, political risk, and payment risk. Gunvor’s internal controls help to mitigate the risk of fraud across its supply chain, as does the use of blockchain-backed payment systems.

Through diligent attention to all aspects of risk, Gunvor is able to manages its supply chain in the most efficient manner—serving its clients in the most effective and responsible manner.