Case gives clarity on the incorporation of standard terms. Credit: 3D Animation Production Company, Pixabay

By Jos Standerwick, Chief Executive Officer of Maritime London

The ability to swiftly navigate market conditions and capitalise on opportunities is paramount in the ever-evolving maritime industry. The seaborne shipment of commodities operates within a framework that is as dynamic as it is competitive, driven by the inherent volatility in supply and demand. This entrepreneurial spirit has been a cornerstone of global commerce, contributing significantly to the benefits of globalisation. However, the unregulated nature of the physical shipping markets, which has historically fuelled competition and cost-effectiveness, is facing increased external scrutiny. Through enhanced transparency and reporting requirements, complex sanctions environments, and rigorous anti-fraud legislation, this intervention has brought counterparty risk to the forefront of commercial decision-making.  

For maritime businesses, the need for robust 'Know Your Customer' (KYC) practices has never been more critical. 

While KYC may sound like a modern acronym, its principle is deeply rooted in the maritime industry's trust and good conduct tradition. Baltic Exchange, with its longstanding motto ‘Our word, Our bond’, epitomises this ethos. Since the 19th Century, Baltic Exchange has set standards of behaviour in the shipping industry, a commitment further reinforced by the Baltic Code. Last revised in 2020, this code provides a voluntary kitemark for ethical and sound business practices, guiding members across various industry sectors.

However, as governmental bodies such as the UK's Office for Financial Sanctions Implementation (OFSI) and international organisations like OFAC and DG FISMA highlight the critical importance of KYC in the shipping industry, the stakes have been raised. Ignoring these guidelines is not an option. Instead, maritime businesses must embrace KYC as a fundamental part of their compliance programs, ensuring they can quickly and effectively verify counterparty identities, from company directors to beneficial owners, throughout their business relationships.

KYC is not just about ticking a compliance box—it's about understanding and managing risk. 

In an industry where counterparty fraud, although less sensationalised, is a genuine concern, KYC checks are a practical tool for ensuring that the companies you transact with are legitimate and reputable. Beyond preventing fraud, KYC plays a crucial role in enforcing contracts, which hinges on knowing the exact legal entity with which you are doing business.

The shipping industry has faced unprecedented challenges recently, from the pandemic's impact to high-profile insolvencies and escalating geopolitical tensions. These factors, combined with the increasing transparency demands from capital providers and insurers, have brought reputational risk into sharp focus. In this context, KYC checks are indispensable for identifying and mitigating potential risks posed by problematic counterparties, protecting your bottom line and your business's reputation.

But how do you establish the provenance of your counterparty in such a fragmented market? The answer lies in data. The sheer volume of data available today, from credit agencies to specialised databases for private companies, is staggering. Leveraging this data to obtain critical information quickly and efficiently is crucial. Recognising this need, Baltic Exchange has developed a KYC platform to supplement its trust services suite. This platform uses Moody’s data, aggregated from their Orbis and GRID databases, to provide users with a concise, actionable report on a potential counterparty, making it an invaluable tool for managing counterparty risk.

In today's landscape, where the consequences of not knowing your counterparty are more pronounced than ever, KYC is not just a regulatory requirement - it's a business imperative.  

Baltic Exchange, through its unique relationship with its members, supports the industry with the tools and expertise to navigate these challenges, fostering a more transparent, secure, and ethical maritime sector.  

Baltic Exchange's KYC platform offers a cost-effective, manageable approach to counterparty risk management, ensuring maritime businesses can thrive in a complex and ever-changing global market.

Find out more here.