PROBLEMATIC ASPECTS OF FINANCIAL RISK ASSESSMENT METHODOLOGY IN STEVEDORING COMPANIES

Abstract

The study is dedicated to identification of problematic aspects of financial risk assessment methodology on the example of stevedoring companies. In research established the list of issues for improvement the methodology of financial risk assessment both in theoretical and practical aspects. Formulated industry features of the stevedoring companies’ activity, relevant factors from the perspective of financial risk impact on results of activity, among which are distinguished: loss of net sales, exchange rate instability and decrease of financial stability. It was found that the loss of net income from the sale of state stevedoring companies of Ukraine occurred: due to the failure to fulfill the plan of cargo processing by reducing the number of the number of ship-measures and change of the nomenclature of cargo towards the less profitable and instability of the US dollar. Particular attention is paid to assessing the level of financial stability of state-owned stevedoring companies in Ukraine and identifies a downward trend in recent years. It is argued that the definition of factors that affect financial risks should be conducted using factor analysis, mathematical models that require comprehensive consideration of uncertainty factors and related to the peculiarities of stevedoring companies operation. The feasibility of drawing up a financial risk map and the options of management's response to their presence have been proved.

Full text

WORLD SCIENCE ISSN 2413-1032
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№ 12(52), Vol.1, December 2019
PROBLEMATIC ASPECTS OF FINANCIAL RISK
ASSESSMENT METHODOLOGY IN STEVEDORING
COMPANIES
Candidate of Economic Sciences, Boiko M. O.,
Postgraduate, Gevrek Yu. S.
Ukraine, Odesa, Odesa National Maritime University
DOI: https://doi.org/10.31435/rsglobal_ws/30122019/6828
ARTICLE INFO
Received: 12 October 2019
Accepted: 13 December 2019
Published: 30 December 2019
ABSTRACT
The study is dedicated to identification of problematic aspects of financial
risk assessment methodology on the example of stevedoring companies. In
research established the list of issues for improvement the methodology of
financial risk assessment both in theoretical and practical aspects.
Formulated industry features of the stevedoring companies’ activity,
relevant factors from the perspective of financial risk impact on results of
activity, among which are distinguished: loss of net sales, exchange rate
instability and decrease of financial stability. It was found that the loss of
net income from the sale of state stevedoring companies of Ukraine
occurred: due to the failure to fulfill the plan of cargo processing by
reducing the number of the number of ship-measures and change of the
nomenclature of cargo towards the less profitable and instability of the US
dollar. Particular attention is paid to assessing the level of financial stability
of state-owned stevedoring companies in Ukraine and identifies a
downward trend in recent years. It is argued that the definition of factors
that affect financial risks should be conducted using factor analysis,
mathematical models that require comprehensive consideration of
uncertainty factors and related to the peculiarities of stevedoring companies
operation. The feasibility of drawing up a financial risk map and the options
of management's response to their presence have been proved.
KEYWORDS
financial risk,
risk factors,
financial stability,
currency rate,
risk map,
stevedoring company.
Citation: Boiko M. O., Gevrek Yu. S. (2019) Problematic Aspects of Financial Risk Assessment
Methodology in Stevedoring Companies. World Science. 12(52), Vol.1. doi: 10.31435/rsglobal_ws/30122019/6828
Copyright: © 2019 Boiko M. O., Gevrek Yu. S. This is an open-access article distributed under the terms of
the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is
permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is
cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not
comply with these terms.
Introduction. The activity of any company is associated with the presence of various types of
risks, which is due to the uncertainty of the effect of various factors in the market environment. A
separate group of existing risks are financial risks that arise in the sphere of financial relations of the
company and directly affect the size of the financial result in the form of profit, the likelihood of
financial losses in terms of value. Many researchers have paid attention to the definition of financial
risk, its characteristics, classification and discovering methods of its assessment.
Financial risk is characterized by the probability of loss as a result of conducting an economic
activity, primarily operating and investment activities [1]. The relevance of financial risk management
as a subjectively objective category, which not only causes losses but also gives additional benefits
under effective management, is growing rapidly, since without financial risk it is impossible to carry
out any financial and commercial activities [2, с. 168].
ECONOMY

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Among the classification signs of financial risk the most common are the following: tax,
currency, inflation, credit, deposit, portfolio, reduction of financial stability, liquidity, insolvency,
interest, investment, loss of profit [3, 4].
The type of the company activity and its specific industry characteristics influence the
interpretation and assessment of financial risk. Thus, for port enterprises “the threat of activity may
come from competitors, from their own miscalculations in planning and management, from mistakes
in recruitment. In any case, it is important not to avoid risk at all, but to anticipate and reduce risk to a
minimum” [5, с. 79].
Stevedoring activity is part of the economic activity of the port as a whole and its main subject
of economic activity; it is aimed at generating income in cash or in another form, which is regular and
permanent, are also accompanied by financial risks. At present, stevedoring companies are left out of
the question of improving financial risk assessment, both in theory and in practical terms. In particular,
the need to assess the financial risk of stevedoring companies is due to:
- the likelihood of financial consequences associated with the existence of a dominant share of
foreign currency payments, which directly influences the presence of currency risk associated with
currency fluctuations, which have been quite significant in Ukraine in recent years [6];
- strengthening of the role of the private sector in the activity of port enterprises: along with
the increase of economic efficiency of functioning of the port complex due to the combination of
interests of all participants of the process, there is an increase in the probability of occurrence of risky
financial transactions [7];
- inflationary processes that result in a rise in the cost of resources (materials, fuel, etc.) that
affect the company's net profit;
- credit risks related to the fact that the client may fail to fulfil his obligations to the
stevedoring company within a specified timeframe, which will cause financial losses;
- interest rate risk arising from credit financing for the construction of hydraulic structures and
port infrastructure facilities, the purchase of reloading equipment;
- the tendency to decrease the financial stability of the state stevedoring companies of Ukraine.
Purpose of the research – identify directions for improving the methodology of financial risk
assessment on the example of stevedoring companies.
Research results. The definition of financial risk of a company in literary sources is
ambiguous, in some cases controversial.
Financial risks create the possibility of losses arising from the failure to achieve a financial
objective. The risk reflects uncertainty about foreign exchange rates, interest rates, commodity prices,
equity prices, credit quality, liquidity, and an organization’s access to financing. These financial risks
are not necessarily independent of each other. For instance, exchange rates and interest rates are often
strongly linked, and this interdependence should be recognized when managers are designing risk
management systems [8, р. 5].
Financial risk includes the problems that an investment firm creates for itself or others as a
result of its financial condition. In particular, this kind of risk occurs when a firm has insufficient
financial strength to sustain its activities in the trading markets given the commitments it undertakes
for itself or for its customers [9, р. 75].
In a financial services context, risk is defined as “the lack of predictability of outcomes” affecting
the set of financial transactions and positions which cumulatively form the firm's business [10, с. 15].
Thus, risk includes the possibility of both pleasant surprises as well as adverse business outcomes.
Since prediction is facilitated by the availability of information to a decision maker, risk management
technology (RMT) can be used to proactively gauge risk in financial operations, where the outcomes of
regional lending operations, involvement in selected financial markets and instruments and positions taken
by traders are uncertain and may change from day to day. Risk management, on the other hand, is the
management of the resources and commitments of a firm so as to maximize its value, taking into account
the impact that unpredictable outcomes or events can have on firm performance [11, р. 1].
An important aspect of financial risk assessment is the need to determine an entity's data based
on insignificant and relevant information, which avoids insignificant features and parameters and
speeds up management decision-making at the least cost and time.
The financial risk assessment of the performance is related to the industry specificities of the
company. Consider these features for stevedoring companies.

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Nowadays a considerable number of economic entities provide services and carry out work on
the order of ship- and cargo-owners: stevedoring, freight forwarding, agent, shipchandler, surveyor,
logistic companies. The performance of stevedoring companies from a financial risk management
perspective is linked to the new conditions of market transformations and business practices, as well as
to international economic integration and the overall transport strategy.
The development of theoretical and methodological bases for the financial risk assessment of
stevedoring companies and the development of practical recommendations for their improvement are
relevant and require further research in the areas of:
–analysis and systematization of modern theoretical and methodological approaches to the
definition of the essence of “financial risk”;
- expansion of the system of classification of existing signs of financial risk;
- clarification of the conceptual and categorical apparatus, in particular the “risk of lost profit”,
which is directly related to the insufficient organization of internal control of financial risks at the enterprise;
- determining the impact of factors on the level of financial risk;
- evaluation of the features of financial analysis as a tool for managing financial risks;
- substantiation of directions of improvement of the system of financial risk management in
activity of stevedoring companies;
- development of stevedoring companies financial risk assessment methodological bases that
take into account the specificity of company activity;
- development of economic tools for assessing and forecasting financial risk of stevedoring
companies.
The solution of the actual scientific problem, which consists in theoretical, methodological and
economic-organizational support of estimation and management of financial risks of stevedoring
companies will allow:
- to improve the conceptual categorical apparatus; classification of financial risk existing
signs, lost profit risk; methodological bases of stevedoring companies financial risk assessment;
financial risk management system in stevedoring companies;
- develop methodological approaches to assess the feasibility of applying risk-oriented
financial control; economic tools for assessing and forecasting financial risk of stevedoring
companies; financial analysis technologies in the field of financial risk management.
Relevance of these directions is confirmed by the recent tendencies of activity of state
stevedoring companies of Ukraine:
- loss of net income from sales due to lack of processing of planned volumes of cargoes and
reduction of the US dollar rate, which is the basis for investment in the financial plan;
- inefficiency in the use of assets, including cash;
- tendency to decrease financial stability, financial income, profit from exchange rate differences;
- presence of non-profit units of social sphere;
- limited investment opportunities.
In our view, the most significant financial risk factors are the loss of net realizable income,
volatility of the exchange rate and the decline in financial stability.
The loss of net sales revenue due to the failure to process the planned cargo volumes is due,
first and foremost, to a reduction in the number of ship activities and cargo handling in virtually all
types of cargoes and a change in the nomenclature of goods towards less profitable ones. For example,
for State enterprise (SE) “Mariupol Commercial Sea Port (CSP)” the decrease in the income rate for
2018, which was 180.8 UAH/ton, which is 12.6 % less than the plan for 2018 [12].
The strong influence of financial risk factors for stevedoring companies is linked to the
volatility of the US dollar. Price policy of stevedoring companies is based on Art. 21 of the Law of
Ukraine “About Seaports of Ukraine”, according to which services provided in a seaport, except
specialized, are free and are determined by the contract between the entity providing the relevant
services and their customer [13].
From July 15, 2014, free tariffs will be charged for a complex of works related to the processing
of foreign trade, transit, cabotage cargo, cargo storage, fees and fees for services rendered to ships. Thus,
in financial terms, revenues for loading and unloading, storage of cargoes, mooring fees and for the
operation of tugboat differ from the actual received due to currency fluctuations (Fig. 1).

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Therefore, sales revenues are planned for 2017 year at the rate of 27.2 UAH / USD, for 2018
year at the rate of 29.3 UAH/ USD. In fact, the weighted average dollar exchange rate for 2017 was
26.59 UAH/USD, and for 2018, 27.2 UAH/USD. The deviation of the actual rate downwards from the
planned one in 2017 is 2.1 UAH/USD (7.7 %) and in 2018 year 0.61 USD / USD (2.3 %). The
financial losses from such fluctuations are obvious and are measured in thousands of dollars.
Fig. 1. Analysis of the US dollar exchange rate included in the financial plan of state-owned
stevedoring companies of Ukraine, UAH / USD
Source: compiled using [12, 14]
For example, in SE “Commercial Sea Port Pivdenny”, the decrease in operating income as a
result of changes in the actual US dollar exchange rate in the reporting period of 2018 amounted to
129,032 thousand UAH [12].
Financial risk is directly related to the financial stability of the company, which can be estimated
by the coefficient of autonomy, which is calculated as the ratio of equity to total assets. In recent years,
there has been a tendency to decrease the financial soundness of state-owned stevedoring companies of
Ukraine (Table 1), which is a signal for determining the factors that influence this situation, the
consequences of risky operations and the optimal structure of sources of formation of assets.
Table 1. The level of financial sustainability of state stevedoring companies of Ukraine
State Stevedoring Company
2017
2018
Deviation
absolute
relative
SE “Berdyansk Commercial Sea Port”
0,95
0,95
0,00
0,00
SE “Belgorod-Dnestrovsky Commercial Sea Port”
0,88
0,80
-0,08
-9,1
SE “Izmail Commercial Sea Port”
0,84
0,88
0,04
4,8
SE “Mariupol Commercial Sea Port”
0,94
0,97
0,03
3,2
SE “Nikolaev Commercial Sea Port”
0,96
0,94
-0,02
-2,1
SE “Commercial Sea Port Ust-Dunaisk”
0,95
0,91
-0,04
-4,2
SE “Commercial Sea Port Chernomorsk”
0,90
0,86
-0,04
-4,4
SE “Odesa Commercial Sea Port”
0,99
0,98
-0,01
-1,0
SE “Commercial Sea Port Pivdenny”
0,75
0,76
0,01
1,3
SE “Reni Commercial Sea Port”
–
–
–
–
SE “Stevedoring Company Olvia”
1,00
0,92
-0,08
-8,00
SE “Kherson Commercial Sea Port”
0,93
0,82
-0,11
-11,83
Source: compiled using [12]
The level of financial independence is observed at SE “Berdyansk CSP”, SE “Izmail CSP”
and SE “Mariupol CSP”. Decline in financial independence was particularly rapid at SE “Belgorod-
Dnestrovsky CSP”, SE “Stevedoring Company Olvia” and SE “Kherson CSP”.

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Concerning to SE “Reni Commercial Sea Port” it should be noted that there is a strong
dependence on external sources of asset formation and an increase in this dependence. Thus, in 2017
year the excess of attracted sources exceeded the equity by – 2 984,0 thousand UAH, and in 2018 year
by 22 415,0 thousand UAH. The presence of such debt is conditioned by long-term and current
liabilities, with a significant increase in the latter. The ratio of long-term and current liabilities is 1/3 in
2017 and in 2018. The positive point is the value of the autonomy indicator, which is higher than the one
recommended by all state stevedoring companies of Ukraine with the exception of SE “Reni CSP”.
Determining the factors that affect the level of financial sustainability should be based on an
assessment of the available financial risks of loss of independence from external sources of asset
financing. Such an assessment can be made using factor analysis, models that require comprehensive
consideration of uncertainty factors and related to the peculiarities of operating stevedoring companies
in the face of existing financial risks.
For example, mathematical approaches to the modelling and processing of fuzzy data based on
expert judgment, fuzzy sets are valid and allow solving a wide range of management problems, to take
into account the fuzziness of the data, the multiplicative influence of uncertainty factors, the impact of
risks and subjective decisions, increasing the adequacy of quantitatively and qualitatively. The main
advantages of using a fuzzy multiple approaches are the ability to adapt to specific changing
conditions, the ability to rank companies by level, and the ability to describe quantitatively and
qualitatively information about objects. The disadvantage of this approach is the subjective nature of
determining the significance of indicators, the lack of a methodological basis for determining them,
the need for systematic collection and monitoring of a large number of performance indicators.
It is also possible to apply methods of scenario analysis and processing, optimization, game-
theoretic methods, software-target method, etc. The above methods have not yet received detailed
theoretical substantiation and widespread practical use in assessing the financial risk of stevedoring
companies.
The consequences of risky operations can be significant to the financial results of the
stevedoring companies, so it is advisable to draw up a risk map and make a significant selection of
risks. The main purpose of this process is to obtain the output of the list of risks that are located in
order of decreasing materiality.
Examples of risk mapping are given in the works [8, 15]. The estimated risks can then be
prioritized using a likelihood/impact matrix, such as that illustrated in Figure 2.
Fig. 2. A Likelihood/Impact Matrix
Source: [8, р. 8]
A variety of situations are associated with types of risk probability (Table 2)
IMPACT
L
I
K
E
L
I
H
O
O
D
High
Medium
Low
Low
Medium
High
9
5
7
6
1
10
8
3
4
2

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Table 2. Risk probability situations
Probability
The probability of
occurrence
The risk will not manifest itself
5
Most likely, the risk will not manifest itself
10
The probability of manifestation and non-manifestation of risk
is the same
50
The risk is most likely will manifest itself
75
High risk of risk
95
Source: [15, р. 240]
The following nuances must be taken into account when drawing up the risk map:
- if the activity of the company includes several directions - a separate risk map is prepared for
each direction;
- if the company has subsidiaries, then cards are drawn up for both the subsidiaries and the
parent company;
- risks of large projects are considered separately.
The response of the management of the stevedoring company to the presence of financial risks
may be different (Fig. 3).
Fig. 3. Options for management's response to financial risks [8, 15, 16]
Although the business requirements facing firms related to financial risk management are
increasing, so are the ways to address them. The technology that can be applied to the fled of financial
risk management is changing extremely rapidly. Attempting to keep abreast of the constantly evolving
technologies can be overwhelming [16, р. 7].
The system of financial risk management in terms of individual management functions, methods
and measures of their practical implementation should be aimed at the selection of indicators, their
cessation of activities leading to risk;
rejection a risky project;
change in strategic objectives or operational process
organization of the reporting system;
reducing the likelihood and / or impact of risk;
developing risk management techniques and procedures;
development of plans for business continuity, crisis
management, disaster preparedness, safety during work
and in dangerous situations;
comparison with international practice criteria and so on
insurance;
transferring risks to partners as part of the creation of a
joint venture or association;
outsourcing;
diversification of activities;
hedging
Risk avoidance
Risk reduction
(risk control /
optimization)
Redistribution (transfer)
of risk
Risk acceptance
Financial risk
Option action
Technology
cessation of activities leading to risk;
rejection a risky project;
change in strategic objectives or operational process
organization of the reporting system;
reducing the probability and / or impact of risk;
developing risk management techniques and procedures;
development of plans for business continuity, crisis
management, disaster preparedness, safety during work
and in dangerous situations;
comparison with international practice criteria and so on
insurance;
transferring risks to partners as part of the creation of a
joint venture or association;
outsourcing;
diversification of activities;
hedging

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analysis and forecasting of all financial transactions at the company. As a result, systematic monitoring,
response and normalization of the situation are the avoidance of situations that significantly affect the
financial result of the company in the form of profit, and in some cases, loss reduction.
Conclusions. The research sets out a list of issues of improvement of the method of financial risk
assessment, both in theoretical and practical aspects. Formulated industry features of the stevedoring
companies’ activity, relevant factors from the perspective of financial risk impact on results of activity,
among which are distinguished: loss of net sales, exchange rate instability and decrease of financial
stability. It was found that the loss of net income from the sale of state stevedoring companies of Ukraine
occurred: due to the failure to fulfill the plan of cargo processing by reducing the number of the number of
ship-measures and change of the nomenclature of cargo towards the less profitable and instability of the US
dollar. Particular attention is paid to assessing the level of financial stability of state-owned stevedoring
companies in Ukraine and identifies a downward trend in recent years. It is argued that the definition of
factors that affect financial risks should be conducted using factor analysis, mathematical models that
require comprehensive consideration of uncertainty factors and related to the peculiarities of stevedoring
companies operation. The feasibility of drawing up a financial risk map and the options of management's
response to their presence have been proved. The practical significance of the expected scientific results
will be the ability to apply the scientific provisions and conclusions of the study to the practical activities of
the stevedoring companies in assessing and managing their financial risks.
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