Financials

<p><span data-preserver-spaces="true">The global shipping industry, the lifeblood of international trade, navigates a constant storm of challenges. Unpredictable prices, fuel costs, fluctuating demand, and evolving regulations create a volatile market. In this dynamic landscape, internal audit&nbsp;</span><span data-preserver-spaces="true">serves as</span><span data-preserver-spaces="true"> a crucial anchor, ensuring a shipping company stays on course and avoids hidden reefs.</span></p><p>&nbsp;</p><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Beyond the Hull</span></h2><p><span data-preserver-spaces="true">Internal audits for shipping companies delve into the operational effectiveness and financial health of the organization's operations on land. </span></p><p><span data-preserver-spaces="true">Here's how these audits play a critical role:</span></p><p><strong><span data-preserver-spaces="true">Financial reviews</span></strong></p><p><span data-preserver-spaces="true">Auditors meticulously examine a company's finances, ensuring proper accounting practices are followed. They identify potential fraud or internal control weaknesses, verify compliance with regulations, and assess the company's financial resilience in a volatile market. </span></p><p><span data-preserver-spaces="true">Did you know that a 2020 study by PwC found that marine fraud costs the shipping industry an estimated </span><span data-preserver-spaces="true">$2 billion </span><span data-preserver-spaces="true">annually</span><span data-preserver-spaces="true">. </span><span data-preserver-spaces="true">[Source: PwC, "Maritime Fraud Survey 2020"]</span></p><p><span data-preserver-spaces="true">Strong internal</span><span data-preserver-spaces="true"> controls implemented after the audits can significantly reduce or mitigate multidimensional business risks.</span></p><p><strong><span data-preserver-spaces="true">Contract Compliance</span></strong></p><p><span data-preserver-spaces="true">A shipping company relies heavily on contracts with NVOCCs (freight forwarders), shipbuilders, Transport providers, Terminals, and insurers. Internal audits ensure these contracts are reviewed for proper negotiation, execution, and adherence to terms. A single breached contract can incur significant financial penalties for a shipping company.</span></p><p><span data-preserver-spaces="true">According to a 2023 report by the Baltic and International Maritime Council (BIMCO), contract disputes account for </span><span data-preserver-spaces="true">a staggering</span><span data-preserver-spaces="true"> 20% of all maritime arbitration cases. </span><span data-preserver-spaces="true">[Source: BIMCO, "Dispute Resolution in Shipping 2023"]</span></p><p><span data-preserver-spaces="true">Internal audits play a vital role in mitigating this risk.</span></p><p><strong><span data-preserver-spaces="true">Operational Efficiency Reviews</span></strong></p><p><span data-preserver-spaces="true">Internal audits identify opportunities for improvement in operational processes, from streamlining cargo handling to optimizing vessel schedules. </span><span data-preserver-spaces="true">This</span><span data-preserver-spaces="true"> translates to cost savings, faster container turnaround times, and a competitive edge in the market.</span></p><h3>&nbsp;</h3><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Riding the Rollercoaster of Pricing Fluctuations</span></h2><p><span style="font-size: 14pt;"><strong><span data-preserver-spaces="true">Freight Rates</span></strong></span></p><p><span data-preserver-spaces="true">The cost of transporting goods by sea can fluctuate based on:</span></p><p><strong><span data-preserver-spaces="true">Supply and Demand</span></strong><span data-preserver-spaces="true">: Rates rise when demand for shipping on a particular route outstrips available capacity. Conversely, rates fall when there's excess capacity. </span><span data-preserver-spaces="true">You can find freight rate indexes from organizations like the <a href="https://www.drewry.co.uk/" target="_blank" rel="noopener">Drewry Maritime Research</a>&nbsp;</span><span data-preserver-spaces="true">which</span><span data-preserver-spaces="true"> track</span><span data-preserver-spaces="true"> average freight rates on major routes.</span></p><p><span data-preserver-spaces="true">Also, the <a href="Shanghai%20Shipping%20Exchange%20(sse.net.cn)" target="_blank" rel="noopener">Shanghai Container Freight Index</a>&nbsp;</span><span data-preserver-spaces="true">and the <a href="Xeneta%20|%20Ocean%20and%20Air%20Freight%20Rate%20Analytics%20Platform" target="_blank" rel="noopener">Xeneta</a> </span><span data-preserver-spaces="true">&nbsp;are good sources of information for tracking freight rates.</span></p><p><strong><span data-preserver-spaces="true">Seasonality</span></strong><span data-preserver-spaces="true">: Freight rates often fluctuate based on seasonal variations in demand. For example, rates typically increase during peak seasons for certain commodities such as Chinese New </span><span data-preserver-spaces="true">year</span><span data-preserver-spaces="true">, Fruit seasons, </span><span data-preserver-spaces="true">etc.</span><span data-preserver-spaces="true">,</span></p><p><strong><span data-preserver-spaces="true">Geopolitical Tensions</span></strong><span data-preserver-spaces="true">: Geopolitical instability can disrupt shipping routes and drive </span><span data-preserver-spaces="true">up</span><span data-preserver-spaces="true"> freight rates. Recent examples were </span><span data-preserver-spaces="true">Suez</span><span data-preserver-spaces="true"> Canal blockade or the Red Sea shipping </span><span data-preserver-spaces="true">crises</span></p><p>&nbsp;</p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Fuel Costs</span></h2><p><strong><span data-preserver-spaces="true">Bunker fuel</span></strong><span data-preserver-spaces="true">: A type of heavy </span><span data-preserver-spaces="true">fuel</span><span data-preserver-spaces="true"> oil used by ships, is a </span><span data-preserver-spaces="true">major</span><span data-preserver-spaces="true"> expense for shipping companies. Its price fluctuates dramatically based on several factors:</span></p><p><strong><span data-preserver-spaces="true">Global Oil Prices</span></strong><span data-preserver-spaces="true">: Bunker fuel prices </span><span data-preserver-spaces="true">are directly linked</span><span data-preserver-spaces="true"> to </span><span data-preserver-spaces="true">global</span><span data-preserver-spaces="true"> crude oil prices. You can find historical data and charts for <a href="https://www.macrotrends.net/2480/brent-crude-oil-prices-10-year-daily-chart" target="_blank" rel="noopener">Brent Crude oil</a> (a benchmark for </span><span data-preserver-spaces="true">global</span><span data-preserver-spaces="true"> oil prices)</span><span data-preserver-spaces="true">. </span></p><p><strong><span data-preserver-spaces="true">Geopolitical Instability</span></strong><span data-preserver-spaces="true">: Political unrest or conflict in oil-producing regions can disrupt supply and </span><span data-preserver-spaces="true">drive-up</span><span data-preserver-spaces="true"> prices.</span></p><p><strong><span data-preserver-spaces="true">Environmental Regulations</span></strong><span data-preserver-spaces="true">: Regulations like emission control standards or sustainability initiatives can influence the cost of refining bunker fuel.</span></p><p><span data-preserver-spaces="true">Internal audits can help companies navigate these fluctuations by:</span></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Evaluating fuel procurement strategies to ensure they are getting the best possible deals</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Analysing fuel efficiency measures implemented on vessels to minimize fuel consumption</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Assessing the effectiveness of pricing strategies to maximize revenue in a volatile market</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Identifying alternative routes or modes of transport that might be more cost-effective during periods of high freight rates</span></li></ul><h2>&nbsp;</h2><h2><span style="font-size: 14pt;" data-preserver-spaces="true">30 Strategic Audit Points for Shipping Companies</span></h2><p><span data-preserver-spaces="true">Internal Auditors focus on the financial health, operational efficiency, and risk management practices that keep companies afloat in a volatile market. Due to all the complexities in auditing a shipping company, there are 30 strategic audit points that internal auditors can use for providing assurance and consulting:</span></p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Contract Management</span></h2><p><strong><span data-preserver-spaces="true">Contract Negotiation and Execution</span></strong><span data-preserver-spaces="true">: Review freight contracts, shipbuilding agreements, Transport contracts, Terminal contracts </span><span data-preserver-spaces="true">and</span><span data-preserver-spaces="true"> insurance policies for proper negotiation, execution, and risk allocation.</span></p><p><strong><span data-preserver-spaces="true">Contract Performance Monitoring:</span></strong><span data-preserver-spaces="true"> Audit the monitoring and enforcement of contractual obligations by all parties involved.</span></p><p><strong><span data-preserver-spaces="true">Contractual Claims Management</span></strong><span data-preserver-spaces="true">: Evaluate the process for handling contractual disputes and claims, ensuring proper documentation and cost recovery.</span></p><p><strong><span data-preserver-spaces="true">Contractual Termination Clauses</span></strong><span data-preserver-spaces="true">: Review contract termination clauses to identify potential financial liabilities or missed opportunities to exit unfavorable agreements.</span></p><p>&nbsp;</p><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Operational Efficiency</span></h2><p><strong><span data-preserver-spaces="true">Vessel Operating Costs</span></strong><span data-preserver-spaces="true">: Analyze operational costs for each vessel, identifying areas for cost savings through route optimization, fuel efficiency measures, fuel hedging strategies, and crew management.</span></p><p><strong><span data-preserver-spaces="true">Cargo Handling Efficiency</span></strong><span data-preserver-spaces="true">: Audit cargo handling procedures to identify bottlenecks and inefficiencies that delay turnaround times and increase costs.</span></p><p><strong><span data-preserver-spaces="true">Port Selection and Scheduling</span></strong><span data-preserver-spaces="true">: Evaluate port selection strategies and vessel scheduling to minimize waiting times and optimize port calls.</span></p><p><strong><span data-preserver-spaces="true">Maintenance and Repair Practices</span></strong><span data-preserver-spaces="true">: Assess the effectiveness of maintenance programs for vessels and equipment, ensuring optimal performance and minimizing downtime.</span></p><p><strong><span data-preserver-spaces="true">Intermodal operations and Gate operations</span></strong><span data-preserver-spaces="true">: Evaluate intermodal transfer efficiency, stakeholder collaboration, and shipment integrity. Scrutinize container gate throughput, security protocols, and dwell time bottlenecks.</span></p><p><strong><span data-preserver-spaces="true">Inventory Management</span></strong><span data-preserver-spaces="true">: Audit spare parts and supplies inventory management practices to minimize waste and ensure crucial items are readily available.</span></p><h3>&nbsp;</h3><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Financial</span></h2><p><strong><span data-preserver-spaces="true">Revenue Recognition</span></strong><span data-preserver-spaces="true">: Ensure proper accounting</span><span data-preserver-spaces="true">, </span><span data-preserver-spaces="true">operational practices for freight revenue, considering factors like Freight invoicing, Local tariffs, </span><span data-preserver-spaces="true">and</span><span data-preserver-spaces="true"> Container time pending charges, charter party terms and cargo claims.</span></p><p><strong><span data-preserver-spaces="true">Bunker Fuel Procurement</span></strong><span data-preserver-spaces="true">: Audit procurement strategies for bunker fuel, analyzing pricing competitiveness and potential collusion.</span></p><p><strong><span data-preserver-spaces="true">Financial Reserves</span></strong><span data-preserver-spaces="true">: Assess the adequacy of </span><span data-preserver-spaces="true">financial</span><span data-preserver-spaces="true"> reserves to withstand market fluctuations and unexpected expenses.</span></p><p><strong><span data-preserver-spaces="true">Compliance with Maritime Regulations</span></strong><span data-preserver-spaces="true">: Verify adherence to financial reporting standards specific to the maritime industry.</span></p><p>&nbsp;</p><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Risk Management and Compliance in Internal Audits of the Shipping Industry</span></h2><p><strong><span data-preserver-spaces="true">Cybersecurity and Data Security</span></strong><span data-preserver-spaces="true">: Evaluate the company's cybersecurity protocols and data security measures to protect sensitive information from cyberattacks.</span></p><p><strong><span data-preserver-spaces="true">Environmental Compliance</span></strong><span data-preserver-spaces="true">: Audit compliance with environmental regulations regarding emissions, waste disposal, and ballast water management.</span></p><p><strong><span data-preserver-spaces="true">Safety Management Systems (SMS)</span></strong><span data-preserver-spaces="true">: Assess the implementation and effectiveness of the company's SMS to ensure the safe operation of vessels and crew safety.</span></p><p><strong><span data-preserver-spaces="true">Piracy Risk Management</span></strong><span data-preserver-spaces="true">: Review the company's risk management strategies for piracy-prone areas, including security protocols and insurance coverage.</span></p><p><strong><span data-preserver-spaces="true">Geopolitical Risk Assessment</span></strong><span data-preserver-spaces="true">: Analyze the potential impact of geopolitical tensions on shipping routes, costs, and cargo security.</span></p><p><strong><span data-preserver-spaces="true">Business Continuity Planning</span></strong><span data-preserver-spaces="true">: Audit the company's business continuity plans to ensure they are prepared to respond effectively to unexpected disruptions.</span></p><h3>&nbsp;</h3><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Sustainability</span></h2><p><strong><span data-preserver-spaces="true">Ballast Water Management</span></strong><span data-preserver-spaces="true">: Evaluate compliance with international regulations for ballast water treatment to prevent the spread of invasive species.</span></p><p><strong><span data-preserver-spaces="true">Energy Efficiency Measures</span></strong><span data-preserver-spaces="true">: Audit the company's efforts to implement energy-efficient technologies on vessels, reducing fuel consumption and emissions.</span></p><p><strong><span data-preserver-spaces="true">Waste Management Practices</span></strong><span data-preserver-spaces="true">: Review waste management practices on board vessels and in ports, ensuring proper disposal and minimizing environmental impact</span></p><p><strong><span data-preserver-spaces="true">Recycling and Circular Economy Initiatives</span></strong><span data-preserver-spaces="true">: Assess the company's commitment to recycling materials and exploring circular economy practices within its operations.</span></p><p><strong><span data-preserver-spaces="true">Sustainable Alternative Fuels</span></strong><span data-preserver-spaces="true">: Evaluate the company's exploration and adoption of sustainable alternative fuels, such as biofuels or liquefied natural gas (LNG), to reduce its environmental footprint.</span></p><h3>&nbsp;</h3><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Cybersecurity</span></h2><p><strong><span data-preserver-spaces="true">Access Controls and User Permissions</span></strong><span data-preserver-spaces="true">:&nbsp; Ensure access to sensitive systems and data is restricted based on the principle of least privilege.</span></p><p><strong><span data-preserver-spaces="true">Data Encryption</span></strong><span data-preserver-spaces="true">:&nbsp;Verify that critical data</span><span data-preserver-spaces="true">, both</span><span data-preserver-spaces="true"> at rest and in transit</span><span data-preserver-spaces="true">, </span><span data-preserver-spaces="true">is encrypted to safeguard against unauthorized access.</span></p><p><strong><span data-preserver-spaces="true">Vulnerability Management and Patching</span></strong><span data-preserver-spaces="true">:&nbsp;Audit the company's processes for identifying, prioritizing, and patching vulnerabilities in IT systems.</span></p><p><strong><span data-preserver-spaces="true">Incident Response and Recovery Plans</span></strong><span data-preserver-spaces="true">: Assess the effectiveness of the company's plans to respond to and recover from cyberattacks, minimizing downtime and data loss.</span></p><p><strong><span data-preserver-spaces="true">Cybersecurity Awareness Training</span></strong><span data-preserver-spaces="true">: Evaluate the effectiveness of cybersecurity awareness training programs for employees, ensuring they can identify and avoid cyber threats.</span></p><p><span data-preserver-spaces="true">By addressing these complex audit points, shipping companies can more effectively navigate the ever-changing seas, ensuring financial stability, operational excellence, and adherence to regulations. Remember, a robust internal audit function serves as a vital compass, guiding companies toward a secure and prosperous voyage in the dynamic world of shipping.</span></p><h2>&nbsp;</h2><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Conclusion: A Steady Hand on the Helm</span></h2><p><span data-preserver-spaces="true">Internal audits are a strategic compass for shipping companies navigating a volatile market. By providing an independent and objective assessment of operations and finances, internal audits offer valuable insights that allow management to make informed decisions for a more secure and profitable voyage.</span></p><p>&nbsp;</p><p>&nbsp;</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/moiz-khan-4b85251a/" target="_blank" rel="noopener">Moiz Khan</a></em></span></p><p>&nbsp;</p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Moiz Khan</span></h3><p>&nbsp;</p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">1. How can internal audits evaluate the impact of digital transformation initiatives on the operational efficiency and cybersecurity of shipping companies?</span></h2><p><span data-preserver-spaces="true">Like other sectors of Transport and logistics, the</span> <span data-preserver-spaces="true">shipping industry is also going through a </span><span data-preserver-spaces="true">major</span><span data-preserver-spaces="true"> shift in digital transformation. Internal auditors can contribute significantly to evaluating the impact of digital transformation. Please refer to the table below to evaluate this impact on Operational efficiencies and Cybersecurity:</span></p><table class="MsoTableGrid" style="width: 531.6pt; border-collapse: collapse; border: solid; border-spacing: 0px;" border="1" cellspacing="0" cellpadding="0"><tbody><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><h4 style="line-height: normal; margin: 4pt 0cm 2pt; break-after: avoid; font-size: 11pt; font-family: Aptos, sans-serif; color: rgb(15, 71, 97); font-weight: normal; font-style: italic; text-align: center;">Operational Efficiency</h4></td><td style="width: 290.6pt; border: solid windowtext 1.0pt; border-left: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><h4 style="line-height: normal; margin: 4pt 0cm 2pt; break-after: avoid; font-size: 11pt; font-family: Aptos, sans-serif; color: rgb(15, 71, 97); font-weight: normal; font-style: italic; text-align: center;">Metric</h4></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;"><span class="ui-provider">Blockchain for Trade Finance: Assess the impact of blockchain on streamlining letter of credit (LC) processing and reducing associated paperwork and fraud risks.</span></p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For blockchain implementation, track the reduction in processing time for LCs and the number of fraudulent transactions identified.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">AI-powered Route Optimization: Evaluate the effectiveness of AI algorithms in optimizing shipping routes based on weather patterns, fuel efficiency, and port congestion.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Measure the percentage improvement in fuel efficiency and the reduction in overall voyage time.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Predictive Maintenance with Sensors: Audit the implementation of sensor technology on vessels to predict equipment failures and schedule preventive maintenance, minimizing downtime and repair costs.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif; text-align: center;">For predictive maintenance, monitor the number of breakdowns prevented and the associated cost savings from reduced repairs.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Drone Inspections: Analyse the use of drones for remote vessel inspections, reducing crew exposure to safety risks and improving inspection efficiency.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For drone inspections, track the reduction in inspection time and the number of safety incidents avoided.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Automated Container Terminals: Assess the impact of automated terminals on container loading and unloading times, leading to faster turnaround times and improved port productivity</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For automated container terminals, measure the increase in container throughput and the reduction in port dwell time.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Augmented Reality (AR) for Cargo Handling: Evaluate the effectiveness of AR technology in assisting crews with cargo stowage and retrieval, minimizing human error and improving cargo handling efficiency.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For AR-assisted cargo handling, monitor the decrease in cargo damage and the improvement in loading/unloading times.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Real-time Cargo Tracking: Audit the implementation of real-time cargo tracking systems, allowing for better shipment visibility, improved inventory management, and reduced risk of theft.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;"><span class="ui-provider">For real-time cargo tracking, track the increase in customer satisfaction due to improved shipment visibility and the reduction in lost or stolen cargo.</span></p><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">&nbsp;</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Chatbots for Customer Service: Analyse the effectiveness of chatbots for handling customer inquiries about shipment status, freeing up human agents for more complex issues.</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For chatbots in customer service, measure the percentage of inquiries handled by the chatbot and the customer satisfaction rating for chatbot interactions.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><h4 style="line-height: normal; margin: 4pt 0cm 2pt; break-after: avoid; font-size: 11pt; font-family: Aptos, sans-serif; color: rgb(15, 71, 97); font-weight: normal; font-style: italic;">Cybersecurity</h4></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><h4 style="line-height: normal; margin: 4pt 0cm 2pt; break-after: avoid; font-size: 11pt; font-family: Aptos, sans-serif; color: rgb(15, 71, 97); font-weight: normal; font-style: italic;">Metric</h4></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Data encryption is critical to any digital transformation initiative</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For all initiatives, ensure proper data encryption protocols are in place to protect sensitive information.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Connectivity protected with firewall and cybersecurity threats</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">For shipboard internet connectivity, assess the effectiveness of firewalls and intrusion detection systems in preventing cyberattacks.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Policies governing cyber threats</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Develop a clear cybersecurity policy outlining acceptable use of technology and crew training on identifying and mitigating cyber threats.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Regular IT penetration testing</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Conduct regular penetration testing of IT systems used in digital transformation initiatives to identify vulnerabilities before attackers exploit them.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Multifactor authentications</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Implement multi-factor authentication for crew access to critical systems and data.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Training programs</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Develop comprehensive training programs for crew members on new technologies, ensuring they understand how to use them effectively and troubleshoot basic issues.</p></td></tr><tr><td style="width: 241.0pt; border: solid windowtext 1.0pt; border-top: none; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Communication channels</p></td><td style="width: 290.6pt; border-top: none; border-left: none; border-bottom: solid windowtext 1.0pt; border-right: solid windowtext 1.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top"><p style="margin: 0cm; line-height: normal; font-size: 11pt; font-family: Aptos, sans-serif;">Establish clear communication channels to address crew concerns about job security or skill gaps due to digital transformation.</p></td></tr></tbody></table><p><span data-preserver-spaces="true">&nbsp;</span></p><p style="text-align: center;">&nbsp;</p><h2>&nbsp;</h2><h2><span style="font-size: 12pt;" data-preserver-spaces="true">2. How can internal auditors stay abreast of changes in global trade policies and their implications for shipping companies?</span></h2><p><span data-preserver-spaces="true">Internal auditors should be vigilant and enthusiastic about all the changes in Global trade policies. Auditors can use the following portals to monitor and research about these changes:</span></p><p><strong><span data-preserver-spaces="true">Track Regulatory Bodies</span></strong></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Follow the World Trade Organization (WTO) website for updates on upcoming trade negotiations and dispute </span><span data-preserver-spaces="true">settlements</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Follow developments in free trade agreements (FTAs) between countries, as they can lead to changes in import duties and potentially increase trade volumes on </span><span data-preserver-spaces="true">certain</span> <span data-preserver-spaces="true">routes</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Monitor announcements from regional trade blocs like the European Union (EU) or the North American Free Trade Agreement (NAFTA) for potential changes impacting shipping </span><span data-preserver-spaces="true">routes</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Subscribe to newsletters from the International Maritime Organization (IMO) to stay informed about new regulations affecting shipping operations globally. Track upcoming IMO (International Maritime Organization) regulations on sulfur emissions (e.g., IMO 2020) and their impact on fuel choices and compliance costs for shipping </span><span data-preserver-spaces="true">companies</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Track changes in customs regulations that may impact processing times and documentation requirements for imported goods</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Monitor updates on environmental regulations related to waste disposal or ballast water treatment in specific </span><span data-preserver-spaces="true">regions</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Monitor the implementation of the EU's Import Control System (ICS2) ICS2 system, which standardizes import controls across the EU. Understand the new documentation requirements and potential delays this might cause for shipments entering the European </span><span data-preserver-spaces="true">market</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Track how new Chinese regulations for cross-border e-commerce might impact customs clearance procedures for smaller packages, potentially leading to longer processing times and impacting delivery </span><span data-preserver-spaces="true">schedules</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Monitor the EU's PRF Directive impact on waste disposal costs for ships in EU </span><span data-preserver-spaces="true">ports</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Track stricter ballast water discharge regulations in specific regions and their impact on shipping route </span><span data-preserver-spaces="true">planning</span></li></ul><p><strong><span data-preserver-spaces="true">Industry Insights</span></strong></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Utilize reports from the Baltic and International Maritime Council (BIMCO) on the impact of trade tensions between specific countries on freight rates and shipping </span><span data-preserver-spaces="true">routes</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Analyze research from shipping consultancies like Drewry Maritime Services or Clarksons Platou Securities on the potential impact of trade policies on specific cargo </span><span data-preserver-spaces="true">types</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Review industry publications like "Lloyd's List" or "Maritime Executive" for news articles and expert opinions on the implications of trade policy changes for the shipping </span><span data-preserver-spaces="true">industry</span></li></ul><p><strong><span data-preserver-spaces="true">Trade Publications &amp; News</span></strong></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Subscribe to trade publications like "The Journal of Commerce" or "FreightWaves" for news on international trade developments and their potential impact on </span><span data-preserver-spaces="true">logistics</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Follow news sources specializing in maritime logistics, such as "Maritime Logistics Professional" or "Supply Chain Dive," to stay informed about current events and how they might affect shipping </span><span data-preserver-spaces="true">companies</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Utilize industry news aggregators like "Ship &amp; Bunker" or "Splash247" for a comprehensive overview of current maritime news and trade policy </span><span data-preserver-spaces="true">updates</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Monitor trade sanctions or restrictions imposed by specific countries, as these can disrupt established shipping routes and affect freight </span><span data-preserver-spaces="true">rates</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Stay informed about political instability in regions with </span><span data-preserver-spaces="true">major</span><span data-preserver-spaces="true"> shipping lanes, which can lead to piracy threats or port disruptions</span></li></ul><p>&nbsp;</p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">3. What best practices should internal auditors follow when auditing global shipping operations?</span></h2><p><span data-preserver-spaces="true">I would say there are no single but multidimensional best practices in auditing any shipping company. Here are a few best practices that auditors can utilize to follow while auditing: </span></p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Focus on Risk-Based Audits</span></h2><p><span data-preserver-spaces="true"><strong>Bunkering (Fuel Procurement)</strong>: Audit bunkering practices to identify potential supplier price manipulation or collusion between port authorities and fuel providers</span></p><p><span data-preserver-spaces="true"><strong>Bunkering (Price adjustments)</strong>: Analyze bunkering practices to identify potential tactics that could lead to excessive costs for the company. </span><span data-preserver-spaces="true">This</span><span data-preserver-spaces="true"> includes investigating Price Optimization Strategies, Benchmarking and Market Analysis, Supplier Evaluations, </span><span data-preserver-spaces="true">etc</span></p><p><span data-preserver-spaces="true"><strong>Chartering</strong>: Focus on chartering agreements for leased vessels, ensuring proper contract terms are in place regarding maintenance responsibilities, fuel consumption guarantees, and dispute resolution mechanisms</span></p><p><span data-preserver-spaces="true"><strong>Cargo Claims</strong>: Scrutinize the process for handling cargo claims to prevent fraudulent claims and ensure proper documentation and recovery of costs for damaged or lost cargo</span></p><p><span data-preserver-spaces="true"><strong>Exceptional costs reviews</strong>:</span><span data-preserver-spaces="true"> Review the recovery, cost recording </span><span data-preserver-spaces="true">and</span><span data-preserver-spaces="true"> reporting mechanism of exceptional costs in supply chain management.</span></p><p><span data-preserver-spaces="true"><strong>Booking management audits</strong>: Booking management is critical to ensuring smooth planning and flow of cargo operations. Detailed reviews of all processes and activities assess and mitigate risks for businesses.</span></p><p><span data-preserver-spaces="true"><strong>Schedule reliability reviews</strong>: On-time delivery is vital for customers; schedule reliability audits help businesses achieve these objectives.</span></p><p><span data-preserver-spaces="true"><strong>Spare Parts Inventory Management</strong>:</span><span data-preserver-spaces="true"> Focus on overseas subsidiaries with weaker oversight. Ensure spare parts inventories are </span><span data-preserver-spaces="true">properly</span><span data-preserver-spaces="true"> managed to avoid stockouts that delay repairs or overstocking that leads to unnecessary carrying </span><span data-preserver-spaces="true">costs.</span></p><p><span data-preserver-spaces="true"><strong>Waste Management</strong>: Audit waste disposal practices on board vessels and in ports, especially in regions with lax regulations, to identify potential illegal dumping of waste at sea or improper waste handling practices that could lead to environmental fines.</span></p><p><span data-preserver-spaces="true"><strong>Cybersecurity Practices</strong>: Focus on overseas offices or subsidiaries that might have weaker cybersecurity protocols in place, making them more vulnerable to cyberattacks.</span></p><p><span data-preserver-spaces="true"><strong>Sanctions Compliance</strong>: Audit trade activities to ensure strict adherence to international sanctions and embargoes to avoid hefty fines and reputational damage.</span></p><h2><span style="font-size: 14pt;" data-preserver-spaces="true">Standardization and Technology Leverage</span></h2><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Develop standardized procedures for vessel safety inspections to ensure consistent application of safety protocols across the global </span><span data-preserver-spaces="true">fleet</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Utilize data analytics tools to identify unusual patterns in fuel consumption data, which could indicate potential inefficiencies or even fuel </span><span data-preserver-spaces="true">theft</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Implement standardized financial reporting formats across all subsidiaries to facilitate consolidated financial reporting and improve </span><span data-preserver-spaces="true">transparency</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Leverage data analytics to track maintenance history for vessels and equipment, allowing for preventive maintenance scheduling and optimization of spare parts inventory </span><span data-preserver-spaces="true">management</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Develop a centralized document management system to ensure easy access to critical documents and records across all global </span><span data-preserver-spaces="true">offices</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Utilize data analytics to monitor crew training completion rates and identify areas where additional training might be required to ensure crew competency across the global </span><span data-preserver-spaces="true">workforce</span></li></ul><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Local Expertise</span></h2><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Partner with local auditors who understand the specific tax regulations in a particular country, ensuring compliance and minimizing the risk of tax penalties</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Collaborate with local experts on </span><span data-preserver-spaces="true">labour</span><span data-preserver-spaces="true"> laws and employment practices to ensure the company adheres to local regulations regarding crew working hours, minimum wages, and </span><span data-preserver-spaces="true">benefits</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Partner with local environmental consultants to understand the waste disposal regulations in specific regions and ensure the company disposes of waste in an environmentally responsible manner</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Engage local auditors with expertise in maritime security to assess the piracy risk in specific regions and develop appropriate security protocols for vessels transiting those </span><span data-preserver-spaces="true">areas</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Partner with local legal counsel to navigate the complexities of contract law in different jurisdictions, ensuring the company's interests </span><span data-preserver-spaces="true">are protected</span><span data-preserver-spaces="true"> in chartering agreements and other contracts</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Collaborate with local tax advisors to develop tax optimization strategies that comply with local regulations and minimize the company's overall tax burden</span></li></ul><p style="list-style-type: disc;">&nbsp;</p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">4. How can internal audits improve cost management practices in shipping companies?</span></h2><p><span data-preserver-spaces="true">Cost management is primarily a </span><span data-preserver-spaces="true">job of management</span><span data-preserver-spaces="true">, and auditors should </span><span data-preserver-spaces="true">avoid</span><span data-preserver-spaces="true"> implementation due to the independence and objectivity demanded by professional standards.</span><span data-preserver-spaces="true"> There are </span><span data-preserver-spaces="true">certain</span><span data-preserver-spaces="true"> ways auditors can still contribute to the cost management practices remaining within the boundaries of IIA standards:</span></p><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Cost Benchmarking and Waste Reduction</span></h2><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Compare maintenance costs per vessel type against industry benchmarks to identify areas for improvement in maintenance practices or negotiation of service </span><span data-preserver-spaces="true">contracts</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Audit vessel insurance coverage to ensure the company gets the best possible rates and coverage for its specific risks</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Analyze catering and provisions costs for vessels, ensuring no wasteful practices or inefficiencies in onboard food consumption and </span><span data-preserver-spaces="true">procurement</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Review port fees across different ports and negotiate better rates with port authorities where </span><span data-preserver-spaces="true">possible</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Benchmark container packing efficiency against industry leaders to identify opportunities to optimize container utilization and reduce wasted space</span></li></ul><h2><span style="font-size: 12pt;" data-preserver-spaces="true">Cost &amp; Risk Optimization</span></h2><p><strong><span data-preserver-spaces="true">Optimize Spare Parts Inventory</span></strong><span data-preserver-spaces="true">: Analyse historical usage data and negotiate bulk discounts for critical spare parts, minimizing inventory holding costs and ensuring parts availability.</span></p><p><strong><span data-preserver-spaces="true">Fuel Efficiency Strategies</span></strong><span data-preserver-spaces="true">: Review vessel performance data and identify opportunities for route optimization, speed adjustments, or adopting fuel-saving technologies to minimize fuel consumption costs.</span></p><p><span data-preserver-spaces="true">Negotiate bulk discounts and analyze usage data for critical parts to Optimize Spare Parts Inventory.</span></p><p><strong><span data-preserver-spaces="true">Fuel Efficiency Strategies</span></strong><span data-preserver-spaces="true">: Review data and identify opportunities for route optimization or fuel-saving technologies.</span></p><p><strong><span data-preserver-spaces="true">Reefer Container Maintenance</span></strong><span data-preserver-spaces="true">: Audit practices to extend lifespan and reduce replacement costs.</span></p><p><strong><span data-preserver-spaces="true">Dry Docking Optimization</span></strong><span data-preserver-spaces="true">: Analyze the cost-effectiveness of repairs vs. component replacements.</span></p><p><strong><span data-preserver-spaces="true">Terminal Handling Charges</span></strong><span data-preserver-spaces="true">: Audit charges and negotiate lower fees based on efficient practices.</span></p><p><strong><span data-preserver-spaces="true">Container Detention and Demurrage</span></strong><span data-preserver-spaces="true">: Identify causes for delays and recommend process improvements.</span></p><p><strong><span data-preserver-spaces="true">Route Profitability Analysis</span></strong><span data-preserver-spaces="true">: Analyze data to identify under performing routes &amp; suggest adjustments.</span></p><p><strong><span data-preserver-spaces="true">Container Utilization Analysis</span></strong><span data-preserver-spaces="true">: Audit data to optimize packing and minimize wasted space.</span></p><p><strong><span data-preserver-spaces="true">Empty Container Repositioning Benchmarking</span></strong><span data-preserver-spaces="true">: Compare costs and identify best practices for negotiation.</span></p><p><strong><span data-preserver-spaces="true">Sustainability Initiatives Review</span></strong><span data-preserver-spaces="true">: Analyze cost-effectiveness and impact on fuel efficiency and regulations.</span></p><p><strong><span data-preserver-spaces="true">Process Optimization and Route Optimization</span></strong></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Review cargo lashing and securing procedures to identify inefficiencies that lead to damaged cargo and costly </span><span data-preserver-spaces="true">replacements</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Analyze port turnaround times to identify bottlenecks in port operations and develop strategies for faster cargo loading and unloading</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Audit maintenance scheduling to ensure preventive maintenance is conducted efficiently and minimizes downtime for repairs</span></li></ul><p><strong><span data-preserver-spaces="true">Contract Management and Negotiation</span></strong></p><ul><li style="list-style-type: disc;"><span data-preserver-spaces="true">Review time charter agreements to identify opportunities for renegotiating terms, such as port fees or demurrage charges, based on market conditions or changes in fuel </span><span data-preserver-spaces="true">prices</span></li><li style="list-style-type: disc;"><span data-preserver-spaces="true">Optimize Crew Recruitment Costs: Audit crew recruitment practices to identify potential savings through streamlined processes, leveraging technology, or exploring alternative recruitment </span><span data-preserver-spaces="true">agencies</span></li></ul><p style="list-style-type: disc;">&nbsp;</p><p style="list-style-type: disc;">&nbsp;</p><p style="list-style-type: disc;">&nbsp;</p><p style="list-style-type: disc;">&nbsp;</p>