Credit Risk & Underwriting
Counterparty Risk in Shipping
Summary
Counterparty risk is the possibility that a charterer, broker, shipyard, insurer, seller or other obligated party fails to perform or pay.
Why this matters in ship finance
A vessel can remain technically sound while a counterparty default disrupts earnings, delivery or expected insurance recovery.
The concept
Exposure differs by contract: hire receivables, advance payments, contract termination, off-hire, refund guarantees and margin calls may create distinct risks. Credit support can take deposits, guarantees, letters of credit or parent undertakings.
How it is used in practice
Identify counterparties and legal entities, assess financial capacity and concentration, and model replacement contract rates and timing after failure.
Practical issues
Legal title and chartering party are not always the same. Contractual guarantees must be verified, not inferred from group membership.
How ShipFinance.ai uses this concept
Map counterparty exposures and simulate revenue interruption across vessel portfolios.
Key takeaways
- Identify the legal obligor
- Security quality matters alongside rating
- Concentration can magnify losses
Primary legal, rule and scholarly sources
- Schinas, Grau & Johns (eds.), The HSBA Handbook on Ship Finance (Springer, 2015) - scholarly reference, not legislation
- Schinas & Kewitsch (2015), Loans and Risk Management Considerations, in BK3 - scholarly chapter
- EBA/GL/2020/06 - Guidelines on loan origination and monitoring (in-scope institutions; supervisory guidance)