Dynamic response of risk management model to mitigate impact of maritime regulatory changes: Oil tanker owners perspective

The contemporary shipping industry is a high-risk business activity that is highly regulated by the International Maritime Organization (IMO). Changes in IMO regulations are often triggered by major incidents that bring safety at sea into public view. They May address ship instruments, operation, cargo, crew, environment, security and safety, and can generate higher Capital Expenses (CAPEX) and Operational Expenses (OPEX) for shipping businesses. Oil tanker owners are key stakeholders in the shipping industry and are most exposed to the risk of higher on-cost expenses both for CAPEX and OPEX. Between 2006 and 2019, regulations regarding oil tankers were changed six to seven times per year. This paper assesses the financial impact of changes in major international maritime regulations, primarily, the International Convention of Safety of Life at Sea (SOLAS), MARPOL, and STCW. The methodology involves using a risk matrix from a specific company and combining it with system dynamics to forecast the dynamic effect of such changes on the oil tanker market. The result shows that changes in regulations can have a catastrophic impact on the sustainability of the oil tanker business.