Evaluation of political risk in a shipping project

Shipping projects, as land-based ones, are evaluated by using different measures of merit based on discounted cash flows. The bulk carrying industry, where costs are known better than revenues, adopted the required freight rate (RFR) and its derivative the economic cost of transport (ECT) as its major measures of merit. Shipping is a business exposed to many unforeseen risks. Although many of these risks are beyond the control of the shipowners/operators, they should all be carefully weighed during the process of project selection designed for investment decisions. One such risk is the expropriation of shore-based facilities built by the shipping operator at one or more termini of the maritime distribution channel. The operator has to assess the value and probability of risk and translate them into a premium which he will levy on each unit of goods transported. Adding this premium to the required freight rate together with the inventory holding costs and marine insurance charges will produce the real economic cost of transport.