Clearwater Seafoods

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Third, the hazard risk occurs when the natural events affect the business, trading partners or customers. In the case of Clearwater, it is affected by the fish over-caught and the ocean pollution.

Suggestion

As the discussion above, Clearwater Seafoods is facing lots of uncertainties which will have negative impact on its revenue.

In the aspect of foreign exchange risk, the company uses forward contract and the sales of the call option for hedging partly of its exchange risk exposure leaving the rest under the risk. Therefore, more methods should be applied to hedge. First, it can follow the natural hedging practice of its competitor, FPI, using a portion of long-term debt and short-term bank loans denominated in US dollar. And it can conduct the operation with the borrowing USD and pay back the interest with the revenue of USD. With this method, part of the exchange risk affected by the US market can be eliminated. Besides, it can also diversify its sales internationally rather than just focus on the US market that occupies 50% of the total sales to deduce the impact of economic risk to one specific country. Additionally, the company can focus more on the short-term contract, which can reset the exchange rate along with the new contract. Forth, the company can require its customers to make the payment in Canadian dollar, which will switch the foreign exchange risk to them. Besides, with the options, several strategies such as straddle, bull spread and bear spread can be applied to limit the loss.

In the aspect of business risk, the strategy of the company should be more specific. And the company should maintain the decentralized organisational structure because it is difficult to have a full consideration for each part of the operation only with the power of the central management. Also, the company should focus more on the Asian market rather than the US market. The consumption in US is not ranked ahead, but the company’s business covers roughly 50% of the sales in it. And the Asian market is one of the highest consumption markets. The China market with the 33% consumption of the world prefers the high-value seafood, but the sales in China only contribute 1.8% to Clearwater in 2005. This indicates that exploring in the Asian market will be a good chance for Clearwater to enhance its earnings. From Exhibit 6, the company experienced a decrease in sales by species from 2003 to 2005. Therefore, to decrease the strategy risk, Clearwater should concentrate more on the value of the seafood production and seek more trading opportunities in the Asian market. Second, from the view of operating risk, the company rely heavily on the technique and the TAC to gain high profit. Clearwater has done a good job in using the leading technology for fish-catching and producing which should be maintained in the future. From Exhibit 6&7, scallops contributes the largest sales but the TAC allocation of sea scallops and argentine scallops only stand for 48.7% and 50% respectively of the total TAC. During 2005, lobster and crab only contribute 22.5% and 4.8% of total sales respectively with the same figure of TAC quota up to 87.5% of total TAC. These show the company use the TAC rights inefficiently though it has the highest TAC ownership among its peers. Therefore, it can increase the allocation of scallops and slightly decrease the quota of crab which is less profitable. Besides, building up the aquaculture business can help to deal with the problem of seasonal seafood harvesting. As for the distribution handout issue, Clearwater can turn it into corporation from income trust which will make the firm deliver dividend instead of regular receipts. With this action, the CEO may have more control power to conduct the strategy for the firm. When it comes to hazard risk management, buying insurance to against the nature events will always help.

Conclusion

Currently, the company’s founders focus more on the long-term viability of the company while the investors are more interested in short-term results and asking for the payout of distributions. I would recommend the company has the strategy that focus more on the long term. Considered the firm performed well in the past year, it has higher potential to have a better performance in the future compared to its peers. To deal with the current dilemma between the investors and the CFO, the firm can first issue bonds and buy back some of the stocks. Also, the short-term distribution should be paid to the investor to ease their panic. With that, the firm can obtain a good credit rating, increase the controlling power as well as gain back the confidence from the investors. In the long term, Clearwater should transfer into the corporate form which gives the decision power to the company whether to pay out dividend or to make investment.