The "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" special report identifies FFAs as the driving force behind the emergence of the derivatives market in shipping
London, UK, 16th December 2004 - Drewry Shipping Consultants, the world's leading maritime consultants, has released a one-off special report, "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping". Drewry's analysis identifies FFAs as the main driver behind the emergence of the derivatives market in shipping and looks to clarify the role of FFAs in this area at a time when the shipping industry is divided in opinion over its role.
Drewry's latest special report will provide those involved in or contemplating the shipping derivatives market with detailed analysis and interpretation of trends and issues together with an assessment of FFAs strengths and weaknesses, including characteristics of its 'product mix'.
"The rise of the derivatives market in shipping, especially FFAs, has been well-documented this year within the shipping press. The focus has been on how it is increasing in terms of volume and value, may or not be influencing events in the 'real world' and seems to be creating a new growth sector within shipbroking circles," said Nigel Gardiner, Managing Director. "The considerable scepticism which initially greeted the derivatives sector has subsided, but the role of derivative products within the shipping industry still, without doubt, divides opinion."
"What is clear however is that this sector is definitely picking up and we believe it to be on the threshold of a great leap forward. It is attracting business from a limited number of larger ship owners and trading groups, while there is some interest from the banking community. The big challenge it now faces is increasing the liquidity and depth of the market through more new players and the use of a wider variety of route structures and trading instruments. As is shown in our report, it would benefit most from the arrival of market makers."
In the special report, Drewry highlights that the facility for executing forward, paper trades in shipping has a history dating back to the mid-1980s, beginning with the ill-fated Baltic International Freight Futures Exchange (Biffex). The legacy that has been built on is the expanded Baltic indices that have become accepted as a reliable physical market indicator and provide the component parts that form the basis of FFA trading.
According to Drewry, the current shipping derivatives focus lies with the trading of FFAs. In the vast majority of deals, the FFA deal struck is a swap agreement (of the simple, plain vanilla type) where in essence a fixed rate is 'swapped' for a variable rate set by the market. In addition, a small proportion of the deals concluded take the form of options. However, various other products (including S&P Forward Agreements and Demolition Derivatives) are being 'tested' to see what sort of a market might exist for them.
The forward freight market is an evolving arena; neither perfect nor in its 'finished state'. Drewry highlights the market's strengths, but also its weaknesses. The current counterparty make up is expanding but there are some 'gaps' to fill - notably in the attraction of participation from Asia. However, perhaps the market's biggest problem is in it being misunderstood. It is not a panacea. Derivates trades transfer risk; they do not eliminate risk. Ultimately, someone has a bill to pay. Derivatives trading might be viewed as a hedging exercise - however, perfect hedges seldom occur. Alternatively, it can be a speculative exercise.
The issue then becomes, do you want to speculate on the future movements in freight rates (or ship values) without having to operate (or own) the physical ships? A secondary question may be, do you want to trade directly with a counterparty via an 'off market' over-the-counter (OTC) deal - with the specific credit risks that this might entail - or do you want to opt for cleared trading via an Exchange?
This new report seeks to assess the derivatives market in shipping at this crucial point in its history. In addition, it focuses on key aspects of the underlying (physical) shipping market as these hold the key to understanding many of the elements that will make up the basis risk. The report may not resolve the opinion that divides the industry but it goes some way to enabling these opinions to be informed.
The "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" special report by Drewry is essential reading for all those involved in or contemplating the derivatives market. This includes ship owners and potential ship owners, traders, and holders of contracts of affreightment. Those responsible for freight aspects of logistics chains - particularly those involving bulk (dry or wet) cargoes or raw materials - will find it of value, as well as Fob buyers, Cif sellers, and derivatives market players from other sectors. Banks and ship financiers will pay particular attention to this report to help them better consider their own account trading, sleeving (on behalf of their ship owner clients), and better understand the paper market risks their clients may be taking.
"Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" is a new special report published by Drewry Shipping Consultants Ltd. Individual copies of the report are priced, including postage to any part of the world.
Drewry Shipping Consultants (Drewry) provides commercial, economic and technical consulting services to the international shipping industry. The company is headquartered in London, with a support organisation in India and a number of overseas representatives. Established in 1970, Drewry's activities are grouped around the business practices:
•Bulk Shipping
•Containers, Ports and Logistics
•Specialist Shipping
•Technical services
Drewry is a specialist, not a generalist company. Its expertise lies in shipping and related maritime and transport sectors. It has been built by providing specialised advice to leading companies in these industries over three decades.
Drewry Specialist Shipping Group
The Drewry Specialist Shipping Group provides high level strategic consulting and advisory services to the shipping and marine industries, undertaking consultancy assignments for a wide range of shipping interests as well as producing specialist publications.
Drewry Shipping Consultants
Forward Freight Agreements take centre stage
The "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" special report identifies FFAs as the driving force behind the emergence of the derivatives market in shipping
London, UK, 16th December 2004 - Drewry Shipping Consultants, the world's leading maritime consultants, has released a one-off special report, "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping". Drewry's analysis identifies FFAs as the main driver behind the emergence of the derivatives market in shipping and looks to clarify the role of FFAs in this area at a time when the shipping industry is divided in opinion over its role.
Drewry's latest special report will provide those involved in or contemplating the shipping derivatives market with detailed analysis and interpretation of trends and issues together with an assessment of FFAs strengths and weaknesses, including characteristics of its 'product mix'.
"The rise of the derivatives market in shipping, especially FFAs, has been well-documented this year within the shipping press. The focus has been on how it is increasing in terms of volume and value, may or not be influencing events in the 'real world' and seems to be creating a new growth sector within shipbroking circles," said Nigel Gardiner, Managing Director. "The considerable scepticism which initially greeted the derivatives sector has subsided, but the role of derivative products within the shipping industry still, without doubt, divides opinion."
"What is clear however is that this sector is definitely picking up and we believe it to be on the threshold of a great leap forward. It is attracting business from a limited number of larger ship owners and trading groups, while there is some interest from the banking community. The big challenge it now faces is increasing the liquidity and depth of the market through more new players and the use of a wider variety of route structures and trading instruments. As is shown in our report, it would benefit most from the arrival of market makers."
In the special report, Drewry highlights that the facility for executing forward, paper trades in shipping has a history dating back to the mid-1980s, beginning with the ill-fated Baltic International Freight Futures Exchange (Biffex). The legacy that has been built on is the expanded Baltic indices that have become accepted as a reliable physical market indicator and provide the component parts that form the basis of FFA trading.
According to Drewry, the current shipping derivatives focus lies with the trading of FFAs. In the vast majority of deals, the FFA deal struck is a swap agreement (of the simple, plain vanilla type) where in essence a fixed rate is 'swapped' for a variable rate set by the market. In addition, a small proportion of the deals concluded take the form of options. However, various other products (including S&P Forward Agreements and Demolition Derivatives) are being 'tested' to see what sort of a market might exist for them.
The forward freight market is an evolving arena; neither perfect nor in its 'finished state'. Drewry highlights the market's strengths, but also its weaknesses. The current counterparty make up is expanding but there are some 'gaps' to fill - notably in the attraction of participation from Asia. However, perhaps the market's biggest problem is in it being misunderstood. It is not a panacea. Derivates trades transfer risk; they do not eliminate risk. Ultimately, someone has a bill to pay. Derivatives trading might be viewed as a hedging exercise - however, perfect hedges seldom occur. Alternatively, it can be a speculative exercise.
The issue then becomes, do you want to speculate on the future movements in freight rates (or ship values) without having to operate (or own) the physical ships? A secondary question may be, do you want to trade directly with a counterparty via an 'off market' over-the-counter (OTC) deal - with the specific credit risks that this might entail - or do you want to opt for cleared trading via an Exchange?
This new report seeks to assess the derivatives market in shipping at this crucial point in its history. In addition, it focuses on key aspects of the underlying (physical) shipping market as these hold the key to understanding many of the elements that will make up the basis risk. The report may not resolve the opinion that divides the industry but it goes some way to enabling these opinions to be informed.
The "Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" special report by Drewry is essential reading for all those involved in or contemplating the derivatives market. This includes ship owners and potential ship owners, traders, and holders of contracts of affreightment. Those responsible for freight aspects of logistics chains - particularly those involving bulk (dry or wet) cargoes or raw materials - will find it of value, as well as Fob buyers, Cif sellers, and derivatives market players from other sectors. Banks and ship financiers will pay particular attention to this report to help them better consider their own account trading, sleeving (on behalf of their ship owner clients), and better understand the paper market risks their clients may be taking.
"Forward Freight Agreements (FFAs) and Shipping Derivatives - Risk Management Tools for Shipping" is a new special report published by Drewry Shipping Consultants Ltd. Individual copies of the report are priced, including postage to any part of the world.
Print & PDF£1,290
PDF only£1,195
For more information, please visit:
https://edir.bulk-online.com/profile...onsultants.htm
About Drewry Shipping Consultants Ltd.
Drewry Shipping Consultants (Drewry) provides commercial, economic and technical consulting services to the international shipping industry. The company is headquartered in London, with a support organisation in India and a number of overseas representatives. Established in 1970, Drewry's activities are grouped around the business practices:
•Bulk Shipping
•Containers, Ports and Logistics
•Specialist Shipping
•Technical services
Drewry is a specialist, not a generalist company. Its expertise lies in shipping and related maritime and transport sectors. It has been built by providing specialised advice to leading companies in these industries over three decades.
Drewry Specialist Shipping Group
The Drewry Specialist Shipping Group provides high level strategic consulting and advisory services to the shipping and marine industries, undertaking consultancy assignments for a wide range of shipping interests as well as producing specialist publications.
For more information, please visit:
https://edir.bulk-online.com/profile...onsultants.htm ■