Understanding FFA
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Understanding FFA
Transcript of Understanding FFA
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UNDERSTANDING FORWARD FREIGHT AGREEMENTS
Workshop at the Journal of Commerce TPM ConferenceLong Beach CA, 6th March 2013
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Actualmarket/Index
Snapshotoftodaysmarketenvironment
Independentandtrusted
ReflectingALLIN pricesincludingallsurcharges;noTerminalHandlingCharge(THC)
ShanghaiShippingExchange(SSE)
ShanghaiContainerizedFreightIndex(SCFI)
Balancedpanel(15Carriers,17Forwarders)
SCFIIndexpublishedweekly(Friday;15:00BeijingTime)
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Risk
Exposureinthefuturebringsuncertainty:
Macroeconomicaleffects Tonnageavailability Bunkerprice Strikes/walkouts Severeweather Disasters War/Crisis Politicalortechnicalblockadesofshippingroutes
Long: underlyingisowned/riskoffalling price(Seller)Short: underlyingtobepurchased/riskofrising prices(Buyer)
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Terminology
Hedging:Protection;counterbalancingcontract
ForwardFreightAgreements(FFA),Paper,Swap,Forward,ContainerFreightSwapAgreement(CFSA),CFD,Derivative
Bid: BuyerAsk/Offer: Seller
Settlement: Comparisonwithmarket/indexatspecificdate
Inthemoney: receivingcashOutofthemoney: owingcash
AFFAisaseparated,abstractcontract.Enterednow,cashispaidinthefuture
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ForwardCurve
USWCUSD/FEUFeb13 2,280.00 ***Spread*** 2,500.00Mar13 2,325.00 / 2,525.00Apr13 2,500.00 / 2,665.00Q213 2,500.00 / 2,700.00Q313 2,475.00 / 2,775.00FebDec 2,375.00 / 2,600.00Cal14 2,300.00 / 2,600.00
Severalfinancialinstrumentsavailable Simplypickandchoose Interestmatched=>FFAcontractprice=ONENUMBER!
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FunctionalityofaFFA/3PLperspective
Highmarket ([email protected])
Lowmarket ([email protected])
$2,000
+$200
3PL
3PL
Carrier
FFA Market
$2,500
$300
FFA bought at $2,200 per TEU (Net cost $2,200)
Carrier
FFA Market
3PL
3PL
FFA bought at $2,200 per TEU (Net cost $2,200)
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Physicalvolumesagreedseparatelyfromfutureprices Duration>1year Onprocurementor/andsellingside Freightrateisfloating/alwaysspot Discountsarepossible Nofrillsasfloors/ceilings,corridorsetc.
IndexLinkedFreightContracts
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Togainbusiness:separateVolumesfromPrices Pickandchoosetherightfinancialinstrument orstayunprotected
Floatingcontract/FFAs
Think3Stepsahead Thinkabstract Rememberyourbalancesheet
500
1,000
1,500
2,000
2,500
3,000
$
/
F
E
U
SCFIUSWC
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Researchtools
MacroeconomicalindicatorsGDPs,PMIs,CarSales,HouseSales,baseinterestrates,moneyvolumes,exchangerates,
MediaJOC,PIERS,HANSA,Alphaliner,Bloomberg,Reuters,Equityanalysts,bankspublications
ICAPMarketreportsSlotCapacityIndicator,CargoMonitor,ContainerAppforBlackBerrysandiPhone.
RisksimulationDatacanbeautomatedimportedindefinedriskmodels
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CorporateImplementation
CFO/Boardleveldecision
Definitionofresponsiblepersons/traders
Definitionofinterfacesbetweenfinance,research,salesdepartmentsetc
Salesstafftraining
Additionaltransactionprocessing(i.e.Invoicing)
Monitoring
Maintainingtradingaccount
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Businesscases
Needforalongterm,fixedrate? Focusonservicelevels,relaiability,sustainability? Longtermclientrealtionshipsprefered? Tiredofloosingoutintenders? Evercalculatedtotalcostsofaquote? Attractshighvolume lowvaluecargo? NeedtojustifiescostlyIT/setupsolutions? Peaceofmindapproach?
Assureashighaspossiblecorrespondance: Procurement FFA Cargostream Usetheindex/discounts ManagethePriceusingtheFFA
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StageoftheFFAmarket
Constantlyrisingtradingvolumes Leadingbanksentering/provideliquidity Newindicescoveradditionalgeographicalregions
Shipownerspreapredtofixtonnagebasedonafreightindex Electroluxjustextendedindexlinkedcontract SeveralindexlinkedcontractsfiledwiththeFMC Panalpina,Logfret,SEKOLogistcs,Cargill,SDVGeis,commited 2Clearinghouseseliminatecounterpartyrisk
ICAPcomission:515USDperContainer(TEUorFEU)/month=>Cashflow/NOTCargo
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ICAPplc2013.
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