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Portfolio Management of Tanker Freight Risk. Intertanko’s Rotterdam Tanker Event Monday 15 th April 2002 Jim Gretton – Global Freight Forwards. What some Owners do. Acquire ships Sell Ships

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portfolio management of tanker freight risk

Portfolio Management of Tanker Freight Risk

Intertanko’s Rotterdam Tanker Event

Monday 15th April 2002

Jim Gretton – Global Freight Forwards

what some owners do
What some Owners do
  • Acquire ships
  • Sell Ships
  • Fill intervening time as best as can - take period cover if cash flow dictates and a T/C is available - might do some contract business - take spot market wherever ship happens to be
  • For all period business, tomorrow is higher than today
alternative trading method portfolio management
Alternative Trading Method – Portfolio Management
  • For each forward time period, assess freight longs/shorts– LONG means you benefit if rates go UP (eg Owning a ship) – SHORT means you benefit if rates go DOWN (eg having T/Chartered out) – match by period (eg Month), vessel size (eg VLCC), region (eg AG) – net off longs against shorts to determine your net position
  • Assess your opinion of forward markets– forecast state of global economy – forecasts of likely oil demand (eg EIA, OPEC) – market sentiment
  • Match your forward position with your forward opinion– are you happy? – if not, FIX IT! – can still Time Charter (out or in) or do Contracts, but also FFAs
what is a freight forward agreement
What is a Freight Forward Agreement?
  • Can be ‘Over-the Counter’ agreement or traded on an Exchange via a screen
  • ‘Contract for Differences’ (CFD) – means cash settlement
  • Uses a specified notional voyage
  • Fixes a price today for a defined future period
  • Position closed out against an Index or Broker assessment over the defined future period
ffa compared to time charter
FFA Compared to Time Charter

Pros

  • No physical performance risk
  • More liquid than Time Charter
  • With standard terms, quick to do
  • Flexible volumes, regions and selective timings
  • Keeps control of your physical assets

Cons

  • May not get perfect match with desired voyage/timing
  • Can have bunker price exposure (unless hedged)
baltic international tanker routes
TD1, 280kt AG – US Gulf

TD2, 260kt AG – Singapore

TD3, 250kt AG – Japan

TD4, 260kt W Africa – USG

TD5, 130kt W Africa – USAC

TD6, 130kt cross Med

TD7, 80kt, cross N.Sea

TD8, 80kt, AG-Singapore

TD9, 70kt, Caribs – USG

TD10, 50kt, Caribs – USAC

TC1, 75kt clean, AG – Japan

TC2, 33kt clean, UKC – USAC

TC3, 30kt clean, Caribs – USAC

TC4, 30kt clean, Sing - Japan

Baltic International Tanker Routes
using ffas to adjust the portfolio
Using FFAs to Adjust the Portfolio
  • Identify period/region of concern
  • Translate exposure into tonnes/month on appropriate BITR route
  • Compare your opinion of forward rates with available bids/offers in the FFA market
  • If FFA numbers are better than your own view, trade
  • REVIEW REGULARLY!
systems controls
Systems & Controls
  • Need for review means that all physical freight deals must be entered in an exposure system
  • Must ensure all FFAs are entered promptly
  • Should value all paper deals on a ‘mark-to-market’ basis daily
  • Report on on-going counter-party exposure
  • Control on max outstanding at any one time
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