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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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