DRY BULK FORWARD FREIGHT AGREEMENTS
SSY Futures Ltd are authorised and regulated by the Financial Conduct Authority in the United Kingdom
and are Overseas NFA members in The United States. The material contained herein is for information
purposes only and should not be seen as a trading recommendation or solicitation of trade.
Mar 2021
SIMPSON SPENCE YOUNG
• Established 1880
• Largest privately owned shipbroker in the world
• Worldwide network of 20 offices
• A Leading Baltic Panelist
• Expertise in:-
➢ Dry Cargo
SSY Futures Ltd
➢ Tankers 32 Derivatives Brokers
➢ Futures In London, Singapore & NY
➢ Research and Consultancy
➢ Sale and Purchase Team of 12 analysts
➢ Ship Finance on dry bulk, tanker and
➢ Agency and Towage gas markets
Mar 2021 | 2
THE BALTIC INDICES
Mar 2021
THE BALTIC EXCHANGE
• The Baltic Exchange is the international membership
organization for the global shipping markets. Since
1985 it has been publishing Freight Indices
• Baltic Exchange Dry Index (BDI)
• Baltic Exchange Handysize Index (BHSI)*
• Baltic Exchange Supramax Index (BSI)
• Baltic Exchange Panamax Index (BPI)
• Baltic Exchange Capesize Index (BCI)
* Not currently included in BDI
Mar 2021 | 4
THE BALTIC PANELISTS
• The Baltic carries out annual
“audits” on independent ship
brokers.
• Companies who are doing
sufficient business fixing
individual routes and who
demonstrate competence are
invited to become Panelists.
• The Panelists make daily
professional assessments
voyage and time charter rates.
• The Baltic oversee the
assessments, aggregate the
inputs & publish the results.
Mar 2021 | 5
BALTIC INDICES ARE PRICED IN US$ PER DAY
(TIMECHARTER) OR FREIGHT RATES IN US$ PER
METRIC TONNE (VOYAGE)
• Time Charter:
• Panamax Route 2a_82: Europe to the far east priced
in USD/Day.
• Voyage:
• Capesize Route 3: Tubarao to Qingdao, iron ore
route priced in USD/Mt.
The Baltic Index Council decide on which rates to report and vessel
specifications. They are an independent group of industry experts
working with the Baltic’s Senior Freight Reporter.
Mar 2021 | 6
BALTIC TYPE VESSEL DESCRIPTIONS
Capesize 2014: Basis a Capesize 180,000mt dwt, not over 10 years of
age,198,000cbm grain max. Loa 290m,max.beam 45m, draft 17.75m, 14 knots
laden, 15.0 knots ballast on 62mts fuel oil or 12 knots laden, 13 knots ballast on
43mt, no diesel at sea.
Panamax 82: Basis a Panamax 82,500mt dwt, not over 12 years of age,
97,000cbm grain max. Loa 229m, max. draft 14.43m, 13.5knots laden on 33mt
14.0 knots ballast on 31mt fuel oil laden/ballast + 0.10 MGO at sea.
Supramax: Standard "Tess 58" type vessel with grabs as follows: 58,328mt dwt
on 12.80m SSW, 189.99m, beam 32.26m • 72,360cbm grain, 70,557cbm bale •
5 holds, 5 hatches • 4 x 30mt cranes with 12cbm grabs • 14 knots laden on 33mt
fuel oil (380cst), no diesel at sea / 14 knots ballast on 32mt fuel oil (380cst), no
diesel at sea. • 12 knots laden on 24mt fuel oil (380cst) no diesel at sea / 12.5
knots ballast on 23mt fuel oil (380cst), no diesel at sea
Handysize 38: Basis a 38,200mt dwt, self trimming geared bulk carrier on
10.538 SSW 180m LOA 29.8m beam. 5 ho/ha. 47,125 cbm grain 45,300 cbm
bale 14 knots laden on 26/24 mt ballast + 0.10 MDO at sea. 4 x 30mt cranes.
Mar 2021 | 7
BALTIC SUPRAMAX
TIME CHARTER AVERAGE COMPONENT PARTS
S1B_58Canakkale trip via Med or Bl Sea to China-South Korea
S1C_58 US Gulf trip to China-south Japan
S2_58 North China one Australian or Pacific round voyage
S3_58 North China trip to West S4A_58 US Gulf trip to Skaw-Passero
S4A_58US Gulf trip to Skaw-Passero
S4B_58Skaw-Passero trip to US Gulf
S5_58 West Africa trip via east coast South America to north China
S8_58 South China trip via Indonesia to east coast
S9_58 West Africa trip via east coast South America to Skaw-Passero
S10_58 South China trip via Indonesia to south China
Mar 2021 | 9
WHAT IS AN FFA?
Mar 2021
FFA DEFINITION
An FFA or Forward Freight Agreement is a Futures Contract
on freight costs.
In just the same way that people buy commodity futures to
benefit from rising prices they can buy FFAs.
They can also Sell FFAs if they believe freight prices will fall.
FFAs always have a buyer and a seller - one will make
money at the settlement and the other will lose it.
It’s simple to trade an FFA instead of really participating in
the freight market.
No need to own a ship, employ operations staff, fill it with
crew, fuel, food, water etc etc.
Mar 2021 | 11
Cape Time Charter Average
FORWARD CURVE – 29th Mar 2021
Mar 2021 | 12
CAPE TC AVG Spot & FFAs 29th March ‘21
30,000
25,000
20,000
15,000
10,000
5,000
Mar 2021
ELEMENTS OF A TIMECHARTER AVERAGE FFA
• Buyer /Seller - freight exposure / market view
• Vessel Type - Cape, Panamax, Supramax, Handy
• Period - month / quarter / year
• Quantity - number of days per month
• Contract Price - level traded
• Clearing - EEX / SGX
Mar 2021 | 14
FFAs CASH SETTLE
AGAINST THE AVERAGE DAILY PRICE PER MONTH
BUYER: Charterer Market Rises
July settlement = $25,000
SELLER: Shipowner Sett Val = 25,000 – 20,000
X 10 Days = $50,000
TYPE: BCI TC AVG Q3 ‘21 BUYER PROFITS
RATE: USD 20,000
QUANTITY: 10 days per month Market Falls
Aug settlement = $15,000
PERIOD: July, Aug, Sept ‘21 Sett Val = 15,000 – 20,000
X 10 Days = ($50,000)
SETTLEMENT: Avg of all index Days SELLER PROFITS
SETTLEMENT DATE: Last Day of each Month
Mar 2021 | 15
CAN WE CLOSE OUR FFA?
AN FFA CAN RUN UNTIL SETTLEMENT OR BE CLOSED
EARLY…
Example: March 4th 2017
A ship owner sells Panamax Cal 18 at $14,250 opening an
FFA.
The market falls quickly -
by the 18th March Cal 18 is trading at $12,000.
The owner Buys Cal 18 at $12,250 closing the FFA and
adding $2,000 a day to his earnings in just two weeks.
4th March Sell: $14,250 Opens FFA Position
18th March Buy: $12,250 Closes FFA Position
Profit: $2,000 per day
Mar 2021 | 16
OPPORTUNITIES FOR USING FFAs
• Time Charter and FFA.
Fix ships on long term time charter but buy/sell FFAs to switch
To a floating price if rates show signs of improvement.
• Spot Market and FFA.
Leave ships on the spot market but buy/sell FFAs to prevent
earnings from erosion if the market starts to move.
• Floating Rate Time Charter and FFA.
Fix a floating rate time charter and then buy/sell FFAs to lock in the rate
when rates are advantageous.
• Investment Strategy.
Use FFAs as an alternative to ship ownership. Employing capital to
hold FFA positions that profit from a strengthening shipping market.
• Portfolio Insurance.
Use FFAs to hedge a portfolio of shipping investments.
Mar 2021 | 17
CLEARING
Mar 2021
TRADITIONALLY FFAs WERE TRANSACTED DIRECTLY
BETWEEN THE BUYER AND THE SELLER
BUYER Seller
SELLER
Mar 2021 | 19
OTC BI-LATERAL TRADES EVENTUALLY LEAD TO
INCREASED COUNTERPARTY RISK AS TRADERS OPEN
AND CLOSE FFAs WITH MULTIPLE COUNTERPARTIES
A
B
F
G
Mar 2021 | 20
COUNTERPARTY CREDIT RISK IS MITIGATED BY USING A
CENTRAL CLEARING COUNTERPARTY
Central
Clearing
Counterparty
EEX or SGX
Mar 2021 | 21
CLEARING WITH BLOCK FUTURES
BUYER EXECUTION SELLER
BROKER
CENTRAL
CLEARING CLEARING CLEARING
BROKER COUNTERPARTY BROKER
EXCHANGE
Mar 2021 | 22
THE COST OF CLEARING
CURRENT INDICATIVE SGX ASIACLEAR PRICING.
Clearing Example: Initial margin requirement.
Pmax Q2 ‘21 position 10 days a month:
Front Month Initial Margin $5280
Discounted Forward Maintenance Margin for Q2
= $4800 X 30 days = $144,000
+/- Variation margin, marked to market each day.
Indicative Margins Q2 ’21/Cal’22
Cape Avg 5 TC - $6000/3000
Panamax Avg 5 TC - $4800/1600
Supramax Avg 6 TC - $2900/900
Handysize Avg 6 TC - $1800/800
Initial Margin Rates are subject to change
without notice in volatile markets
Mar 2021 | 23
BENEFITS OF CLEARING
• Virtual elimination of counterparty risk
• Netting of positions
• Efficient use of available margin
• Standardised contracts
• Daily profit or loss adjustment
• Increased liquidity
• Level playing field
• Regulated market
Mar 2021 | 24
ADDING VALUE
Mar 2021
Trading Strategies
Beyond the core broking service there are a number of strategies
brokers can assist with :
• Integrating FFAs in Physical Trading Strategies
• Inter-Market Spreads – i.e. Cape vs Panamax
• Time Spreads – i.e. Cape Cal22 vs Cape Cal 23
• Options Strategies
• Integrated FFA / Option Strategies
Mar 2021 | 26
FFA MARKET VOLUMES
Mar 2021
DRY FFAs vs Options
Quarterly Volume
DRY FFAs & Options
700000
600000
500000
400000
300000
200000
100000
Mar 2021 | 28
CURRENT MARKET SHARE BY OPEN INTEREST
Supra, 21.00%
Cape, 31.00%
Pmax, 48.00%
Handysize,
0.00%
Mar 2021 | 29
FFA Use by Region and Company Type
2019 SSY Estimates.
2019 SSY Estimates
Mar 2021 | 30
CONCLUSION
Mar 2021
CONCLUSIONS
• The Baltic Exchange remains the preferred freight index provider
• The FFA Markets remain focused on Dry Bulk Markets
• Time Charter Average Contracts are the preferred Contracts
• The larger vessel sizes are more liquid
• The program of vessel reviews continues
• Volume is set to increase
• Growth expected from owner operators and investment sections.
Mar 2021 | 32
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E: [email protected]
ssyonline.com
Mar 2021
