Freight looks forward

Freight derivatives are increasingly seen as a key risk management tool. Banks and hedge funds are also trading them. But will the growth in liquidity continue, or is this another false start for the market? Stella Farrington reports

There’s a buzz surrounding the hitherto sedate freight derivatives market. Longused by oil companies wanting to hedge rising or volatile shipping costs, themarket is now increasingly being viewed as a place in which financial institutionscan operate and make money. Traded volumes of forward freight agreements (FFAs)quadrupled in 2004 according to most estimates, and turnover rose from $2-$4billion in 2002 to over $30 billion in 2004.

“Freight is increasingly being recognised as a commodity,”

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