Freight Market Information

Amir H. Alizadeh and Nikos K. Nomikos
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Amir H. Alizadeh: Cass Business School, City University
Nikos K. Nomikos: Cass Business School, City University

Chapter 4 in Shipping Derivatives and Risk Management, 2009, pp 107-124 from Palgrave Macmillan

Abstract: Abstract In all lines of business, exposure to unanticipated fluctuations, on both the revenue and the cost sides, is not desirable. The shipping industry is no different from other industries in this respect. Extreme fluctuations in freight rates and ship prices throughout the years have been affecting shipping companies’ cash flows and, in some cases, forced some of those companies out of business. In markets dominated by uncertainty and risk, it is always prudent to employ methods which reduce or eliminate such uncertainties. The significance of risk management in the freight market has been recognised among the participants in the shipping industry for a long time, as indicated by the development of physical hedging methods, such as period time-charter contracts and contracts of affreightment (CoA); the use of these instruments for hedging freight rate risk has been discussed extensively by Gray (1990). However, it was not until the early 1980s when shipowners, charterers and other parties involved in shipping realised that risk-management techniques which had been applied successfully in commodity and financial markets (such as hedging using futures, forwards, swaps and options) could also be developed and applied for risk management in the shipping industry.

Keywords: Future Price; Index Point; Future Contract; Underlying Asset; Physical Market (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23580-9_4

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DOI: 10.1057/9780230235809_4

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