Portfolio Management of Tanker Freight Risk

1
Portfolio Management of Tanker Freight Risk

• Intertankos Rotterdam Tanker Event
• Monday 15th April 2002
• Jim Gretton Global Freight Forwards

2
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

3
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

4
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

5
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)

6
Baltic International Tanker Routes

• TC1, 75kt clean, AG Japan
• TC2, 33kt clean, UKC USAC
• TC3, 30kt clean, Caribs USAC
• TC4, 30kt clean, Sing - Japan

• 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

7
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!

8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
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