Dry freight derivatives took to central clearing like a Capesize vessel to water. But as innovators attempt to increase the volumes of screen trading, the market transition remains slow. William Mitting looks at how brokers, ISVs and exchanges are innovating to boost the volumes of FFA deals executed on screen.
Dry bulk commodities account for around 55% of the total dry
and wet freight market with the most popular loads being iron
ore, grain and coal. The most common form of derivative on dry
freight is the forward freight agreement (FFA). As well as the
usual expiry date and contract size, FFAs are specified by
route and ship size with the latter being split into Capesize,
Panamax, Supramax and Handysize. Contracts are benchmarked
against a series of indexes provided by The Baltic Exchange.
LCH.Clearnet, NOS, SGX and CME provide clearing for FFAs.
A radical change
As with other markets, 2008 was an annus horribilis for the
dry freight market. The value of the Capesize FFA index
plummeted from over $200,000 to less than $2,500 in five
months. It had doubled between March and early May. These were
wild swings for sure but then dry freight is an inherently
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