Mesurements: USD per container
As shown in the graph above, the price of 22nd March stands on 1280 USD. Comparing to last bulletin price (of the last day), the price dropped from 1’482 USD to 1’280 USD which represents approximately 13.6% decrease in the price which is significant.
This price decrease might be due to the price stabilizing after the increase that it held during the chinese new years (explained in the previous bulletin).
As a trading company, this significant decrease in the price of freight can represent an opportunity to increase the profit margin of the company (as there is a decrease in costs for a deal). It is possible that trading companies schedule the transport with the freight according to their expectations of the price movement but the price cannot be predicted with 100% certainty which means that it is not an easy task.
Freight risk –
The effect of the freight price on the trading company depends on the incoterm which the contract is referring to. In case the transportation costs are under the responsibility of the trader company , then the price volatility does affect the margin of the trader.
In contract, freight risk does not have this level of effect on trading companies like Cargil for example that use vertical integration (meaning that they would take the shipment operations under their responsibility as well as the actual trade). This means that not only the margin will increase due to the decrease in the number of involved parties but also means a decrease in price will drive costs down for the trading company.
Energy trader Mercuria gets green light to buy Aegean Marine Petroleum
In light of the new IMO 2020 regulations, shipping rates are expected to rise as vessels will need to buy fuel of better quality and thus more expensive.
Mercuria, the global energy trader, are going to buy Aegean Marine Petroleum. This company is a marine fuel Logistics Company that physically supplies and markets refined marine fuels to ships in port and at sea.
Mercuria sees the acquisition as key ahead of new rules on shipping fuel by the International Maritime Organisation (IMO) due to take effect next year.
We can see through this acquisition how freight rates and decisions regarding shipping could affect trading companies. They are now trying to have a larger control of the shipping sector as well.
Freight derivatives – Risk management tool
Derivatives are used to hedge risk in the freight markets. Tankers are one of the most common means of transporting commodities such as oil and coal. Freight derivatives, such as swaps or forward freight agreements (FFA), can be used to protect ship owners against changes in freight rates. Commonly traded on the Baltic Exchange, dry (bulk) and wet (crude) freight derivatives are traded for particular routes and forward months in standardised sizes of vessel.
https://www.risk.net/definition/freight-derivatives
Cargill Net Drops 20 Percent, Revenues Fall as Trade Fight Bites
Cargill, the world’s biggest agricultural commodities supplier, reported 20% of drop in its fiscal second-quarter 2019 net earnings. The reason of company’s bottom line decrease is indeed due to the global trade tensions together with the challenges in the Chinese hog sector and a struggling U.S. dairy business . This drops shows again how volatile the commodity markets is and how the the external factors can impact company’s net profit significantly.
Then, in regards to the Freight commodity, Cargill has additionally to this 3 business units, an “ocean transportation”units, more precisely “dry shipping services”, which is highly impacted by the U.S.-China trade fight as it brings uncertainty in the freight markets.
These 3 indexes behave quite similar, meaning that the reasons for the volatility of the price of freight for the 3 of them would probably be similar, however, effect each index in a different level.
For example : it is possible that the chinese new year had a greater effect on BDI than BHSI, as the change in the price was more significant. at the same time, it is possible to see that the timing of the trends is quite cohesive which makes their behaviour similar.
https://www.pacificbasin.com/en/ir/industry.php
References :
https://www.pacificbasin.com/en/ir/industry.php
https://www.risk.net/definition/freight-derivatives
http://www.ampni.com/fup/fuels-32128.htm?lang=en&path=-234507605