Freight Introduction
| About Tullett Prebon Freight |  |
Tullett Prebon operates as intermediaries in wholesale markets facilitating the trading activities of their clients, in particular commercial and investment banks. In certain product areas the customer base also includes financial institutions and other professional investors.
In the Wet Freight Derivative market Tullett Prebon has partnered with three well established physical shipbroking companies. Capital Shipbrokers Ltd, in London; Island Shipbrokers (PTE) LTD in Singapore and MJLF Inc., in Connecticut, USA.
Currently there is a five strong team working out of Capital Shipbrokers office in London and one person working with Island Shipbrokers in Singapore.
With the flow of real time information from the physical Shipbrokers and Tullett Prebon's expertise in the derivative market, enables oil companies, ship owners and other users in the shipping industry to gain a first class service in managing the volatile shipping market.
| What is a Forward Freight Agreement (FFA)? | |
FFA's stands for Freight Forward Agreements commonly referred to as futures but are in fact Swaps.
A swap is a contract for differences or CFD for short. CFDs are contracts in which two parties agree to exchange cash flows. Importantly there is no physical delivery of the underlying commodity involved.
Cash Settled only. No physical delivery.
In a swap contract the transaction encompasses two 'legs'. The first is usually termed the fixed leg and is price fixed at the then prevailing market rate for the contract. The second part of the transaction, the floating leg is price fixed at an unknown level based on the settlement prices on an index which is agreed in the contract.
The contract quantity, period and other standard terms apply equally to both legs, so that we end up at the end with the difference between two numbers. The difference can be converted into a cash value which is exchanged between the two parties. Hence the exchange of cash flows.
There are 5 separate elements for a freight swap:
The Route
This is the heart of the contract as it defines many of the parameters upon which
we base our settlement.
There are currently 21 routes in operation with 1 more on trial in the market place. Each
route is based on a predetermined voyage for a specific size of ship.
These routes have been defined by the Baltic Exchange with
the assistance from the market and various representative user groups.
The Quantity
Unlike the underlying freight where cargo lift is usually maximized to minimize
dead freight, swap contracts can trade in any size agreed by the two parties.
By convention, contract trade in multiples of 1,000 metric tonne lots and usually not
less than 5,000 metric tones at a time. It is however entirely up to the parties
involved to fix the size.
The Period (Duration)
Contracts are traded monthly, quarterly, half yearly or annually forward. Again is entirely up to the contracting parties to decide the period so any combination of pricing days can be agreed.
The Price
Fixed and Floating leg prices are all based on WORLDSCALE values.
The market is buying and selling fixed leg prices on the various contracts based
on a view of the forward value of worldscale for that prescribed route. When the
forward contract comes to pricing the Floating leg will price basis worldscale
settlements as indexed by BITR.
The Settlement Index
The Baltic Exchange issue a settlement price every day (except weekends and public
holidays) for each contract routes. This usually results in 20 to 23 quotes per
month on average. This is often referred to as the BITR Settle.
The settlement number is estimated value of the Worldscale level of the next physical
fixture in the applicable route. It is derived by averaging the assessment of a number
of physical brokers.
At the end of the pricing period (usually the whole month) we take the average of all
the applicable settlements for our contract route. This gives us the value of the
floating leg of the swap in Worldscale points.
Freight Derivatives can be used to provide a means Risk Management and also traded as
Speculation. They can be used in risk management because they are linked to the
market value of an underlying asset and can be used to minimize the exposure to
future price fluctuations otherwise known as hedging.
| Our Partners | |
Capital Shipbrokers Ltd
Capital Shipbrokers are the leading experts in crude oil and petroleum. They guarantee excellence in
tanker chartering, period, operations, shipping solutions and cutting edge research.
Island Shipbrokers Pte Ltd
Island Shipbrokers (Pte) Ltd is a shipbroking company based in Singapore. Established in July 1995, they
are one of the leading broking companies in the Asian region. Their sphere of business covers spot
chartering, time charters and contracts for oil and chemical tankers, and all forms of sale and purchase.
The cornerstones of the company are professionalism and dedication to the shipping industry.
Mallory Jones Lynch Flynn & Associates Inc. [MJLF]
MJLF are in the forefront of traditional brokerage services - experts in executing vessel
chartering, insuring the all important post fixture operations, concluding sales & purchase
transactions, co-developing projects with clients as well as providing industry research &
analysis.
| Daily Prices and Market Commentary | |
To request a daily email of our market commentary and prices, please Send Email.
Click Here to Download Document, Updated 24 Apr
(Acrobat doc., 445.0kb)
| Historical Price Data Graphs | |
To request historical price data graphs, please Send Email.
Click Here to Download q405 Document
(Acrobat doc., 94.0kb)
Click Here to Download BITR Spot Rates (TC1, TC2, TC4 & TC5) Dec-Feb
(Acrobat doc., 97.0kb)
Click Here to Download BITR Spot Rates (TD3) Dec-Feb
(Acrobat doc., 83.0kb)
Click Here to Download TD8 Document Dec-Feb
(Acrobat doc., 91.0kb)
Click Here to Download TD8 2002/2003/2004/2005/2006 Document
(Acrobat doc., 84.0kb)
| BITR (Baltic Index Tanker Routes) Routes and definitions | |
| TD1 | MEG-USG(Ras Tanura Loop) VLCC 280kmt. |
| TD2 | MEG-Singapore(Ras Tanura Singapore) VLCC 260kmt. |
| TD3 | MEG-Japan(Ras Tanura Chiba) VLCC 260kmt. |
| TD4 | WAF-USG(Bonny Loop) VLCC 260kmt. |
| TD5 | WAF-USAC(Bonny Philadelphia) Suez Max 135kmt. |
| TD6 | Black Sea-Med(Novo Augusta) Suez Max 135kmt. |
| TD7 | North Sea-Cont(Sullom Voe Wilhelmshaven) Aframax 80kmt |
| TD8 | MEG-Singapore(Kuwait Singapore) Aframax 80kmt (crude and/or DPP Heat 135f) |
| TD9 | Caribs-USG(Puerto La Cruz Corpus Christi) Aframax 70kmt |
| TD10 | Caribs-USAC(Aruba New York) Panamax 50kmt |
| TD11 | Cross Med(Banias Lavera) Aframax 80kmt |
| TD12 | Cont-TA(Antwerp Houston) Panamax 55kmt |
| TD14 | SE Asia-EC Australia(Seria Sydney) Aframax 80kmt |
| TD15 | WAF-China(Serpentina FPSO and Offshore Bonny Ningpo) VLCC 260kmt |
| TD16 | Black Sea Med(Odessa Augusta) MR 30kmt |
| TC1 | MEG-Japan(Ras Tanura Yokohama) LR2 75kmt (CPP/UNL)-Naptha/Condensate |
| TC2 | Cont-USAC(Rotterdam New York) MR 37kmt (CPP/UNL) |
| TC3 | Caribs-USAC(Aruba New York) MR 38kmt (CPP/UNL) |
| TC4 | Singpaore-Japan(Singapore Chiba) MR 30kmt (CPP) |
| TC5 | MEG-Japan(Ras Tanura Yokohama) LR1 55kmt |
| TC6 | Algeria-X Med(Skikda Lavera) MR 30kmt |
| TRIAL ROUTE TC7 | Singpaore-EC Australia MR 30kmt |
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