Freight market
Encyclopedia
The freight market is the market in the shipping industry which covers the transport of cargo. The first official freight market was the Baltic shipping exchange in the nineteenth century. However before that time there were already several places which could be seen as centres of freight market, for instance, the Baltic coffee house. Transport of goods over sea can be regulated in different types of chartering
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The freight derivative
s market is a relatively new part of the freight market. The idea of the freight derivatives market is to minimize the future risks of trading goods. This is necessary because a trader may buy a commodity which he wants to ship in the future and sell on another place. However if the freight rate
would rise to a higher point by the time he wants to ship he will have to calculate for this unexpected expense and he may very well lose a lot of money when selling the commodity again. The freight derivatives market handles this problem by giving an estimate of what the future of the freight market will be. So the ship-owner and the trader can agree a price that will most likely be close to the freight rate
at that future time this limiting both their risks. The freight future market started with trading through the Baltic International Freight Futures Exchange in 1985 which was later replaced by forward freight agreement
s.
Chartering (shipping)
Chartering is an activity within the shipping industry. In some cases a charterer may own cargo and employ a shipbroker to find a ship to deliver the cargo for a certain price, called freight rate. Freight rates may be on a per-ton basis over a certain route or alternatively may be expressed in...
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The freight derivative
Freight derivative
Freight derivatives, which includes Forward Freight Agreement , container freight swap agreements and options based on these, are financial instruments for trading in future levels of freight rates, for dry bulk carriers, tankers and containerships...
s market is a relatively new part of the freight market. The idea of the freight derivatives market is to minimize the future risks of trading goods. This is necessary because a trader may buy a commodity which he wants to ship in the future and sell on another place. However if the freight rate
Freight rate
A freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport , the weight of the cargo, and the distance to the delivery destination...
would rise to a higher point by the time he wants to ship he will have to calculate for this unexpected expense and he may very well lose a lot of money when selling the commodity again. The freight derivatives market handles this problem by giving an estimate of what the future of the freight market will be. So the ship-owner and the trader can agree a price that will most likely be close to the freight rate
Freight rate
A freight rate is a price at which a certain cargo is delivered from one point to another. The price depends on the form of the cargo, the mode of transport , the weight of the cargo, and the distance to the delivery destination...
at that future time this limiting both their risks. The freight future market started with trading through the Baltic International Freight Futures Exchange in 1985 which was later replaced by forward freight agreement
Forward freight agreement
A forward freight agreement is a financial forward contract that allows ship owners, charterers and speculators to hedge against the volatility of freight rates. It gives the contract owner the right to buy and sell the price of freight for future dates...
s.