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Freight ¦ Commodity trading HEG

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sorrentino fabrizio

on 19 March 2015

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Transcript of Freight ¦ Commodity trading HEG

USD/day
1) General presentation

2) Market structure

3) Specificity

4) Key drivers

5) Price

FREIGHT
Thank
You
Any questions
?
One more thing

.
.
.
~5,000
~ 9,400
~9,500
Source : Bunge's presentation on the 20th February
"Land covers 1/3 of the earth, we cover the rest".
Source: MSC website
Laura Boschung ¦ Fabrice Hablutzel ¦ Fabrizio Sorrentino
h e g
Major:
Commodity Trading
Professor:
Robert Piller
Key drivers
In the shipping markets
demand
is said to be ‘volatile, quick to change and unpredictable;
supply
is ponderous and slow to change’.
Which factors are the most important ?
World economic activity, is by far the most important
The Baltic Exchange :

the wolds oldest shipping market

World’s only
independent
source of
dry
and
wet
maritime freight market information used as
benchmark
for physical contracts and in the settlement of shipping freight
derivatives
, as well as for
economic indicators

Neutral, independent, reputable, trustworthy
The main components of a Vessel's Costs
The main routine costs
Costs which are specific to a voyage
Capital cost of the ship
Crew wages
Victualling
Insurance
Lubricating oil
...
Bunkers (fuel)
Port disbursements
Stevedoring
Load/discharge costs
Shipowner
Canal dues

War risk premium
Over-age insurance
Freight, local, income tax
Despatch money
....

•Indices
–Baltic Exchange Dry Index
–Baltic Exchange Capesize Index
–Baltic Exchange Panamax Index
–Baltic Exchange Supramax Index
–Baltic Exchange Handysize Index
–Baltic Exchange Dirty Tanker Index
–Baltic Exchange Clean Tanker Index

•LPG route assessment
•Baltic Exchange Sale & Purchase Assessment
•Baltic Exchange Ship Demolition Assessment
•Daily dry cargo fixture list
•Daily dry cargo report
•Baltic Exchange Forward Assessment
•End of month settlement data
The Baltic Freight Index (BFI)

started 4 January
1985

Was developed as a settlement mechanism for the Baltic International Freight Futures Exchange (BIFFEX) futures contract

It quickly won
worldwide acceptance
as the most reliable general measure of the dry cargo freight market
The BALTIC DRY INDEX (BDI)

The successor to the Baltic Freight Index (BFI)

Came into operation on 1 November 1999

Since the 1 July 2009, the Index is a composite of the
Capesize, Panamax , Supramax
and
Handysize
Timecharter Averages

The calculation until the 30th of June 2009 was based on an equally weighted average of the
BCI, BPI, BHSI
and the
BSI
index
2008 Fiancial Crisis
The price of vessels ?
The price of vessels is determined by construction
costs and by market pressures derived from the
demand
for transport services and the
supply
of
vessels.
Trends on the demand ?
Demand
for newbuildings is a reflection of how shipowners perceive
long-term
demand, whereas demand for second-hand vessels may reflect
short-term
expectations.
EG:
Maersk Line, the largest liner shipping company, lists on its website 107 possible fees and surcharges.
Freight rates are affected by the
demand

for the goods being carried
and the
supply

of available vessels to carry the goods
.
Definition
History
What is Freight rate ?
The price that a carrier (a shipowner or
charterer) charges for transporting cargo is known as the freight rate.
Transport costs are key determinants of a country’s trade competitiveness
Fundamental principle
Specificity
Price

•Shipping- regulated or self regulating
•LIBOR fallout
•European Commission revision of indices
•FFAs- mandatory clearing and trade reporting by 2014

Dodd Frank/EMIR/MIFID/MIFIR
Shipowners stopped placing order, canceled existing orders and delayed taking delivery of vessels nearing construction; this is commonly referred to as
"Slippage"

=
Shipyards reacted by lowering their price to attract new orders
Several studies conclude that transport costs influence the volume, structure
and patterns of trade, as well as the comparative
advantage of a country.
Why freights is important ?
Types of Sea Carriages:
- Dry freight (bulk carrier)
- Wet freight (tankers)

Types of Charter parties:
- Bareboat charter
- Time charter
- Voyage charter
- Slot charter
A freight is a charge/fee paid for carrying or transporting goods by air, land or sea.
Voyage charter v. Time charter:

1) Voyage charter:
- Loading and discharged port is fixed
- Cannot change destination
- Agreement where the owner performs a specific voyage in exchange of the payment of the freight (fixed rate)
- Charterer usually pays for the cargo handling costs

2) Time charter:
- Contract to hire service of a vessel for an agreed period of time
- “Hire” = charterer’s payment to the owner
- Charterer is responsible for all operation costs including bunkers, port expenses, pilotage and stevedoring costs. The owner (who remains the possessor of the ship) is still responsible for non-operational costs including crew, supplies and insurance premiums.

Early trade routes (ab. 4-5,000 years ago):
Arabian Sea > safer than desert trip with caravans

During 15th and 19th centuries:
Europe's Age of Discovery : increase of number of voyages across Atlantic to the Americas.
Later, goods were transported to Asia for trade: Dutch East Asia Company: focus on spices trade, English East India Company: focus on cotton, silk and tea trades

During the 19th and 21st centuries : beginning of the modern maritime shipping with the Suez & Panama Canals

Evolution of Container Ships
90%
Suez/Panama
world’s major container shipping lines
also known as "P3 Network"
The Market is dominated by a Few Large Players and Comprises Many Small- and Medium-Scale Players
Founded

Vessels

Vessels owned

Full container shipped annually

Source
1928 HQ Copenhagen, Denmark
610 with a capacity of 2.9 million TEU
252 & 356 chartered
Approximately
11 million
1978 HQ Marseille, France
458 with a capacity of 1.6 million TEU
82 & 376 chartered
Approximately 12 million
1970 HQ Geneva, Switzerland
MSC website
498 with a capacity of 2.5 million TEU
190 & 308 chartered
Maersk website
CMA website
Approximately
14.5 million (TEU)
Source: Bunge Presentation February 20th 2015
Total Dry Seaborne Market
Key seaborne dry bulk commodity flows
Massive importation of metals
Cargo congestion
Source: Emmanuel Fragnière
2003-2004
(4x more than the previous year)
USD/day
Full transcript