- Patrick Young
- Future Clearing for Freight Traders
- online.wsj.com
Summary
Central Counter Party (CCP) Clearing is now a step closer to ubiquity in global freight trading…
Analysis
The initial shock was Enron which left many counterparties exposed to a multiple whammy of hedging everything from fuel through other commodities to freight itself with a single somewhat mediocre balance sheet. Enron had greatly aided growth in the FFA marketplace but the perils of leveraging its balance sheet as a counterparty has now become the stuff of legend.
Therefore the exchanges such as Immarex and the Baltic came more to the fore and found that they were popular with many of the more canny operators.
However, despite vast growth in the freight derivatives market, actual usage of CCP and exchange markets was limited (even though pricing freight related to the exchange benchmarks has become almost ubiquitous).
In the wake of the recent price explosion and subsequent implosion in freight rates, it is hardly surprising that the marketplace is looking for security. This second shock is particularly acute as many counterparties have simply walked away from bilateral agreements – and a great many of those agreements were written in haste with little consideration to how enforcible some jurisdictions may actually be!
Therefore it is not surprising that CCP is becoming much more popular in the freight industry and the end result ought to be a more stable environment for all those using shipping services. Of course the concommitant benefits to the likes of IMMAREX ought to be highly significant, even in a world where shipping rates are at a low ebb.
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