Derivatives & Hedging
FFAs, freight futures and bunker hedges. Settlement prices are exchange-licensed; this section curates the authoritative venues (SGX · CME · ICE) and explains how a developing book actually hedges fuel and freight exposure.
Exchanges & contract venues
Where freight and bunker risk is cleared. Specs and delayed quotes are public; live settlements are licensed.
Forward Freight Agreements and Singapore fuel oil/freight contract specs & settlements.
How to read: FFAs let owners/charterers hedge route TCE; fuel oil swaps hedge bunker cost.
Cleared freight, fuel oil, and energy futures specs & delayed quotes.
How to read: Use cleared swaps to lock bunker or freight exposure.
Brent, low-sulphur gasoil, fuel oil, and freight contracts.
How to read: ICE gasoil/Brent are core hedges behind MGO and crude exposure.
The bunker hedge toolkit
- Fuel oil swaps (Singapore 380/180, Rotterdam 3.5%): cash-settled vs Platts; the primary HSFO/VLSFO hedge.
- ICE low-sulphur gasoil: the deepest distillate contract — the natural hedge behind MGO exposure (carries basis).
- Brent/WTI futures: hedge the crude component of any bunker price.
- VLSFO swaps: direct hedge where liquidity exists; otherwise proxy with gasoil + a fuel-oil crack.
The freight hedge toolkit
- FFAs (Baltic routes): cash-settled on TD/TC route assessments — lock forward TCE without a ship.
- Cleared freight futures (SGX/CME): standardized contracts on dirty/clean routes.
- Why it links to bunkers: a voyage-charter owner pays bunkers, so freight and bunker hedges are managed together to protect the net voyage margin.
Hedging concepts
What: Offsetting price risk with derivatives — bunker swaps, ICE gasoil, fuel-oil swaps, or FFAs.
Why: Bunkers and freight are volatile; hedging locks margins for a developing trading book.
How traders use it: A trader hedges a fixed bunker sale by buying a matching fuel-oil swap, leaving only basis risk.
What: A cash-settled derivative on a freight route or index (e.g. a Baltic TD route), settling vs the published assessment.
Why: It lets owners and charterers lock future freight (and indirectly bunker exposure) without a physical ship.
How traders use it: An owner sells FFAs to fix forward earnings; a charterer buys them to cap freight cost.
What: The difference between a local physical price and a benchmark/futures price.
Why: Hedges are placed in liquid benchmarks but exposure is physical and local — basis is the leftover risk.
How traders use it: A bunker buyer hedging Singapore VLSFO with ICE gasoil carries the gasoil-to-VLSFO basis and monitors it.