Futures contracts designed to enable shipowners and charterers to hedge accurately and cost effectively are critical as IMO2020 approaches
Freight Investor Services is helping shipowners hedge their bunker fuel risk ahead of the IMO2020 deadline, brokering the first futures trade on the SGX Platts Marine Fuel 0.5% FOB Singapore Index.
The trade, concluded for the March 2020 contract at $503 per tonne, once again puts FIS at the forefront of bringing to the market new products that enable our international customer base to hedge their physical commodity risk exposure.
“The volatility and price risks for shipping companies as we approach the start of the IMO2020 regulations are putting intense pressure on the margins that shipowners will earn next year,” says FIS Founder John Banaskiewicz. “On a Brazil-China voyage at $21.90/tonne, the 0.5% fuel component represents 56% of the freight rate, an incredible $6.60/tonne premium compared with using 3.5% fuel. On the Aus-China route at $9.80, 2020 compliant fuel would be 43% of the freight rate, a $2.70/tonne premium over 3.5% Sulphur fuel.”
The fuel oil paper market, used for hedging bunker fuel exposure is very liquid but shipowners are still a small part of the liquidity and can often get overlooked because of their trade size requirements.
FIS with its specialty in tailored products can offer contracts in all sizes from 10mt upwards with clearing via CME. Using fuel oil swaps can help owners to easily and cost effectively fix the price of future bunker oil purchases. They can also be used by a wider range of market stakeholders including charterers, traders, physical suppliers, and financial institutions.
“We are delighted to be the first broker to trade the SGX Platts Marine Fuel 0.5% FOB Singapore Index Future, enabling our customer base to hedge their physical fuel oil exposure,” adds Luke Longhurst, head of Fuel Oil Futures at FIS. “Any owner with a price exposure to fuel oil is looking at strategies to better manage the risk associated with bunker price volatility and FIS has responded to this need by providing smaller volume contracts for specific hedging needs.”
FIS has consistently enjoyed number one market share in dry bulk freight, iron ore, coking coal, steel and fertilizer derivatives; we were the first broker in the cleared iron ore swaps market in 2009 and first in the cleared coking coal swaps in 2013.
We have been named leading dry freight and iron ore futures broker by market share for nine years consecutively by SGX AsiaClear for our work with Chinese, Asian and Global customers. FIS pioneered the development of the iron ore swap and was instrumental in establishing a Middle East fuel oil derivative contract at the Dubai Mercantile Exchange.
FIS is a leading provider of impartial and accurate risk management advice to customers in dry bulk, tanker, steel and scrap, iron ore, fertilizer, fuel oil and air freight derivative markets and also provides physical commodity and shipbroking services. Founded in 2002, FIS has enjoyed sustained growth in each year of its operation and has expanded via its network of trading associates and branch offices to offer coverage in the United States, UK, Dubai, India, Singapore and Shanghai. The company is registered and regulated by the Financial Conduct Authority (FCA) in UK.