Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014

Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper he...

Full description

Saved in:
Bibliographic Details
Main Author: Lim, Kai Liang
Other Authors: Soh Woei Liang
Format: Final Year Project
Language:English
Published: 2016
Subjects:
Online Access:http://hdl.handle.net/10356/67136
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Nanyang Technological University
Language: English
id sg-ntu-dr.10356-67136
record_format dspace
spelling sg-ntu-dr.10356-671362023-03-03T17:08:37Z Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014 Lim, Kai Liang Soh Woei Liang School of Civil and Environmental Engineering DRNTU::Engineering::Maritime studies::Maritime management and business Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper hedge, provides shipowners with an alternative tool to reduce their risk through the financial market. This paper aims to investigate which hedging tool is more effective in helping shipowners mitigate their business risk. This paper first discusses extensively on the various risks facing a shipowner and how can FFA reduce their business risk. This paper then adopts a quantitative approach and creates a corporate finance model to model the cash flow of a real-life practical shipowner. Using publicly available information from Clarkson Intelligence Network, Bloomberg, and Moores Stephen OpsCost, the model simulates the financial performance of a shipowner acquiring Capesize Vessels through various acquisition methods and deploying them. The risk and returns derived from the various deployment and is then determined and compared with that of FFA over the period of 2009-2014. Overall, utilising +1CAL FFAs as an hedge it was found that FFA proved to be possible hedge as it generated consistently better returns as compared to a vessel working solely in the spot market. However, TC are more effective than FFA as a hedging tool as the returns from the asset classes hedged with TC are far superior than that of FFA. This study provides a structure with objective metrics of measurement for future investigation of other hedging tools on their effectiveness. Bachelor of Science (Maritime Studies) 2016-05-12T03:47:51Z 2016-05-12T03:47:51Z 2016 Final Year Project (FYP) http://hdl.handle.net/10356/67136 en Nanyang Technological University 61 p. application/pdf
institution Nanyang Technological University
building NTU Library
continent Asia
country Singapore
Singapore
content_provider NTU Library
collection DR-NTU
language English
topic DRNTU::Engineering::Maritime studies::Maritime management and business
spellingShingle DRNTU::Engineering::Maritime studies::Maritime management and business
Lim, Kai Liang
Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
description Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper hedge, provides shipowners with an alternative tool to reduce their risk through the financial market. This paper aims to investigate which hedging tool is more effective in helping shipowners mitigate their business risk. This paper first discusses extensively on the various risks facing a shipowner and how can FFA reduce their business risk. This paper then adopts a quantitative approach and creates a corporate finance model to model the cash flow of a real-life practical shipowner. Using publicly available information from Clarkson Intelligence Network, Bloomberg, and Moores Stephen OpsCost, the model simulates the financial performance of a shipowner acquiring Capesize Vessels through various acquisition methods and deploying them. The risk and returns derived from the various deployment and is then determined and compared with that of FFA over the period of 2009-2014. Overall, utilising +1CAL FFAs as an hedge it was found that FFA proved to be possible hedge as it generated consistently better returns as compared to a vessel working solely in the spot market. However, TC are more effective than FFA as a hedging tool as the returns from the asset classes hedged with TC are far superior than that of FFA. This study provides a structure with objective metrics of measurement for future investigation of other hedging tools on their effectiveness.
author2 Soh Woei Liang
author_facet Soh Woei Liang
Lim, Kai Liang
format Final Year Project
author Lim, Kai Liang
author_sort Lim, Kai Liang
title Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
title_short Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
title_full Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
title_fullStr Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
title_full_unstemmed Effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
title_sort effectiveness of forward freight agreements in mitigating capesize ship-owners' business risk between 2009 and 2014
publishDate 2016
url http://hdl.handle.net/10356/67136
_version_ 1759855741706960896