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The tanker FFA market is traded over a huge range of sizes and distances
provided by the Baltic Exchange - for example TD3 is 250,000MT AG/Japan (VLCC -
very large crude carrier), or TD7 80,000 cross N/Sea (Aframax).
The market is divided: Clean is gasoline and naphtha, for example; and Dirty,
crude oil and fuel oil. Both types trade regularly.
While freight makes up a lesser proportion of the total value of the cargoes
carried by oil tankers than in the dry market, that proportion has grown in
recent years and freight volatility has increased hugely. As a result, the
growth in the FFA market has been spectacular.
Only since 1994 have FFAs allowed both natural buyers (charterers) and natural
sellers (owners) the ability to hedge their exposure to this volatility. Tanker
rates, in terms of $/per day, have fluctuated within 12 months from $50,000 to
$270,000 on the VLCC Ag/Japan route. TD3 is probably the most liquid and
heavily traded route, although the clean routes, particularly TC2 in light of
recent events, are more than coming into their own.
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