Alex Gray, the ceo of Clarksons Securities kicked off the session, suggested that the confluence of capital markets folks with the various freight traders was not a mere coincidence. Indeed, an important theme of the event was the interest in freight derivatives from the investment community, at a time that the shipping industry has come back into favour, in a big way, for financial investors.
There were two slides, in the presentations of Gray, and by his colleague, Henriette van Niekerk - the lead analyst on the team, worthy of special mention. Rather than the usual slide arrows drawn on a map to illustrate trade routes, Clarksons presented a picture of the southern Brazil’s coastline, littered with green icons. This is the new face of freight market forecasting- the icons are AIS vessel positions each one representing a vessel anchored as the back-up grows for loading. With enormous feeds of such data, crunched by a bevy of analysts, aided by some proprietary computer algorithms linking the green dots to vessel commercial and trading data, it’s possible to get a real feel of upcoming twists and turns in the freight market.
A second slide, the “money shot” in my opinion, presented the relationship between capacity utilisation and historical time charter rates associated with that particular level of market balance. The slide, displayed by Van Niekerk, paints a positive story- albeit without the very dangerous single point forecasts. Instead of magic numbers, Clarksons offers a highly analytical way of extrapolating outward from the supply/demand intersection and arriving at possible hire rates based on history. With these relationships displayed, it is possible to see how the Clarksons FFA team can advise traders whether a particular bid or offer is too high, or too low, based on these linkages.
Of course, the presentations, over the space of several hours, offered far more; Alex Gray talked about ways to separate the risk management features of charter party documents, a matter of interest to investors, from the operational side, almost always contracted out by investors. Peter Sandler, from Edesia Asset Management, an investment arm of the Louis Dreyfus organisation, explained how investors might create virtual fleets- his data showed that FFA activity equated to large volumes of physical market activity. Clarksons suggested that FFA turnover, on the rise since late 2013, actually exceeded physical market turnover for the year.
On the regulatory front, Isabella Kurek-Smith from LCH Clearnet, explained that new regulations linked to Dodd Frank in the US and parallel regimes in Europe) were pushing the industry towards “futurisation”. Where the FFA contracts are treated similarly to futures contracts that trade on regulated exchanges. Sandler noted that such developments represent a compete move back to the future - noting that FFAs evolved from the Baltic Freight Index of the mid 1980s- which traded as a futures contract on the Baltic Exchange.
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