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The e-revolution and dry bulk chartering

The e-revolution and dry bulk chartering
An e-revolution is stirring waves among the forward freight agreements (FFA) market on whether to turn on the plug to an electronic platform or maintain status quo.

This issue has been discussed over the Singapore Iron Ore week 2017, with market participants from shipping, iron ore, coal trading houses and miners all putting their best foot forward to advance the market into the future.

“You cannot ignore the benefits of shipping FFAs,” opined John Banaszkiewicz, the managing director of Freight Investor Services (FIS).

So far, the FFAs have been a good hedging tool against the volatile market with many linkages to the physical market. To Banaszkiewicz, nowadays both traders and brokers alike prefer more “colours” or indicators to track shipments and trading lots.

Thus, in complying with brokerage and trading wish-lists, the FFA may push for electronic platforms with fixing of vessels done at the platforms just like in the commodities markets.

“Having a screen (on Baltic Exchange) will definitely improve fixing and chartering of vessels,” said Mark Jackson, ceo of Baltic Exchange.

He urged that not because the ship fixing market is not efficient enough, but have a trading screen will bring every market participants together and might improve volumes and allow transparency that attract more new entries into the shipping market. But, with or without the electronic platform, Jackson assured trade participants that Baltic Exchange will still operate “business as usual”, catering to the interests of all the stakeholders firsthand.

However, the challenges lie in convincing the existing market participants to embark on this new front for digitalization. For instances, mining companies have seen FFA as a compliment in trade but not a requirement yet. And many ship-owners still prefer traditional methods of vessel fixing.

“Shipowners/charterers need to work more closely with miners and mills alike to reduce market volatility,” said Ye Weilong, executive vice president of China COSCO Shipping Corporation Limited.

Ye explained that the all three participants, the ship-owners/charterers, miners and mills are joined like a supply chain and any cracks among the chain-links will imply wild price swings and affected any party’s profitability.

For now, the Chinese business conglomerate and state-own enterprise headquartered in Shanghai will have an open mind in exploring the usage of FFA in shipping. Ye claimed that the company has yet to conduct research and neither possesses much experience into the field but he does not rule out the usage of FFA as time matures.

“There is a lot new money coming in to the shipping sector,” highlighted Banaszkiewicz.

He indicated that these new funding will provide ship-owners the availability to purchase vessels and expand their fleets, which may also called for trading in long-term FFA contracts. As such, an e-platform might take center stage to link all these stakeholders together to manage risk and the steered away from the prices fluctuations of the market in the future. But till then, the market still needs lot of nurturing in tested and proven methods with much dialogue to progress in the digitalized sphere.

“We will do our best to educate the market in conducting workshops and seminars on FFA to involve more players in the market,” Banaszkiewicz concluded.

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