Enron's bankruptcy leaves freight derivatives opening

Enron's bankruptcy has left a vacant brokers' position in the small but growing freight derivatives market, which is being eyed up by a number of players. Enron had been one of the main market-makers in the forward freight agreements (FFAs) market, with around 20% of the total share.

Kevin O' Connor, chief operating officer at freight trading platform Levelseas, said his company is thinking of expanding into the market-making role left by Enron. But he emphasised that this would require careful planning, since Levelseas' main function was as a trading platform, not broker.

"We didn’t have any plans to be market-makers ourselves. However, Enron's departure leaves a clear opening for a marketmaker."

O'Connor said Levelseas may enter the market in partnership with one of the big London-based shipping brokers like Simpson Spence & Young (SSY) or Clarkson Securities to claim as big a share of the market-making business as it could.

Tom Even Mortensen, chief executive of Norway-based freight futures exchange Imarex, said energy firms, such as Aquila or Dreyfus Cargill, which have a vested interest in protecting freight markets, would also be looking to move into the vacated space. "There are a lot of [energy] players being driven by the fact that they are moving oil and coal through freight," said Mortsnsen.

He added that Enron's departure would not affect the introduction of Imarex's dry bulk derivative contracts, based on underlying grain and coal products. The contracts are due to be launched in the first quarter of 2002.

John Banaszkiewicz, a director at London freight broker SSY, said that while the underlying market is still going strong, Enron's departure has created a partial vacuum.

"A lot of counterparties are very concerned, but Enron was very stringent in trading with major corporations, and I don't think anyone will go belly-up," said Banaszkiewicz.

Low volumes are expected for the next six to nine months, added Banaszkiewicz, but he remained confident that other companies would fill Enron's place