Energy Risk Freight House of the Year Award: Credit Suisse

In spite of the recent challenging market conditions, Credit Suisse has steadily grown its freight business and participated in several innovative deals in 2010, earning it this year's Energy Risk Freight House of the Year award.

A relative newcomer to freight derivatives, Credit Suisse entered the market through its coal desk in 2008, setting up a dedicated freight desk to run both wet and dry trading books in May 2009.

Since then, the business has not only grown but has also positioned itself as a major innovator in the market. Last year it extended the tenor of the C5 (Capesize route) dry-bulk forward freight agreement by executing the first cleared Cal 11 and Cal 12 C5 contracts. Credit Suisse also completed the first cleared container swap in the market in August 2010, with Morgan Stanley on the Singapore Exchange.

Kristian Thunes, head of freight and iron ore at Credit Suisse, says: "Introducing clearing for container derivatives was crucial to building liquidity and volume growth, and to providing the market with a transparent forward curve. It's now much easier and more efficient for companies to manage their freight risk and we're seeing a lot more interest to do so from financial firms and corporates."

In addition to pushing the sector forward, Credit Suisse has continued to grow its freight business in spite of difficult market conditions in recent years. Thunes estimates that, although total market volume contracted by about 8% in 2010 in the wake of the global financial crisis, Credit Suisse's dry volumes have grown by up to threefold per annum over the past two years. The business has also boosted its client base, doubling the number of new clients it executes transactions with each year.

"Our business has been growing very rapidly and we continue to gain market share," says Thunes. "We are involved or trying to become involved in a wide range of financial freight sectors - we know what the supply-side issues are and we monitor how the freight market is developing in the broader context of commodity flows. Over the last two years, this has made it possible for us to be quite counter-cyclical."

According to Thunes, the key to its success is the bank's ability to take advantage of synergies and expertise in diverse products and markets. Credit Suisse has a long-standing relationship with global commodities trader Glencore, which it sees as a unique selling point for the business. It also takes an integrated approach to the freight business, covering the full spectrum of the wet, dry and container freight sectors, and also benefits from in-house expertise in shipping finance. "Instead of viewing the freight market in isolation, we recognise that any of the bulk commodities have freight risk [attached] to them. We want to make sure our clients are aware of the synergies between products," Thunes adds.

Focusing on trade flows rather than on the traditional supply and demand for ships affords Credit Suisse additional insight into the market. Its freight traders are involved in the financial trading of the main cargoes carried by vessels either directly, for iron ore and coal, or indirectly through participation or trading in various oil products. In this way the freight traders have a continuous overview of commodity flows across markets. Last year, for example, the bank noticed through its iron ore swaps trading activity that China was cutting back sharply on iron ore purchases. This was bound to affect the freight market and lead to a sharp fall in the volume of iron ore for dry freight. Credit Suisse was able to use this knowledge to the benefit of its clients and in its own trading.

Since the financial crisis, global commodities flows have been dominated by Asia. The bank has responded to this changing situation by moving senior staff to Singapore in order to strengthen its physical presence in that region. As a result, Credit Suisse clients can now access timely information and fresh insight from this vital region.