RBS offers freight derivatives

Royal Bank of Scotland (RBS) has started offering shipping derivatives, in the form of forward freight agreements (FFAs) linked to the transport costs of bulk commodities to its client base.

RBS already offers its ship-owning clients interest rate and foreign exchange hedging, and said there was a growing demand for FFAs from clients who wish to hedge their freight income.

Richard Bowler, deputy head of shipping products, and Andy Hartree, head of commodities, will jointly run the service from the bank’s London office.

The International Maritime Exchange (Imarex), an Oslo-based shipping derivatives exchange, estimates the volume of freight derivatives transactions could hit $19 billion this year. Last year, the market was valued at $8.5 billion.

The Edinburgh-based bank hopes to use its position as the world’s second largest ship finance company to take advantage of this growing market.

The service comes at a time when shipping rates around the world are rising steeply, mainly due to higher demand from China.