Braemar’s established business is on the physical side of the shipping market. It hopes to benefit from Spectron’s derivatives background to quickly establish a presence in the FFA market. Quentin Soanes, joint managing director at Braemar Seascope, believes the forward freight broking market had a lot of room for improvement: “The skill level in FFAs has not been brilliant. With this joint venture, we will bring a depth of knowledge to the market.”
Richard Frape, director of market services at Spectron, said freight futures are gaining a profile in the energy markets. “The strength we have comes from the combination of Braemar's enormous shipping experience on the physical side and our extensive experience of derivatives, via both voice and electronic broking platforms," he said.
Braemar Spectron’s rivals, including Clarkson Securities and SSY Futures, already have a presence in FFA broking. And they are seeking to expand their positions in the market. SSY Futures has just announced it will launch freight spread swaps, which will allow traders to take positions on the spread between different FFA contracts.
Philippe van den Abeele, managing director at Clarkson Securities, did not see Braemar Spectron as a major threat: “We’ve been doing FFAs since 1992 in the dry market and 1995 in the tanker market. We have the right formula because we were there from the beginning,” he said. He also dismissed SSY Futures’ suggestion that the freight spread swap was innovative: “It is the biggest damp squib I’ve seen for years in the FFA market. We’ve been trading it for 10 years.” He added that Clarkson Securities had about 25% of the dry market and 20% of the tanker market, making it one of the largest participants.
The physical shipping market uses freight derivatives, based on different shipping routes, to hedge their shipping requirements. The volume and volatility of the freight market have risen sharply in the past few years, leading to growing demand for FFAs.
The week on Risk.net, December 2–8, 2017Receive this by email