FREIGHT SWAPS COMING OF AGE

By Lambros Papaeconomou

Freight swaps, also known as freight derivatives, present a unique opportunity for commercial & investment banks, commodity pools, hedge funds & trading houses to leverage their expertise in futures & derivatives trading and capitalize on an emerging and fast developing market. Freight swaps include all freight futures traded on regulated exchanges and all forward freight agreements – also known as FFA’s – traded over the counter.

Freight swaps were first introduced in 1985 when the Baltic International Freight Futures Exchange commenced the trading of BIFFEX, a dry cargo freight futures settled against BFI (Baltic Freight Index) a benchmark freight index published daily by the Baltic Exchange. At its peak in May 1988 a total of 1,758 lots were traded in a single day representing a total contract value in excess of $25 million. The total contract value traded the same year was approximately $1.5 billion.

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