New Products for Risk Management or Stick to Basics?

A slightly new version of a derivative product linking cashflows to tanker indices is on the horizon which could help shipping companies better manage the risk inherent to freight markets.

Beyond typical risk management tools used by and developed for the shipping industry – currency and interest rate swaps and bunker hedges – there has been little success with hedges to manage what is, by far, shipping’s biggest risk exposure: freight rates.

“The greatest source of volatility in bulk shipping is the freight market, and the only effective way to hedge today is by physically time chartering out,” Chief Financial Officer Anthony Gurnee of Teekay Shipping (Canada) Ltd. said recently. Gurnee suggested that financial institutions develop new risk management products to alleviate this kind of shipping-specific problem faced by today’s corporate shipping managers.

“Bulk shipping’s biggest challenge is achieving a financial position, which is resilient, liquid and conservative, and through which existing financial tools to lower the overall cost of capital can be applied,” Gurnee said.

This is only an excerpt of New Products for Risk Management or Stick to Basics?

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