By Mike Reardon, Vice President, IMAREX
With the unprecedented collapse of dry bulk rates over the past few months, we have seen increased inquiry from those looking to maximize their risk management capabilities. The two most common lines of questioning we have been receiving are centered on cleared trading and the use of options. We will address both of these concepts below in the FAQ format.
What has changed in the market that has caused people to review their risk management procedures? The simple, though unfortunate, answer is that dry bulk rates have plummeted. The extreme nature of the decline has created concern that some parties may not be able to pay what they owe. This counterparty concern doesn’t just apply to FFAs. It also applies to the physical market. When ships begin to get redelivered early, or when Charterers are unable to make hire payments on time, the potential for a ripple effect begins to work its way through the business.
Other than counterparty risk, what issues are facing the industry? Because the magnitude of the losses can be quite large, people have been asking if there is a way to hedge, but without facing unlimited downside, as they could face with simple FFAs. The use of options allows people to hedge in this manner. The price movement of options and FFAs are of course similar – as the price of the option depends on the price of the underlying FFA – but, with options, you can limit downside.
Sounds complicated. It can be as complicated as you want to make it, or as simple as you want to make it. Let’s start with the concept of cleared trading first. We can then move to options.
Continue Reading
Written by:
carisk | Categories:
Marine Money | January 1st, 2009 |
Add a Comment
New York Conference Features Shipping Star Power
Last week’s Hellenic-/Norwegian-American Chambers of Commerce Joint Shipping Conference offered a plethora of luminaries from shipping’s universe. Between OSG’s Morten Arntzen, Teekay’s Sean Day, GenMar’s Peter Georgiopoulos, Tidewater’s Dean Taylor, NCL’s Colin Veitch, BP’s Bob Malone, Heidmar’s Per Heidenreich, Wilh. Wilhelmsen, Leif Hoegh, Navios’ Robert Shaw, Intrepid Shipping’s Richard du Moulin, Free Bulkers George Gourdomichalis, CR Weber’s Basil Mavroleon, Healy & Baillie’s Glen Oxton, and DNV’s Tor Svensen the bulk of the world’s tonnage was well represented.
The theme of the conference was “Shipping without Borders” which transcended from national identity to the impact of new technologies and landed squarely on the challenges of doing business in America. Or should we say the many challenges of doing business in the (50) States?
Per Heidenreich welcomed the assembled with the observation that “2004 was the most incredible shipping market in history, with Wall Street showing an alarming interest in shipping”. He reflected that the Norwegians are “awfully quiet” and urged them to learn what “makes the Greeks tick.”
The Greek contingent was happy to comply, with George Gourdomichalis offering the strengths of the Greek approach: Piraeus as a maritime cluster, a favorable tax climate, and the transition of Greek family-owned operations to corporations. As a counterpoint, Leif Hoegh underscored the decline in Norwegian shipping, both in the bulk and tanker trades as well as in the yard order book. He further advocated the Greek regard for shipping: “When you go to Piraeus, even the taxi drivers know about tankers. Piraeus is an exhilarating place!” When pressed as to whether the Leif Hoegh company would return to Norway, Mr. Hoegh’s one-word answer was a resounding “No”.
While acknowledging the decline of Norway’s shipping sector, Marianne Lie, Director General of the Norwegian Shipowners’ Association, presented the proposed tax and legislative changes within Norway designed to reinvigorate its maritime industry. The key word is “proposed”. Tor Svensen of DNV attempted to breach the gap by offering the concept of geographic co-location, while Anthony Argyropoulos, newly at Cantor Fitzgerald, adroitly attributed the Greek interest in the capital markets to their entrepreneurial spirit, without discouraging Norwegian interest.
After an overview of the freight futures market by Robert Shaw of Navios, technological advances in this field were covered by Basil Mavroleon of CR Weber, who helped transition the conference by eliminating borders entirely. In his call to action on FFA’s (Forward Freight Agreements), Basil reflected “If, as I believe it will, this market continues to strengthen, who, with underlying physical positions can continue to ignore participation in it – surely we must all find a way to engage with it, learn to utilize it to our benefit and play some part in the growth curve”. Implementation was discussed by Barry Bednar of J. Aron & Company and Tom Even Mortensen of IMAREX.
Wilhelm Wilhelmsen offered a global perspective as the conference’s luncheon keynote speaker. His answer to whether national identity has become irrelevant was a conditional “Yes”. Despite being Norway’s oldest and largest shipping enterprise, only 5% of the company’s employees have Norwegian as their mother tongue, and only a handful of ship calls handled by the company last year were in Norway. He feels that the shipping industry is “almost unwanted by the Norwegian authorities…many (companies) feel strongly that they are literally being kicked out.” Norway is the only major shipping nation that is in decline, with the government “destroying an industry which actually has everything required to ensure good and stable revenues for my country in the future.”
Turning the focus to doing business in the Americas, Sean Day of Teekay pointed to the industry’s image in the financial markets resulting in investor differentiation, and a greater scrutiny on quality of both fleets and management. Mr. Day declared Sarbanes-Oxley a “time sink” and expensive, while acknowledging that Teekay is a foreign filer that complies with US requirements.
Bob Malone of BP Shipping stated that his company’s strategy is to own ships in order to manage risk (against incidents). He felt the need to regain the public trust by managing the company, and pointed to the benefits gained through compliance with Sarbanes-Oxley.
Peter Georgiopoulos of GenMar struck a profoundly wistful note, reflecting that he used to think shipping connoted yachts, former US President’s wives and opera singers, but quickly learned that the world of shipping revolves around OPA, ISM and SARBOX. Regulation is making shipping increasingly expensive, and much less desirable.
OSG’s Morten Arntzen lifted everyone’s mood with his list of “Top Ten Challenges Facing Executives of American Shipping Companies Competing Internationally” (including finding an affordable Starbucks coffee in Europe, explaining why a suezmax built in the United States costs $240 million, and repeating “Foreign Corrupt Practices Act” 10 times). Mr. Arntzen demonstrated to the market doomsayers why the tanker industry of today is dramatically different from that of the early 70’s. He further went on to tout the merits of Sarbanes-Oxley as a significant management tool, and highlighted the benefits accruing to OSG from the recent Job Creation Act of 2004, with its attendant tonnage tax scheme for US-flag shipping.
Dean Taylor of Tidewater reiterated the challenges of doing business in the US amidst extensive and expensive regulation. Mr. Taylor’s remarks were surprisingly dour, considering the profitable condition of Tidewater and their enviable earnings multiple.
Norwegian Cruise Line’s Colin Veitch delivered an overview of how, and why, they decided to pursue a US-flag strategy despite the costs and challenges. Interestingly, it was Mr. Veitch who called upon industry to be proactive, rather than reactive, about regulation (such as environmental policies). With his extensive experience in the public sector, perhaps his suggestion to influence perception could inspire action leading to a positive image for shipping??
Last week’s Hellenic-/Norwegian-American Chambers of Commerce Joint Shipping Conference offered a plethora of luminaries from shipping’s universe. Between OSG’s Morten Arntzen, Teekay’s Sean Day, GenMar’s Peter Georgiopoulos, Tidewater’s Dean Taylor, NCL’s Colin Veitch, BP’s Bob Malone, Heidmar’s Per Heidenreich, Wilh. Wilhelmsen, Leif Hoegh, Navios’ Robert Shaw, Intrepid Shipping’s Richard du Moulin, Free Bulkers George Gourdomichalis, CR Weber’s Basil Mavroleon, Healy & Baillie’s Glen Oxton, and DNV’s Tor Svensen the bulk of the world’s tonnage was well represented.
The theme of the conference was “Shipping without Borders” which transcended from national identity to the impact of new technologies and landed squarely on the challenges of doing business in America. Or should we say the many challenges of doing business in the (50) States?
Per Heidenreich welcomed the assembled with the observation that “2004 was the most incredible shipping market in history, with Wall Street showing an alarming interest in shipping”. He reflected that the Norwegians are “awfully quiet” and urged them to learn what “makes the Greeks tick.”
The Greek contingent was happy to comply, with George Gourdomichalis offering the strengths of the Greek approach: Piraeus as a maritime cluster, a favorable tax climate, and the transition of Greek family-owned operations to corporations. As a counterpoint, Leif Hoegh underscored the decline in Norwegian shipping, both in the bulk and tanker trades as well as in the yard order book. He further advocated the Greek regard for shipping: “When you go to Piraeus, even the taxi drivers know about tankers. Piraeus is an exhilarating place!” When pressed as to whether the Leif Hoegh company would return to Norway, Mr. Hoegh’s one-word answer was a resounding “No”.
While acknowledging the decline of Norway’s shipping sector, Marianne Lie, Director General of the Norwegian Shipowners’ Association, presented the proposed tax and legislative changes within Norway designed to reinvigorate its maritime industry. The key word is “proposed”. Tor Svensen of DNV attempted to breach the gap by offering the concept of geographic co-location, while Anthony Argyropoulos, newly at Cantor Fitzgerald, adroitly attributed the Greek interest in the capital markets to their entrepreneurial spirit, without discouraging Norwegian interest.
After an overview of the freight futures market by Robert Shaw of Navios, technological advances in this field were covered by Basil Mavroleon of CR Weber, who helped transition the conference by eliminating borders entirely. In his call to action on FFA’s (Forward Freight Agreements), Basil reflected “If, as I believe it will, this market continues to strengthen, who, with underlying physical positions can continue to ignore participation in it – surely we must all find a way to engage with it, learn to utilize it to our benefit and play some part in the growth curve”. Implementation was discussed by Barry Bednar of J. Aron & Company and Tom Even Mortensen of IMAREX.
Wilhelm Wilhelmsen offered a global perspective as the conference’s luncheon keynote speaker. His answer to whether national identity has become irrelevant was a conditional “Yes”. Despite being Norway’s oldest and largest shipping enterprise, only 5% of the company’s employees have Norwegian as their mother tongue, and only a handful of ship calls handled by the company last year were in Norway. He feels that the shipping industry is “almost unwanted by the Norwegian authorities…many (companies) feel strongly that they are literally being kicked out.” Norway is the only major shipping nation that is in decline, with the government “destroying an industry which actually has everything required to ensure good and stable revenues for my country in the future.”
Turning the focus to doing business in the Americas, Sean Day of Teekay pointed to the industry’s image in the financial markets resulting in investor differentiation, and a greater scrutiny on quality of both fleets and management. Mr. Day declared Sarbanes-Oxley a “time sink” and expensive, while acknowledging that Teekay is a foreign filer that complies with US requirements.
Bob Malone of BP Shipping stated that his company’s strategy is to own ships in order to manage risk (against incidents). He felt the need to regain the public trust by managing the company, and pointed to the benefits gained through compliance with Sarbanes-Oxley.
Peter Georgiopoulos of GenMar struck a profoundly wistful note, reflecting that he used to think shipping connoted yachts, former US President’s wives and opera singers, but quickly learned that the world of shipping revolves around OPA, ISM and SARBOX. Regulation is making shipping increasingly expensive, and much less desirable.
OSG’s Morten Arntzen lifted everyone’s mood with his list of “Top Ten Challenges Facing Executives of American Shipping Companies Competing Internationally” (including finding an affordable Starbucks coffee in Europe, explaining why a suezmax built in the United States costs $240 million, and repeating “Foreign Corrupt Practices Act” 10 times). Mr. Arntzen demonstrated to the market doomsayers why the tanker industry of today is dramatically different from that of the early 70’s. He further went on to tout the merits of Sarbanes-Oxley as a significant management tool, and highlighted the benefits accruing to OSG from the recent Job Creation Act of 2004, with its attendant tonnage tax scheme for US-flag shipping.
Dean Taylor of Tidewater reiterated the challenges of doing business in the US amidst extensive and expensive regulation. Mr. Taylor’s remarks were surprisingly dour, considering the profitable condition of Tidewater and their enviable earnings multiple.
Norwegian Cruise Line’s Colin Veitch delivered an overview of how, and why, they decided to pursue a US-flag strategy despite the costs and challenges. Interestingly, it was Mr. Veitch who called upon industry to be proactive, rather than reactive, about regulation (such as environmental policies). With his extensive experience in the public sector, perhaps his suggestion to influence perception could inspire action leading to a positive image for shipping??
Written by:
carisk | Categories:
Forums,
Freshly Minted | February 17th, 2005 |
Add a Comment
