Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014
Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper he...
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| Format: | Final Year Project (FYP) |
| Language: | English |
| Published: |
2016
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| Online Access: | http://hdl.handle.net/10356/67429 |
| _version_ | 1811696083763462144 |
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| author | Ong, Louis Jun Lie |
| author2 | Soh Woei Liang |
| author_facet | Soh Woei Liang Ong, Louis Jun Lie |
| author_sort | Ong, Louis Jun Lie |
| collection | NTU |
| description | Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper hedge, provide shipowners with an alternative tool to reduce their risk through the financial market. This paper aims to investigate which hedging tool is more effective in helping shipowners mitigate their business risk.
This paper first discusses extensively on the various risks facing a shipowner and how can TC reduce their business risk. This paper then adopts a quantitative approach and creates a corporate finance model to model the cash flow of a real-life practical shipowner. Using publicly available information from Clarkson Intelligence Network, Bloomberg, and Moores Stephen OpsCost, the model simulates the financial performance of a shipowner acquiring Capesize Vessels and deploying them via a TC. The risk and returns derived from the use of TC is then determined and compared with that of FFA over the period of 2009-2014.
Overall, it was found that TC are more effective than FFA as a hedging tool as the returns from the asset classes hedged with TC are far superior than that of FFA. This study provides a structure with objective metrics of measurement for future investigation of other hedging tools on their effectiveness. |
| first_indexed | 2024-10-01T07:33:44Z |
| format | Final Year Project (FYP) |
| id | ntu-10356/67429 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T07:33:44Z |
| publishDate | 2016 |
| record_format | dspace |
| spelling | ntu-10356/674292023-03-03T16:52:37Z Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 Ong, Louis Jun Lie Soh Woei Liang School of Civil and Environmental Engineering DRNTU::Business Shipowners have employed various risk management tools to reduce their exposure in the inherently risky freight market to ensure survival. Traditionally, they utilize physical hedging tools such as Time Charters (TC) to hedge their earnings. The advent of Forward Freight Agreements (FFA), a paper hedge, provide shipowners with an alternative tool to reduce their risk through the financial market. This paper aims to investigate which hedging tool is more effective in helping shipowners mitigate their business risk. This paper first discusses extensively on the various risks facing a shipowner and how can TC reduce their business risk. This paper then adopts a quantitative approach and creates a corporate finance model to model the cash flow of a real-life practical shipowner. Using publicly available information from Clarkson Intelligence Network, Bloomberg, and Moores Stephen OpsCost, the model simulates the financial performance of a shipowner acquiring Capesize Vessels and deploying them via a TC. The risk and returns derived from the use of TC is then determined and compared with that of FFA over the period of 2009-2014. Overall, it was found that TC are more effective than FFA as a hedging tool as the returns from the asset classes hedged with TC are far superior than that of FFA. This study provides a structure with objective metrics of measurement for future investigation of other hedging tools on their effectiveness. Bachelor of Science (Maritime Studies) 2016-05-16T08:42:26Z 2016-05-16T08:42:26Z 2016 Final Year Project (FYP) http://hdl.handle.net/10356/67429 en Nanyang Technological University 39 p. application/pdf |
| spellingShingle | DRNTU::Business Ong, Louis Jun Lie Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title | Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title_full | Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title_fullStr | Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title_full_unstemmed | Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title_short | Effectiveness of forward freight agreement in mitigating capesize shipowner's business risk between 2009 and 2014 |
| title_sort | effectiveness of forward freight agreement in mitigating capesize shipowner s business risk between 2009 and 2014 |
| topic | DRNTU::Business |
| url | http://hdl.handle.net/10356/67429 |
| work_keys_str_mv | AT onglouisjunlie effectivenessofforwardfreightagreementinmitigatingcapesizeshipownersbusinessriskbetween2009and2014 |