Shipping markets

The international

freight market, the sale and purchase market, the newbuilding market and the demolition market. These four markets are linked by cash flow

and push the market traders in the direction they want.

The freight market

The freight market consists of

charter-party

in which the terms of the deal are clearly set out.

Freight derivatives

Freight derivatives, which includes

freight rates, for dry bulk carriers, tankers

and containerships. These instruments are settled against various freight rate indices published by the Baltic Exchange (for Dry and most Wet contracts), Shanghai Shipping Exchange (International and domestic Dry Bulk, and International Containers), and Platt's (Asian Wet contracts), or physical delivered through Shanghai Shipping Freight Exchange.

FFAs are often traded

ICE Futures Europe and SGX

, and one electronic exchange: Shanghai Shipping Freight Exchange. Freight derivatives are primarily used by shipowners and operators, oil companies, trading companies, and grain houses as tools for managing freight rate risk. Recently, with commodities standing at the forefront of international economics, the large financial trading houses, including banks and hedge funds, have entered the market.

Baltic Dry Index measures the cost for shipping goods such as iron ore and grains. The trading volume of dry freight derivatives, a market estimated to be worth about $200 billion in 2007, grew as those needing ships attempted to contain their risks and investment banks and hedge funds looked to make profits from speculating on price movements. At the close of the 2007 financial year, the number of traded lots on dry FFAs doubled the derived physical product.^{[citation needed]}

Shanghai Shipping Freight Exchange is the first electronic shipping freight exchange in the world. It has three lines of businesses, including International Dry Bulk, Domestic Coastal Coal, and International Container. The container freight derivatives were launched in 2011 and shortly became the most liquid container freight contracts. Based on the success and experience from container freight contracts, SSEFC launched coastal coal contracts in 2012. In 2014, in order to better achieve the risk shifting effect of shipping freight derivatives, SSEFC innovated and launched the world's first physical-deliverable shipping capacity contract.

The sale and purchase market

In the sale and purchase market,

freight rates, age, inflation

and expectations.

The shipbuilding market

The newbuilding market deals with transactions between shipowners and shipbuilders. Contract negotiation can be very complex and extend beyond price. They also cover ship specifications, delivery date, stage payments and finance. The prices on the newbuilding market are very volatile and sometimes follow the prices on the sale and purchase market.

The demolition market

On the demolition market, ships are sold for scrap. The transactions happen between shipowners and demolition merchants, often with speculators acting as intermediaries.

References

Martin Stopford; Maritime Economics (3rd edition, 2009)