Freight forward agreements (FFAs) on crude tankers for the coming year have gained upward momentum as swaps sellers aim to sustain tanker earnings amid rising costs for bunker fuel and players extrapolate the unprecedented strength of spot freight rates into the future, industry sources said.
The strength of calendar year swaps, relative to 2007 levels, has prompted a number of ship owners to lock in forward freight rates.
Calendar Year swaps 2009 on 260,000 deadweight tons (dwt) crude tankers for round-voyages from the Arab Gulf (AG) to Japan traded as high as 101 Worldscale point mark in recent sessions, racing up w9 within five trading days and rising w25 above their start-of-year level of w76.
By June 26, the contract stood at w100 and Cal 10 swaps were valued as high as w89, up7 from w82 at the beginning of June 2008.
The hike came as very large spot crude carriers with double hulls have commanded an average of w150.5 since January, which is 86% more than in the same year-ago period.
The rate rally has been spurred by changing trade pattern that require longer sailing distances and hence tighten available tonnage, as well as by growing trade volumes and a rising cost base.
Annual swaps on other routes have also gathered steam.
Cal 09 swaps on cross-North Sea 80,000 dwt Aframax vessels have raced up w10 this month to as high as w132, having stalled near the w120 mark for weeks, while those on Caribbean-US Gulf 70,000 dwt Aframaxes jumped this week by w7.5 to w167.5.
Swaps on transatlantic 150,000 dwt Suezmax vessels from West Africa to the US Atlantic Coast have firmed since early May 2008 by w16 to w125 from w109.
"The increased optimism is extending to next year," a UK-based trader with a shipowner said.
Bunker prices at Fujairah (380 CST) have averaged $508.6/mt between October and late June, marking a 56% jump from the bunker year 2006/07 average of $325.67/mt.
A very large crude carrier (VLCC) consumes about 70 mt per day, occurring daily burning costs of roughly $45,255/mt at the current fuel spot rate of $646.50/mt, though slow steaming can lower fuel consumption.
FFAs are either used as hedges to reduce a ship owner's or charterers' exposure to changes in spot freight rates and to cash flow fluctuations, or for the purpose of taking advantage of spot rate fluctuations.
The strength of calendar year swaps, relative to 2007 levels, has prompted a number of ship owners to lock in forward freight rates. (Listen to a related podcast: Crude tanker rates unseasonally strong.)
OSG, the world's sixth largest independent tanker owner in tonnage terms, said in late March it held Cal 09 swaps positions with a combined volume of seven ships, at that time at an average time charter equivalent rate of $55,000/day.
Cal 09 swaps presently trade at a time charter equivalent rate of nearly $88,200/day. Modern vessels carrying 300,000 dwt fetch $90,000/day on the one-year time charter market, according to Clarkson Research Services.
Next page: Worldscale rate - an element of uncertainty
Created: July 2, 2008
Return to top
Printer-friendly format