Hi mate,
Big fan of your blog, great to read something that is explained as clearly as it is!
I have recently started working as an FFA trader for a shipowners, but have barely been taught anything about the physical side of things. I have 2 questions if you would kindly answer.
What are the advantages and disadvantages of fixing a spot ship?
Thanks!
Unquote
Answers anyone??? Love this interactive stuff
I don't know a lot about FFA, but this is the way I see a spot vessel as a broker:
ReplyDeleteFrom the Shipowners point of view, from the day you are spot, you're losing money. If you're losing money and spot on the dates, it doesn't take a lot for you to look desperate and eventually you have to fix something in order to not lose money or cut your loses.
From a Charterers point of view, you can play the shipowner who is spot.
The Owner is desperate and needs to find some cargo for his vessel asap.
As charterer you can push him further on the money and his terms as he might not have any better alternative.
All this also depends on how much the Owner is paying for his vessel.
If its a paid off vessel, which doesn't cost the Owner a lot of money he wouldn't be as desperate. If it's an operator operating a vessel with a high TC rate he might be more willing to negotiate as he has to get it moving.
Hi Guys - and thanks for the last comment. Yes the decision to fix spot vs say fixing a contract depends on a few things. One being the current market vs ones expectations of the future market. All parties want the best for them - ie a shipowner wants the highest price and the charterer wants the lowest price. So decision makes for both sides need to 'take a position' and decide on a strategy.
ReplyDeleteOther important factors include risk and having a balanced portfolio. Its quite a large topic and one that is covered in my books..
Thanks again for asking
Cheers
VS
Re stock markets in China or elsewhere - I should mention that stock markets have little effect on the shipping markets - infact if anything it is the other way around. Shipping markets are almost entirely influenced by supply and demand.
ReplyDeleteI enjoyed reading it. I'm supposed to be somewhere else in a minute but I stuck to reading the story. I like the quality of your blog: D
ReplyDeleteWhat are the advantages and disadvantages of fixing a spot ship?
ReplyDeleteSpot market - Owners have more control of the ship vs TC/BB it out, but risk more in the short term bc spot market fluctuates throughout each day. TC/BB you have a fixed rate for a longer period of time but you are not controlling where the ship goes. You can lose money this way if the spot market picks up, but you can also hedge your future earnings using FFA's, which is what a lot of traders do (Koch for example). There are also different costs for fixing Spot and fixing TC or BB. A TC fixture, the charterer pays for bunker, port and canal charges. A BB fixture, charterer provides crew, bunkers and pays all operating costs. A Spot fixture it is Owners who pays port charges, bunkers, vessel insurance, provides crew etc…
Overall, if Owners feel they can trade the vessel spot, they will. Some Owners simply aren’t there to trade the ship themselves are simply investing in the steel. Other owners are savvy and believe they can beat out the market, either the right way or using some cowboy like tactics. But a lot of things come into play when deciding for Spot or TC/BB. For instance, maybe Owners have just bought two spanking new ships from a yard and need to guarantee a certain amount of capital throughout the year for their company to obtain the capital required to purchase these ships. They could look to TC out their vessels so they can guarantee a certain return OR they can look out to TC these new vessels for a certain amount of time before they get it back themselves. It’s all a play on the $$$. Another example would be if the arb is open (which happened on large crude ships end 2014/beg 2015) and they want to take advantage of the high returns. VLCC's were being fixed, and are still being fixed, at over $40,000 per day. The TC market was around less than USD $20,000 just 18-24 months ago. $20,000 a year is over 7 million in difference (not all profit of course!!).
China cut their interest rates recently meaning stock prices went up. How does that effect the shipping market?
As mentioned, it’s the other way around if anything.
Cheers,
Former pupil :)
btw VS, just completed 2 years as a broker a few weeks ago, and I guess I’ll update the salary question bc that’s usually what everyone wants to see. I went from 45k the first year, to 55k the second year, to 75k into my current contract, not including bonuses. Currently in discussion with a few other shops/principals offering about 90k if I stay in the country I am in, and close to $120,000 if I go abroad. If I can get a handle on this, anyone can.
Thanks former pupil - awesome hearing from you (whoever you are). Nice thoughts but don't get mixed up between spot and voyage...
ReplyDeletespot merely means "now"
thanks update on salaries
vs