5 GOOD REASONS
There are a variety of reasons to manage your fuel price exposure and escape the volatility of the fluctuating fuel prices...
Read moreKeeping fuel costs within a predictable range protects you from unexpected changes in the price of fuel. Changes that could otherwise seriously impact your budget and profit margin.
If your company is affected by the price fluctuations of freight prices, then a Forward Freight Agreement (FFA) could come in handy as it eliminates the effect of fluctuting freight rates, giving you a fixed rate for a certain period of time. You will be able to stick to your budget and avoid or limit the impact of increases or decreases in freight rates.
FFAs are financial forward contracts allowing e.g. a ship owner or charter to hedge against volatility of freight rates. It also allows for an alternative to ship ownership. The contract owner is given the right to buy and sell the price of freight for future dates. They are used to reduce or eliminate a company's exposure to fluctuating freight rates.
FFAs are dry freight derivatives, financial instruments that can be tailored to meet the individual company's needs. They are divided into two categories:
The value of the FFAs depend on the characteristics and value of the underlying asset.
Three good reasons to use FFAs:
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