Hedging freight market risk : the perspective of the Hong Kong Chinese shipping community

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Hedging freight market risk : the perspective of the Hong Kong Chinese shipping community

 

Author: Fung, Yeuk-kin
Title: Hedging freight market risk : the perspective of the Hong Kong Chinese shipping community
Degree: M.Sc.
Year: 2003
Subject: Hong Kong Polytechnic University -- Dissertations
Shipping -- China -- Hong Kong
Freight and freightage -- China -- Hong Kong
Department: Dept. of Shipping and Transport Logistics
Pages: x, 94 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1705980
URI: http://theses.lib.polyu.edu.hk/handle/200/4375
Abstract: With information flow and news spread much faster than ever before, inherent volatility coupled with unpredictability in the freight market make rapid price swings more common. The risks embedded in the freight market become imminent and cannot be ignored. The traditional methods of using period time-charters and contracts of affreightment to reduce exposure to the freight market seem to be insufficient to guarantee the healthy and successful survival of the industry. There appears to be a need to add a new ingredient in bulk shipping operation to cope with the changes arising from technological developments, commercial pressures and an ever-changing freight market. Derivatives have long been recognized as a powerful tool to manage risks in commodities and financial markets. The volatile nature of the freight market seems to be an ideal test-bed for the use of derivatives. With the opening of the Baltic International Freight Futures Exchange (BIFFEX) in 1985, a brand new risk management tool was introduced to the shipping industry. Since then, trading of freight derivatives have become increasingly important as a way of offering protection, and limiting exposure to fluctuating markets. However, the challenge comes in understanding derivative hedging and using them to the industry's best advantage. A survey was carried out in Hong Kong to study the perception of Hong Kong Chinese shipowners in relation to hedging freight market risks. The findings based on data relating to 13 companies imply that most shipping participants use traditional methods, rather than freight derivatives, to hedge risks arising from the freight market. The results of the survey may serve as a reference to the promoter or marketer of freight derivatives and to the shipping industry for starting further investigation and analysis into this new shipping management tool.

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