Shipping Freight Derivatives: A Survey of Recent Evidence

Maritime Policy and Management, July 2006, Vol. 33, No 3, 233-255

Posted: 12 Feb 2014

See all articles by Ilias Visvikis

Ilias Visvikis

Independent

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: July 1, 2006

Abstract

In an industry that is characterized by highly volatile prices, seasonality, strong business cycles, cyclicality and capital intensiveness, risk management is extremely important. Ship-owners and charterers face enormous risks, which emanate from fluctuations in freight rates, bunker prices, interest rates, foreign exchange rates and vessel values. These risks substantially affect the interplay between revenue and cost. Modern risk management techniques, involve the use of financial derivatives products, some of which have been developed exclusively for protecting (hedging) against the adverse price fluctuations of the aforementioned sources of risk in shipping. By using derivatives products, ship-owners and charterers can secure (stabilize) the level of their future income or costs and thus reduce uncertainty and unforeseen volatility of their cash-flow. To explore the importance of hedging freight rate risk in shipping operations, a survey of recent empirical evidence that has appeared in economic studies has been conducted. Developments over the past 20 years have been fast, with certain amount of research carried, which has helped to understand better the special features of these derivatives markets. They are all summarized in the current study, which can provide the stepping stone for further work in the area of shipping derivatives and risk management in shipping.

Suggested Citation

Visvikis, Ilias and Kavussanos, Manolis G., Shipping Freight Derivatives: A Survey of Recent Evidence (July 1, 2006). Maritime Policy and Management, July 2006, Vol. 33, No 3, 233-255. Available at SSRN: https://ssrn.com/abstract=1435342

Ilias Visvikis

Independent ( email )

No Address Available

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

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