GFI launches trading for dry freight derivatives

New York based-brokerage GFI Group is to offer hybrid voice and online trading of dry freight derivatives in a joint venture with Arrow Chartering, a London-based shipbroker.

The hybrid-trading model will offer ship owners, charterers, energy companies, trading houses and financial institutions the ability to trade a standardised forward freight contract, allowing them to hedge and optimise portfolio freight exposure. Freight-forwards are used to buy or sell the cost of chartering capacity or time on a freight boat.

The underlying physical market involves over 60,000 ships, with the derivatives market in dry freight, commonly defined as grains and iron ore, valued at $2.5 billion per annum.

“This is an underdeveloped market in terms of potential,” Michel Everaert, global head of product marketing at GFI in London, told RiskNews. Freight derivatives are currently a relatively small market trading at roughly one and a half times the underlying market, compared with a typical derivatives market which trades at approximately eight to 10 times the underlying market.

GFI’s other energy markets include coal, electricity, natural gas, and a wet freight service launched three months ago. According to Evereart, the new market complements GFI’s coal derivatives trading activities, since the cost of freight is a factor in the cost of coal. It will be available from August 7.