Summary
Forward Freight Agreement's (FFA) were promoted as the answer to ship owner prayers when markets were experiencing slow to moderate growth. Gaps in FFA plays are coming out when the stakes are hitting new highs.
Analysis
FFA's in the early days especially around dotcom times portrayed a glitzy image of wall street derivative markets. One should wonder how a derivative market can establish itself well, when the physical markets are still finding their place in capital markets.
Fundamentals of freight derivative values are supposed to be driven by dynamics in physical markets.
Traditional Baltic indices were doing a rational job of reflecting proper dynamics up until frenzy of IPO's and excessive Chinese demand for tonnage showed up.
In the interim greed took over and these two numbers started to feed off of each other. Speculators were taking FFA levels as basis for physical market conditions while Baltic index oriented Timecharter markets were following FFA levels as guidance.
Perhaps industry needs to take a look at good old supply / demand conditions on the ground before going shopping at un-sustainable levels.
