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May 10, 2007

FFA's questionable tactics

Analysis of: Newcomer hit by $80m paper loss | www.tradewinds.no
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Analysis By:
Vijaya Iswara, President & Chief Executive OfficerVijaya Iswara
President & Chief Executive Officer, Deep Sea Logistics, Inc.
Implications: 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.

Other Analyses of the Same Source Article:
More FFA Troubles
April 25, 2007, Author: Craig Marston, Managing Director, CEM Marine

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