Shipping derivatives.
During the last decade, the maritime and port industry got
increasingly intertwined with the financial world. The high volatility in the shipping
markets, exemplified by sharp fluctuations and sudden changes, has supported the
emergence and growth of a paper market on shipping freight. Complex financial
products and derivatives have been developed to support the growth in shipping
(Kavussanos and Visvikis, 2006). Shipping derivatives have been developed in order
to manage risks, emanating from fluctuations in freight rates, bunker prices, vessel
prices, scrap prices, interest rates, and foreign exchange rates, more effectively, in a
cheaper and more flexible manner. The shipping market now makes extensive use
of risk management techniques and instruments attracting trading houses, energy
companies as well as investment banks and hedge funds. The risks, if managed
effectively, can stabilize cash-flows, with positive repercussions for business.