London - Freight Investor Services has expanded its rapidly growing commodity broking business into cleared, over-the-counter bunker swaps. The new service – the Fuel Oil Single Swap (FOSS) - comes in response to escalating bunker prices, which are hurting shipowner margins at a time of historically low freight rates.
The new FIS offering will include three fuel oil contracts: Singapore 380 centistokes (CST), Singapore 180 CST and Rotterdam 3.5% sulphur barges FOB. In contrast to existing swaps, these contracts will be traded in lot sizes of just one tonne, enabling easier access to these markets for smaller players such as shipowners who need to manage their fuel cost risk for small fleets or even individual vessels.
This new pool of liquidity should attract players from across the bunker sector, including suppliers and traders as well as funds and banks.
The price of Singapore 380 CST bunkers stands $40/t higher than at the start of 2012. A typical Capesize vessel on a 45-day voyage can consume 2,500 tonnes of fuel, costing over $100,000 more today than just two months ago. By hedging that price risk shipowners and operators can protect themselves more effectively than leaving themselves at the mercy of the spot market.
“With some of the lowest freight rates of the past 20 years across all the shipping sectors - including dry bulk, tanker and container markets – and some of the highest bunker prices on record, fuel oil can account for as much as 70% of vessel running costs,” said John Banaszkiewicz, FIS Managing Director. “This needs to be traded and managed. FIS is delighted to offer this innovative broking service where size does not matter. Any counterparty, whatever their size, can trade as many or as few bunker swaps as they want. Added to this, the three bunker swaps will be available in real-time, with live prices posted on FIS’ free multi-commodity trading screen, making them even simpler and easier to trade.”
The swaps will be listed for clearing by SGX and NOS and consist of a single tonne, cash-settled swap contract based on the Platts daily assessment price of the main index, tradable up to four years forward.