Tanker Forward Freight Agreements: What is their Usefulness as a Risk Management Tool through Hedging on VLCCs for a Shipping Firm?

This study examines the usefulness of tanker FFAs through hedging on VLCCs for a shipping company through direct and indirect topics. The trading between shipping firms and various players from other sectors, along with the discrepancies that their incentives illustrate, constitute the tanker FFAs an extremely attractive shipping finance research subject. This thesis research consists of numerous secondary qualitative and quantitative sources and primary qualitative data as experienced participants of the tanker market were interviewed. In the literature review, the importance of risk management and the tanker FFAs’ usefulness as a hedging tool in VLCCs were emphasized, the relation between spot and FFA market and the latter’s price discovery attribute were a matter of dispute, while the FFAs’ future was questioned due to its current distressed situation. In the data analysis, the practitioners discussed about the risk management’s integral role and tanker FFAs’ fundamental hedging usefulness in VLCCs for a shipowner, arguing for the FFAs’ liquidity and price discovery attribute, along with hedgers/speculators proportion. Moreover they highlighted the substantial current and future role of clearinghouses and explained that once the tanker market increases, tanker FFAs will rise again, whilst their termination scenarios just have no chance