Analyses How China's Enterprises Should Use Ffa To Control The Risk International Tanker Freight Rate Fluctuations

Because of lots of factors, the international tanker market is one of the typical of high-risk industries. And the fluctuation of this freight is one of the inherent risks of the tanker markets. In order to effectively control the risks of shipping, shipping companies have developed a variety of strategies. Gradually, freight futures market is produced. Among them, the Forward Freight Agreement (FFA) is a recently developed shipping freight derivatives which can effectively manage the risk of freight fluctuation. In recent years, FFA has gradually been widely applied. There is also a rapid increase in the trading volume. However, the participation of Chinese enterprises in the FFA market is still relatively limited, and even less in the tanker market. What is more, the operation and management of the FFA are not matured enough.In order to explore FFA’s potential impact in managing risks of the tanker freight fluctuations, there are two typical routes TD3and TC2are chosen to be researched in this paper. These two routes are the most actively routes and also the highest trading volume of the world. The calculations of the correlation between the spot price and the FFA price have been done in the paper. It is been found that there are highly associated between the spot market and the long-term freight market, which is a basic condition for hedging. This article mainly focused on researching into FFA’s effects of hedging using the modern theoretical model of hedging. The hedging performance index proved that FFA has a good hedge function.According to above analysis and study of status of FFA and operation, we get the advantage and disadantage of FFA and give our suggestion, which is before participating in the FFA transaction, domestic companies need make the objn ective of risk management clear and once there are scientific and rational ways, domestic companies should chose the right time to enter the market, in-depth understanding of the market and accurately grasp the economic situation. And then the FFA trading will make a great contribution to risk management of the enterprise.Further more, the disadvantage of the paper is indicated in the last, which need improve in the future.