0.00 0.00%



225.00 2.05%

Iron Ore


0.85 1.12%

Sing 380



Coking Coal


0.00 0.00%

Nola Urea


0.00 0.00%

The Time is Now: FIS unveils plans for Tanker FFA market

Leading futures broker will help market take back control of tanker FFAs and achieve ‘WEXIT’ from Worldscale system with new Oil Freight Flat Rate Agreements (OFFRA)

FIS has begun coverage of the Tanker FFA market, offering brokerage of the most liquid wet routes. In deciding to enter this market, FIS has identified the three Vs we need to drive the FFA market forward – and one W that we don’t.


Oil is the world’s most traded commodity with 3.3bn tonnes of physical crude and products moved annually, with a fleet of 3560 ships (totalling 500mil dwt), a volume more than double that of iron ore.

While Dry Bulk FFA volume is equivalent to 100% of the underlying market, annual Tanker FFA volume is only 267m tonnes – around 8% of the physical market – a figure that grew by only 4% in 2017, leaving ample room for growth.


Volatility in the tanker freight market is comparable to dry bulk freight, iron ore, oil and products, as well as financial markets like the FTSE 100 – enough to attract new counterparties from within the physical players, as well as financial firms as investment opportunities.

In the past 12 months, the TD3C contract (265,000t MEG-China) has seen a low of 5.88 $/mt and a high of 14.94 $/mt, a swing of 155%. The TD3C Timecharter Equivalent saw a low of $3390 and a high of $32,150, an 850% increase.

By contrast, in the same year, iron ore saw a low of $52.50 and a high of $91.18 (a 74% swing) while Capesize freight saw a low of $5,565 and a high of $28,700 (400%). Fuel Oil volatility has also been strong in the last 12 months, with the 380cst contract seeing highs and lows of $371 and $260/tonne.


Tanker freight represents $40bn of transportation costs, the majority of which is unhedged. This massive measure of risk is already present at a time when bunker fuel exposure is set to rise rapidly in anticipation of the 2020 0.5% sulphur cap as the strict regulations take effect.

In the Dry bulk shipping market, which has been depressed for the last few years, owners, operators, and traders have successfully used FFAs as a tool to trade volatility and better manage cashflow. This ability has allowed them to adapt to market conditions, rather than just accepting spot charter rates below cost.

The wet FFA contract can bring fresh risk management and trading opportunities for companies active in the physical and paper markets, including physical v FFA, freight spreads and ratios, FFA v Oil arbitrage, as well as more accurate hedges.

More and more operators are interested in using tanker FFAs to add a new business line alongside running ships in an increasingly volatile and changing market.

It’s time for WEXIT (Tanker FFAs without Worldscale and move to OFFRAs)

To build a liquid market, FIS believes Tanker FFAs must move beyond the Worldscale system used in the physical market. Worldscale has hindered growth of futures, making it hard for physical players with no previous derivatives experience to get involved and confusing for potential players from outside the industry.

Now it is time to make the market grow. The new FIS team will undertake marketing and awareness and begin broking OFFRA (Oil Freight Flat Rate Assessments). By doing so we can take back control of tanker FFAs and achieve ‘WEXIT’ from a system that is holding back the market.

The FFA Tanker market is largely confined to one year forward. The changeover of Worldscale flat rates every calendar year is a large contributing factor limiting the forward trading volume of wet FFAs. We therefore ask why the industry cannot decide on forward prices instead of relying on a panel to set rates each year, freeing the market to trade longer term contracts of 3-4 years ahead?

Changing bunker prices can have a real impact on freight costs – and therefore profitability. With the market currently considering this deviation in fuel costs with their Worldscale rates, the challenges posed by the fuel changeover in 2020 may fragment the market, and in some cases, where different higher cost fuels to the standard are being used, make it impossible for a Tanker FFA hedge to be traded. Breaking this stipulated fuel involvement in the contract could provide the flexibility and more accurate hedging for current market players, as well as clarity for those new counterparties.

For a typical TD3C voyage with average bunker consumption of 3,300 tonnes at an average HFO price of $360/tonne, the cost of bunkers is $1.2m – up to 85% of the freight rate.

Fuel prices are widely expected to increase in 2020 as the new fuel regulations take effect, but because the contract does not reflect actual price fluctuations, a yearly average will give an inaccurate cost – and in some cases – fail to reflect the fuel being hedged.


FIS is the global leader in dry bulk derivatives with a reputation for driving change and bringing new tools to the market. We hope to drive change in the tanker futures market through education that can expand and even revolutionise it, enabling Tanker FFAs to achieve their full potential.

Our clients will be able to take advantage of complementary services in tanker freight and fuel oil hedging and we can also advise on the hedging and trading opportunities that the linked derivative contracts can provide.

We value your continued support and look forward to discussing this opportunity with you.