Freight
Freight is the invisible cost embedded in every physical commodity trade. The Baltic Exchange in London publishes daily indices for all dry bulk and tanker vessel classes. Freight can be hedged via Forward Freight Agreements (FFAs), traded on ICE. Understanding freight is the difference between a profitable commodity trade and a losing one.
Dry Bulk
Dry bulk carries iron ore, coal, grain, bauxite, and minor bulks in the cargo holds of five vessel classes: Capesize (150k+ DWT), Panamax (60-80k), Supramax (50-60k), and Handysize (15-35k). The Baltic Dry Index (BDI) is the headline benchmark. Dry bulk is the most cyclical shipping sector.
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Tankers
Tankers carry crude oil (VLCC, Suezmax, Aframax), clean/dirty petroleum products (MR, LR1, LR2), chemicals, and LNG/LPG. Tanker rates are quoted in Worldscale points (WS) or $/day. The tanker market is heavily influenced by OPEC production policy and refinery utilisation.
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Forward Freight Agreements
FFAs are financial derivatives that settle against Baltic Exchange indices. They allow shipowners to lock in revenue and charterers to lock in costs — or traders to take speculative positions. FFAs trade OTC and on ICE. The market is primarily for Capesize and Panamax routes.
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