Wed 18 Nov 2009, 11:48 GMT

Global Risk introduces "optional ports" hedging strategy


Physical hedging strategy is said to offer built-in flexibility with the option to change port.



Denmark-based Global Risk Management has provided an overview of its "optional ports" concept, which according to the company increases the flexibility of fixed price agreements as it offers the possibility to change port even if you have fixed the price of a physical hedge in a specific port.

"Although fixed price agreements (FPAs) with physical delivery may offer the best budget security, they are frequently associated with little or no flexibility," Global Risk Management says.

According to Jan Knudsen, Executive Sales Director at Global Risk Management, fixed price agreements (FPAs) need not be so inflexible. “Physical shipping market operators sometimes overlook the simplest way of combining budget security with operational flexibility.

“For many, choosing optional ports is a vital part of their physical hedging strategy,” says Knudsen. “There are significant strategic advantages to use this option. FPAs with additional flexibility allow operators to take advantage of a change in ports. Better fuel economics such as changing port and canal fees can sometimes make alternative routes more attractive. There is also a risk of product shortage in some parts of the world - an often overlooked aspect of designing a physical hedging strategy. Rescheduling can be accommodated fairly painlessly with optional ports.” added Knudsen.

“The combination of financial knowhow, physical market expertise and being part of a worldwide setup allows Global Risk Management to offer optional ports. Close dialogue with both current and potential clients helps us ensure that the services we provide are in line with the needs of clients. It is also vital that we keep our customers up-to-date on their positions and market information and that their hedging strategies fit their risk profile,” said Knudsen

Risk and flexibility rarely go hand in hand, as risk reduction frequently decreases flexibility (and vice versa). However, with optional ports, an FPA can offer both budget security and the flexibility of changing between ports.


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