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Mon 8 Mar 2010, 12:13 GMT

Bunker hedging without liquidity risk


Danish firm explains how fuel risk managers can protect themselves against rising prices.

Money is not cheap, and good credit is hard to get. How can shipping companies and others avoid situations where the hedging of fuel becomes a nightmare of deposits and cash out - in case the market drops? There are actually hedging strategies which allow Fuel Risk Managers and CFO’s to have a good night’s sleep, according to Leon Pedersen, Sales Manager at Global Risk Management’s Copenhagen Branch.

Protection against rising prices – benefitting from falling prices

Pedersen says: “With the current difficult market conditions under which many shipping companies operate at the moment – protection against rising fuel expenses makes perfect sense. Global Risk Management specialises in customised hedging solutions and has various tools for this purpose.

"For example if a shipping company wishes to protect itself against rising bunker prices and has the need of getting physical supply of bunkers at the same time, one strategy could be the Maximum Price Agreement (MPA). This strategy works like an insurance against price increases.

"As the name implies, we agree on a maximum price which is the highest price you have to pay for the fuel. Once you have paid the insurance premium, no further deposit/collateral will apply for this agreement. If the spot price at the time of bunkering is below the agreed maximum price, you will be invoiced the spot price. If the spot price is above the maximum price, you will be invoiced the maximum price. Very simple.

To read more about Global Risk's hedging strategies, please visit:

http://www.global-riskmanagement.com/Hedging_tools.aspx

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