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					Tanker Forward Freight Agreements New York March 13th 2008

Contents
•Worldscale •The Baltic Exchange & Platts •The Baltic Panellists •Freight Market Volatility •The Growth of the FFA market •FFA Mechanics •The FFABA Forward Curve •Trade Examples •Options

Worldscale (WS)
• New Worldwide Tanker Nominal Freight Scale (Worldscale) = annual publication listing $/MT for voyage between 2 ports. • WS rate - % applied to flat rate to calculate the $/MT rate for specific voyage between 2 ports. Flat Rate x WS Rate = $/tonne rate eg 5.40 x W150/100 = $8.10/MT

Worldscale Components:
•Standard Vessel - 75,000 tonnes •Average service speed - 14.5 knots •Bunker consumption - 55 tonnes per day •Port time - 4 days per voyage •Fixed Hire Element - USD12,000 per day •Port costs - In USD converted from local currency rates •Canal Transit Time - Panama 24 hrs - Suez 30 hrs Bunker Price - USD 328.75 per Tonne This price represents the average worldwide bunker price for fueloil 380 cst during the period 1st October 2006 to 30th September 2007.

Tanker Assessment Providers
PLATTS Clean & Dirty Tankerwire •Daily Freight Assessments •Energy data •Mkt commentary

BITR - Baltic International Tanker Routes (1998) • Daily Freight Assessments on numerous routes • Unbiased Broker Panel (monitored, audited)

Baltic Exchange: Tanker Assessment Providers - Panellists
•SSY • Fearnleys • Clarksons • Gibsons •Mallory, Jones, Lynch & Flynn •McQuilling •Bassoe •Weber •Eastport Chartering •ACM Shipping • Capital • Braemar Seascope •Bravo Tankers • Barry Rogliano Salles •Galbraiths •Island •Odin Marine

Spot volatility - TD5 TA Route.

Tanker freight volatility - High/Low 2004-’08
High ⇒ Average ⇒ Low

ME Gulf/Japan
(260,000mt)

WS 342.97 WS 130.00 WS 50.33

$11.24m $1.685m $5.280m $1.229m $1.059m $0.338m

W Africa/USAC
(130,000mt)

WS 399.97 WS 175.00 WS 91.25

North Sea/Cont
(80,000mt)

WS 330.91 WS 178.00 WS 97.05

Growth in FFA trading:
Volume of tanker FFAs fixed
400 350 million tonnes 300 250 200 150 100 50 0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Data Source: FFABA

participants
20% owners 50% oil co/traders 30% financials

Simpson Spence & Young Ltd
• Established 1880 • Largest privately owned shipbroker in the world • Worldwide network of offices • Represented on all major shipping committees & indices. 24 futures brokers, • Expertise in:London & Singapore
– Dry Cargo – Tankers

all FSA registered Team of 10 analysts on tanker & dry bulk markets

– FFAs
– Research and Consultancy – Sale and Purchase – Agency and Towage

What is a Forward Freight Agreement? An FFA is a Swap • Principal to Principal contract with a buyer and a seller • An agreement today to buy or sell a freight rate at a certain level for a defined period in the future. • To settle at a future date at a price based on freight assessments taken during the settlement period . • Based on a defined voyage or time charter. • Over-The-Counter or Cleared.

Why use FFAs?

HEDGE
• manage freight exposure & cash flow • flexibility & ability to react swiftly to spot market volatility (rather than time charter) • trade-out of contracts prior to settlement

SPECULATE
• High Volatility

• Cash settled
• Clearing available • FSA regulated

Baltic International Tanker Routes Dirty Routes:
ROUTE • TD1 • TD2 • TD3 • TD4 • TD5 • TD6 • TD7 • TD8 • TD9 • TD10 • TD11 DESCRIPTION MEG-USG MEG-Sing MEG-Japan W Africa - USG W Africa - USAC Cross Med North Sea – Cont Kuwait – Spore Caribs - USG Caribs- USAC Cross Med SIZE 280K 260K 250K 260K 130K 130K 80K 80K 70K 50 K 80 K

Baltic International Tanker Routes Clean Routes
ROUTE • TC1 • TC2 • TC3 • TC4 •TC5 DESCRIPTION MEG - Japan UKC-USAC Caribs - USAC Sing - Japan MEG - Japan SIZE 75K (12 yrs) 37K (20 yrs) 30K (20 yrs) 30K (15 yrs) 55K (15yrs)

FFA Price Reporting

World Scale Flat Rates 2008

The FFABA Forward Curve •FFAs need to be “marked to market” during their life time. •Cleared trades need to be margined. •OTC positions need to be monitored for internal reporting. •The Forward Freight Agreement Brokers Association (FFABA) members report their daily assessments along the curve to the Baltic. •The Baltic publish the average prices daily.

TD3 - Example Trade

TD3 - Example Trade

• • • • • • • •

Buyer /Seller Route Period Quantity Contract price WS Flat Rate Contract Counterparty

- We Buy - TD3 - Q4 07 - 20kt - WS88 - 17.72 - FFABA / ISDA / Cleared - OTC - Counterparty Risk

TD3 Example Trade
• • • • Q4 07 has three monthly settlements. October: WS57 November: WS91 December: WS240

P/L Calculation for October = Settlement Price - Contract Price x Flat Rate x Size of Trade 57% (31%) 88% x x 17.72 x 20,000

354,400

October Loss = ($110,000) November Profit = $10,000 December Profit = $540,000

The Seasonal Volatility Spike Returns!

TD3 Trade Example
Conclusion
Our Trade has generated a profit of roughly $440,000. If we were using the trade to cover physical exposure then this would be available to offset our increased freight costs in Q4. A full 260,000mt trade would have generated $5,720,000 By hedging we are able to fix our future costs according to known FFA pricing . The decision not to hedge leaves unknown risk exposure. FFAs can effectively manage freight risk.

Options:
An option gives the buyer the right but not the obligation to take an underlying position. Example. You buy a Call Option (The right to buy) TD3 Q4 ‘08 W120 Call - Cost W10 Result. If the market goes above W120 in Q4 ‘08 you have all the profit, once your cost of W10 is covered. If the market falls you only lose 10 Worldscale points.

For Further Details Contact:
Business Development: Duncan Dunn + 44 20 7977 7597 Head Of Tanker FFAs Ben Goggin + 44 20 7977 7491
London: Rob Dennis Mark Reddihough William Mew Steven Pritchard Singapore: Andre Berry Sharon Chua Glenn Byrne

+ 44 20 7977 7524 + 44 20 7977 7594 + 44 20 7977 7580 + 44 20 7977 7593

+65 6536 7988 +65 6536 7988 + 65 6536 7988


				
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