An Investigation of the Use of Risk Management and Shipping Derivatives -- The Case of Greece

Abstract

Risk management in an industry which is characterized by high volatility in prices, seasonality, strong business cycles, cyclicality and capital intensiveness is extremely important. Shipowners face numerous risks in relation to fluctuations in freight rates, bunker rates, interest rates, foreign exchange rates, and vessel value prices. These risks affect substantially the interplay between revenue and cost. The different types of shipping derivatives products represent modern risk management techniques, some of which have been developed exclusively for protecting (hedging) against the adverse price fluctuations of the aforementioned sources of risk in shipping. By using derivatives products, shipowners can secure (stabilize) their future income and reduce their uncertainty and unforeseen volatility. To explore the importance of hedging, we carried out a qualitative research into the dynamics of the Greek shipping market in relation to the shipping derivatives market. The research set out to record general attitudes and common perceptions of the use of shipping derivatives by Greek shipowners. The results indicate that there is evidence that risk management and shipping derivatives are in early development and understanding in the Greek shipping market. Moreover, liquidity and credit (counterparty) risk are considered to be the major obstacles in the use of shipping derivatives.

Keywords: Business Risks, Shipping Derivatives, Hedging, Risk Management, Shipping

JEL Classification: G13, G14, C32