The Empirical Study In Avoiding Freight Risk Of Shipping Firm

The shipping industry has been a high-risk and low return industry. So inrecent years as the global economy change continually, the development ofChina’s shipping industry is also not very smooth. Shipping practitioners hadexperienced the industry peak, i.e. sea freight increased by nearly300percent from2003to2008, but soon after that, a global financial crisis sweptthe shipping market at the end of year2008and the freight rates fell by nearly100%from September2008to Nov.2008. Facing with such a large globalmarket risk, a number of shipping companies eventually did not escape thedoom of going bankruptcy.After experiencing such a global financial crisis, shipping practitionerscould even more clearly recognize the enormous fluctuations of the freightwas a concentrated expression of the entire industry’s business risk. In recentyears, with the development of shipping derivatives, shipping practitionershave more choices to manage company’s risk, i.e. appropriately use theshipping derivatives to hedge freight risk. Through this method, they can lockprofits or cost in advance so that they can avoid risk in shipping industry.This article briefly described the types of shipping derivatives marketand their application status. And we further discussed how shippingcompanies can hedge freight risk by using forward freight agreements, freightoptions, container freight swap agreement as well as china coastal coalfreight derivatives. Finally, we established regression model and forecastedthe freight index trend and its VaR value by using the Shanghai containerfreight index.The article provided the value of reference for shipping companiesfocusing on container sea transportation to avoid industry risk. The innovationof this paper is the forecast of index trend and the calculation of VaR for thenewly developed Shanghai container freight index by Shanghai shippingexchange company in recent years.