The international shipping industry can be divided into four closely related shipping markets, each trading in a different commodity: the freight market, the sale and purchase market, the newbuilding market and the ship breaking. These four markets are linked by cash flow and push the market traders in the direction they want.
FFAs are often traded over-the-counter, through broker members of the Forward Freight Agreement Brokers Association (FFABA), such as Arrow Futures, Clarkson's Securities, Marex Spectron, SSY - Simpson Spence Young, Braemar Seascope LTD, Ifchor, Freight Investor Services, BGC Partners, GFI Group, ACM Shipping Ltd, BRS, Tradition-Platou and ICAP. However, screen-based trading is becoming more popular , through various screens. Trades can be given up for clearing by the broker to one of the clearing houses that support such trades, or be executed in integrated electronic exchange. There are five clearing houses for freight: Imarex, LCH.Clearnet, CME Group, ICE Futures Europe and SGX, and one electronic exchange: Shanghai Shipping Freight Exchange. Freight derivatives are primarily used by shipowners and operators, oil companies, trading companies, and grain houses as tools for managing freight rate risk. Recently, with commodities standing at the forefront of international economics, the large financial trading houses, including banks and hedge funds, have entered the market.
Baltic Dry Index measures the cost for shipping goods such as iron ore and grains. The trading volume of dry freight derivatives, a market estimated to be worth about $200 billion in 2007, grew as those needing ships attempted to contain their risks and investment banks and hedge funds looked to make profits from speculating on price movements. At the close of the 2007 financial year, the number of traded lots on dry FFAs doubled the derived physical product.
Shanghai Shipping Freight Exchange is the first electronic shipping freight exchange in the world. It has three lines of businesses, including International Dry Bulk, Domestic Coastal Coal, and International Container. The container freight derivatives were launched in 2011 and shortly became the most liquid container freight contracts. Based on the success and experience from container freight contracts, SSEFC launched coastal coal contracts in 2012. In 2014, in order to better achieve the risk shifting effect of shipping freight derivatives, SSEFC innovated and launched the world's first physical-deliverable shipping capacity contract.