Freight Trading @ ABCD
A few weeks ago I was introduced to a friend of a friend who works in strategy at ABCD.
This person disclosed that their firm's most profitable trading desk was the freight desk, and that freight traders on average are the best paid. They added that it's been this way for a while.
I didn't want to dig deeper because it was my first time meeting the person and didn't want to come off too thirsty.
Maybe industry vets on WSO can expand on this. Trading @ ABCD isn't really talked about a lot on here.
Can you specify what you want answered? I did commodity marketing for an internship, so I can somewhat speak to the type of work done, but I cannot speak for what salary is like.
Well the general impression I got from various threads on WSO is that the total comp (base+bonus) are somewhat uniform across all product desks @ ABCD, e.g., a Cotton Trader at LDC will make more or less the same as a Grain Trader at LDC, all things equal.
But after talking with this individual, this doesn't appear to be the case. The bonuses paid out on one product desk greatly varies from that of another.
I was hoping someone could expand on what the "lucrative" product desks at ABCD are...
Okay, so I am sure this is true for more experienced traders, but on the junior side my impression is that there should not be too much variance between desks beyond COL compensation differences simply because you won't have a book and will be doing merchandising. As for freight trading, as I am sure you know it is classic buy at point A and sell at point B with the difference - cost of transport & insurance being your profit. My opinion is that this will not be a wildly profitable career as it was in the past since cost of transport is being more flexible at least meaning the price of a move will float with the geographic price differential (at least that was my impression during my internship), and you have information dispensation, so it is tougher to pick up bargains from a given seller or a premium for a buyer. Finally, from one relative novice to another, try not to chase the money. Do what interests you; life is way easier in a small town in the midwest if you are doing what you love. I might sound disingenuous, but I had the opportunity to work in a space I was obsessed with, and day to day I was a completely different individual because I was so happy. Find the product you want, and the money will come.
Everything is cyclical in commodities. Lots of years where you are mainly interested in "protecting the cheese," making sure your physical book pays for itself. And then once in a while a major dislocation that getting right will pay huge dividends on. Not an ag play but there is a company who stored 500,000 tonnes of aluminum in the Southeast US for 3 years and sold it around the time Trump imposed tariffs on aluminum. That kind of thing can make or break a career.
Every product is going to go through its own cycles, and particularly in ags, these are not necessarily tied to the broader economy.
Freight is kind of its own animal, but it makes sense that it would be such a well-paying desk. Cargill more or less invented the title "freight trader" and are extremely sophisticated at it. Early 2008 was basically the peak for those markets and it has been non-stop pain for owners and brokers since then particularly in dry bulk (Shell probably has the strongest desk on the wet side), but for traders there are still ways to make money.
Do realize that freight is very much its own animal in the world of commodity trading. You will be building relationships in the ocean vessel community more so than in ags, metals, energy... You will see the flows there (ie Cargill has the best view of dry bulk flows of anyone in the world, Shell for crude/products, maybe BASF for chemical tankers...) but that is coming from your internal guys. If you jump ship (ha...), you will be bringing your shipping contacts more so than info on the commodities being carried.
If you are interested in freight trading, it is a great career. More macro in a way than trading a specific commodity, but has its own micro dynamics to consider. Not totally sure what the guy above means about things becoming "more flexible,."
Let me be a little more clear on flexibility, my understanding at least on the rail side and from some larger trucking groups was that in the past, traders had a contract which kept the transport cost stable, so it was easier to go out and know what geographic price differential you needed to go and make a deal. Now on the rail side it is moving towards tariffs which can be changed with 20 day notice, so they will be pricing up to the differential, since they have a good idea of what will be just profitable enough to keep the volume. On the trucking side, at least with the large groups, contracts are becoming less common, and they are encouraging spot moves which will swing in part with the differential a trader makes their money on. Hopefully that clears up my earlier point.
Ah truck and rail are different. Rail you are at the mercy of a very small oligopoly, and really a monopoly on distinct lines, your only function is to try to flex some market power if you push enough tonnage to get reamed a little less. Long-story short rail is horrible for charterers.
Trucking has more opportunities but it is hard to see it as more than a cost center. Looking at the pricing power of drivers in the US right now, it would seem like a good idea to get in the game at least until automated fleets are a thing. Problem is trucking is so incredibly granular, going through a good 3PL system is probably more efficient than building your own thing, the savings probably aren't there. Again, cost mitigation is the only real goal. Barges require good relationships but that's about it.
ABCD's typically refer to "freight traders" as the guys chartering ocean vessels. They can charter spot, do time charters, use derivatives... You can basically 'go long' vessels or short in a way that is much more akin to commodity trading. As such provided enough sophistication, these departments can be profit centers, and sometime the source of a lot of profits.
OP if you can get on Cargill's ocean transportation desk, that is a sweet job. The other guys are a bit less sophisticated but I am pretty sure they all do it to varying degrees, Louis Dreyfus for sure.
Always love reading your posts on commodities.
Say if someone is in Marine Ops of metals what are the chances of moving on to a freight desk in metals?
Also can someone who's been in Marine Ops of AG move to a freight desk for metals for example or will that person be pigeonholed in AG?
Marine ops for a shipowner? That would definitely be a good background to get into freight at a trading firm (ie I can think of a person who has done this).
I don't think you pigeonhole yourself by commodity as long as that commodity is bulk. Wet vs dry might be a bit of an issue but container vs bulk is the big difference in terms of actual roles. But of course the closer you are to the job you want, the easier it is to build those relationships and relate.
Interesting... the people with the title of freight trader were simply doing buy at A sell at B, and as far as I knew were not engaging in any time arbitrage, granted I did not see anyone with that title from Cargill.
I believe you may be referring to Glencore with respect to the Aluminum storage. I read an interesting article on Bloomberg that discussed the situation you described. The title was "The Metal That Started The Trade War"
It was a company called Castleton, ex-Louis Dreyfus Highbridge.
I now have questions about this particular trade. I get time arbitrage where you sell futures longer dated than what you buy shorter term with storage costs being less than that difference, but three years seems excessive in that other trades could be done rather than tying up capital/infrastructure in the trade. Likewise, how do you justify paying storage without anything obvious coming up on the horizon (Trump winning and putting on tariffs seems like an unlikely scenario to bet 500,000 tonnes on) granted there might have been opportunities, but less popular.
Hmm... Interesting.
I worked as a freight trader for little under a year after graduating, dealing directly with Bunge, Cargill, and Dreyfus. My take is that while freight trading, on an individual level, can provide an extremely high standard of living, you're unlikely to ever make an absolute killing in any given year.
The mechanics of freight trading are basic to the point that - on a strategic level - it's almost completely divorced from any macro-driven trends in the short-to-medium term. It boils down to securing cargos and securing vessels - and then matching them off against one another in the most profitable arrangement possible. While it may be different at a fully fledged physical commodity house (with its own cargoes), I understand that, overall, it more or less amounts to the same.
The difference, however, is that at any given ABCD firm (unlike a pure freight trading firm), the commodity itself is the primary focus. As a result, commodity houses are more willing to pay through value on freight to ensure their cargo is delivered profitably on time. The physical commodity, after all, is where they make the bulk of their money.
It strikes me as unlikely, then, that freight would be the most profitable trading department in absolute terms - over the long run it might instead have the most consistent returns (as its upsides are relatively stable and its downsides far less severe).
I'm reminded of the line from Liam Carroll's "Slippery" (about oil trading in Singapore) on freight traders (i.e. charterers): "A group of drastically overpaid taxi-booking agents."
Must have been writing my reply while you were writing yours - agreed on all the above.
To add to this, it is not necessarily just accumulating the same molecules at the same location - they can trade around the position while still accumulating net length.
Further, on the freight question, @thoroughbell - what you're describing is not freight trading, that is trading the product's geographic arb.
A freight trade is kind of complex to describe online without some general trading knowledge. A simple example:
1) You have a ship fixed to move a profitable cargo in Houston to Vera Cruz. You're going to make 100pts and have hedged this.
2) Spread widens to 200pts. There are not any open ships in Houston for other charterers to take advantage of this.
3) You can get a ship and a cargo in NOLA that will eat 75pts of your profit.
4) You sublet your space on your Houston ship at a 100pts premium to the rate you fixed at (this is doable because the arb is now open with another 100pts of wiggle room, so other charterers can pay this and make money).
5) you make 25pts on you cargo and 100pts on your sublet freight so net 125pts versus the original 100pts from just moving your own Houston cargo.
This is simplified and there are lots of confounding variables that would reveal themselves to industry folks, but hold that the sufficiencies are there and this can give you a basic picture of freight trading. The freight traders job is to recognize this opportunity with the ops guys/gals and the product traders and get the Houston ship sublet less the NOLA ship chartered at a positive enough number to make this worthwhile (respectively 100pts and 0-75pts [part of the NOLA incremental expense may be product cost] in the above example).
@index you are correct, I was either mistaken with what I remembered (apologies @StdntTrader) or the people we dealt with were freight traders who also did traditional basis trading, since these were people at smaller firms. Never came across anyone from ABCD with that title.
Focusing purely on Ags, and looking at ABCD + Glencore - each has a very different freight trading set up, based on the way their business operates.
Cargill Ocean Transport (freight trading division) has a enormous footprint and owns physical assets (or did a few years ago). This gives it a huge edge, and therefore the ability to make more money. At Cargill there are way fewer freight traders than there are actual commodity traders, and therefore they get a decent share of a big book. Anecdotally I would say a freight trader with 4 years of experience at Cargill would get paid more than a Oilseeds/Beans trader with the same experience. That gap narrows to pretty much nothing. Similar set up for LDC.
The other smaller traders (Bunge, ADM, Glencore) on the other hand have a much smaller set up on freight, and work with less volume and majority time charters. At most of these places I would say being a freight trader would be less preferable to a commodity trader.
And to the comment on LDC grain trader being paid as much as an LDC cotton trader - I don't think that would be the case. I would expect the Cotton trader at LDC to be paid more, given their dominant position in the market. Same goes for all other teams - size of the desk matters. If your budget is 50m with 5 traders and another desks budget is 250m with 8 traders, its pretty clear.
Always loving reading your insight into how all the soft/Ag traders work. Good insight!
Would like to echo what you said. I also know LDC owns a lot of ships. Probably more than any of the other ABCDs considering the family's investments too. I have to imagine their freight desk is a big driver of both revenue and insight into trade flows.
Ea qui quis id quasi. Dolore quis fugit natus rerum nesciunt. Tempore in error veritatis voluptatum aut sint. Fuga sit aut accusamus quod rerum voluptatibus quo.
Nemo non dolores eum. Laboriosam dolores id saepe architecto animi. Ipsam corrupti nihil esse non. Veniam velit rerum sequi alias nam laudantium aut.
Natus debitis aliquid earum aut molestiae occaecati. Maxime dicta ea molestiae qui nihil minima eos. Architecto et itaque ipsa.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...