Q&A : I'm a dry bulk physical freight trader / chartering manager
I work for a sizable dry bulk operator engaged in freight trading / chartering - ask me anything. Due to the nature of the industry, I won't be able to answer questions that are too specific but will try my best to provide insight where it seems fitting to do so.
Thanks
What are the exit opps? How long do junior traders typically stay before jumping to the buyside? Which firms are considered tier 1?
Plenty of exit opps, but mostly from what I see people don't tend to exit often. Sometimes you'll see people jump to the mining companies, industrials and trading houses to help them manage their freight book. The main difference being those shops are obviously long on cargo vs. working for an operator you are usually focused more on maximising returns for your tonnage portfolio.
Not sure if the whole buyside / sell side terminology is relevant for this industry.
Tier 1 - depends which commodities, which trade routes, which size segment etc.
What was your career path? It's kinda a niche yet necessary sector.
I started off in a broking shop. After a couple of years doing both voyage and time charters across a few key clients, I managed to get an offer from an operator and decided to take it. Starting off at a good broking shop is a great way to get quick exposure to a lot of commercial people in the industry and really helps develop your network. It's definitely a common trend to see people start off as brokers and jump to chartering a few years in.
Niche indeed - it's almost seen by some as a vocation and most people tend to fall into it from networking (including myself).
Yeah that makes a lot of sense, since most charterers work with brokers to fix their shipments.
You can be vague if you want, but how long have you been doing this? Say something like 10-15-20 years, whatever makes you comfortable. Have you noticed any major changes in the industry during your career?
Since noone asked yet, noteworthy/interesting elements of the ongoing Suez debacle?
Less than 10 years. :)
Major changes I find interesting :
- The lack of willingness from banks/funds to finance newbuilds in comparison to the super cycle days of the 2000s. This is partly due to environmental regulations changing so fast that the ship of tomorrow might be completely different in design compared to today. Most players are now more or less targeting 2nd hand tonnage, which is a great trend given we've had supply overhang for the most part of last decade.
- In contrast, the willingness from funds to finance small operators - many small operators go under and many news ones emerge almost every year. Money is free these days if you have a nice idea to sell!
- Much more investment into research and data roles. Though I always think this market is too dynamic to really use algorithms and such to predict rates, there are definitely a lot of industry "leaders" sold on the notion of added value through data. So far this has yet to be proven. But other data sets such as tonnage supply, seasonality trends and even weather forecasting definitely helps optimise calculations in ways we couldn't before.
- More engagement in shipping overall from smaller stakeholders. By this I mean smaller commodity producers (that would usually rely on trading houses or the receivers to handle the freight) are now actively trying to manage their own requirements if they can save money doing so.
Ref Suez canal - crazy incident. It definitely sparked up some rates on the container/tanker side, but on the dry bulk we didn't see too much of a push other than a slight spike on the FFAs. In a weird way, if the incident was prolonged the added ton-miles to the industry as a whole would've definitely raised rates a step upwards. It does raise a question as to how they let that ship pass through there in the first place... 400m loa and 60m beam is a big piece of work and I wonder if the canal authority may have to revisit restrictions in the near future to avoid another scenario like this.
Lovely info, thank you so much for sharing!
Whats comp like (generally)? Also, how do you view IMO 2020 impacting the market?
Comp - depends where you are...
Singapore base salaries at good companies hover circa high 100k / low 200k SGD for a guy with a few years experience. Then higher for senior professionals / VPs / directors etc.
I would assume similar equivalent or slightly less in US/CHF depending on how much higher the tax is.
Bonuses vary from company to company, but are usually highly dependant on the performance of the freight market (ie. more volatility, more demand creates more opportunity like a lot of other products in physical trading).
IMO 2020 has already happened but the main impact was the costings on scrubber vs no scrubber and also a lot more vessels slow steaming due to higher fuel prices when burning low sulphur fuels. This year slow steaming is a lot less common as rates are substantially higher.
Any tips to those who want to work their way up the career ladder?
Bide your time, be curious and absorb as much knowledge as possible. This is an industry where hard work and talent usually does not go unnoticed (in your company and in the broader market).
What are your thoughts on the Baltic Dry Index? Is it representative of overall shipping supply and demand? Thanks.
Good question.
To be honest the BDI is something I think very few people in the industry look deep into, and it's more of a public tool that people can use to quickly assess where the market is at. The BDI is composed of 40% capesize, which is a huge representation from a vessel type that focuses mainly on iron ore and coal. So I think whilst a higher BDI usually means better freight rates, it is only because when China tends to import iron ore they tend to import everything (bauxite, mineral ores, copper conc, salt etc.) for construction and the like. At the start of this year, geared sizes (10 year high) were doing much better than capes , and yet the BDI was hovering at a fairly moderate level. You really need iron ore and coal demand to fire up for the BDI to swing, so I would say it's much more a representation of the seaborne demand for major bulks rather than the minor bulks or overall shipping supply/demand.
Thanks for doing this, always been curious what a career in the field would look like.
Do you see yourself staying on your side long-term? Being long cargo seems like it would be easier, and it's not clear to me you get paid any less at one of the big commodity traders or miners.
Do you do much paper?
Do you think there is room for more companies like SwissMarine to start up? The fact such a big player could be built so quickly is incredible to me.
Are container rates putting a lot of upward pressure on the smaller end of the market?
Do you see yourself staying on your side long-term? Being long cargo seems like it would be easier, and it's not clear to me you get paid any less at one of the big commodity traders or miners.
I may be a bit biased but here it goes. Most people I see who start on the tonnage side / cargo side tend to stick to that side of the fence for the long term. My understanding (I could be wrong, just from the chit chat I gather in the market) is that there are usually two types of roles on the cargo side. Some roles will have you driving third party business (usually more senior positions - taking in period tonnage, booking forward cargoes, clipping margins on spot market deals etc. almost the same as an operator basically) or running and optimising a large internal book (more to do with developing freight strategies to compliment the trading desk). On the other hand, a number of roles are assigned to working alongside the commodity traders in order to win tenders / develop sales, which could still be interesting (in terms of understanding the freight component when selling/buying the commodity itself) but in the long run apparently is quite dull and you are just looked at as a pricing mechanism rather than a core part of the trading team. So whilst money might be there for those who can run a profitable book (as it would be for any operator), I don't think the majority of non-senior freight roles on the cargo side pay that well in comparison to working for a tier 1 operator (although I'm sure it won't be that much lower). Working freight at the larger companies is easier to the extent where you would really specialise in one, maybe two particular commodities, a few key ports, limited trade routes and basically using the same executed/pro forma charter party. In contrast, at an operator, you are pricing almost everything in a particular region depending on where you sit and generally get great exposure to a variety of commodities from a range of companies across a mix of trade routes all with different charter party terms which you have to negotiate all the time - which yes seems harder, but at the same time really enhances your knowledge on contracts, your understanding/ability to price freight, your network, and therefore your overall value and job security within the scope of chartering. The skillset difference is even more noticeable when comparing operators vs some mining companies (where they are literally selecting the best voyage rate, irrelevant of the time charter equivalent) - which is why we tend to see more "charterers" in industrials/miners leave to join operators (at a similar level of seniority I mean). Though again, it really depends on the skillset you want to build ie. do you want to understand more about the commodity you're shipping and optimise an internal book based on just looking at $/pmt OR actually specialise in freight trading (third party cargo book vs third party tonnage book) by having a good grip on the time charter market. For me it's more the latter. Ultimately, it just really depends on the role on offer on the cargo side (if you're running a third party book and can use off market internal cargoes to compliment your platform - that could be interesting). Something to note though is that we are generally seeing more operators in the market taking more third party (voyage) biz these days than the trading houses (only a select few trading houses are still involved in third party, but others have actually scaled down to focus on internal book mainly).
Do you do much paper?
I don't but other desks do. I am mainly involved in geared segments (smaller tonnage) where I think FFAs are more relevant to the capes/panamax desks. We do at times take small paper positions but it's more of an attempt to balance cargo days vs tonnage days (a hedge). In short, it's way more physical.
Do you think there is room for more companies like SwissMarine to start up? The fact such a big player could be built so quickly is incredible to me.
SwissMarine had some pretty good backing and they hired people who basically coined the term "freight trading" (all ex Cargill people, they knew what they were doing). They had an established network (particularly in coal) and basically built off that straight away. We have seen one or two other players in the last decade emerge to be running a pretty sizable third party fleet but I won't mention any names. It really depends on the people backing the firm (I think SwissMarine had Glencore, Victor Restis (billionaire) and Macsteel with decent investments). Some newer operators generally want to cap their size to focus on what they specialise in and build more risk adverse operating models to generate low but safe returns. But yes it's entirely possible, it surprisingly doesn't take that much investment to quickly build up a decent time charter fleet. On the flip side if that business burns cash quickly it'll be over like any fly by night entity.
Are container rates putting a lot of upward pressure on the smaller end of the market?
Good question. Short answer is yes - due to the high container rates we have seen a net positive effect on geared sizes as cargoes that traditionally went to containers are now going in bulk. The general consensus is that this is expected to continue throughout the year and perhaps even into 2022. Whilst it has had an impact, I would say most of the pressure is coming from general demand of minor bulks and grains (the container rates are just the icing on the cake).
Thank you, great responses!
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https://horizonship.com/ship/225m-panamax-class-bulk-carrier-2000-dwt-7…;
Tell me if this is a dumb question, but would you ever look to strike out on your own as an owner? It seems like there are a good hunk of Panamax/handysizes out there for 1-6mm. I have no idea the econs, but if you levered up you could buy a handful of these.
What do you gross net off Daily rate - (OPEX+commissions+overhead)? Happy to hear your thoughts about jumping in to the ship owning world.
Not a dumb question. It's definitely crossed my mind but I think if I did do it then it's something I would venture into at a much later stage of my career. However, in direct response to your question, I'm not an expert on the S&P side but I'd be wary looking at cheap deals on overaged tonnage. They're cheap for many reasons ie. they can only trade non premium, low barrier to entry biz like Indo coal to China, they will face huge issues on their speed/consumption figures in view of more stringent environmental regulations, and if not timed right you could be entering a weak market with a non desirable asset that, in a best case scenario, might be only slightly loss making because steel prices went through the roof and the scrap value comes closer to your purchase price excluding your sunken costs (but it's hard to envision a bad dry bulk market with high steel prices, they usually go hand in hand for obvious reasons). With an older ship on your hands, the duration you have left to trade her in hopes for a better market to recover your investment is limited as well (lifespan generally 20-30 years). Regardless, market timing is everything as usual (2016 and 2020 were both great years to buy). If you can time the market right, my preference would be to focus on expensive but younger tonnage where you have :
(a) the ability to trade a fully compliant, eco friendly vessel across all regions thereby capturing geographical seasonal premiums rather than relying on singular trades in less regulated ports/areas
(b) the lifespan of more than a few years to trade in case your market timing is off
(c) the ability to build a reputable business, ie. an actual owner-operator platform with the ability to build a book with tier 1 cargoes (ie good counterparties) with a reliable and quality fleet to back you
(d) actual liquidity for selling in the market beyond scrapping
I guess the above can be summarised as paying more for optionality, which really is everything in physical trading but is usually overlooked by $ conscious players. Of course it goes without saying that you would also need to have financing from a serious, long term investor who would be willing to ride out the bad parts of a market cycle with you (rather than hoping to flip the asset within a short time frame, which is a game the Greeks play quite well, albeit with cash rather than financing).
OPEX/comms/overhead is a bit too detailed to answer and really depends on the structure of the organisation you work for. I don't think most operators work on a comm basis (unless the operator has a bunch of entities under their umbrella that trade with each other for accounting purposes). OPEX with owners is pretty consistent across the industry from what I see and usually is around the $5000-$5500 per day mark (mainly consisting of costs for crewing, insurance, maintenance/repairs etc.).
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What was the desk/street talk about that Suez Canal fiasco? Any impact to your work/clients?
It was a bit overhyped by the media to be honest. Of course it was a crazy event but any actual impact was quite short lived. Naturally everyone in the industry would have had some operational issues (ie a few vessels having to route around COGH rather than via Suez). But yeah for dry bulk it didn't really escalate to the point of having to rethink how to price business and I didn't have any exposure at the time thankfully. Can't speak for tankers/containers which I think were more affected.
I've been thinking about potentially investing in some of the publicly-traded drybulk stocks since it seems like they've run up quite a bit in the past few months with timecharter rates at all time highs. What are your thoughts on the overall market at the moment, and on some of the publicly-listed drybulk operators (Star Bulk, Safe Bulkers, Diana, Genco, Eagle Bulk, etc.)?
Apologies - I'm not in a position to determine where you should invest your money. If you do want to invest, what I would say is look carefully at each of their sites and understand their strategies. For example, if the market is good right now but none of your ships are trading spot then you don't have exposure to that.
I generally prefer the geared segment to the larger sizes that rely on coal and iron ore trades, but that's just me.
Market is still holding well - though it has slipped from its recent high over the last two weeks or so and the FFA curve is still quite backwardated.
Shipping is a cyclical industry - I usually invest in a counter cyclical way. Take that as you will.
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Ports/berths more generally (like you need to know the draft, tidal ranges etc and other restrictions / functions of the berth before you price a business). Sometimes we do instruct via coordinates as well, but less common. Shape of the coast not so much. The master of the ship generally determines the routing in accordance with restrictions, maritime laws, charter party, owners preferences etc. but for most trades routing is quite standardised and we usually can see on a map how it would look when we're evaluating the business.
Do you think Soybean prices will start to decrease?
I'm not sure on this one, sorry. It has had a pretty good run so far, I would think more downside than upside at this point given the majority of sales would have been concluded and Brazil will just be finishing off their crop (we'll still a good flow of volume on freight though of course through Q2).
Hey man thanks a lot for answering my soybean question. I currently own a medium sized soybean/palm oil refinery and given that crude oil prices account for 90% of production costs i've been giving thought to creating a research arm.
Is it possible to replicate the information inflows that are available to someone like you, Cargill/ADM/Bungee? What types of things should I be looking at and how can I get ahold of that info? i.e crop production, China demand etc..
i'm an interest rates trader...mostly relative value (long 25yr govt interest rates vs short 26yr rates...that sort of thing)...and looking to change careers....your career sounds interesting...very different from mine. If i wanted to career change into your industry, how would that happen...and what would the career progression be?
Trafigura International Trader Program
Sorry for the late reply.
As costofcarry mentioned you could try to get into a program with one of the major commodity houses, I do think some of them will value your skillset in terms of derivatives trading. Getting onto the physical side though could prove more challenging. It really boils down to who you know. Furthermore, you would basically be resetting your career, taking a pay cut and starting from operations.
I think best thing for you to do if you wanted to get into commodities/freight is basically to stick on the paper side. There are some utilities and small funds out there that use macro data to speculate on FFAs, for example. Depending on the shop you end up in, there may be some guys focusing on chartering and then you can network your way across if you are keen.
Very interesting, thank you for this. What are some of the biggest players in this industry? Are there individual firms that handle this, or is mainly a big thing in trading houses. Also what are the usual rates per mt you charge?
also, are there any good books to read about shipping and it’s technicals and stuff?
What are some of the biggest players in this industry?
Oldendorff and Cargill are the two largest. Oldendorff is an owner/operator, whilst Cargill is obviously primarily a grain trading house with a sizable freight desk.
Are there individual firms that handle this, or is mainly a big thing in trading houses.
More individual firms than trading houses. In recent years, some trading houses have scaled back third party freight trading and solely focus on chartering for internal requirements either on voyage or TC basis. Simply put, the focus required on building a trading book of ships + cargoes means that it is better left in the hands of operators. Some operators are exceptionally aggressive on voyage calculations as well.
Also what are the usual rates per mt you charge?
Depends on the stem size, route, commodity, terms, dates etc. It's not really something that gets tracked live like precious metals.
also, are there any good books to read about shipping and it's technicals and stuff?
Check out The Virtual Shipbroker blog.
Are you hedging in futures? Which exchanges and do you find many arb opportunities across exchanges?
Mostly hedging with period charters or physical cargoes. Futures aren't exactly the best way to hedge all the time. If we do buy or sell FFAs it's done through Baltic Exchange, with most volume cleared by SGX. No other exchanges for dry FFA to my knowledge, so no cross exchange arb opportunities. Though, sometimes, I understand that some FFA brokers will have lower/higher bid/ask spreads so there are sometimes (I would imagine not that common) opportunities for market making.
Did you watch Zero Zero Zero on Amazon Prime...if so was it at all real?
Hi! What are the basics 101 to make money as a freight trader ? Hoping to learn more from you. Thanks
Hello!
Once you are in shipping and chartering operations, what are the prospects of switching to trading with the commodity itself?
Not OP. But it is feasible. However, a junior trader will rather be given the chance vs a charterer if such an individual exists. On the other hand if you do chartering and have gained valuable experience in bunkering and heavy products makes it much more easier.
Have also seen movements from bulk i.e. bulk chartering into coal marketing / grain marketing
Hello,
Do you know what the difference between a freight trader and a merchant is at Cargill?
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