Bunkers: An Introduction to Managing Commercial Risk

Bunkers: An Introduction to Managing Commercial Risk offers the reader far more than a simple explanation of price risk management and the hedging tools and methods available today. It also provides a wide-ranging examination of the many forms of commercial risk that affect bunker suppliers and traders, just as much as they affect ship operators and charterers, including credit, counterparty, political, currency, insurance and even business continuity risk.In this highly accessible book, Nigel Draffin offers a useful checklist for those wishing to minimise commercial risk of any sort. He explains, in an easy-to-follow way, the workings of futures markets and the use of exchange-traded hedging tools, as well as over the counter swaps, options and other derivatives.He provides insight into some of the more complex risk management techniques and offers strategies to manage risk portfolios. The book also covers pricing, volatility and exposure, as well as tax rules, accounting and financial regulations.

Table of Contents:
Foreword v Preface vii About the author ix Contents xi List of Figures xvii Chapter 1 - What is risk? 1The ALARP principle 2 Price risk 3 Credit risk 3 Counterparty risk 3 Operational risk 4 Failure to manage risk 4 Bunker price risk 4 Bunker price history 4 Identifying strategy 8 Business need 8 Price sensitivity 9 Appetite for risk 10 Currency risk 11 Unsecured credit 11 Product price 11 Risk reduction 12 Insurance risk 12 Link to physical contracts 12 Link to paper derivatives 13 Chapter 2 - The history of derivatives 15 Differences between futures and forward contracts 16 Over the counter (OTC) trades 17 Futures exchanges 17 Chapter 3 - Hedging basics 19 How a swap works 21 How an option works 22 Call option 23 Put option 25Using cargo prices instead of bunker prices 26 Chapter 4 - More on hedging 27 Forward curve - contango/backwardation 27 Volatility and option pricing 29 Historical volatility 29 Implied volatility 29 Black-Scholes 29 Market perception - Bull versus Bear 30 Basis risk 31 Arbitrage 31 Over the counter (OTC) products for buyers 32 Swaps 32 Options 32 Cap / collar 32 Chapter 5 - Credit risk 33 Managing credit lines (product buyer) 33 Managing credit lines (product seller) 34 Credit scoring 34 Credit insurance 37 Assignment of receivables 37 Factoring 38 Chapter 6 - Overall exposure 39 Exposure for derivative seller 39 Exposure for derivative buyer 39 Exchange exposure 39 Specific risks 39 Country risk 39 Currency risk 42 Chapter 7 - Supplier's risks 43 Basis risk 43 Market risk 43 Credit risk 45 Operational risk 45 Liquidity risk 46 Chapter 8 - Assessing counterparty credit risk 47 Identifying counterparties 47 Business model 47 Market exposure of a ship operator 48 Market exposure of a trader 48 Use of credit reports 49Resilience versus survival 49 Security 50 Credit troubles - the warning signs 51 Chapter 9 - Tools for sellers 53 What are you 'protecting'? 53 Hedging stock - long position 53 Hedging an individual transaction - short position 53 Exposures 53 Pricing exposure 54 Physical exposure 54 Techniques 54 Product spread 54 Geographical spread 54 Crack spread 55 Calendar spread 55 Volatility trading 55 Interpreting historical data 55 Volatility 56 Relative strength index (RSI) 56 Chapter 10 - Margin calls and exposure 59 Impact on cash flow 59 Consequence of breach 60 Chapter 11 - Market prices 61 Published prices 62 Non-publishing days 62 Liquidity 62Exchange prices 63 Chapter 12 - Liquidating positions 65 Planned 65 Unplanned 65 Reducing exposure 65 Liquidity risk 65 Chapter 13 - Managing portfolios 67 Rolling contracts 68 Multiple ports 68 Changes in trading pattern 68 Stress testing 69 Hedge effectiveness 69 pportunity cost 69 Value at risk (VaR) 70Chapter 14 - Regulations 73 Revenue treatment of derivatives 73 Fair value accounting 73 Taxation 73 US rules 73 UK rules 74 General principles 75 Financial services regulation 75 Chapter 15 - Authority 77 Understanding potential liabilities 77 Management controls and reporting 77 For ship operators 77 For sellers 78 Accounting requirements 78 Chapter 16 - Dealing with risk across management structures 79 Chapter 17 - Contracts 81 Identification of counterparties 81 Pricing basis 81 Settlement dates 81 Liquidation 81 Non-performance 81 Disputes 82 Chapter 18 - Business continuity 83 Incident resilience 83 Business impact analysis 83 Threat and risk analysis 83 Solution design 83 Plan testing, verification and maintenance 84 Disaster recovery 84 Testing your response 84 Some quick suggestions 84 Temporary office 85 HR issues 85 IT issues 85 Communication procedures 86 Chapter 19 - Cybercrime 89 Fraudulent emails 89 Fraudulent web links 90 IT policies, procedures and precautions 90Chapter 20 - Where to go next 93 Risk assessment 93 Credit risk 93 Credit reports 94 Currency risk 94 Derivative trading 94 OTC products 94 Business continuity 94 Marine fuels - technical and legal information 95 Glossary 97 Index 107

About the Author :
Bunkers: An Introduction to Managing Commercial Risk is the ninth bunker-related book written by Nigel Draffin, whose other best-selling titles cover a wide range of issues, including fuel measurement, fuel analysis, LNG bunkering, marine engines, commercial and operational issues, and shipping in general.Nigel Draffin has been involved in shipping for some 50 years and with the commercial bunker market for over 25 years, most recently as a bunker broker. He is a founder member of the International Bunker Industry Association (IBIA) and has served several times on its management board, including as chairman. He is a member of the Institute of Marine Engineering, Science and Technology (IMarEST) and Past Master of the Worshipful Company of Fuellers.He is a well-respected trainer and lecturer, and Course Director of the Petrospot Academy, which runs the Oxford Bunker Course and a range of other professional bunker and shipping courses worldwide.