Bastien Declercq
CEO, CSC Commodities - A Division of Marex
With the shipping industry facing the challenges of a global energy transition, from the pressure of regulations on bunker fuels to uncertainty around emissions pricing, is hedging the safety net we need?
Oil futures have remained stagnant for months. Showing almost no response to recent geopolitical events, and with volatility at historic lows, many in the shipping industry may feel that bunker prices no longer pose a significant risk worth hedging. However, this sense of security ignores the lessons of past oil price shocks and the unpredictable nature of global supply chains.
OPEC+, with its significant spare capacity, has the ability to influence price ceilings by increasing production. Meanwhile, the Middle East’s need for higher revenues creates a natural price floor. This dynamic lulls some into overlooking the fact that geopolitical events or supply chain disruptions can cause price spikes. As seen during the Ukraine war or when the Ever Given blocked the Suez Canal, these events disrupted global shipping routes and caused sharp fluctuations in freight rates and oil spreads.
While fuel costs may no longer dominate fleet economics, and managing a hedging portfolio can be both technically challenging and time-consuming, it remains true that when the need to hedge becomes necessary, it’s often too late if a strategy isn’t already in place. If geopolitics have at times driven prices, they are not the only risks against which the derivatives market routinely insures corporate hedgers. Over the years, regulatory changes like IMO2020, which introduced a global sulphur cap on bunker fuel, have sent shockwaves through the market and led to sudden price dislocations. These regulatory shifts, unpredictable in their timing, scope, and impact, are unlikely to go away.
On top of that, logistical disruptions continue to challenge global shipping lanes, creating ripple effects across freight rates, oil spreads, and fuel availability. The derivatives market exists to offer certainty in the face of these uncertainties, and hedging provides a crucial tool for companies looking to stabilise cash flows and protect their bottom line.
Bastien Declercq, CEO of CSC Commodities, a division of Marex, — whose business has facilitated price discovery and liquidity in hedging derivatives for over a decade, emphasises the importance of broad and consistent hedging:
“In our numerous discussions with a wide variety of corporate risk managers on the derivatives trading desk, we have found that disciplined hedgers consistently outperform their competitors. This is true regardless of volatility levels and market conditions, as predictable cash flows are always essential. A comprehensive hedging policy should address all aspects of corporate operations. For example, in the shipping industry, it’s common for entities to hedge comprehensively. This covers bunker, emissions, time-charter, and occasionally even cargo. The key is to approach risk holistically, hedging as a package, and ensuring the policy is systematic and centralised.”
As the shipping industry faces the challenges of a global energy transition, managing operational risks will become even more critical. Regulatory pressures on bunker fuels, uncertainty around emissions pricing, and macro-economic and geopolitical tensions all have the potential to push prices to uneconomic levels for energy consumers.
If hedging has served as a safety net for corporations in the past, it could potentially become a survival tool in today’s increasingly competitive world. The question remains, can one afford to wait?