Forward freight agreement
FFA
Meaning
A forward freight agreement (FFA) is a cleared derivative that lets owners and charterers hedge future freight rates against a Baltic benchmark route.
Also written as Freight derivatives
Forward freight agreement explained
An FFA settles in cash against the average of a Baltic route over a period, for example TD3C for a quarter. An owner can lock in future earnings by selling FFAs, and a charterer can cap its freight cost by buying them. No ship changes hands.
Related terms
Baltic Exchange
The Baltic Exchange publishes daily freight assessments for benchmark tanker routes, such as TD3C, which the market uses as reference rates.
TD3C
TD3C is the Baltic Exchange benchmark VLCC route for a 270,000-tonne crude cargo from Ras Tanura, Saudi Arabia, to Ningbo, China.
Worldscale
Worldscale is the index used to price tanker freight: a route's flat rate is WS 100, and fixtures are agreed as a percentage of it, such as WS 60.