Bunker hedging and bunker swaps
Fixing the largest voyage cost forward with swaps, futures and options, and the basis risk against the delivered grade, the port and the hedged volume.
A bunker hedge fixes the price of fuel forward without moving any fuel. The common instruments are a cash-settled swap or future on a published marine fuel assessment, settled against the average of that assessment over the contract month, and options on the same underlying.
The hedge is imperfect in three ways that decide whether it is worth doing. The assessment is for a named grade at a named port, so a ship stemming a different grade or a different port carries basis risk. The volume hedged is a forecast of consumption rather than a contracted quantity. And on a time charter the fuel is bought by the charterer, so the party with the price exposure is not always the party with the physical stem.
The full article will cover the instruments actually listed and the assessments they reference, the interaction with a freight hedge on a timecharter-equivalent index that is already net of bunkers, the accounting and margin consequences, and the charterparty mechanisms that pass fuel price risk between owner and charterer. See bunker price indices and benchmarks and forward freight agreements .