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New Tools for Managing Freight and Shipping Risk

An interview with Advanced Freight Trading Leadership

ComTech Advisory: Tell us a little about your new venture and its objectives?

Advanced Freight Trading: We are a diverse and experienced team that understands commodity trading and shipping. The interface of these two domains fascinates us and we are developing quantitative methods to generate alpha for traders and improve efficiency for owners and operators. We want to position ourselves as a plug-and-play partner that can overlay price and risk management expertise to anyone who creates a financial exposure to freight. We tend to think of traders being the people who take positions in the market, but in practice, anyone who makes an operational decision on a voyage, now or in the future, is taking a speculative view on the oil price or the emissions price, or the freight rate. A decision to change the routing, or speed of a ship is a speculative position on price, but such decisions often get made on static data and left to rest. Consider how many such decisions are made across a whole fleet of ships in a year and the speculative position could be huge! Our purpose is to unravel this mystery and prevent leakage of p&l from a balance sheet, or at least understand why it is happening.

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ComTech Advisory: Who are you targeting and why?

Advanced Freight Trading: If we start from the position that everyone from a chief engineer to a hedge fund manager is actually a trader of some sort, by virtue of the decisions they make, we think there is a huge opportunity to bring position management tools to each type of business. The tool we develop for somebody trading locational arbitrages in oil would be rooted in the same quantitative models as the tool we develop for a ship owner who wants to measure and capture the economics of a speed and consumption decision on a ship. It’s called ‘alpha’ whether you are a chief engineer or a commodity trader.

ComTech Advisory: What sorts of innovations are you hoping to bring to market?

Advanced Freight Trading: We have started by producing a Pricing Engine, which is a comprehensive library of over 120 forward freight rates and earnings, adjusted for market risk and the cost of emissions. Eventually, these will include adjustments for different combinations of bunker fuel (for example,KwH from the periodic operation of Flettner rotors) or different types of emissions (NOx, SOx), if these markets develop. We take all this data and put it into a Risk Engine that generates risk- and emissions-adjusted earnings, where various scenarios for volatility and liquidity can be simulated, together with hedging recommendations for the different types of embedded risk. These two engines are the foundations to the Arbitrage Engine. This will seek to solve the problem of understanding fleet dispersion and how the voyage pathways of ships between regions correspond to pricing signals in commodity markets. We have a prototype version that we are seeking to fund and scale over the next 12 months.

ComTech Advisory: When will the software be generally available?

Advanced Freight Trading: Our APIs are already available and we have a fully functioning UI that we will take into production this year.

ComTech Advisory: What other challenges do you foresee in supply chains and the maritime transportation of commodities in the future?

Advanced Freight Trading: I think the immediate challenge is to deal with inefficiencies we know about today; looking at supply chains (physical and financial) that have embedded freight risk and finding the money that falls down the back of the sofa. Examples could include the embedded freight risk in the working capital of a physical trading and shipping business or the free cash flow of a ship owner, or the mark-to-market valuations in a hedge fund. It is important to develop good tools for the risks we manage today and be quick in adapting them to manage the impact of changes to market structure, such as the introduction of new bunker fuels and how they impact emissions markets. This is not about disruption; it is about understanding your exposure and being ready to move with the market. Beyond seaborne shipping, I am curious about the interface between ships and trucks and how the tools we are developing for understanding voyage pathways and emissions can be extended to journeys and emissions in road haulage. And beyond that, I am curious on the potential array of hedging instruments with different combinations of freight rate, bunker fuel and emissions, so that it becomes more efficient to capture more financial risks in a business. Improved financial efficiency will ultimately lead to improved environmental performance too.

ComTech Advisory: What is the immediate plan for the venture?

Advanced Freight Trading: We are setting up some collaborations with ship owners, charterers and traders to start testing our products, as well as consulting on specific problems they want to solve in their businesses. We have just signed up with a VC advisory firm who will be assisting us prepare for fundraising this year, so we can scale up our research and development. It is a very exciting time to be starting up a business and we are lucky to be connecting with other like-minded entrepreneurs who want to combine their efforts and make a difference for the industry. Nobody can do this alone.

Martin Ireland, CEO at Advanced Freight Trading TechnologiesAbout Martin Ireland, CEO at Advanced Freight Trading Technologies

Martin worked for Shell for 28 years, spending most of his career in STASCO, where he traded crude oil, refined products and freight. He managed physical supply chains for the refining and chemicals system in Europe and moved on to become the Head of Fuel oil Trading in Singapore, then Global Head of Products Freight Trading and finally Global Head of Financial Oil Trading and Risk Management in the products division. He holds a PhD in chemistry and is married to Juliana and has two daughters. He splits his time between London and Singapore, which he considers to be his second home.

Michael Coulon, Chief Scientific Officer at Advanced Freight Trading TechnologiesAbout Michael Coulon, Chief Scientific Officer at Advanced Freight Trading Technologies

Michael joined AFT as Director of Research in 2020 to develop AFT’s pricing and risk models. He was previously a Senior Lecturer in Finance at the University of Sussex Business School, with research expertise and publications spanning quantitative finance, stochastic modelling, commodity and environmental markets. He has also worked for Princeton University, for leading investment banks and has collaborated with numerous energy firms, applying his research to risk management and valuation problems. He holds a PhD in applied maths from Oxford and now lives near London with his wife and two sons.