Entries for July 2011
July 26, 2011 | Jennifer Jones
In January of 2008, Triple Point acquired Softmar, the leading provider of software to manage chartering and vessel operations, including freight risk management. As the freight derivatives market grows in sophistication — so must the range of strategies used. The acquisition enabled Triple Point to immediately provide our customers with solutions to optimize freight management and deepened our solution suite to offer market-based, commodity supply chain management across sourcing, transportation, inventory, operations, and product marketing. In today’s complex and ever-changing commodities markets, the most successful companies are those best prepared to identify risk and model its dynamics, measure and quantify the impact of risk across the enterprise and on financial results, and manage and mitigate risk with an integrated platform that enables better and more proactive decision-making.
Recognized as an industry leader in managing end-to-end shipping operations, we were honored to be invited by Professor Manolis G. Kavussanos and Dr. Ilias D. Visvikis to participate in a book published by Incisive Media, titled: Theory and Practice of Shipping Freight Derivatives. Our Managing Director of Chartering and Vessel Operations, Michael Lolk Larsen, authored the chapter which examines electronic trading software requirements for the freight derivatives market.
Although roughly 90% of the world’s traded goods by volume are transported by sea, industry surveys show that approximately 80% of companies are still attempting to manage commercial vessel operations and freight risk through the use of spreadsheets! This creates layers of information that are not transparent to other business units, leading to greater operational risk. Triple Point’s chapter examines how sophisticated software, such as our flagship Chartering and VesselOps™ solution, enables ship owners, charterers, and operators to successfully manage freight risk holistically by integrating physical and paper markets. It provides an overview of the freight derivatives market and examines the interconnected relationship between chartering, vessel operations, and freight risk management. I highly recommend the book as essential reading for all members of the shipping and financial communities. You may purchase the book here.
About the Book
Freight rates and their fluctuation constitutes the most significant source of shipping risk. This increasing recognition has brought with it a significant amount of derivative products, which have begun to offer more effective, flexible and cheaper ways to manage risk. The book provides practical coverage of shipping freight rate derivatives, detailed by leading expert practitioners in the field, and offers best practices from different points of view. I highly recommend the book as essential reading for all members of the shipping and financial communities. You may purchase the book here.
Other chapters in the book include:
- The Structure of the Freight Derivatives Markets
- Credit Risk and the Benefits of Clearing Services
- The Ship Owner’s and Charterer’s View and Practice of Freight Derivatives
- The Bankers’ Perspective of Freight Derivatives
- Accounting and Tax Perspectives
- Setting up a Freight Rate Risk Management Department
July 22, 2011 | Michael Schwartz
I was recently interviewed for the Commodities Now special CTRM supplement by Guy Isherwood, Editor-in-Chief. I’m sure some of you aren't readers of Commodities Now (by the way, it’s an excellent publication) so I thought I would make the interview available via the blog.
Guy Isherwood [GI]: What new trends have you noticed in the commodities industry?
Michael Schwartz [MS]: The United Nations issued a press release a few weeks ago stating that the world population, which is close to 7 billion right now, will surpass 10 billion by 2100. Many analysts had believed that population growth would stabilize at around 9 billion globally. It’s amazing to think that the population was 800 million in 1800 and we’re on our way to 10 billion 300 years later. Along with the exponential growth, many non-OECD countries are adopting western life-styles and appetites.
Add to the mix that commodities are becoming harder and more costly to get out of the ground, whether it is oil from tar sands in Canada or iron ore from less developed regions like Zambia. The net effect is that there is a long-term trend of higher commodity prices. In addition to higher prices, we will see more and more volatility caused by a tighter demand/supply equation.
From our perspective, we are seeing companies that have traditionally not been our customers start to adopt the same sophisticated commodity management systems that commodity trading organizations have deployed from Triple Point for years. These new industries include consumer products, chemicals, big-box retail and automotive. High prices and volatility in the raw material markets that these organizations depend on are not a wait-and-see problem, it’s the new reality.
[GI]: You mentioned that Triple Point is working with clients in the food and beverage, consumer products, and manufacturing industries. Can you comment further on what is driving interest from these companies?
[MS]: Higher commodity and energy prices coupled with greater volatility can harm profitability, shareholder value, and credibility with analysts for these companies. Organizations that use large amounts of raw materials and energy recognize that increased commodity volatility is not a short-term phenomenon but a fundamental change in the markets.
A CP executive recently told me that his company views increased raw material volatility as a 20 year issue, not a 2011 problem. Executives in these types of firms are increasingly aware that they can lose market share to competitors with a better strategy for managing commodity and energy prices. For organizations to be successful, the approach used by the purchasing department must be revamped from static “buy to budget” to a more proactive “market-based” procurement and risk management program. The traditional methods of handling rising raw material and energy costs, such as substituting cheaper materials in products and raising prices, might prove necessary but do not take advantage of commodity management best practices to optimize margins – and that’s why early adopters are turning to Triple Point.
[GI]: What extra demands are being made on managers for risk control, and how does Commodity XL™ address them?
[MS]: First and foremost, there are huge levels of price risk in the financial and commodity markets. It’s been reported that we’re seeing three or four ‘100-year risk events’ every year, and we’re almost certainly going to see more extreme events that are outside normal expectations.
Secondly, the recession has made everyone take a much closer look at credit. Credit risk managers used to triage potential counterparties into three groups – definite yes, definite no, and everyone in between. Now everyone is either rejected or sent for assessment. Finally, the markets are more closely regulated. Whether it is hedge accounting, fair value disclosure or the pending Dodd-Frank legislation, there’s no denying the growing importance of standards that require additional transparency into valuations and accounting methods.
Commodity XL™ is the only real-time commodity management and risk system that handles the four key areas of financial exposure set by the Committee of Chief Risk Officers on a tightly integrated platform: market/price risk; operational risk; regulatory risk; counterparty credit risk.
And this is not marketing hype – we’ve created the only true commodity enterprise risk platform by acquiring the leading credit and regulatory software solutions and integrating them into the Commodity XL platform. The solution breaks down individual information silos to get a clear picture of global exposure and firm-wide risk. The Management Dashboard™ business intelligence module provides executives with easy access to an accurate picture of the company’s total exposure.
[GI]: How do you see Dodd-Frank affecting energy organizations?
[MS]: A key challenge is the provision within the Dodd-Frank Act that applies to central clearing of OTC derivative trades (with Europe’s MiFID II legislation soon to follow). Dodd-Frank is a response to the credit crunch, but applies to energy organizations that use derivatives to hedge and reduce risk. The proposed legislation includes an end-user exemption clause for genuine hedging transactions. In order to take advantage of the exemption, firms need to test, document and report on a trade-by-trade basis.
Companies must be able to accommodate the accounting and auditability requirements as part of a complete, end-to-end solution. We’ve been saying for years that organizations can’t manage a commodity trading business on siloed-systems or spreadsheets – the new regulations might be the impetus that finally moves some companies off antiquated systems and unreliable tools.
[GI]: Gartner has named Triple Point Technology a leader in its Magic Quadrant (MQ) for E/CTRM solutions for the past three years. What are your thoughts about the MQ?
[MS]: Gartner is retained by 10,000 companies for its advice, and is top in its field, so it’s absolutely an honour for Triple Point to be consistently recognized as a leader.
What I find most interesting about the CTRM market is that it is evolving in a similar way to other major software markets where there are two leaders for enterprise solutions, like SAP and Oracle in ERP, and other vendors who fill niche areas. If you look at the CTRM Magic Quadrant over the last three years, it’s clear that Triple Point and OpenLink have become the leaders.
Gartner bestows leadership based on ‘completeness of vision’ and ‘ability to execute.’ When I started at Triple Point six years ago, there were five vendors of similar size. It’s been a testament to our market vision and execution that we’ve grown to three times the size of our competitors in those six years.
[GI]: What are some Triple Point highlights from 2010?
[MS]: In 2010, Triple Point launched new solutions for commercial chartering and vessel operations, freight risk management, trade confirmation management, cargo inspection, and strategic planning and procurement. We also announced several major enhancements to our European power and gas solutions.
Triple Point reported record revenue and 52% year-over-year EBITDA growth in 2010. We signed 105 new license transactions and added 41 new customers to bring our total number of customers to 260 companies. 2011 is shaping up to be another record year on all fronts.
We are investing in the success of our customers with several programs designed to encourage strategic alignment. Triple Point has appointed a Chief Customer Officer (CCO) with a commitment to serve customer relationships. Under the purview of the CCO, we’ve added a formal process for client satisfaction surveys and a Customer Driven Development program.
The commodities markets will always be volatile, presenting both huge opportunity and risk. In an industry that is both fast moving and complex, Triple Point will continue to provide its customers with the best solutions, product innovations, training and customer service to gain and maintain competitive advantage.
Pacific Carriers Limited, the global shipping and logistics subsidiary of Kuok (Singapore) Limited, has licensed Triple Point’s chartering and vessel operations software to manage supply chain cost and enterprise risk for its dry bulk commodities business.
Pacific Carriers Limited is a leading dry bulk operator with a growing fleet of product tankers, as well as offshore support vessels. It is a wholly-owned subsidiary of Kuok (Singapore) Limited, one of South-East Asia’s largest commodity houses trading in scrap steel, agricultural commodities, fertilizers, and chemicals.
With continuing growth in global commodity supply chain operations, the ability for organizations to control the cost and risk of transporting freight, including freight rate volatility, is key to managing overall supply chain cost and enterprise risk. Triple Point’s chartering and vessel operations software enables organizations to comprehensively manage freight rate risk, chartering, and post-fix operations on an integrated platform.
“For companies exposed to raw material, energy, and commodity price volatility, the need for a sophisticated commodity management solution to manage the buying, selling, risk, storage, processing, and transportation processes has never been greater,” said Peter F. Armstrong, president and CEO, Triple Point. “We are honored to add a customer of Pacific Carrier’s stature to our growing client base.”
Triple Point Technology announced today the availability of Softmar Chartering and VesselOps™ version 1108R. The new release of Triple Point’s flagship chartering and vessel operations software provides shipping participants with real-time intelligence for vessel position and spot cargos. With this recent functionality, charterers are able to fix cargos and vessels ahead of competitors, decrease ballast time, and increase throughput and profitability.
The unmanageable volume of market communication has always been a limiting factor in the shipping business; charterers can receive thousands of emails a day. Business opportunities are often forfeited by sifting through data and losing analysis time. Triple Point has solved this problem by extending its straight-through processing capability and leveraging the Copenhagen Shipping Exchange’s (CPHSE) revolutionary new software service. The service provides structured messaging of open vessel positions, available cargo, and noon day reporting — all which are now seamlessly integrated into Chartering and VesselOps.
“Our technology reads more than 90% of mail volume, extracting open cargos and vessels around the world,” said Stefan Avivson, CEO, CPHSE. “Triple Point’s unique ability to read, analyze, run scenarios, and turn the data into shipping intelligence is a key differentiator.”
”Extending Chartering and VesselOps so that it seamlessly integrates with the CPHSE is one more example of Triple Point’s commitment to automate the end-to-end business process,” said Michael Lolk Larsen, managing director, chartering and vessel operations, Triple Point. “With this latest move, our shipping customers can preemptively act on market information to gain additional business and decrease ballast time. In today’s complex and volatile shipping market — actionable intelligence that enables proactive and strategic decision-making is the winning factor.”
July 07, 2011 | Michael Schwartz
Two articles that were published in the Financial Times (FT) on the same day this week caught my attention: “Prices soar as China goes nuts for cashews.” and “Wary investors pull back on commodities.”
So are commodity prices heading to new highs or are we on a path to a sell-off?
Nuts are one more example of a commodity that has hit record prices driven by the growing middle class in China. China’s “appetite for healthier living among the country’s fast-growing middle class has stoked demand for nuts, sending prices of cashews and other snacks to record levels…. Cashews, walnuts and pecans, for example, are at record highs, with cashew kernels trading at $4.55 a pound, up more than 60 per cent from a year ago. Walnuts in their shells have risen 43 per cent and pecan kernels are up 38 per cent.”
The second article discusses commodity investors rapidly moving funds to other investments. “In the past two months, (investors) have pulled money out of the asset class at the fastest rate since the financial crisis. Barclays Capital estimates investors withdrew $6.9bn from commodity markets.”
So are commodity prices still going up driven by a growing population and middle class in countries such as China, or are prices going down as presaged by the investors withdrawing money?
A third article in the FT on copper prices might shed some light. “Copper prices touched $9,500 a tonne for the first time in more than two months as signs of improving Chinese demand encouraged investors to make a tentative return to the market. The price of copper had slipped 16 per cent from a peak of more than $10,000 in February to a low of $8,504.50 in May, amid signs of slowing demand from China, which accounts for 38 per cent of global consumption.”
Why could copper prices be telling? Copper has gained the nickname Dr. Copper — it’s said to have a Ph.D. in economics because of its ability to forecast the global economy. Copper is used by most industrial sectors, including housing, automobiles, appliances and electronics, and is typically a reliable leading indicator for directional changes in the economy. Copper came off its peak $10,000 per tonne, slid to $8,504, and now is back to $9,500. Maybe that’s the answer in the short-term — we’re not soaring to new peaks but we’re not in a sell-off either.
From a Triple Point perspective, the short-term moves in commodity prices are fun to watch but not the point. The key point is volatility, volatility, volatility, coupled with a longer term trend of higher prices. It seems very clear (read my previous blog on commodity prices and volatility) that we have a growing global population with more “western-like” appetites in food and consumer goods. And commodities are getting harder and more costly to get out of the ground, whether it is oil from tar sands in Canada or iron-ore from less developed regions like Zambia. I absolutely believe we will have higher commodity prices at the end of this decade than we do now. In addition to higher prices, we will see more and more volatility caused by a tighter demand/supply equation.