Physical Trading

Patrik · Post by **Patrik** » Fri Oct 28, 2011 8:25 pm

I have no clue about container shipping. Could be way different than what I describe below.

On the dirty and clean freight side we have a glut of ships around and freight is very depressed. Some glimmers of hope here and there in various segments for brief moments, but overall we're talking about good meaning ship owners breaking even, not really making money. So impact at the moment isn't going to be huge like in 07/08 - we're starting from a completely different playing field. There'd be differences between classes of ships, but overall it's a similar picture.

Martingale · Post by **Martingale** » Fri Oct 28, 2011 8:40 pm

Physical trading of fists Wink

Thistonnage · Post by **Thistonnage** » Fri Oct 28, 2011 9:11 pm

Container vessels are doing OK at the moment, they came off a bit recently. The new order book is very large for 2012 so there may be a depression looming, especially if Europe and the US don't wake up from their gloom and drag China's exports further down with them. I don't use much container vessels though, so I can only comment from hearsay.

Dirty and clean I def agree with Patrik, especially dirty is extremely depressed even though earnings have improved dramatically over the past few weeks, the future does not seem to hold much prospects...it is still cheaper to take a VLCC of 300k tons than a handy of grains of 35k tons today, which makes one wonder the long term stability of many shipowners.

Dry bulk: Capes and Panamaxes have had a few good weeks but they have been coming off a bit since last week. Several vessels in Nopac/China failed on subs repeatedly recently. What is not clear here is the extent of effect of the government lending restrictions....it is dragging the construction sector down and it remains to be seen whether the cheaper iron ore abroad will make the volumes of imports larger as China would certainly be better off replacing its mainly low quality local production with imports. If that happens capes will boom.

To me at the moment China is a big mystery, they come in and out, demand is far more sporadic than before and its steel sector seems to have been really hit hard by the government measures.

The only stable segment seems to be the Handy one which has held well without seeing the same volatility of others.

Steve Castle · Post by **Steve Castle** » Fri Oct 28, 2011 9:54 pm

The new order book is very large for 2012 so there may be a depression looming, especially if Europe and the US don't wake up from their gloom and drag China's exports further down with them.

Is there a "not" missing from that sentence? I'm confused why a very large new order book is a potential signal for a depression.

Thistonnage · Post by **Thistonnage** » Fri Oct 28, 2011 10:18 pm

The new order book is the one of new ships to hit the waters; cargoes are nearly never fixed so much in advance, we cannot extrapolate the amount of new cargoes with the same accuracy of extrapolating the amounts of new vessels; so in shipping the order book refers to the new tonnage coming in.

Shipowners' decisions tend to always be counter-cyclical...when the days are fine they spend humungously to expand their fleet only to then find themselves bankrupt in the bad days...Thus far containers are not doing that bad though.

Steve Castle · Post by **Steve Castle** » Fri Oct 28, 2011 10:39 pm

ahh, my mistake. I thought it was orders to be shipped, i.e. cargo. Yah I see now, thanks.

Patrik · Post by **Patrik** » Fri Oct 28, 2011 11:48 pm

When freight is high ship owners do the only thing they think is logical in terms of spending the money - buy more ships! So at the end of the 07/08 cycle the order book for newbuild ships was humongous and we're talking about huge percentage increases to the available fleet without too much scrapping going on. Result being post bust we had a lot of ships and even whole ship yards in construction going bust or pleading with banks to delay construction etc. But still we got a huge oversupply hitting the market for most segments.

I agree on being concerned about some ship owners and some financiers of ship building. All the losses haven't been admitted to yet.

enright · Post by **enright** » Fri Nov 04, 2011 2:06 pm

Tonnage, could you provide some color on getting into the field?

I've spoken to several Glencore traders (natgas) who claim the firm doesn't look for outstanding academics, but rather people in the field with the necessary relationships to facilitate physical buying/selling. Would you agree that tends to be the case?

Thistonnage · Post by **Thistonnage** » Fri Nov 04, 2011 9:04 pm

I would say it happens for sure...but it is definitely not the rule that people get jobs in this business because of connections. A seasoned trader will by definition have connections, just as a senior salesman at a bank is expected to already have connections to bring in business. On the junior side not really. People start as operators, not traders, as the core is understanding contract terms, optionalities that can make or break your P&L, shipping, finance etc. So the beginning is more techincal. After that one would be a junior assisting a senior trader in analysing demand / supply, managing risk on existing contracts and slowly starting to follow up on the business origination itself. So not really, people who start are not exactly expected to be buddies with dictators.

Just as in any other activity, this is sometimes the case but not the rule...and just as any other industry the way in is what one would expect it to be for most competitive industries: hard work, creativity, intensiveness of pursuit, some intelligence, some passion and some luck.

People who have serious contacts in this business do not usually sit working for others, as usually they tend to already be quite influential people.

Patrik · Post by **Patrik** » Sat Nov 05, 2011 2:46 pm

Agree with Thistonnage description of traditional trade house path. I've seen some changes making them a little more similar to the banks - more focus on grads and summer interns. In some cases short circuiting the process by taking in people with some relevant experience but not traders (e.g. ibank commod sales people wanting to make a switch) - a few years ago the GS/MS/etc sales guys would never have considered such a thing but the last couple of years have changed things.

Historically trade houses didn't use to get thousands of applicants from the Oxbridge/Ivy league unis so the focus on academics as a screening method wasn't there. Also, once everyone in an institution have a particular background things tend to be self-reinforcing - a bank stacked of that background tends to use it as a first screening ( not a very good thing in my mind - I always picked out disproportionate number of CVs from an unknown uni in Germany or Austria compared to the enourmous stacks of CVs coming from Imperial alone). With the trade houses having gotten more interest one can see some tendency to move a little in that direction - I was disgusted to hear someone talking about MBAs a while back.

Overall though trade houses don't seem to expect someone to show up from uni and be a trader making serious PnL within a couple of years. Learn the field properly and play it for the long term has more been the model. Banks tend to have less people and expect everyone to generate money pretty quickly in comparison - and don't expect people to stick around forever.