1. Portfolio Management of Tanker Freight Risk Intertanko’s Rotterdam Tanker Event Monday 15 th April 2002 Jim Gretton – Global Freight Forwards

2. What some Owners do Acquire ships Sell Ships Fill intervening time as best as can - take period cover if cash flow dictates and a T/C is available - might do some contract business - take spot market wherever ship happens to be For all period business, tomorrow is higher than today

3. Alternative Trading Method – Portfolio Management For each forward time period, assess freight longs/shorts – LONG means you benefit if rates go UP (eg Owning a ship) – SHORT means you benefit if rates go DOWN (eg having T/Chartered out) – match by period (eg Month), vessel size (eg VLCC), region (eg AG) – net off longs against shorts to determine your net position Assess your opinion of forward markets – forecast state of global economy – forecasts of likely oil demand (eg EIA, OPEC) – market sentiment Match your forward position with your forward opinion – are you happy? – if not, FIX IT! – can still Time Charter (out or in) or do Contracts, but also FFAs

4. What is a Freight Forward Agreement? Can be ‘Over-the Counter’ agreement or traded on an Exchange via a screen ‘Contract for Differences’ (CFD) – means cash settlement Uses a specified notional voyage Fixes a price today for a defined future period Position closed out against an Index or Broker assessment over the defined future period

5. FFA Compared to Time Charter Pros No physical performance risk More liquid than Time Charter With standard terms, quick to do Flexible volumes, regions and selective timings Keeps control of your physical assets Cons May not get perfect match with desired voyage/timing Can have bunker price exposure (unless hedged)

6. Baltic International Tanker Routes TD1, 280kt AG – US Gulf TD2, 260kt AG – Singapore TD3, 250kt AG – Japan TD4, 260kt W Africa – USG TD5, 130kt W Africa – USAC TD6, 130kt cross Med TD7, 80kt, cross N.Sea TD8, 80kt, AG-Singapore TD9, 70kt, Caribs – USG TD10, 50kt, Caribs – USAC TC1, 75kt clean, AG – Japan TC2, 33kt clean, UKC – USAC TC3, 30kt clean, Caribs – USAC TC4, 30kt clean, Sing - Japan

7. Using FFAs to Adjust the Portfolio Identify period/region of concern Translate exposure into tonnes/month on appropriate BITR route Compare your opinion of forward rates with available bids/offers in the FFA market If FFA numbers are better than your own view, trade REVIEW REGULARLY!

12. Systems & Controls Need for review means that all physical freight deals must be entered in an exposure system Must ensure all FFAs are entered promptly Should value all paper deals on a ‘mark-to- market’ basis daily Report on on-going counter-party exposure Control on max outstanding at any one time