UBS Investment Bank has launched a new index that aims to track the freight derivatives market, known as the UBS Blue Sea Index (BSI).

The firm says that the UBS-BSI is the first tradable investment benchmark for global investments in the freight derivatives market, constructed using liquid, actively traded dry-bulk Forward Freight Agreements. FFAs are over-the-counter forward contracts based on one of several underlying freight indices. They are not standardized, but are agreed between two parties for a specific route, for a specific delivery rate and a specific vessel type.

“Dry freight transportation volumes to countries including China and India have grown dramatically over the last 12 months. At the same time, the number of freight derivative contracts traded has increased exponentially. FFAs remain however predominantly a hedging instrument for ship-owners, charterers and other organizations involved in the transportation of commodities and are largely inaccessible for the broad investor community,” noted Ilija Murisic, executive director, Hybrid Derivatives Trading at UBS.

“The UBS Blue Sea Index opens up this asset class to institutional investors and private banking clients looking for portfolio diversification as well as providing end-users with a simple way to hedge their exposure to freight price volatility,” Murisic added.

Global freight rates are highly dependent on a range of factors, including commodity prices, supply and demand but also port congestion around the globe. UBS has designed the UBS-BSI to incorporate a proprietary port congestion factor which takes into consideration the impact on prices in the freight derivative market of delays in the loading and unloading of dry freight in over 60 iron ore and coal ports worldwide.

The UBS-BSI Governance committee will meet annually to determine the composition and the weighting of the Index and its three sub-indices: the UBS Blue Sea Capesize Index; the UBS Blue Sea Panamax Index; and the UBS Blue Sea Supramax Index.