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From Kirsten Bischoff, Opalesque New York: Research firm Celent has released a report on the freight industry. It focuses specifically on the still relatively new freight derivatives market, long anticipated as being “the next big thing” in finance.

For the past two months, since a record high (11,793 in May 2008) the Baltic Dry Index has fallen 93% to 668 due largely to the falling demand for dry goods, an oversupply of ships, and a freeze in credit. Celent’s report sets out to determine if the relatively young freight derivatives market (valued at $125bln) will be able to survive the impact of the larger financial crisis on the shipping industry.

The report concludes that even through the plummeting decline in the demand of dry goods, the freight derivatives market has sustained. In fact, participation of financial players within the industry has grown from 15% in 2007 to 40% in 2008.

“Furthermore,” the report’s authors state “the growth in the size of these markets means that sooner rather than later the derivatives market will overtake the underlying physical freight market”.

Analyzing the underlying physical freight market Over the past months quite a few managers have begun looking to the Baltic Dry Index as one of the indicators of how bad, and how long the financial crisis might be.

In separate investor communications during October 2008, Harch Capital Management referen......................

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