Preface

Motivation

In December 2024, one of the authors met a group of wheat traders at the European Commodities Exchange in the Grand Palais in Paris. During the discussion, a simple but revealing question emerged: why does freight remain difficult for many commodityCommodityA basic physical good, such as grain, oilseeds, sugar, biomass, metals or energy products that are traded in large quantities. A commodity is sufficiently standardised that one unit can generally be exchanged for another unit of the same grade, quality and quantity without materially changing the value received by the buyer or seller.Open in terminology traders to use in practice?

It is not because freight markets are impossible to understand. Rather, commodity traders find that freight is often presented in a language that does not connect with how commodity traders think about commercial decisions.

Freight is often discussed as a separate shipping topic rather than as part of the commercial logic of commodity trading. As a result, traders may struggle to see how freight reshapes the economics of a trade. Freight influences the value of an origin, the attractiveness of a destination and the real economics behind a flat price, basis level, or delivered offer. Consequently, a cargo that appears profitable on paper may become uneconomic once freight is included. A destination that initially seems unattractive may become competitive when freight conditions change. Similarly, a hedge that looks clean may still leave a trader exposed if the underlying physical movement is misunderstood.

The traders in Paris asked for freight to be translated into the language of commodity trading. They wanted freight concepts explained through familiar economic principles rather than isolated shipping jargon. They wanted to understand how freight links to arbitrage, delivery economics, spreads, execution risk, and physical optionality.

This book is written in response to that need. It treats freight not as a separate technical subject, but as an integral part of the economic machinery of commodity trading. The goal is to help commodity traders understand freight well enough to ask sharper questions, price trades more accurately, judge risk more clearly, and see opportunities that are often missed when freight is treated as an afterthought.

A Book for Undergraduates and Young Professionals

The global economy relies on complex supply chains, from the food we humans eat and the energy that powers our homes to the materials that underpin modern infrastructure. At the centre of these systems are the commodities traded and the freight markets that connect producers with consumers. Our experience is that most academics treat shipping and commodity markets as separate subjects, leading much research to focus on one subject or the other, although it is difficult to quantify. In practice they are deeply interconnected through not just decision-making, logisticsLogisticsThe management of transporting agricultural products from farms to distribution centres and markets.Open in terminology and risk managementRisk managementThe process of identifying, measuring, evaluating, limiting, transferring, monitoring and reporting risks so that exposures remain consistent with the firm's objectives, capital, liquidity and approved risk appetite.Open in terminology - but also PnL.

This book aims to fill this knowledge gap. It is designed as an entry point into the fascinating world of freight trading and commodity supply chains, written primarily for undergraduate students, young professionals, and those embarking on their journey into these industries.

Combining economic theory with practical trading applications, the book draws extensively on anonymised real-world examples, particularly from Copenhagen Merchants Group, to show how freight and commodity markets interact in practice. The chapters start from the economic building blocks that underpin supply chains, progress to the specifics of trading practices, and conclude with how these elements interact to shape the modern global economy. The book will explore essential questions such as these: Why do nations rely heavily on maritime trade? How are freight rates set in volatile markets? What drives the price dynamics of key commodities like grain, biomass or sugar?

Importantly, this book also introduces a novel way of pricing basis risk in freight markets through a Value at Risk (VaR) framework. By linking freight pricing, hedging and risk management more directly to freight trading practice, the framework illustrates how freight desks and commodity traders can evaluate exposure within a unified economic structure.

Freight and commodity trading are not merely professions; they are dynamic, evolving crafts that sit at the intersection of economics, logistics, and human behaviour. They require both analytical precision and creative problem-solving. This book hopes to spark curiosity, equip readers with essential knowledge, and inspire them to approach these industries with the ambition to innovate and thrive. The goal is not just to learn facts, but to think critically about the complexities and opportunities of modern bulk commodity supply chains.

Welcome to the world of freight and commodity trading, where theory meets practice and every decision shapes the global flow of commodities.