Freight TradingBulk commodity supply chains
Learning tool 07 · Freight hedging

Physical Freight and FFA Hedge Waterfall

Follow a physical freight exposure and its paper hedge from entry to settlement. The hedge reduces benchmark risk, but different route and index moves leave a residual basis result.

Read the FFA hedge structure
Concept · Hedge the market, retain the basis

Separate the physical leg from the paper leg.

Change the physical and FFA settlements to see how benchmark protection reduces general freight exposure while leaving residual route and index basis.

Profit and loss waterfallPhysical + FFA = net hedged result
Physical freight and FFA profit and loss waterfallPhysical profit and loss is -$480,000, FFA profit and loss is $360,000, leaving a net result of -$120,000.$0-$480,000Physical P&L$360,000FFA P&L-$120,000Net result
Price movementRelated markets, different settlement
Physical freight and FFA prices from hedge entry to settlementHedge entrySettlement$30.00$38.00$29.00$35.00Physical freightFFA
Physical freight P&L-$480,000
FFA P&L$360,000
Net hedged result-$120,000
Residual basis result-$120,000
Hedge ratio100%
Unhedged result-$480,000
Basis change$2/pmt$1.00 → $3.00
Volume mismatch result$0under- or over-hedged volume only
Matched-volume basis-$120,000
Volume mismatch$0
Net hedged result-$120,000
Answer explainedWhy does the result move?Open or close the model FAQ
In plain English

The model assumes the FFA position is opposite to the selected physical exposure. Residual basis is the different price movement on matched volume; any volume mismatch remains visible separately in the total net result.

The rule behind itNet hedged P&L = physical freight P&L + FFA P&L