3. It is 15 October 2016 and you are working as a chartering manager for the European Power Company (EPC). EPC has bought a cargo of 150,000 mt of coal to be lifted in mid-December from Richards Bay (South Africa) to be imported to Rotterdam (the Netherlands). Currently the freight rate for Capesize vessels is relatively low but there is uncertainty regarding Capesize market in the next couple of months. Given the following FFA market report from Clarksons Platou Futures Ltd, explain how you would use FFA contracts to manage the freight cost risk in this trade. Provide possible scenarios and discuss the outcomes. Clarksons Platou Futures Limited FFA Report 17 October 2016 Indices BDI BCI BPI BSI BSHI SCFI TS1062 Index 894 2003 838 676 413 990.97 61.6 Day Change +2 -15 +19 +2 +2 -21 +1 BCI Cape Bid Offer Mid Chng Route 7 Mid Route 4 Mid 2 Tub-Rotterdam 3 Tub-China 7.17 12.15 -0.011 Oct 16 11750 11850 11,800 275 Oct 16 7 7.4 7.2 6.2 6.60 6.4 -0.014 Nov 16 10600 10700 10,650 425 Nov 16 6.7 7.1 6.9 6 6.40 6.2 4 Rbay-Rdam 6.63 +0.015 Q4 16 10200 10300 10,250 -275 Q4 16 6.6 7 6.8 5.9 6.30 6.1 5 WAus-China 6.01 -0.036 Dec 16 8150 8400 8,275 -150 Dec 16 6.1 6.5 6.3 5.5 5.90 5.7 7 Bolivar-Rdam 7.28 +0.040 Q1 17 4700 4850 4,775 +25 Q1 17 5 5.4 5.2 4 8 T/A Round 18,800 +2,925 Q2 17 6000 6150 6,075 -75 Q2 17 5.4 5.8 5.6 9 Trip F.East 27,360 +1,025 Cal 17 7700 7850 7,775 0 Q3 17 5.80 6.20 10 No-Pac Round 12,750 +186 Cal 18 9050 9200 9,125 0 Cal 17 5.80 6 6.20 6 14 China-Brazil 3,850 +218 16 Backhaul BCI 4TC Index 11,957 -104 MTD 12,756 YTD Q4 17 Cal 18 5,144 MTD 7.00 7.40 7.2 6.00 6.40 6.2 4.40 4.2 4.4 4.80 5.00 5.40 4.80 5.20 5.80 6.20 5.00 5.40 4.6 5.2 5 6 5.2 7.52 6.67 BCI 5TC Index 0 +0 MTD 0 YTD 0 [15 Marks]