Bunker hedge

A bunker hedge is a derivative that locks in future marine-fuel cost, protecting an owner or charterer against a rise in bunker prices over a voyage or charter period. The common instruments are bunker swaps and options, cash-settled against a published price assessment for VLSFO, HSFO, or MGO at a reference port such as Singapore, Rotterdam, or Fujairah. A charterer on a voyage estimate sells freight forward and buys a bunker swap to fix both legs of the margin. Banks, trading houses, and the freight clearing houses provide the contracts. The hedge converts a floating fuel exposure, often the largest single voyage cost, into a known number.