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Country
Hedging - OTC Derivative Fuel Surcharge |
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The
dramatic and unpredictable rise in
rail fuel surcharges has made it increasingly
difficult to manage margins -- but
there is a way to hedge this risk.
Country
Hedging offers an over-the-counter
derivative that can help limit fuel
surcharge exposure. This price risk
management tool can be appropriate
for shuttle-car operators and transportation
fleets alike, and involves buying
a DOE retail diesel highway call option.
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| Most
railroads determine fuel surcharges
two months prior to the time of shipment.
By buying a call for the time frame
when that’s determined, if the
average price of diesel rises, the call
is worth more and helps offset the higher
fuel surcharge. If prices fall, the
call premium was the cost of insurance
against higher prices. Some customers
build the premium cost into their margins,
and it is important to weigh the per-bushel
premium cost against your risk tolerance
for higher highway diesel. |
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| Check
here
for more information or call us today
about whether or not this hedging product,
among other tools, might be appropriate
to help your operation manage the current
environment of commodity price volatility.
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| There
is always a risk of loss when trading
futures and options. |
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