Some Wall Street traders are exploring investments in an unlikely place -- the high seas.

Investors in the increasingly crowded commodities sector are betting not just on the price of raw materials but also on the cost of delivering them.

Trading ocean-freight rates -- prices for getting oil, grain and coal to their destinations -- has become a hot new pursuit, with trades totaling an estimated $35 billion to $45 billion annually, up from roughly $20 billion to $30 billion a couple of years ago, participants estimate.

"It used to be freight was a service industry for moving oil or dry cargo around. Now freight has become its own commodity," says Barry Bednar, head of freight derivatives at ABN Amro. The Dutch bank started a desk a year ago to help clients trade oil-tanker and coal-tanker capacity.

Most of the action takes place in London and isn't conducted on formal futures exchanges, though some exchanges are working to expand their freight-related offerings.

Joining traditional ship-broking companies and commodity merchants, banks and hedge funds are buying and selling derivatives, known as "forward freight agreements," that lock in future shipping rates without committing any actual tankers to the water.

"The scope of players has changed dramatically," says Pierre Aury, head of a freight-focused hedge fund launched by Clarkson PLC, a large United Kingdom ship-broking firm. "Ten years ago, we had only shipowners or people with direct exposure to shipping, like steel mills, coal mines and grain-trading companies."

Fueling the trend are more volatile, and often higher, freight rates than in years past, as well as fluctuations in generally higher commodity prices themselves.

In 2006, the cost to ship dry freight, including coal and iron ore, nearly doubled. Tanker rates for a common route for wet freight -- such as oil and gasoline -- rose early in 2006, then sank, then rose in the summer along with crude prices before plunging again, ending the year down about 50 percent.

Such volatility appeals to financial firms and fast-trading investment pools known as hedge funds that seek to exploit price moves in either direction.

As with commodities, trading freight rates is a risky business.

"If you don't have a large capital base behind you, it's impossible to trade the market," says James Tweed, a former principal of Azimuth Marine Management. That freight-rate-focused hedge fund failed to raise the $25 million it had sought to support its activities and closed in 2005 after nine months of trading.

For companies exposed to the freight market, trading can reduce risks. Utilities in Europe that import coal may want to protect against skyrocketing freight rates by locking in prices for future shipments now. If freight prices go above what they paid, they have saved money, though if prices fall, they haven't.

Although freight-futures markets are vastly less developed than commodity markets, trading growth has helped to produce benchmarks that longer-term investors study for trends. Dan Rice, who oversees a top-performing mutual fund for BlackRock Inc., called BlackRock Global Resources Fund, says surging rates for shipping dry goods in bulk suggest emerging economies are voraciously consuming raw materials to build infrastructure, despite forecasts of a slowdown.

Shipowners traditionally protected against changing prices by juggling fleets of actual ships. For example, owners of so-called Very Large Crude Carriers would rent out part of their fleets at fixed rates and bid out the rest of the vessels as offers came up on the so-called spot market. If market rates went up, the owners made money on ships that were still available. If rates went down, the already-paid-for ships provided a cushion.

In theory, making a financial bet is less messy than holding ships that can fall into disrepair, sink or be in the wrong port at the wrong time.

Greek shipper DryShips Inc. announced in October that it had lost money in the third quarter on freight-forward agreements because it had anticipated a decline in rates only to see them stage a recovery. It said that despite those losses, its physical fleet would continue enjoying a market that was "much stronger than expected."

The Baltic Exchange, an old London maritime institution, has over the past few years become the market's leading publisher of freight-rate indexes. Trading based on these indexes has grown more popular with the advent of "clearing" firms that guarantee payment on contracts between two counterparties.

The business also got a boost in the late 1990s from Enron Corp., the U.S. energy-trading giant that failed amid accounting scandals in 2001. During its heyday, Enron had an online platform that allowed participants to bet on dry and wet freight rates.

Europe was particularly receptive. After the region's electricity markets were deregulated in the 1990s, power companies could no longer impose fees to offset unexpectedly high coal costs.

Because freight can amount to a third or more of the price of delivered coal, hedging services "were very much in demand," says Stuart Staley, who ran Enron's coal- and freight-trading desks in London and now heads Citigroup Inc.'s natural-gas-trading and power-trading business from Houston. Citigroup is planning to add coal and freight trading to its product mix in London, Mr. Staley says.

Upstarts in this field have a long way to go to catch up to Goldman Sachs Group Inc. and Morgan Stanley, which long have traded freight rates for clients and themselves.

Morgan Stanley has taken things a step further to gain first-hand insights into the market. For years, the firm has chartered ships to haul crude- and refined-oil products, and in 2003 it set up a specialized freight-trading desk, says David Morgan, a London-based trader who oversees the firm's oil-freight business.

Last year, it bought Heidmar Group, which manages over 80 tankers.

"By having that platform, we hope to have better access to ships and improve our understanding of the drivers in the tanker market and related commodities markets," Mr. Morgan says.

Among the big questions confronting the industry: whether a recent building boom in new tankers will flood the market and depress cargo prices. Some say it won't over the long term, because many shipowners in a few years will have to scrap single-hull tankers that are more prone to oil spills than the newer, fortified ships.