CMA CGM, Michelin Reject Rate Derivatives

A senior official at CMA CGM says the world's third-largest container line will not participate in a freight rate derivative market, criticizing the market's Shanghai-based index as a "speculative tool" built on narrow and faulty information.

"We are not interested in this market," Nicolas Sartini, senior vice president for Asia-Europe liner trade at France-based CMA CGM. "The factors they are looking at are not the correct ones. They are working from the most volatile part of the business. They don't take into account the long-term contracts, the overall environment of the business."

Launched last year by shipbroker Clarksons in partnership with the Shanghai Shipping Exchange and Morgan Stanley, the freight rate derivative market has gained only small traction in the shipping business. But London-based Clarksons believes rate derivatives trading can grow as a method for shippers and carriers to hedge their exposure to rate volatility.

But Sartini, speaking at the Global Liner Shipping conference hosted by Containerisation International in London on Monday, said the derivatives market's tie to the Shanghai Shipping Exchange's SCFI, the Shanghai Containerized Freight Index, is troubling.

By The Numbers: SCFI - Shanghai Containerized Freight Index

"It is a speculative tool that can lead to huge volatility and plagued with disputable sources of information," Sartini said. "It is not done with a clear, transparent method. … This is based only on small Chinese forwarders only active in a small sector, the most volatile sector in the business."

Speaking at the same conference, Michelin's Jean-Louis Cambon, said the tire manufacturer also would not take part in the derivatives market.

"If it remains as it is, we won't be participating," said Cambon, head of Michelin's ocean management committee. "I am concerned about the influence of speculators. If you look at what is contributed, then the trend toward volatility will be exacerbated."