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."
Cambon said the SSE index is focused on a narrow market that does not reflect the complexity of the shipping business. It's based, for instance, on 20-foot equivalent units, but there can be large differences in pricing for 40-foot equivalent units. It also "is not a full reflection of market reality … and it has the potential to accelerate commoditization of the shipping business rather that stopping it."
That market reality, said Sartini, should take into account contract rates, which are not a part of the SCFI and reflect the varied demands of industrial shippers. The spot market, he said, accounts for less than 10 percent of container shipping.
"We are more than a single commodity reduced to a single price," Sartini said. "The shipping container market is much more complicated than that, than moving goods from one port to another."