The Shanghai Shipping Exchange launched China's first forward freight container contract, allowing local exporters and shipping companies to manage growing volatility in freight rates.
Set up through a separate operation called the Shanghai Shipping Freight Exchange Company, the exchange’s web site lists the futures contracts for shipping a 40-foot equivalent unit from China to the U.S. West Coast and for shipping a 20-foot equivalent unit from China to Europe. The SSE's offering is separate from the derivatives trades the group has offered in concert with Clarksons in London.
The contracts began trading on Tuesday with the most active China-Europe contract opening at $886 per TEU, and the trans-Pacific route opening at $1,658 per FEU, according to Reuters.
The exchange said each route will have maturing periods beginning from July until December. Trading margins were set at 10 percent.
Maersk Line, APL, CMA CGM and other shipping companies have opposed the expansion of the container freight swap agreement market, saying it creates more uncertainty and does not accurately reflect rates.
Maersk Line CEO Eivind Kolding summed up what looks like general hostility last year, calling derivatives trading “a casino for freight rates.”
APL and Zim Integrated Shipping Services also have criticized container rate derivatives, saying they will increase price volatility and will not benefit carriers or shippers. And other carriers have dismissed the idea.
The Shanghai Containerized Freight Index, or SCFI, is based on quotations from shipping companies as well as cargo brokerage firms on 15 major routes leaving Shanghai, the world’s biggest container port by volume.
Freight derivatives allow a buyer to take a position on where freight rates will stand at a point in the future. Container contracts offer the same hedging principle as those traded for dry bulk and tanker markets.
Singapore Exchange and LCH.Clearnet last year launched clearing services for over-the-counter container freight derivatives to enable companies to hedge against volatile freight rates.