Drewry Shipping Consultants is banking that rate indexes will come into greater use worldwide, not only as a base for adjusting shipping contracts but also as a pricing mechanism for shippers, carriers and speculators to hedge against freight rate fluctuations.
The London-based company publishes monthly indexes of average spot rates for 550 port-to-port routes compiled from spot rates it collects from non-vessel-operating common carriers that sell vessel space on those routes. It provides these rate indexes as part of its Container Freight Rate Insight.
In September, Drewry started publishing separate container freight rate measures on 11 east-west routes in a joint venture with Singapore’s Cleartrade Exchange called the World Container Index and says the indexes already are being used in contracting.
“They are intended to be used as a benchmark for index-linked contracting and for derivatives trading,” said Richard Heath, WCI’s managing director. “We provide a view into transparency of freight rates.” The WCI trading instrument will become available for derivatives trading in January.
The Shanghai Containerized Freight Index already is used for indexed contracts and derivatives trading on the Shanghai Shipping Exchange’s Freight Company Exchange and over the counter in the U.S. and Europe. Carriers initially viewed with skepticism the trading of derivatives based on rate indexes. Former Maersk Line CEO Eivind Kolding called them “a casino for freight rates” at The Journal of Commerce’s 2010 Trans-Pacific Maritime Conference in Long Beach, Calif.
But Heath said carriers’ resistance to derivatives has softened and he is seeing much greater use of index-based contracts. “There have been one or two toes in the water” by shipping lines and a few commodity traders, cargo owners and NVOs that have traded the SCFI,” Heath said. “There is generally momentum in the market for more transparency in the market.”