Trading in container freight contracts on Shanghai’s Shipping Freight Exchange has collapsed to the lowest level since the platform was launched just over two years ago, as extreme volatility on the spot market has forced traders to shun futures, industry analyst Alphaliner said.
Transactions have slumped to just 3,500 20-foot equivalents a day, down from the daily average of 80,000 TEUs the market attracted in the first year of trading. Liquidity plunged to 6,800 TEUs in the second year of operations.
The Shanghai market’s failure to retain liquidity on its freight derivatives platform — the world’s first electronic container derivatives market — will undermine its bid to become the global container freight trading and pricing center, Alphaliner said.
With physical freight markets expected to remain highly volatile in the next few years as ocean carriers confront excess capacity and extreme competition, trading volumes in freight futures are unlikely to recover in the short term.
Futures trading faces other significant obstacles on top of the extreme volatility of spot rates on the Shanghai Container Freight Index.
Continued scepticism over the reliability of the SCFI rates, lack of adoption of futures contracts as a hedging tool and the large ask-bid spreads continue to hamper the growth of an active container freight futures market.
The only other paper market for container freight futures, in London, has also disappointed, with trading volumes of just a few hundred TEUs per week.