Shanghai Containerized Freight Index
Shanghai Shipping Exchange, based in one of the world’s busiest ports, will establish a container-shipping derivatives market, like the Baltic Exchange, by 2011 as the city tries to challenge London as the global center for shipping related finance.
The world’s busiest port is contested by several ports around the world, as there is as yet no standardised means of evaluating port performance and traffic. For the past decade, the distinction has been claimed by both the Port of Rotterdam and the Port of Singapore. The former based its measurement on cargo tonnage handled (total weight of goods loaded and discharged), while the latter ranked in terms of shipping tonnage handled (total volume of ships handled). Since 2005, the Port of Shanghai has exceeded both ports to take the title in terms of total cargo tonnage.
The forward freight agreements (FFA), which allow parties to hedge against fluctuations in shipping prices will be marketed to small and mid-size exporters that lack the volumes needed for the long-term shipping contracts.
Morgan Stanley were the first to back an FFA tied directly to a Shanghai container index, as the shipping exchange attempts to persuade the sector to adopt futures. Unlike in the dry-bulk and tanker segments of the Baltic Index, container-shipping has rarely used FFAs because the wide variety of cargos and customers and ships makes it more difficult to accurately track rates.
Clarkson Plc, which led the development of FFAs in 1991, helped devise the four-month-old Shanghai Containerized Freight Index to act as a benchmark for container-shipping futures. The securities arm of the world’s largest shipbroker also organized the container FFA between Morgan Stanley and shipping line Delphis NV. The trial deal covered a total of 10 cargo boxes to be shipped this month and next, according to the Shanghai Shipping Exchange’s official magazine.
The weekly Shanghai Containerized Freight Index tracks spot rates for shipments on 15 routes, including to Europe, the Mediterranean and the U.S. The data, compiled from 15 shipping lines and 15 freight forwarders, reflects more than 60 percent of global container-shipping, Yao said. The index rose 19.01 points to 1396.21 on Feb. 12.
The exchange will partner with a settlement bank and an electric-trading systems provider to set up the futures trading platform, Yao said.
“Container rates are influenced by more factors than dry- bulk rates, so it’s hard to make an index that reflects the market,” said Frank Fan, head of investor of relations at Shanghai-based China Shipping Container Lines Co. “Once the index gets involved with derivatives and traders, it may lose its accuracy in reflecting the real market situation.”
The Baltic Dry Index, the benchmark index for commodity- shipping costs doubled in 2007, slumped 92 percent in 2008 and then tripled last year as trading exacerbated fluctuations in rates caused by shipping supply and demand.
The Baltic Exchange
Dry-bulk FFAs are settled against the Baltic Dry Index and other indexes run by the London-based Baltic Exchange, which traces its history back to 1744. Trading in those futures will likely almost double to $60 billion this year, London-based brokerage Freight Investor Services Ltd. said last month.
“The Baltic Exchange has always been about tramp shipping, so a container index is not a natural target for us,” said Jeremy Penn, the exchange’s chief executive officer. Tramp shipping refers to vessels that haul tendered cargoes to different ports rather than operating to a published schedule.
The Baltic Exchange, whose tanker indices are also used for FFAs, is considering a proposal from the London Metal Exchange to jointly set up a new FFA exchange.
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