The Shanghai Export Containerized Freight Index Futures will use the Shanghai Export Containerized Freight Index as its settlement index, Yicai Global has learned. It will apply to the trading route between Shanghai and the European ports of Hamburg, Rotterdam, Antwerp, Felixstowe and Le Havre.
It means that if a company wants to transport goods by sea from Shanghai to Hamburg, it can first purchase container freight futures in the futures market, and if the forward shipping rate rises, the resulting profit can subsidize the expenditure.
Shanghai supports the launch of container freight index futures, the municipal government said in a proposal released on Oct. 21. It also said that it will explore other types of freight futures and options for bulk cargo and oil tankers.
The Covid-19 pandemic has greatly affected the shipping industry, resulting in a severe shortage of containers as global trade remains imbalanced. Big hikes in fuel prices have also affected transportation costs, putting the shipping sector and foreign trade companies at great risk.
“Global macroeconomics, trade activity, fuel prices, shipbuilding cycles, industry policies and other factors all influence cargo shipping prices,” industry insiders told Yicai Global. Most existing shipping derivatives are engaged in the bulk cargo and cruise markets. The index settlements have little correlation with spot prices and this cannot meet the industry’s precise hedging needs, they said.
Shanghai is encouraging businesses to use foreign exchange derivatives to manage exchange rate risks, the proposal said. The city is also urging banks to use a variety of financial products such as forward forex settlements and sales as well as forex swaps and options to provide foreign trade companies with suitable forex derivatives. Smaller banks should cooperate on Chinese yuan-to-forex financial instruments in order to satisfy the diversified forex needs of businesses, it added.
