Shipping rates trade under way
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Shanghai Daily, June 29, 2011
ShanghaiI Shipping Freight Exchange Co on Tuesday started trading in China's first forward freight futures, allowing cargo owners, export manufacturers and shipping companies to hedge risk amid fluctuating shipping rates.
"The new derivative is a key step towards expand shipping financing in Shanghai, and that's important for one of the world's biggest ports," said Zhi Guanglu, vice director of the water transportation bureau at China's Ministry of Transport.
The exchange, the first of its kind in China, provides forward freight rate contracts based on shipping rates on the China-Western American route and the China-European route.
Freight derivative trading on each route has six contracts, maturing from July to December. The exchange requires a 10 percent margin for each trader.
Shanghai has been the world's busiest dry bulk port for the past three years. Last year, it also overtook Singapore to become the world's largest container port.
"Forward trading contracts provides a new way to hedge the risk of fluctuating shipping rates," said Yao Weifu, vice general manager of Shanghai Shipping Freight Exchange.
"This also signals Shanghai wants to take a serious role in the world's shipping financing market," Yao added.
Zhang Ye, president of the Shanghai Shipping Exchange and chairman of Shanghai Shipping Freight Exchange Co, rang the bell for the start of trading in the new contracts at 9:25am yesterday.
The most active European route 1110 contract opened at US$886 per 20-foot equivalent unit (TEU), and the US route 1110 opened at US$1,658 per 40-foot equivalent unit (FEU). TEU and FEU are measurements of container cargo capacity.
Both indices are higher than the benchmark readings, suggesting market participants are having an optimistic outlook on the market.
The new contracts track dry bulk transportation rates of cargoes such as iron ore and coal. More will be launched at the end of this year.
The Shanghai Shipping Exchange, which has been publishing the Shanghai Containerized Freight Index since 1998, is the first to track container freight as a complement to the Baltic Dry Index, which is the most widely watched tracker of global dry-bulk cargo and shipping rates.
The Shanghai freight index is based on quotations from shipping companies as well as cargo brokerage firms on 15 major routes leaving the city.
The Shanghai Shipping Freight Exchange will be run by the Shanghai Shipping Exchange.
The State Council, China's Cabinet, in 2009 gave guidelines for Shanghai to accelerate development as a major financial center and shipping hub by 2020.
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