Long before “futures” markets in cargo emerged in the 1980s and 1990s, allowing owners, operators and cargo shippers of bulk and tankers to face the ups and downs of the shipping markets, there were “forward” markets. Examples of transactions in the long-established dry and tanker futures markets that fall within the purview of actual principals (rather than a purview of outside traders) would be time charters and chartering contracts.
Many of these trades were confidential, but when these markets opened up to traders, electronic trading venues with online price transparency offered what economists called “price discovery” — meaning anyone with a mobile phone or computer could pull up a screen to get a glimpse of the market .
In the liner sector, on the other hand, there were extensive contracts between larger freight companies and the large shipping companies; An intermediate sector of smaller shipping companies emerged that did not operate vessels but instead secured space on larger ships to handle smaller cargo carriers.
Put simply, the economic rationale in the liner markets was the same as in the bulk market; Freight forwarders hoped to keep revenues at healthy levels, while freight shippers hoped to post slumps should they materialize. The difference, however, was that the line markets offered little to no insight into what commodity watchers would call the “forward curve.”
While there are numerous indices for containerized freight, most of them provide insight into the spot market for specific trades, but not possible market movements in the coming months.
Important insights into the futures markets come from the benchmarking platform Xeneta, which, among many other tasks, also collects data from a large number of shippers. Importantly, its analysis provides real insights into future trajectories in the liner sector – based on anonymised inputs across its broad customer base on key routes. His senior market analyst, Peter Sand, formerly senior analyst at BIMCO, is no stranger to the futures markets on the bulk side and has brought this important sensitivity to Xeneta’s strategic planning for freight interests looking to optimize their programs.
Xeneta’s recent online webinar provided very good insight and insight into the liner freight futures markets.
Peter Sand and his colleague Emily Strausböll discussed the route from Northern Europe to the US East Coast – a lucrative route for shippers or “the only one where shippers don’t lose money in spot trading,” according to Sand.
Looking at the forward curve, Strausböll said that this trade “…finally faces reality…” with Xeneta data pointing to a strong downtrend – a backwardation structure with short-term contracts now trading around $1,400/feu below the longer-term contracts. This is in contrast to the momentum a year ago when short-term interest rates exceeded contract contracts by as much as $3,000/feu. Over the past three months, contract rates in Northern Europe and the US East Coast are down about 32%, while still-profitable spot rates are down 50% to about $2,500/feu.
For cargo customers of platforms offering market intelligence, such data on the tariffs and their movements can serve as a basis for their strategies to bid or hold back on ships. The dynamics of the different routes are very different; Far East-to-East Coast South America run spot rates are little changed, falling just 3% to about $3,000/feu over the past three months, while contract rates are down a third to about $2,400 over the same period -Dollar/Feu Spot rates have fallen.
Futures trading with determination of real prices from the interaction of buyers and sellers has started to develop. On the container routes offered by the online platform Freightos, financial clearing has been offered in Chicago with the support of the London Baltic Exchange since 2022 and now also in Singapore – a hub for real cargo.
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