Can Container Freight Futures Offer An Antidote To The Supply Chain Blues?
The Baltic Exchange, which pioneered the indexing and settlement of bulk cargo futures in the 1980s, has announced that it will begin trading container cargo futures on the Chicago Mercantile Exchange (CME) in late February 2022.
Futures transactions at the CME are processed according to individual route quotes that are provided by Baltic (in conjunction with Freightos, a digital marketplace for booking land, air and sea freight). That is a LARGE Deal-trading of container freight emerges from the shadows (laden with confidentiality clauses) into the public.
Throughout 2021, supply chain disruptions with anchored container ships being the marquee have put a strain on businesses and consumers alike. The high costs of container shipping, which are arguably included in the prices of most consumer goods, have also hit the headlines. In 2021, the cost of shipping a standard 40-foot crate from China to the U.S. east coast ranged from a low of $ 4,222 to a five-fold increase to $ 20,586 in the fourth quarter. Shipping matters have become C-suite matters; Managing shipping costs is now a matter for the CFOs of large corporations; in fact, some of the big box retailers have started chartering handy size container ships for moving boxes.
This is also a story of evolution and reinvention on all fronts. The Baltic, which began as a hub for handling shipping transactions in London, Great Britain, in the mid-18th century, has reinvented itself as an information portal. Far from its origins in the coffee house, it now offers all possible indices on sea freight rates (and also air freight), but also on ship scr -ping prices and operating costs of ships. The CME, a firm supplier of raw materials, began as a meeting place for egg and butter producers; Over the years it has grown to become a leader in financial instruments trading (with the first cash settled contracts in the late 1970s), energy futures (the company acquired NYMEX in 2008) and now offers “voluntary” carbon credits trading on.
Container freight trade will include six routes: China / East Asia to US West Coast, US West Coast to China / East Asia, China / East Asia to US East Coast (with the above cost), China / East Asia to Northern Europe, Northern Europe to China / East Asia and China / East Asia to the Mediterranean. Freight shippers can use these tools in a variety of ways; Importers can protect themselves against rising carton costs (or shipping margin at some point). Conversely, the liner shipping companies could secure income if they perceive a price softening on the horizon. All the headline coverage of supply chains will no doubt attract speculators who would bet on box rates going up or down at any given moment. Such traders are vital to the futures markets as they offer liquidity and depth.
The “forward curve” pricing structure provides insight into what could h -pen in the future and guides the aforementioned CEOs, as well as economists and the large cadre of freight advisors and advisors. The new instrument, in which the “near” is a contract that expires in March 2022, will go a year into the future. There were several providers of container indexes – on different routes, besides the Baltic Sea / Freightos; These include the Shanghai Container Freight Index (SCFI, based on a basket of routes with multiple start / end locations) and the World Container Index – provided by Drewry, a well-known consultancy / advisory firm. However, traders should be comfortable in the highly regulated nature of the Baltic Exchange and the CME – both industrially strong marketplaces.
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