Freight futures to help shipping firms

The Containerized Freight Index (Europe Service) futures contract, which started trading on the Shanghai International Energy Exchange on Friday, is part of the innovative attempts by the Chinese capital market to help shipping companies manage their risks better and boost China's influence in pricing in international transportation services, officials and industry insiders said on Friday.

Denominated and settled in the renminbi, the newly introduced futures contract is open to investors all over the world. It is China's first shipping futures product as well as the first futures contract based on services.

Upon contract expiration, open positions of the futures will be closed by calculating the profits and losses at the final settlement price and settling them in cash.

The Shanghai (Export) Containerized Freight Index based on settled rates, or the SCFIS, which is updated by the Shanghai Shipping Exchange every Monday, is the underlying asset of the newly launched futures contract. The SCFIS tracks the average level of spot-market, post-departure settled rates for containerships traveling from Shanghai to Europe.

In all, 369,000 lots of the main contract were traded on Friday, with their value reaching 16.56 billion yuan ($2.27 billion). After opening at 770 points, the main contract closed at 916.3 points.

Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, the country's top securities watchdog, said at the launch ceremony on Friday that the Containerized Freight Index (Europe Service) futures is one of the most innovative products introduced in the Chinese futures market in the past few years. The new product's stable launch and operation will help advance the Chinese futures market's opening-up and promote further product innovation.

The new futures contract will enrich Chinese shipping companies' risk management tools. This is significant because demand for such tools has grown over the past few years amid higher freight rates volatility, said Tian Xiangyang, chairman of the Shanghai Futures Exchange, the parent of the Shanghai International Energy Exchange.

Given the large size of the Chinese shipping industry, the new futures will also help increase China's influence in terms of pricing in international transportation, said Tian.

According to Aug 12 data from Clarksons Research, a United Kingdom-based market intelligence provider, China has overtaken Greece to become the world's largest ship-owning country in terms of gross tonnage. The gross tonnage of the fleet of Chinese shipowners has reached 249.2 million tons, accounting for a global market share of 15.9 percent, or about $180 billion in fleet value. This is slightly higher than the 249 million GT of Greek shipowners' fleet, which accounts for a global market share of 15.8 percent and is valued at around $163 billion.

Zhang Hao, chairman of CITIC Futures, said the freight rates have been undergoing "drastic ups and downs" over the past two years, and such fluctuations still continue. The newly launched futures can help companies discover forward prices and secure profits through appropriate hedging. The overall risk management capability throughout the industrial chain will be strengthened, he said.

Wang Hongyan, head of China futures at Goldman Sachs' global markets division, said the newly launched futures contract holds a special appeal to investors because it has not only enlarged the investment portfolio but serves as an important macroeconomic indicator.

The Shanghai Futures Exchange's dedication to advancing opening-up is borne out by the number of products open to international investors and the rising interest in them among overseas investors, said Wang.