Ocean cargo/global logistics: Shanghai Shipping Exchange and Clarkson Securities deal enables shippers to engage in a “principal to principal” contract
A new level of pricing transparency may soon come to the container shipping industry as a consequence of a “swap agreement.”
Patrick Burnson -- Logistics Management, 2/1/2010
SHANGHAI--A new level of pricing transparency may soon come to the container shipping industry as a consequence of a "swap agreement."
Under the arrangement between Clarkson Securities Ltd. and the Shanghai Shipping Exchange's Shanghai Containerized Freight Index (SCFI), a "principal to principal" derivative contract will be explored. This is an agreement between two counterparties where one takes the view that freight rates will increase above some agreed level in the future, while the other believes they will decrease.
According to David Barnes of Clarksons Securities, Ltd., the first trade of a container freight swap
agreement took place last Friday.
"With the majority of U.S. container imports
from the East being booked on a contract basis we feel the SCFI will provide
better clarity of the spot market when carriers and shippers are looking to
price upcoming contracts," he told LM. "One of the differing factors between the U.S. vs Europe/Med for example is the
volatility of the market - with the U.S. seeing much less volatility due to the
greater volume of contracted liftings. For this reason we expect the
majority of early interest to be on Asia Westbound routes."
Indeed, shippers on the transpacific have
recently endured a two-week spike ending at $1,669 per forty-foot equivalent unit container
(FEU) as "emergency" charge by carriers comprising the Transpacific Stablization
Agreement, a rate-fixing cartel
After two weeks of strong week-to-week increases, the spot rate for shipping a 40-foot container from Hong Kong to Los Angeles settled down, stabilizing at $1,669 in the week ended Jan. 25, the same rate as in the previous week.
"To come up with a neutral estimate of container freight rates, the
Shanghai Shipping Exchange is using a panel of companies," he explained. "So
far, it has picked 15 carriers and 15 freight forwarders or shippers to
guarantee neutrality," said Barnes.
The neutrality in the assessment of spot
rates is achieved by having both sides represented when inputting the rate data
to the Shanghai Shipping Exchange. There is the view of both the carrier and
the non-carrier as to where the current spot rate is priced for each of
the particular routes covered by the SCFI. Barnes said that combined with the
auditing processes of the Shanghai Shipping Exchange, this will ensure a
neutral assessment of the current spot rates is ascertained.
"With the majority of U.S. container imports from the East being booked on a contract basis, we feel the SCFI will provide better clarity of the spot market when carriers and shippers are looking to price upcoming contracts," he said.
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