Ocean carrier rate structure leaves futures markets shaky

The uncertainty over the level of container freight rates in the next few months has severely disrupted trading on the freight futures market, said analysts at the Paris-based consultancy, Alphaliner.

Volumes traded at the Shanghai Shipping Freight Exchange (SSEFC), the most active market for container freight futures, crashed to their lowest levels since the trading of container freight futures started at the Chinese exchange on 28 June 2011.

The analysis comes as carriers and shippers prepare for new contract negotiations. A general rate increase (GRI) is anticipated by both parties.

Average daily volumes traded from 2 to 8 February fell to only 15,000 twenty-foot equivalent unit (TEU) compared to the 169,000 teu average recorded for January. Forward freight rates hit their 5 percent daily cap on four consecutive trading days during that period as the market struggled to find an equilibrium following the surprise announcements by shipping lines of rate increases ranging from $400-900/teu on the Far East-Europe?trade and $800/forty-foot equivalent unit (feu) on the Transpacific trade. On 3 February, only 74 teu was traded on all Shanghai to Europe future freight contracts as market players refrained from selling forward rates due to the market uncertainty.

“Trading volumes will remain highly volatile in the next few weeks, as forward rates are expected to see wild swings as the market continues to digest the carriers’ GRI announcements,” said Alphaliner’s commercial director, Stephen Fletcher.

Forward rates to North Europe have seen a steep increase, with April contracts currently trading at $1,078/teu, rising by 54 percent from a low of $700/teu in January.

“Despite this, the carriers’ bid to raise rates is still far from assured,” said Fletcher.