This aerial photo taken on July 22, 2023 shows an automated container wharf of the Beibu Gulf Port in Qinzhou, south China's Guangxi Zhuang Autonomous Region. (Xinhua/Cao Yiming)
BEIJING, Aug. 24 (Xinhua) -- China listed its first-ever Containerized Freight Index (Europe Service) Futures on the Shanghai International Energy Exchange (INE), a subsidiary of the Shanghai Futures Exchange, on August 18.
This is the first shipping futures product in China, and also the first index type and cash-settled futures contract in a service sector in China. Reflecting freight rates for containers shipped from Shanghai to European ports, the innovative futures contract is expected to boost high-quality development of the international shipping industry and advance the opening-up of China's futures market.
-- A long-awaited product
The newly introduced futures contract is dubbed a long-awaited product as global container shipping industry suffered from price fluctuations and for a very long time, industry practitioners lacked a tool for risk management.
International shipping is the dominant mode of transport for world trade, as data from the United Nations Conference on Trade and Development (UNCATD) suggested that maritime transport carries more than 80 percent of commodity transport. According to the Announcement of China's Maritime Day 2023, as China is the world's largest trading nation and the second largest economy, international shipping carries about 95 percent of China's import and export cargo volume.
According to recent 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.
In terms of port, the total container throughput of Chinese ports has topped the world since 2002. As of 2022, seven of the world's top 10 container ports are in China, with Shanghai port being the largest, according to Clarksons Research.
Against such backdrop, Chinese cargo owners and container firms are facing daunting risks amid higher freight rates volatility, said Ren Haiping, chairman of Shanghai International Port Group Logistics Co., Ltd. (SIPG Logistics), adding that 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.
Huang Liunan, senior researcher at the Guotai Junan Futures, said that China is only the third country to list shipping index futures after the U.S. and Singapore, as there is not sufficient supply of freight derivatives across the globe. Among these derivatives, the most well-known one is the Forward Freight Agreements (FFAs) rolled out by the Baltic Exchange, which is pegged to the Baltic Exchange Dry Index (BDI).
The introduction of the Containerized Freight Index Futures has filled in the gap in Chinese market of freight derivatives, said Huang, expressing his confidence in the product amid huge Chinese container transport market.
-- "Internationalized platform"
With the design idea of "internationalized platform, RMB priced and cash-settled", the new contract is open to both domestic investors and overseas investors, aiming to provide a solution for the strong need for fair pricing and effective hedging in the global container shipping market, which was triggered by the pandemic and international freight rates fluctuations.
Using the yuan for valuation and settlement is another important feature of the newly listed futures contract. As a contract open to global traders, using the Chinese yuan as the settlement currency serves as a way to promote the yuan internationalization, according to INE.
Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, the country's top securities regulator, said at the launch ceremony that the Containerized Freight Index (Europe Service) Futures is one of the most innovative products introduced in the Chinese futures market. The new product's stable launch and operation will help advance the Chinese futures market's opening-up and promote further product innovation.
Wang Hongyan, head of China futures at Goldman Sachs' global markets division, thought highly of the newly launched futures contract, saying that the product can help stakeholders reduce freight rates fluctuations posed by oil price and exchange rate, helping to improve the resilience of the container transport supply chain.
As freight pricing is an indicator of macro environment to some extent, the newly launched futures is expected to become an important tool of asset allocation for global investors. With the introduction of the new futures contract, global investors are expected to pay more attention to the Chinese container transport market, looking forward to more internationalized futures developed by Chinese futures market, said Wang.
Besides, experts from CITIC Futures also believe that the new product will promote Shanghai's presence in pricing in international transportation services, helping to turn the country into a shipping industry powerhouse in both size and strength.
(Edited by Li Shimeng with Xinhua Silk Road, lishimeng@xinhua.org)
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