Shanghai launches containerized freight index futures, aiming to help firms hedge against fluctuation risks

Shanghai International Energy Exchange (INE) on Thursday said the Containerized Freight Index (Europe Service) Futures Contracts (EC futures contracts) will be listed for trading on Friday. The futures reflect freight rates for containers shipped from Shanghai to European ports with the aim to help firms hedge against fluctuation risks in container freight prices.

The futures will be the first shipping futures product in China, and also the first index type and cash-settled futures contract in a service sector in China. 

Using the yuan for valuation and settlement is another important feature of the EC futures contracts. As a contract open to global traders, using the Chinese yuan as the settlement currency serves as a way to facilitate traders and promote the yuan internationalization, according to INE.

The new freight index futures will provide shipbuilding companies, cargo owners and container firms a financial tool to avoid price fluctuation risks.

For companies that plan to use container ships to transport goods from Shanghai to Europe, they can buy the futures in advance to cover possible losses caused by rising freight rates.

In recent years, freight rates changed rapidly. Global container shipping industry suffered from price fluctuations, and for a very long time, industry practitioners lacked a tool for risk management, said Zheng Ping, chief analyst with industry news portal chineseport.cn. 

The EC futures contracts can help traders build price expectations and subsidize expenditures caused by changing freight prices, Zhang said.

As the world's largest exporter of goods, China has a huge container freight market. As of 2022, seven of the world's top 10 container ports are in China, with the Shanghai port being the largest, according to Clarksons, a shipping services provider.

In the first half of 2023, China's goods exports reached 11.46 trillion yuan ($1.57 trillion), up 3.7 percent year-on-year. Following the current growth momentum, Chinese exporters hope to improve their foreign business and promote exports. The EC futures could serve as a useful risk management tool.