Container index launched to manage risk

Cleartrade Exchange and Drewry have unveiled the World Container Index assessed by Drewry, a global index which can be used by physical and derivative market participants to manage freight risk.


The index will report individual market prices on major East-West container shipping routes. Initially prices for 11 individual routes and a composite index will be reported each week. These will cover trade in both directions between Asia, North America and Europe.


The index data will be generated by Drewry’s team of industry analysts from multiple market sources including carriers and intermediaries and published by WCI Marketing Services, a 50-50 joint venture with Cleartrade Exchange, the leading electronic marketplace for OTC freight and commodity swaps.


Drewry and Cleartrade Exchange believe that the new market price indices fill an important gap in the market, offering wide geographical scope as well as the inclusion of “backhaul” routes from an independent trusted research house.


“This is a big step forward for the container freight derivatives market, providing a robust set of indices on trade routes that reflect substantial physical volumes,” said Richard Baker, CEO of Cleartrade Exchange.


“We estimate the physical volume in 2010 on these 11 routes was 37 million TEU moves. The potential for hedging and trading that freight risk is obvious.”


Philip Damas, director-liner shipping and supply chains at Drewry, said the extreme market volatility in the last three years and the shortcomings of the annual contract system had highlighted the need for greater predictability of container shipping rates and the need for hedging.


However, independent networking site The Shippers’ Voice is encouraging shippers, freight forwarders, carriers and others to enter the debate and has published on its website a white paper “Container Freight Derivatives – Helping Shippers Manage Risk”.


“One of the greatest problems for shippers is determining an accurate budget forecast for the cost of ocean freight transport,” said Andrew Traill, managing partner of Shippers’ Voice.


“Promised rates are valid for only a month or two, a plethora of surcharges are added seemingly at will, and, even if rates are adhered to, shipping lines will simply leave that cargo on the dock and select the highest-paying cargo to carry.”


He agrees that shipping lines need to operate at a profit and that they too are subject to significant cost volatility, especially related to fuel. “But that is simply all the more reason why using a system such as container freight derivatives should be seriously discussed – for the sake of both shippers and shipping lines.”


Brian Nixon, president of the Container Freight Derivatives Association, said they welcomed the launch of the WCI assessed by Drewry and “applaud this initiative to bring further liquidity to the container freight derivatives market”.


“The association is on record as saying that its members support the development of new indices that are seen by the market to be fair, trustworthy and transparent,” he said.


“The development of these new indies by the WCI should bring new trading and hedging strategies, along with increased liquidity to market participants wishing to manage their risk on a specific route and index."


The World Container Index assessed by Drewry will be available to all users of the container freight market including shippers, carriers, forwarders, banks, brokers and clearing houses. The index will be published weekly on Thursdays.
(Source:http://www.cargonewsasia.com)