By Carol Yang

THE LAUNCH CEREMONY FOR CONTAINERIZED FREIGHT INDEX FUTURES IN SHANGHAI, AUGUST 18, 2023.

A NEW container freight futures product started trading on the Shanghai International Energy Exchange, known as INE, today, in the latest attempt to hedge against price swings in an industry in which futures trading has struggled to take off.

Based on the Shanghai Container Freight Index of Settlement, the Containerized Freight Index (Europe Service) Futures Contracts (EC futures contracts) reflect freight rates for containers shipped from Shanghai to European ports and the yuan-settled futures are open to global investors, according to an INE statement.

The INE argued that the tool would help container shipping and trading companies hedge against the risks of volatile container freight prices and business cycles.

Luo Dier, a trader at Bank of China International Futures, the broker of the EC futures contracts’ first transaction, said overseas shipping derivative products, including those offered on the Singapore Exchange, the European Energy Exchange and the Chicago Mercantile Exchange, primarily track freight rates in the global or regional markets.

But the SCFIS focuses on the shipping cost from China to northwestern Europe, reflecting China’s export trade market fundamentals.

She said the yuan-denominated EC futures contracts could serve as a general reference for freight rates in spot trading, increasing the potential uses for the yuan.

“This would enhance China’s influence in export and shipping trade pricing,” Luo said.

As the first cash-settled commodity futures in China, the EC futures are expected to attract more international participants outside the shipping sectors, she said.

The new futures, which bridge financial markets and shipping markets, align with Shanghai’s objective of becoming a global financial centre and shipping hub, INE said in a press release.

The daily price limits for the index futures are set at 10% based on the settlement prices of the previous trading session, and the minimum trading margin required is 12% of the contract value, the bourse noted in a previous statement.