New market Dynamics Driving Demand for Freight Futures Market Florida |
Posted: March 29, 2023 |
Over the past two weeks, two new ocean freight futures products that are supported by well-known industry indices have surfaced in an attempt to succeed where previous attempts to give shippers, forwarders, and carriers hedging tools have failed. The indices join the fray in a market that has been turned upside down by shortages in ocean freight capacity brought on by an increase in demand and equipment dislocation that has sucked away as much as 20% of actual vessel capacity.
Both of the new benchmarks are based on freight rate information from firms, Freightos and Xeneta, that weren't around when there was a previous attempt to promote the use of ocean freight derivatives. Following the global economic crisis in 2010, Morgan Stanley and futures broker Freight Investor Services (FIS) spearheaded an effort, but it was unsuccessful due to a dearth of support from container lines and shippers. The futures alternative based on FBX also involves FIS. While shippers generally did not see the value in hedging against rate volatility when ocean freight costs were relatively low, container lines did not want to participate as they saw derivatives devaluing their business in a high-capital expenditure, low-margin industry. But since the COVID-19 pandemic began, the situation has drastically altered. Rates, both contract and spot, have exploded in 2021 with little indication that they will slow down in 2022. Service standards have decreased as evidenced by the reliability of sailing schedules and the availability of containers at ports, which presents supply chain managers with a double challenge when explaining this to their C-suites. Little experience in hedging
Shippers in charge of freight capacity procurement are generally not experienced in using hedging tools, a fact that has hindered demand for previous derivative and futures products, Bjorn Vang Jensen, vice president of advisory services/global supply chain at Sea-Intelligence Maritime Analysis, wrote in a LinkedIn post about the FBX-CME contracts.
“Remember, people who buy freight are, as a rule, not knowledgeable about derivatives and futures,” he wrote. “Another failure point last time is that people actually thought this was going to save them money. [Sellers of futures contracts] will need to explain very carefully, and in big, bold, red letters, what ‘hedge’ means.”
Jensen acknowledged that broader ocean market dynamics have changed, but questioned whether those changes would be enough to stir genuine demand for futures contracts.
For the majority of 2021, FIS has been conducting "off-exchange" futures transactions, according to a Dec. 16 statement from the Baltic Exchange. The fundamental driver has been the sharp increase in rates, which has altered how market players view hedging, according to Stallion's statement.
According to him, the volatility of the past 18 months has prompted many participants to look for hedging instruments. "With the introduction of these cleared contracts, the market is made accessible to all participants, advancing a productive and profitable market."
|
|||||||||||||||||||||||||||||||
|