A hedging tool for container price risk has been launched by the World Container Index (WCI) for the backhaul routes.
Two WCI route assessments, covering Los Angeles to Shanghai and Rotterdam to Shanghai, will now be cleared by LCH.Clearnet. This means that people shipping material on these routes will be able to lock in a price on a forward basis enabling them to manage risk.
WCI director Richard Heath said: “From its foundation, the World Container Index has been working closely with freight buyers and sellers to ensure that our products satisfy their needs for risk management. These first cleared contracts represent another step forward for the WCI and for the growing container freight derivatives market, helping to bring new solutions to a wider number of shippers, carriers and intermediaries.”
The contracts are similar to Asia-Europe routes already listed by LCH.Clearnet but differ in that WCI contracts are marked in forty-foot equivalent unit (FEU) rather than twenty-foot equivalent unit (TEU) to more accurately reflect the physical market.
Contracts are settled monthly and initially will be available across the front three months, four quarters and front calendar periods.
Both the Los Angeles-Shanghai and Rotterdam-Shanghai contracts are classed as backhaul routes, with cargoes that are generally of lower value than the corresponding headhauls. The largest commodity groups include waste paper, scrap metal, scrap plastic as well as agricultural commodities and chemicals carried under a larger percentage of spot business than is typical on the Asia-Europe trade lanes.
While freight rates on these routes are less volatile, market movements can be much larger in relative terms due to the low value of the freight and doubling of rates is not uncommon. Rates are driven by the availability of containers rather than vessel space, which makes rates less predictable and therefore highly suitable for hedging, according to WCI.