China's Shanghai Shipping Freight Exchange plans to launch dry bulk freight futures contracts on June 18, the first of its kind in the global freight market, SSEFC President Yu Jun said late last week. "Being the first to launch such a contract has its merits, as we literally face no competition. But, on the other hand, it is also very challenging as there are no past lessons or experiences to learn from," Wang Dongsheng, vice president of SSEFC, said.
The monthly contracts would be for six months forward and there would be four quarterly contracts focusing on freight trading for Capesize, Panamax and Supramax, which were the most popular for iron ore, coal and agricultural products, Wang added.
The contracts will be priced in dollars but settled in yuan against physical ship deliveries if trading parties still hold open interests past the last trading day, which would be the second Friday of the prompt month, he added.
SSEFC, headquartered in Shanghai, is now in the last stage of collecting feedback on the contracts. This will close on June 9, after which the contracts' specifications would be finalized, Wang said.
China is the world's largest importer of iron ore and coal, accounting for 70% and 30% of the global seaborne trade respectively. Chinese importers and shipment service providers are, therefore, the most vulnerable in the freight market, and the futures contracts will provide them with an efficient hedging tool against volatility, he added. Freight derivatives allow a buyer to take a position on where freight rates will stand at a point in the future.
The contracts would be traded via member brokerages registered with the SSEFC. So far more than 40 members had registered themselves, an SSEFC official added.
For Capesize vessels, which are mostly used to ship iron ore, the standard delivery point will be Qingdao in Shandong province, a key iron ore unloading point, but deliveries at other Chinese ports would be accepted with a premium or discount, SSEFC said in its draft contract.
SSEFC, formally incorporated in March 2011, has forward freight container contracts for shipping a 40-foot equivalent unit from Shanghai to the US West Coast and a 20-foot equivalent unit from Shanghai to Europe as well as domestic coal shipment futures contracts for shipping from Qinhuangdao to Shanghai and to Guangzhou.
