In recent years, due to multiple factors such as port congestion and the Red Sea incident, international shipping prices have fluctuated significantly, posing huge challenges to the operations of upstream and downstream enterprises in the industry chain.
On August 18th, the consolidated index (European line) futures celebrated its one-year anniversary of listing. Since the listing of futures, although shipping prices have fluctuated greatly, the overall operation of this variety has been stable, with close linkage between futures and spot prices, and the function of futures has gradually emerged.
Recently, a journalist from a securities firm in China followed the Shanghai Futures Exchange to visit Mawan Port and CMB Port in Shenzhen, and participated in the "Sailing Project" industry customer symposium for the consolidation index (European line) futures.
According to a survey conducted by Chinese journalists from securities firms, leading manufacturing enterprises in South China have strong export demand and are highly concerned about changes in sea freight prices. At the same time, some shipping companies, logistics companies and other industry chain enterprises have begun to try using futures for hedging to avoid the risk of price fluctuations.
Strong exports, fluctuations in shipping costs plague upstream and downstream enterprises
The container is undoubtedly one of the greatest inventions of the 20th century, which changed the way global logistics and trade operate, greatly improving the efficiency of maritime transportation.
At Mawan Port in Shenzhen, Chinese journalists from securities firms saw countless containers placed at the dock, being loaded and unloaded by automated gantry cranes in an orderly manner. It was raining heavily that day, but it did not seem to affect the work of the dock. Trucks were busy transporting containers.
It is reported that Mawan Port completed its intelligent transformation in 2021 and is China's first 5G green smart port upgraded from a traditional terminal. It has the largest unmanned truck fleet of a single terminal in the country.
The busy ports have witnessed the rapid development of China's economy, with boxes of Chinese made products being sent to the world and earning a large amount of income. Since the beginning of this year, domestic consumption has fallen short of expectations, but exports have been quite impressive, especially in industries such as home appliances, lithium batteries, and new energy vehicles. However, the significant fluctuations in ocean freight rates are also profoundly affecting the operations of export enterprises and shipping logistics companies.
At the "Sailing Project" Industry Customer Symposium on the European Line Futures of China Merchants Port Building, a home appliance export enterprise in Guangdong Province stated that its home appliance export business has been booming this year, with the number of exported containers increasing by 30% year-on-year. We have been researching and planning to use derivatives such as futures. After booking a warehouse for goods, if the freight rate rises, we can use futures hedging. While locking in price risk, having futures tools can also suppress so-called force majeure defaults
Cao Jingbo, Deputy General Manager of Changfan International Logistics Company, sighed that in the past, the freight rates for ocean routes changed every two weeks, but now they change multiple times a week. The listing of consolidation index (European line) futures can effectively hedge the risks of actual operations.
Wang Siran, Director of China Merchants Futures Research Institute, stated that since its launch, the consolidation index (European line) futures have become an important tool for price discovery and risk management in the shipping industry. On the one hand, it provides a transparent pricing mechanism for the market, improving market liquidity and pricing efficiency; On the other hand, through the operation of futures, market participants can more timely grasp the fluctuations of the shipping market, enhancing the predictability of shipping prices.
Significant fluctuations in freight rates, Guorong Logistics uses futures to lock in risks
Affected by multiple factors such as geopolitical events, there have been significant fluctuations in consolidated freight rates. More and more industrial customers are paying attention to futures as a price risk management tool, and some companies have begun to study and small-scale attempt to use futures hedging for risk management.
A journalist from a securities firm in China visited Guangdong Guorong Logistics, a leading specialized container freight forwarding company in China. As a freight forwarding company, Guorong Logistics itself does not have shipping space and needs to purchase space from shipping companies in the market. In the past few years, it has suffered greatly from fluctuations in ocean freight prices.
Liao Zhongxi, Director of Guorong Logistics Supply Chain Business Unit, stated that Guorong Logistics' business model is to confirm orders and shipping costs through bidding in advance. If shipping costs increase significantly during actual transportation, it will lead to business losses. Due to the previous relationship with a certain person in charge of the group, we learned about a case of pig futures hedging to avoid price risks. After the consolidation index (European line) futures were listed, we had the foundation to use futures hedging, so we decided to give it a try
Specifically, in the second quarter of 2024, customer Sany Heavy Industry Group will ship 13FEU special containers to Europe in June and place an order for cabin space with Guorong Logistics. Against the backdrop of predicting that freight rates will continue to rise, Guorong Logistics has decided to attempt to use the consolidation index (European line) futures to carry out relevant risk management for this batch of exported goods.
On May 7th, Guorong Logistics established 5 lots of multiple orders in EC2408 to lock in booking prices (approximately equivalent to 13FEU on the spot end), with an entry point of 2800 points. If freight rates continue to rise in the future, Guorong Logistics' spot end will have to purchase cabin space at a high price, but at the same time, the futures end will also make profits, which will compensate for the losses of the spot end; If future freight rates decline, the cost of purchasing cabin space on the spot side will decrease, and the profits obtained can also cover the losses on the futures side. In this way, Guorong Logistics has locked in risks through futures operations.
After purchasing futures at Guorong Logistics, both futures and spot freight rates continued to rise. The goods are about to be shipped in early June, and Guorong Logistics has chosen to book a shipment with a shipping company. The final purchase price for the cabin is $9500/FEU, which is more than $2000/FEU higher than the selling price of the cabin in May. After calculation, the spot end incurred a loss of 187000 yuan; At the same time, the company closed its futures position with an exit point of 3400 points, resulting in a net profit of 150000 yuan on the market.
In the end, the losses were reduced through a combination of short-term and current measures. By participating in the consolidation index (European line) futures trading, Guorong Logistics' loss decreased from 187000 yuan to 37000 yuan, a sharp drop of over 80%. Enterprises use the profits from the futures market to offset the losses from the spot market and mitigate the volatility of freight risks.
Wang Xiaoguo, General Manager of CITIC Futures, told a Chinese journalist from a brokerage firm that the consolidation index (European line) futures can help shippers, freight forwarders, and ship owners discover freight prices and manage risks, becoming a powerful tool to cope with market uncertainty. In the process of serving Guorong Logistics, CITIC Futures has provided professional trend prediction and customized hedging solutions. In addition, it is also researching and exploring innovative solutions such as over-the-counter options, and taking multiple measures to support the stable development of the shipping industry chain.
On the first anniversary of the listing of Jiyun European Line, the futures function has begun to emerge
On August 18th, the consolidated index (European line) futures celebrated its one-year anniversary of listing.
Since its listing one year ago, although it has experienced multiple geopolitical crises such as the Red Sea incident and significant fluctuations in consolidated European futures, the overall operation of the variety has been stable, with close linkage between futures and spot prices, active market participation, and the successful completion of two cash deliveries. The function of futures has gradually emerged, providing a good risk management tool for shipping companies.
Specifically, firstly, the futures and cash structure of consolidated shipping is reasonable, secondly, the delivery process is smoothly completed, thirdly, the futures and cash prices are highly correlated, and fourthly, industrial customers are gradually paying attention to and using them.
According to insiders from the World Logistics Group, in recent years, due to multiple factors such as port congestion and red sea detours caused by the epidemic, international shipping prices have experienced multiple rounds of severe fluctuations, creating huge uncertainty for the operation of enterprises in the consolidation industry chain. As an intermediate link in the upstream and downstream of the industrial chain, the freight forwarding industry has a large number of enterprises, fierce market competition, and generally weak risk resistance capabilities.
After the listing of futures, the industry has effective risk hedging tools. After attempting to participate in some futures hedging, the company found that the adverse effects on the spot side were compensated for in futures. Futures tools can help the company operate steadily and improve order execution rates
According to insiders from China Merchants Futures, the consolidated index (European line) futures are different from traditional commodity futures in that they are service and index futures with many innovative designs. Since its listing, the company has received high attention and participation from the market, and has actively responded to market demand by carrying out market promotion and cultivation. After experiencing the Red Sea crisis, the market has become more mature, and we believe that industry participation will continue to increase in the future.
The relevant person in charge of the previous exchange stated that the past year in the consolidation market has been turbulent, and the consolidation index (European line) futures have withstood the test of significant fluctuations in freight rates caused by geopolitical events. During this process, the Shanghai Futures Exchange always prioritized risk control, effectively fulfilled its responsibilities of market supervision and risk prevention, and maintained the smooth operation of the futures market.
Next, while continuing to ensure the safe and stable operation of the futures market, the Shanghai Futures Exchange will take the one-year anniversary of the listing of the consolidation index (European line) futures as an opportunity to implement the "Sailing Project" market cultivation action plan, further enhancing the ability of the futures market to serve the high-quality development of the shipping industry.