Introduction to the concept and application of container freight futures hedging

The first part is the necessity of using shipping futures to hedge the fluctuation of freight rate.

Shipping is a derivative demand of trade, which is influenced by international politics, economy, culture, epidemic situation, weather and other factors. Shipping, logistics and trade-related enterprises are affected by large fluctuations in freight rates. According to SCFI published by Shanghai Shipping Exchange, in recent ten years, the lowest freight rate from Shanghai to Europe reached US$ 205 /TEU and US$ 725 /FEU, and the highest reached US$ 74 18 /TEU and US$ 5,927 /FEU, with a difference of 35 times and 7 times respectively. During the low freight rate period of 20 15-20 19, a large number of liner companies closed down, were acquired and merged; Since the second half of 2020, the freight rate has been rising continuously, and some shippers voluntarily abandon the goods because of the high freight rate. Shipping and foreign trade enterprises always hope to have a tool to avoid the risk of large fluctuations in freight rates and lock in freight revenue and costs in advance.

Traditional spot booking cannot lock forward prices. Although the annual and project contracts can stipulate the forward price to a certain extent, there is no necessary punishment mechanism for breach of contract. Shippers often complain that it is difficult to get shipping space from shipowners with long-term cooperative prices in peak season, while shipowners complain that they can't guarantee the goods to find another low price in the market in off-season. Futures are different from the traditional forward and spot markets, and the default situation is prevented by the margin system.

The second part is the concept of hedging of container transportation related enterprises.

I. Hedging principle

The basic principle of container freight futures hedging is to use the profit and loss of shipping futures market to make up for the losses in the actual transportation market, to help liner companies lock in freight revenue in advance, and to help shippers lock in transportation costs in advance.

Two. Hedging classification

According to the types of positions held, hedging can be divided into selling hedging and buying hedging. Selling hedging is mainly suitable for liner companies, that is, space providers, to prevent the risk of future freight rate decline. Buy-in hedging is mainly applicable to the owner, that is, the demand side of shipping space, to prevent the risk of future freight increase.

Third, the principle of hedging

1. Principle of same or similar varieties: This principle requires the selected shipping futures contract to be as similar as possible to the route and ship type to be hedged, so as to ensure the consistency of the price trends of the two in the spot market and the capacity trading market to the greatest extent. The earliest line of Shanghai Futures Exchange will be the container freight futures on the Shanghai-Europe route, so it is suitable for shipping and trading parties operating on this route.

2. Same month or similar month principle: This principle requires that the delivery month of the selected shipping futures contract should be the same as or close to the delivery time of the spot market as much as possible. If the owner wants to deliver the goods in February 2022, he should choose the contract that expires in February next year.

3. Principle of opposite direction: This principle requires that the buying and selling directions of the spot market and the futures market should be opposite. Liner companies are shipping space providers, and they must be empty if they are worried about the decline in freight rates; The shipper is the demand side of shipping space, and if he is worried about the increase of freight, he must act as a multi-party

4. Equivalence principle: This principle requires that the quantity placed in the futures market should be as equal as possible to the quantity to be kept in the spot market. For example, the shipowner only ships 30 tons of EU. If he orders 40 tons of EU, the extra 10TEU tons of EU becomes a speculative order, not an insurance policy.

The third part is the basic idea of hedging.

I. Basic hedging

Basic hedging is to use the profit and loss of shipping futures market to make up for the loss of real shipping market.

(1) shipowner hedging

Simulation case 1: At present, the container freight rate continues to rise, and the disk price of EU2203 (Shanghai → Europlane March 2022 contract) reaches 8000 USD /TEU. Liner company A believes that the epidemic will be controlled at the beginning of next year, the port congestion will be greatly alleviated, and the freight rate may drop. I hope to lock the freight in advance, so the price will be empty. No matter whether the freight rate of Shanghai-Ouji route rises or falls in March next year (down to 7500 USD /TEU or up to 9000 USD /TEU as shown below), regardless of the basis difference, liner company A will get a total income of 8000 USD /TEU.

(2) Hedging of the principal

Simulation case 2: With the continuous increase of container freight rate, the disk price of EU2 1 10 reaches $7,500 /TEU. Shipper A thinks that the fourth quarter is the peak shipping season, and the shortage of shipping space will continue, and the freight rate is likely to rise further. He wants to lock the freight in advance, so he orders more at this price. Regardless of whether the freight rate of the Shanghai-Ouji route rose or fell in June 65438+1October this year (for example, it rose to $8,500 /TEU or fell to $6,600 /TEU), regardless of the basis difference, shipowner A locked the transportation cost at $7,500 /TEU.

Second, postpone hedging.

The first phase of Shanghai Futures Exchange will launch container freight futures on the Shanghai → Ouji route, which refers to ports such as Rotterdam, Hamburg, le havre, Stowe and Antwerp in fleek. But this does not mean that only shipowners and shippers from Shanghai to Ogilvy Port can use futures to hedge.

First of all, the freight rates from China's eight base ports (Shanghai, Dalian, Qingdao, Ningbo Zhoushan Port, Hong Kong, Shenzhen, Guangzhou and Tianjin) to European and American ports are basically the same, so "Shanghai → five base ports in Europe" can be expanded to "eight base ports in China → five base ports in Europe".

Secondly, the transportation from the mainland of China to European and American ports can be divided into two stages, namely "internal transportation+external transportation". Taking Changzhou as an example to transport containers to Europe, freight forwarders first transport containers to Shanghai Port by container trucks, and then board ships from Shanghai Port to Ouji Port. Among them, the second half is by sea, and the difference is only that the first half is by land. From the perspective of freight composition, the land freight from Changzhou to Shanghai Yangshan Port is about 1650-2 150 RMB, which is equivalent to about US$ 290, accounting for only 2% of the sea freight 10000. Moreover, the land freight rate is relatively stable, and there will be a big increase only in holidays and peak seasons. Therefore, as long as the shipper hedges the sea freight, it can basically lock in more than 97% of the transportation cost. Therefore, "China eight-base port → Europe five-base port" can be further extended to "China → Europe five-base port".

Thirdly, the freight rates of "China to Northern Europe" and "China to Mediterranean" also have high similarity and convergence. Comparing the recent 12 data of SCFI Shanghai → Euroset and Shanghai → Mediterranean, we can see that the correlation coefficient of the two routes reaches 99.2%, and the average freight rate of Shanghai → Euroset/Shanghai → Mediterranean is 0.97. Therefore, "China → five base ports in Europe" can be further extended to "China → Northern Europe/Mediterranean".

Third, the application of project goods bidding

Freight forwarders lock in the shipper's freight income when bidding for project goods, but they often can't lock in the transportation expenses paid to liner companies. Therefore, in practice, when the freight rate rises sharply after the contract is signed, the freight forwarder's profits will often be swallowed up, and even losses will occur. When inviting tenders, high-priced bids will fail, and low-priced bids will easily lose money, which is a dilemma that freight forwarding enterprises often encounter.

Simulation Case 3: Freight Forwarder A successfully won the bid for the European route transportation project of a large exporter in 2022 1 quarter at a price of USD 8,000 /TEU, and the project needs to transport 100TEU every month. In order to prevent the freight rate from rising next year, Freight Forwarder A opened positions in EU220 1, EU2202 and EU2203 with average prices of US$ 7,950 /TEU, US$ 7,800 /TEU and US$ 7,550 /TEU respectively. If the average freight rates from June+10/October in 5438 to March of the following year are US$ 8,800 /TEU, US$ 7,800 /TEU and US$ 7,500 /TEU respectively, without considering the basis difference, the hedging results are as follows, comparing the results without hedging.

Four, freight long association management

Traditionally, once the shipowner and the shipper have signed a long-term contract and established the agreed price, the annual cost or income can be guaranteed. However, considering the price difference between the spot freight rate and the agreed freight rate changes at any time, the actual value of the long association to both the ship and the cargo also changes at any time. Especially in the last year, the container transportation market has risen sharply, which has caused the shipowner to lose a lot of income by performing the contract at the agreed price. If the shipowner is unwilling to perform the contract, it will not only lose the reputation of the enterprise, but also affect the long-term development relationship with customers.

Shipowners and shippers can use container freight futures to adjust the market proportion of Changhe Concord and realize higher freight revenue or lower freight cost. Shipowners and shippers can decide the quantity or proportion of orders according to the actual situation of the company, so as to control the adjustment proportion. It should be pointed out that even if the future price direction is judged correctly, the specific adjustment effect still depends on the opening price and closing price, and the actual income/cost may not be completely consistent with the long-term cooperation price/market price.

(1) Coordination and control of shipowners

Simulation case 4: Liner company B signed the Asia-Europe route long association contract at an average price of $3,000 /TEU by combining "30% long association +70% market". Because the freight rate has risen sharply, the long-term cooperation price of liner company B has been far below the market price, so container freight futures are adopted to reduce the long-term cooperation ratio, increase the market ratio and realize higher freight income.

Simulation case 5: Liner company B signed the Asia-Europe route long association contract at an average price of $3,000 /TEU by combining "30% long association +70% market". As the freight rate is expected to drop next year, liner company B uses container freight futures to increase the proportion of long-term associations, reduce the market proportion and realize higher freight income.

(2) Coordination and control of the owner

Simulation case 6: Shipper B signed the Asia-Europe route long association contract at an average price of $4,000 /TEU by combining "50% long association +50% market". Shippers predict that the freight rate may rise further in the fourth quarter of this year, and the freight rate will return to rationality after the Spring Festival next year, so they use container freight futures to adjust the market proportion of Changhe Alliance.