The international consolidation market is volatile, with sea freight rates showing a roller coaster trend. According to media reports, recently, due to a cliff like decline in import demand from the United States, container imports to the United States have decreased by more than 36% since May 24th; Freight rates are declining, with container spot prices from China to the west coast of the United States falling by 41% month on month.
From 2019 to 2021, the global container shipping market prices increased more than fivefold, setting a new record in the history of container shipping development. This has led to a significant increase in logistics costs for enterprises, and some foreign trade enterprises are concerned that failure to deliver on time may result in breach of contract, and even voluntarily give up orders. However, looking at the time lens further, from 2015 to 2017, the international container transportation market faced another downturn, with freight rates hitting bottom one after another. A large number of liner companies are insolvent, facing the dilemma of restructuring, bankruptcy, and being merged.
The drastic fluctuations in global freight rates have caused great suffering for the shipping industry and foreign trade enterprises. Due to the inability to determine transportation benefits and costs in advance, the future business situation of enterprises faces great risk exposure. There has always been a lack of effective price risk management tools in China's shipping market, which has put forward an urgent practical demand for the research and listing of domestic shipping futures varieties.
Against such industry characteristics and macro background, the General Office of the State Council recently issued the "Opinions on Promoting the Stability and Quality Improvement of Foreign Trade", which clearly proposes to "intensify research and promote the listing of sea freight rates and capacity futures on the Shanghai Futures Exchange and Dalian Commodity Exchange".
Protecting the Industry with Price Protection
Sea freight is one of the important modes of transportation in global trade. In recent years, global annual trade exports have reached nearly $20 trillion, of which 92% are carried by water transportation, with air, rail, and road transportation accounting for 2% to 3% each, and pipeline transportation accounting for less than 1%.
As the world's second-largest economy and a major shipping country, China has the world's second-largest maritime fleet. International shipping accounts for about 95% of China's foreign trade cargo transportation volume, with port throughput and container throughput consistently ranking first in the world for many years. Among the top 10 container ports in the world, China alone occupies seven seats. However, China is not a comprehensive maritime power, and the influence of shipping pricing power and international shipping rules still needs to be strengthened. The rising and falling shipping costs have become a widely concerned "pain point" issue.
As is well known, the commodity market is also facing a situation of sharp fluctuations in raw material prices, but one of the secrets for both supply and demand sides of commodities to effectively avoid the risk of significant price fluctuations is the use of "futures" tools. Futures have the function of hedging, achieving the effect of smoothing price fluctuations by offsetting profits and losses between the futures market and the spot market.
The shipping industry is a typical heavy asset and high-risk industry, influenced by various factors such as supply and demand, weather, policies, fuel prices, port loading and unloading, etc. The fluctuation and frequency of shipping fees are significantly greater than general commodity prices, and effective price risk management tools are needed.