US agricultural exports need container future derivatives: say brokers

CONTAINER freight indices for US agricultural exports are essential in time of extreme rate fluctuations to allow for hedging against future contracts, say freight derivative brokers.

The push by the US Federal Maritime Commission (FMC) for indices specific to export shippers is under review until July 8. Its introduction would help provide transparency to the container market known for its resistance to citing comparable rates outside of major headhaul trades.

"It's difficult to figure what an acceptable rate is. When we do have data available, there's a trust issues. There's no way of validating information provided by a carrier in an independent way," said Morgan Stanley freight trader Michael Rainsford.

For a shipper to hedge on its cargo gaining space on a vessel of tight capacity, he could use an index-linked contract to ensure his cargo gets that remaining spot by paying over the price. He can then use this hedging as a backup on losses from the rate he paid against what he thought he would get.

Ocean carriers are mostly sceptical that a rate-space commodity index will provide benefits and future contracts often leave one party feeling hard done by, Mr Rainsford said. "By hedging exposure 12 to 18 months out, you can extend your business for a longer period than you may confidence in the market," he added.

While conceding the industry was slow to accept hedging tools, Clarkson Securities broker Benjamin Gibson said that investors are using freight derivatives to hedge speculatively and are keen for carriers to adopt them as a security - even as a responsibility.

It was also pointed out that hedging on commodities is becoming accepted by carriers on bunker fuel price with the G6 Alliance using it to offset any losses from erosion of competition. This commodity hedging now contributes almost two-thirds of sailing costs.