The team of shipping financial derivatives is growing stronger

The ultimate goal of the construction of Shanghai International Shipping Center is to become an international shipping and financial center with global resource allocation capabilities. It is not difficult to find through the growth process of world-renowned international shipping centers that they have gone through a transformation from "shipping" (such as Rotterdam International Shipping Center) to "processing value-added" (such as Hong Kong International Shipping Center and Singapore International Shipping Center), and then to "comprehensive resource allocation" (such as London International Shipping Center). Relatively speaking, Shanghai has world-class port infrastructure, but lacks a relatively complete modern financial service system, which is similar to the lack of a strong left hand in the construction of Shanghai International Shipping Center. The reason why it is said to be "powerful" is that industry experts analyze that "a sound shipping financial service system can provide various related financial services for various links in the shipping and related industry chains, which has become an indispensable part of modern international shipping centers. Therefore, building an efficient and perfect shipping financial service system plays a crucial role in the construction of Shanghai International Shipping Center
At present, the shipping price derivatives traded in China mainly include RMB FFA clearing products from Shanghai Clearing House and mid to long term capacity trading products from Shanghai Shipping Price Trading Co., Ltd. (SSEFC). The RMB FFA clearing products of Shanghai Clearing House include Cape type ship average time charter forward freight agreement (CTC), Panamax type ship average time charter forward freight agreement (PTC), and ultra flexible type ship average time charter forward freight agreement (STC). SSEFC's mid to long term transport trading products include international dry bulk cargo, Chinese coastal coal, and Shanghai export containers, among which Shanghai export container transport derivatives have attracted much attention. Industry experts analyze that the container transportation market has a huge volume and still has an upward trend, which will undoubtedly promote the development and promotion of container capacity derivatives, and gradually expand and improve them.

The team is growing stronger

In 2009, the State Council issued the "Opinions on Accelerating the Development of Modern Service Industry and Advanced Manufacturing Industry, Building an International Financial Center and International Shipping Center in Shanghai" (Document No. 19), which explicitly required the acceleration of the development of shipping price index derivatives to create conditions for Chinese shipping enterprises to control shipping risks.

The reason for vigorously developing shipping financial derivatives is that industry experts analyze that "because the international shipping market has high risks and freight prices fluctuate dramatically." Derivatives, as financial instruments for physical enterprises, have the function of responding to price volatility risks. After the release of Document No. 19, the Shanghai Clearing House and the Shanghai Shipping Exchange have successively developed financial derivatives related to shipping. These financial derivatives serve as tools to cope with fluctuations in freight rates, which are beneficial for shipping companies to hedge, avoid risks, and reduce economic losses.

How big is the shipping risk? For example, in 2013, the total revenue of the global shipping industry was about 160 billion US dollars, and a 1% fluctuation would bring in a gain or loss of 1.6 billion US dollars. However, the fluctuation of freight prices in the same year far exceeded the change in revenue. Taking European routes as an example, the maximum weekly increase in container freight rates is $890/TEU; The freight rate for coastal dry bulk cargo on the Qinhuangdao to Shanghai route ranges from 25 yuan/ton at low prices to as high as 67 yuan/ton. Faced with volatile freight rates, shipping companies need to use shipping financial derivatives to scientifically avoid risks. Taking Shanghai's export container capacity derivatives as an example, it provides a new option for risk hedging for hedging in the Chinese shipping market. Hedgers can hedge the systemic risk of the overall decline in market freight rates by short selling forward contracts for container freight rates.

As a financial instrument, China's coastal (bulk) transportation capacity derivatives also provide hedging options for the shipping market to avoid risks. It timely reflects the trend of price changes in the coastal bulk transportation market, enabling investment traders in the shipping finance market to quickly grasp the changes in market freight rates and adjust their operational strategies in a timely manner to achieve maximum economic benefits and minimize economic losses.

At present, there are six products on the Shanghai Clearing Derivatives Clearing Platform, namely RMB FFA clearing products, RMB iron ore swaps, RMB thermal coal swaps, and free trade zone copper premium swaps, as well as two newly launched products in June.

The RMB FFA clearing product was launched in April 2013. This product is a global financial derivative denominated in RMB, using the index published by the Baltic Exchange as the target. The RMB iron ore swap and RMB thermal coal swap products were launched in August last year. As of the end of May this year, the RMB iron ore swap products have cleared a total of about 58 million tons, accounting for 18% of similar products on the Singapore Clearing House during the same period; The cumulative liquidation of RMB thermal coal swap products is about 120 million tons, equivalent to 71 times that of similar products on the Singapore Clearing House. In February, the Shanghai Clearing House timely launched a free trade zone copper premium swap product, which is based on the Yangshan Copper Premium Index and cleared and settled in cross-border RMB. As of the end of May, a total of about 1.3 million tons have been cleared, and the trading volume is currently continuing to grow. In June, the Shanghai Clearing House launched two products: RMB styrene swap and Shanghai Pilot Free Trade Zone ethylene glycol import swap. Among them, the monthly price of RMB styrene swap products in "East China" is calculated based on the arithmetic mean of the midpoint of the daily styrene "Jiangsu export and import" prices in the current month to determine the final settlement price; The final settlement price of ethylene glycol import swap products in Shanghai Pilot Free Trade Zone is the monthly price of ethylene glycol "CFR China Main Port" released by Anxinsi China for the current month. The monthly price of "CFR China Main Port" for ethylene glycol is calculated based on the arithmetic mean of the midpoint of the daily "CFR China Main Port" price of ethylene glycol for the month and the midpoint of the RMB to USD exchange rate published by the China Foreign Exchange Trading Center authorized by the People's Bank of China on that day.

It is reported that the Shanghai Clearing House plans to launch two new freight rate derivatives within the year, namely the RMB Container Swap Freight Agreement and the China Coastal Coal Forward Freight Agreement. Among them, the RMB container swap freight agreement is based on the Shanghai export container freight, priced, cleared, and settled in RMB. The product targets include the Shanghai export to Europe container freight and the Shanghai export to the Western United States container freight; The China Coastal Coal Forward Freight Agreement is based on the coastal coal freight, priced, cleared, and settled in RMB. The product targets include the Qinhuangdao to Shanghai route freight (40000~50000 DWT) and Qinhuangdao to Guangzhou route freight (50000~60000 DWT). This product can be combined with RMB thermal coal swap to achieve comprehensive hedging of goods and freight. The Shanghai Clearing House introduced that these two new products plan to use the Shanghai Shipping Exchange Freight Index as the final settlement price.

At present, the transfer of global shipping and logistics centers to Shanghai has been basically completed, and the process of transferring global shipping centers to Shanghai is underway. Shanghai plans to build an international shipping center with global resource allocation capabilities by 2020.

Weak physical condition

Although Shanghai's shipping financial derivatives have developed well, in essence, their "physical fitness" is still relatively weak. Industry experts say, "What China lacks is not the trading volume of large shipping financial derivatives, but the lack of standardized trading markets and types of derivatives for the physical shipping industry to avoid risks. There may be some institutional obstacles in promoting shipping financial derivatives in the future

As early as 2010, the problem of foreign derivatives being difficult to root in China had already become apparent. According to the voting results on FFA trading barriers in the Chinese market at the "Shanghai Shipping Derivatives Forum" at that time, the business supervision mode of Chinese state-owned enterprises and foreign exchange controls ranked first.

Most of the participants in the FFA market are state-owned shipping companies. With performance losses, the State owned Assets Supervision and Administration Commission of the State Council has tightened the management of state-owned enterprises' participation in shipping financial derivatives trading, prohibiting them from participating in large-scale derivatives trading and implementing a business approval system. Many matters require recognition from the competent authorities, indicating that although the competent authorities have accurately positioned the entry threshold, they have also shown caution. However, many small enterprises that only care about their own interests have low enthusiasm for participating in shipping financial derivatives trading. At the same time, the shipping financial derivatives market has also experienced the strange phenomenon of "chaos and death if left unattended". It can be seen that adaptation is more important than reform for shipping financial derivatives to take root locally. How to use standardized "chains" for shipping financial derivatives to safeguard the hedging of the real economy and trade, and the policy entry point still needs to be further explored.

Looking at the follow-up level of supporting financial measures, an industry expert bluntly stated, "It's too slow." From the perspective of commercial banks in China, only Bank of China Shanghai Branch has signed a strategic cooperation agreement with SSEFC, becoming the first settlement bank responsible for providing financial services such as deposit custody and transfer of guarantee funds. However, it has not yet directly participated in shipping financial derivatives trading in the form of self-service investment and customer trading like foreign investment banks or specialized ship financing banks. At the same time, exchange rate policies have resulted in the inability of the US dollar to dock with the Chinese yuan, and the capital account of the Chinese yuan has not been fully freely convertible in international settlements. Therefore, the transfer of domestic foreign exchange funds needs to comply with relevant regulations. Foreign companies need to convert Chinese yuan into US dollars through China's foreign exchange regulatory process, which increases currency risk while incurring transaction costs. It is worth noting that there are few types of shipping financial derivatives in China, and their homogeneity is relatively high. Shipping financial derivatives have been an emerging topic in China's shipping finance industry in the past decade. Although there are various shortcomings in the development process, they have a huge impact on shipping companies. I hope that researchers, managers, and traders engaged in the research and management of shipping financial derivatives can fully recognize the role of shipping financial derivatives and the existing problems in their current development. They should study carefully, invest rationally, use derivative tools for hedging, risk avoidance, and profit creation, in order to promote the healthy development of the shipping financial derivatives market.