Similar to the Shanghai Containerized Freight Index, the new index will meld spot prices for 20-foot, 40-foot and 40-foot high cube containers moving from Ningbo to Europe and the Middle East.
Shippers have a new source of information on container freight pricing.
The London-based Baltic Exchange said last month it had begun collaborating with the Ningbo Shipping Exchange, and the two plan to publish an index based on container freight rates from Ningbo to Europe and the Middle East on the Baltic Exchange’s website.
Ningbo, located across from Shanghai on the south shore of Hangzhou Bay, ranked last year as the fifth largest container port in the world after Shanghai, Singapore, Shenzhen and Hong Kong, according to Alphaliner.
The Ningbo Containerized Freight Index will be a rival to the Shanghai Containerized Freight Index (SCFI) published by the Shanghai Shipping Exchange, but there will be have differences.
The weekly Ningbo Containerized Freight Index will be published each Friday and is a composite of prices for 20-foot, 40-foot, and high cube containers, on four routes from Ningbo to: the East Mediterranean (Piraeus & Istanbul), the West Mediterranean (Barcelona, Valencia, Genoa), North Europe (Hamburg and Rotterdam), and the Middle East (Dammam and Dubai).
It is based on an index where 1000 represents the rates during the 10th week of 2012. (Further details on how the index is calculated can be found on the Baltic Exchange’s website.)
The Baltic Exchange said it will be “based on transactional data from business conducted by a panel of 11 Ningbo based freight forwarders on Ningbo Exchange’s e-trading platform and factors in various surcharges including bunkers, port congestion, peak season and Suez Canal fees.”
The SCFI reflects the spot rates of Shanghai export container transport market, according to its publisher, the Shanghai Shipping Exchange. It includes both freight rates (indices) of 15 individual shipping routes and a composite index, using freight information reported by panelists from 19 liner companies and 17 shippers/freight forwarders. In addition to the overall index, the Shanghai exchange also publishes the underlying rates for each of the 15 routes, quoting them in dollars per TEU or FEU.
The Baltic Exchange said its involvement in the index is part of a drive “to promote its services for the Chinese market.”
“The Baltic Exchange has its own set of highly regarded independent indices that focus on the dry and wet bulk trades. Collaboration with organizations such as the Ningbo Shipping Exchange helps to raise the profile of our products in China,” said Jeremy Penn, chief executive officer of the Baltic Exchange.
Dong Shanhua, Ningbo Shipping Exchange General Manager said, “We commenced the research of a container index from the establishment of Ningbo Shipping Exchange in 2011 and first released Ningbo Containerised Freight Index in September 2013. We hope we can extend presence of our products in the global market through the collaboration with Baltic Exchange.”
Richard Ward, a London-based derivatives professional at Freight Investor Services, said the new index “came as a shock to quite a few people in the market, but not in a bad way.”
He noted that container shipping was the one area of shipping the Baltic Exchange has not yet been active in, “so from their perspective I think it makes sense.”
“Added transparency in indexation is never a bad thing, so I think it will probably be welcomed by most in the market,” he added. While there is no trading against the index, at least immediately, Ward said “if we were to see demand from either shippers or carriers saying, ‘yes we’d like to trade against the index,’ then obviously we’d accommodate that, no problem at all.
“But the reality is the SCFI is pretty well established now in the market,” said Ward, and is widely quoted by carriers in quarterly or annual reports, for example. So the Ningbo index has “a little bit of catching up to do in that respect, but the Baltic is quite a big name – it’s well known in the industry.” The Baltic Freight Index for dry bulk commodities, or example, was introduced in 1985.
While the methodology used by the two exchanges is slightly different, Ward expects they will “move pretty much in line with each other.”
The Baltic Exchange has only posted rates for the past three weeks. During that time the Ningbo index to North Europe fell from 219.81 on Oct. 16 to 190.18 on Oct. 23, and then jumped to 342.84 on Oct. 30. The SCFI’s Shanghai-to-North Europe component, which is quoted in dollars per TEU, has followed a somewhat similar down and up pattern: $233 on Oct. 16, $231 on Oct. 23 and $988 on Oct. 30 (when it hit a 13-week high.)
Ward said the biggest use of the SCFI today, is as a basis for index-linked shipping contracts, and that currently there is not much trading of the contracts.
“In terms of trading, our biggest issue has been the sell side, which is the carriers,” he said. While there is interest in trading the index by forwarders and commodity shippers who want to hedge their freight costs, Ward said there are not many sellers, “and the natural sellers are the carriers, people like Maersk and Hapag Lloyd.”
While recently has seen some increase interest by shipping companies in the subject, “historically they’ve been relatively reluctant to enter the market,” according to Ward.
Baltic Exchange, Ningbo Shipping Exchange partner to create new freight index
