At the risk of an anti-climax, January was very much a wait-and-see month in terms of actual freight price moves, largely supported (or rather flattened) by pre-Lunar New year demand. In lieu of price moves we’ve instead seen a flood of new interest on futures, primarily on major fronthauls (FBX01 China/East Asia to North America West Coast and FBX11 China/East Asia to North Europe). Whilst none of this new interest has crystallized into exchange trades yet, it does provide quite a positive indication for forward volume, whilst also providing a bit of a float for sellers (particularly ocean liners) for the bulk of 2023 and 2024 in the 1,000s of FEUs per month – a stark contrast to some of the smaller sizes traded last year. 

Most of the drive for futures lies in the stabilization of rates through the back end of January, and in line with the Q1 contracting period bringing futures in as a viable price hedging method against a slew of new index-linked contracting.

Most of the drive for futures lies in the stabilization of rates through the back end of January, and in line with the Q1 contracting period bringing futures in as a viable price hedging method against a slew of new index-linked contracting. From a buyer’s perspective, rates as they are provide a valuable opportunity to lock in via futures over the very long term. For the sell-side of the market (ocean liners, ship owners), periods beyond Q3 2023 are pricing at an ever-steeper premium versus today’s spot rates on Asia outbound hauls (a contango market). 

As for any growth in index-linking this is also quite straightforward. There is a lack of consencus in the future of rates triggering a reluctance by BCOs to contract, there is a recent lack of confidence in the security of fixed-priced contracts (in both directions, what with the wholesale renegotiation of previously high multi-year contracts), and there is more upside than downside for ocean liners in index-based contracting versus the market highs we saw the beginning of 2022. 

 

This provides an equally valuable opportunity to hedge against any further collapse in rates (both spot and inevitably contract, given one tends to eventually follow the other). As for any growth in index-linking this is also quite straightforward. There is a lack of consencus in the future of rates triggering a reluctance by BCOs to contract, there is a recent lack of confidence in the security of fixed-priced contracts (in both directions, what with the wholesale renegotiation of previously high multi-year contracts), and there is more upside than downside for ocean liners in index-based contracting versus the market highs we saw the beginning of 2022.

In terms of the futures prices, this premium in the market has started to flatten out the historical move on curve prices. The biggest drops we’ve seen have been on the closing out of the Cal23 contract since 1 November to the end of December 2022. FBX01 China/East Asia to North America West Coast Cal23 dropped -32.92% and FBX11 China/East Asia to North Europe was down -54.77%. The very front of the fronthaul curves have also born the brunt of the collapse of spot prices, FBX01 Q1(23) was down -35.10% from 01 November 2022 to 30 January 2023, matched by FBX11 Q1(23), which was down -34.56% in the same period. Whilst this is a sharp and somewhat obvious drop in light of spot price moves, when looking further out things start to look a bit more positive. For example, the main FBX01 fronthaul cal24 price has only dropped $50 since 1 November 2022. And the movement of prices is by no means a straight line down. FBX11 Cal23 and Cal24 prices have fluxed with the Cal24 turning positive nearer the end of January. FBX02 North America West Coast to China/East Asia has also been an important route to pick up futures interest, with the Q4(23) coming in consistently despite a relatively side-ways spot price. Q4(23) values have risen approximately 25% since 1 November 2022. 

About Peter Stallion, Head of Air and Containers, Freight Investor Services

Peter Stallion heads up the Air and Container Freight desks at FFA brokerage Freight Investor Services. He started his career in air freight chartering, and has a passion for emerging risk management markets and the logistics industry.



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