Federal maritime regulators in the United States have launched an inquiry into the growing use of freight rate derivatives by shipping lines and exporters and importers on the international container shipping trade.
The Federal Maritime Commission began the investigation last Thursday, following the rising use of index-based derivatives for containerised shipments by container lines.
Container shipping derivatives were pioneered over the past two years by organisations such as the Shanghai Shipping Exchange and British consultant Drewry.
They are used in the dry cargo market to hedge against volatile charter rates. Most shipments, especially across the Pacific, are governed by service contracts between the shipping line and exporter or importer.
These contracts lock in exporters or importers to pay a specific rate to container lines such as Orient Overseas Container Line or Cosco Container Lines to move an agreed volume of containers. But the global financial crisis coupled with a drop in consumer demand and increased competition has led to increased volatility in rates.
As a result, container lines and cargo owners are moving towards using a flexible charter rate within their service contracts based on an index of charter rates.
