For the first time, over-the-counter (OTC) container freight swap agreements (CFSAs) are to be cleared. In a major development, which will increase liquidity and open up access to the nascent market for new participants, LCH.Clearnet Ltd (LCH.Clearnet) is to launch clearing for CFSAs on 28 June.
With increasing volatility in container shipping rates, shippers and trading companies are looking to manage their risk through cleared trading opportunities.
CFSAs mirror established freight derivatives by offering the same hedging principles as those traded for the dry bulk and tanker markets.
The CFSAs will be cash settled on a monthly basis against the Shanghai Shipping Exchange (SSE), an established published industry index. Initially, the contracts will be based on the most liquid routes out of Shanghai to the Mediterranean, North West Europe, the US East Coast and the US West Coast.
Isabella Kurek-Smith, director, energy and freight at LCH.Clearnet said: “Bringing the benefits of central clearing to CFSAs is a real first, paving the way for more liquidity, bringing new participants to the market and managing risk against volatile price movements. LCH.Clearnet is the leading provider of freight services, with over 4 years experience of successfully clearing freight derivatives. Introducing container swaps is a natural extension to this proven service.”
Commenting on the development Alex Gray, ceo of Clarkson Securities Limited (CSL), said: "The launch of clearing for CFSAs represents a major milestone for our market. Since executing the first CFSA trade in January 2010, CSL has seen interest in these products from a diverse range of participants and this has only highlighted the importance of being able to offer a cleared contract. We are delighted that LCH.Clearnet has taken this step and made better risk management tools available to many more companies involved in container freight."
