The Baltic Exchange and Shanghai Clearing House (SHCH) jointly organised an RMB FFA forum on 13 September 2016 at the Intercontinental Expo Hotel – Shanghai, during Shanghai International Shipping Week. With over 150 delegates comprising both Chinese and international shipping professionals visiting for the week, the message that came across throughout, was that although traded volumes of RMB FFAs have been low, a fundamental demand for this tool still exists.
Responding to this, the SHCH made clear to attendees that their intention is to persevere with marketing and providing education to the wider Chinese shipping and shipping-related markets, on how FFAs can be used as a useful tool in managing physical freight risk exposure. They commented that the reason for RMB FFAs not having been more widely adopted so far, was largely due to a lack of general familiarity with how this marketplace trades and understanding of how to utilise RMB FFA products effectively.
It was also mentioned that as physical trades are largely in USD, removing the currency risk from the freight hedge by also trading standard USD denominated FFAs is still seen as advantageous by those in the East, already actively trading and by other players that are not set up to manage further exposure to currency. Furthermore since many SOEs today have overseas offices, they are geared up to deal in USD and therefore trade standard FFAs, so would find it less necessary to trade the FFA in Chinese currency.
The wider discussion on current Baltic Exchange FFA contracts, developed into a broader conversation about the potential development of new RMB FFA contracts for a number of Pacific routes on the smaller-sized vessels from the current BEPA – Panamax and BESA – Supramax suite of Baltic routes. Despite being benchmarked these routes are not currently available as FFA products. As with introducing any new contracts, the danger of splitting liquidity elsewhere must be a serious consideration before any implementation can take place. However, the general consensus of those gathered for the Forum, was that these proposals could attract fresh interest, being more closely correlated to the physical business being traded by a number of potential FFA market participants in China.
This potential for striking a spark to build fresh interest in RMB FFAs, not only from Chinese shipping companies, but also from international companies doing business in the Far East, would be a welcome addition to the liquidity pool and raises points for further discussion between the FFA Brokers Association and the Freight Market Information Users Group; the two member bodies that consult with the Baltic Exchange on market benchmarks.
Pictures can be found on the Baltic’s Flickr account: www.flickr.com/photos/thebaltic/sets/