Shanghai Shipping Exchange, based in China’s busiest port, will introduce indexes tracking international dry-bulk and oil-tanker rates next year as it challenges London’s 267-year-old Baltic Exchange.
The Chinese bourse plans to begin trading of derivatives tied to those indexes in May or June, Yu Jun, president of Shanghai Shipping Freight Exchange Co., said in an interview yesterday. The products will track shipments to China from Brazil, Australia and the Middle East, he said in Shanghai.
The instruments are “urgently needed,” Yu said, to help importers of raw materials cut the risk from fluctuations in freight rates.
Trading of derivatives linked to Shanghai’s first dry-bulk index, following domestic coal-shipping fees, started yesterday as the bourse begins to compete against Baltic Exchange indexes that were used to settle about $24 billion of forward freight agreements last year. The London-based exchange runs the Baltic Dry Index, the global benchmark for commodity-shipping rates.
Shanghai Shipping Exchange’s derivatives won’t be linked to Baltic indexes, according to a text message from the Chinese bourse.
The Baltic Exchange, which traces its roots back to 1744, has about 600 corporate members, according to its website.
“We are very comfortable with what the Baltic provides to the forward freight agreement market,” Baltic Exchange Chief Executive Officer Jeremy Penn said by telephone yesterday. The shipping industry is best served by a single liquid market, he said.
Speculation tied to indexes has exacerbated fluctuations in shipping rates caused by vessel supply and demand. The Baltic Dry Index doubled in 2007, slumped 92 percent in 2008, almost tripled in 2009 and fell 41 percent last year.
Shanghai, home to the world’s busiest cargo-box port, in June introduced derivatives tied to container-shipping indexes, tracking spot rates on 15 routes including to Europe, the Mediterranean and the U.S. Yu declined to comment on liquidity or trading frequencies for these products. The Baltic Exchange doesn’t run indexes linked to cargo boxes.