OSLO: Long before “futures” markets for freight came on the scene in the 1980’s and 1990’s, enabling drybulk and tanker owners, operators and cargo shippers to manage exposure to the ups and downs of shipping markets, they had “forward” markets. Examples of transactions in the long-established dry and tanker forward markets, the province of the actual principals (rather than as a realm for outside traders) would include period time-charters and contracts of affreightment.

Many of these deals were confidential, but as these markets were opened up to traders, electronic trading venues with online price visibility offered what economists have called “price discovery”- meaning that anybody with a cellphone or computer could get a sense of the market by pulling up a screen.

In contrast, the liner sector has seen extensive contract coverage between larger cargo interests and the big carriers; an intermediary sector of smaller carriers—not operating vessels, but, instead, securing space on larger vessels—emerged to handle smaller cargo movers.

Simplistically, the economic rationale was the same in the liner markets as it was for the bulk side; carriers hoped to lock in revenues at healthy levels, while the cargo shippers hoping to lock in dips, 

if they occurred. However, 

the difference was that the liner markets offered little or no visibility into what commodity watchers would call “the forward curve.”

While there are numerous indices of containerized freight, most of these provide a view into the spot market on particular trades, but not into possible market moves in the months ahead.

Important insights into the forward markets come from a benchmarking platform, Xeneta, which among many roles, gathers data from a vast array of shippers. Importantly, its analytics provide real insights into the forward curves in the liner sector- based on anonymized inputs over its wide customer base on key routes. 

Its lead market analyst, Peter Sand, once a lead analyst at BIMCO, 

is no stranger to the forward markets on the bulk side and has infused this important sensibility into Xeneta’s strategizing for cargo interests trying to optimize their programs.

Xeneta’s recent online webinar offered very good insights and visibility into the forward markets for liner freight.

Peter Sand and his colleague, Emily Strausböll, discussed the North Europe to US East Coast route- a profitable one for carriers or 

“the only one where carriers are not losing money in the spot trades”, according to Sand.

Looking at the forward curve, Strausböll said that this trade is “…finally facing reality…”, 

with Xeneta data pointing to a sharp downward slope—a backwardation structure with short term contracts now below the longer-term contracts by roughly $1,400/feu. This contrasts with year-ago dynamics when short-term rates exceeded contract deals by as much as $3,000/feu. Over the past three months, the contract rates have dropped by around 32% on North Europe/ US East Coast- while the still profitable spot rates have plunged by 50%, to around $2,500/feu.

For cargo-side customers of platforms offering market information, such data on the rates and their movements can inform their strategies of bidding for space on vessels or holding back. 

The dynamics of the different routes vary widely; spot rates of the Far East to East Coast South America run have barely moved, down only 3% in the past three months to around $3,000/feu, while contract rates have plunged by a third during the same timeframe to around $2,400/feu, below the spot rates.

Futures trading, with real price discovery from the interactions of buyers and sellers, has begun to emerge. On container routes quoted by the online platform Freightos, with support from London’s Baltic Exchange, financial clearing has been offered in Chicago since 2022, and, now, in Singapore- a hub for real cargoes.