GFI Group in box derivatives, says 3PL, shipper interest high

NEW YORK-listed broker GFI Group has entered the container derivatives market, the hedging instrument based on the Shanghai Containerised Freight Index (SCFI) that leading carriers say will go nowhere and is of no use to the industry.

Not so, says Will Leslie, GFI global head of wet freight: "The 3PLs and shippers are driving this market as they crave transparency, and using this product allows much more transparency."


Commenting on the SFCI, he said: "Feedback has been encouraging in that it reflects spot rates. A robust index should lead to more index related physical contracts, which will mean derivative contracts based on the SCFI will become a very useful tool to manage freight risk for both shippers and carriers."


Mr Leslie sees the hedging demand rooted in rate volatility. "With such a volatile freight rate environment, fixed-term contracts have become even less prevalent as the term "fixed" doesn`t apply. No one wants to be on the wrong side of the contract. The irony is that market participants still need a tool to provide some kind of genuine price protection, which is where derivative contracts come in."


GFI Group claims the world`s biggest 3PLs and shippers are showing interest in container derivatives.


"The market is extremely volatile and shippers` and 3PLs` biggest worry is about predictability of price and capacity. So we have had a lot of interest in it as a tool that helps them manage the volatility and allows them to hedge," a company spokesman told London`s Containerisation International.


GFI already deals in derivatives within wet and dry freight, and uses the Shanghai Containerised Freight Index (SCFI) as the basis for its derivatives offering.


Said GFI container derivatives broker Cherry Wang: "Some of the larger carriers have not been receptive, but there are plenty of examples behind the scenes where they are showing interest. Many of their service contracts were reneged on, therefore they are just as in need [as shippers] to hedge against such risk."


Education is now the theme: "There has been a lot of genuine interest, but it is quite a conservative industry and a lot of market participants are not familiar with dealing in derivatives in ocean freight. Therefore, we are talking to them and helping them understand how the products work," said Ms Wang.


GFI is also organising webinars and online tutorials. Looking ahead, GFI believes that the market will quickly develop, especially as using the spot market rather than fixed contracts.