Container Derivatives Essay

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• Inter-Dealer Brokerage, Market Data and Introduction to Trading Container Derivatives Analytical Software provider for global cash and derivative markets
Summary This is an example of a UK based retail group importing 12,000 containers annually from China. In the past – London, Paris, Singapore, Hong Kong, Seoul, Shanghai, Tokyo, Sydney, 24 months, they have experienced unexpected surcharges in their ocean transport cost.

• Headquarters - New York

Cape Town, Englewood (NJ), Sugar Land (TX) and Calgary.

To avoid having to deal with these unpleasant surprises they would like to test out the Container Freight Swap Agreement (CFSA) market. Market they would like toas at Jan 2008 of their ocean freight • NASDAQ (“GFIG”), As a test Cap $2.53B hedge (cover) 25% exposure through CFSAs (otherwise known as container derivatives).

• Credit; Financial; Equity; they can do this. In this paper we would like to explain how Commodity • Multiple technologies developed internally
What is a–CFSA? Trading systems A CFSA is a derivative productForexMatch, EnergyMatch spot market freight rates. The freight rates that can enabling you to fix future • CreditMatch, be fixed are on the below four routes as published on the Shanghai Containerised Freight Index by the – FX option pricing and risk management solution Shanghai Shipping Exchange: • FENICS® FX – Market Standard for 1 Shanghai  NW Europe (actively traded) FX Options 2 – Bank to client execution platform Shanghai  Mediterranean • FENICS® dealFX 3 Shanghai  USWC (actively traded) 4 Shanghai  USEC
1 As a buyer of this CFSA you would contact your ACM-GFI broker with the following requirement:  I want to buy a total of 3 000 containers on the route Shanghai – USWC for the calendar 2012 (cal’12) at a price of $800 / container.  The cal’11 contract is effectively a packaged contract of 12 individual months (Jan’12, Feb’12, Mar’12 etc.)  Effectively you are hedging (covering) the risk of a total of 3 000 containers, equally spread over the year i.e. 250 containers / month.  The client has to specify if they would like to trade OTC or Cleared (explained later).

The team of CFSA brokers at ACM – GFI will speak to the various market participants and see if any of them can offer this to you. As long as you are using a cleared CFSA you have the flexibility to trade with any participant in this market (carrier, shipper, freight forwarder, bank, trading house, hedge fund, etc). After negotiating and agreeing on the various components of the contract, your broker will ask for the following firm: time window (cal’12), the volume (250 TEU / month), the route (Shanghai – NW Europe), the clearing house (London Clearing House) and price ($800 / TEU). Once the buyer and the seller have given their firm interest to the ACM - GFI broker, the broker will confirm it. When it has been confirmed to both the buyer and the seller, the deal is done and a recap will be sent. Comparing CFSA rates with physical contract rates Whenever you are trading CFSAs, people have to compare the rates on offer in the physical market with the rates on offer in the CFSA market, otherwise known as the paper market. You always have to bear in mind that the CFSA is purely a financial product. If you manage your physical exposure through a CFSA, the profit on the CFSA should pay for the “higher than anticipated” physical spot freight rates. Likewise the loss on the CFSA should pay for the “lower than expected” physical spot freight rates. There are some fundamental differences between a fixed rate contract for the year 2012, and the combined CFSA and fixing on the spot market. Comparing physical fixed rate contracts with the combined physical spot / CFSA Physical fixed rate Physical spot + CFSA contract

LONDON

+44 (0)20 7422 1263 containers@gfigroup.co.uk

Cherry Wang +44 (0)77 2524 5882 cwang@acmshipping.co.uk

Potential carriers to be used One Everybody • Inter-Dealer Brokerage, Market Data and
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