(Yicai Global) July 10 -- The Shanghai Futures Exchange is preparing to introduce a shipping index futures product that will help Chinese importers and exporters hedge against big swings in transportation costs.

The Shipping Index Futures will help sea freight firms better cope with swings in transportation rates as well as supply and demand imbalances, Li Hui, deputy general manager of the Shanghai Futures Exchange, said yesterday. It will also help enhance the resilience of the supply chain, thereby improving the quality of services.

The design and preparation work of the shipping index futures is almost complete, and it will be launched as soon as possible, Li said. Arrangements have been made in terms of contracts, application rules, risk control and other aspects to ensure smooth operations once it opens to the public.

Chinese shippers lack the necessary risk management tools to protect them against sharp price fluctuations, Li said. The Shanghai (Export) Containerized Freight Index (European route) surged more than 10-fold in September 2021 to 10,373 points, and then plunged over 90 percent by July 3 to 816 points.

The Shanghai Futures Exchange worked with the Shanghai Shipping Exchange to optimize the shipping index targets, Li said.

The Shipping Index Futures are likely to use the Chinese yuan as the settlement currency, Li said. The exchange is mulling introducing it to Chinese and foreign traders as an open variety, he added.

In September 2021, China’s cabinet proposed introducing new trading products such as shipping futures. In 2021, the Shanghai Containerized Freight Index was released and in October 2022, Shanghai issued a detailed proposal.

The container throughput of Shanghai Port exceeded 47.3 million twenty-foot equivalent units last year, making it the busiest port in the world for the 13th consecutive year. Almost half of this passed through its Yangshan Port in the Lingang New Area.

Editor: Kim Taylor