The Shanghai Shipping Exchange recently released data on the Shanghai Export Container Freight Rate Index (European Route), revealing a significant increase in freight rates. The index, which stood at 2153.34 points on March 25 of this year, surged to 6318.1 points by July 22—an astonishing rise of 193% over just four months. Unlike previous instances of rapid price increases due to unexpected events like the Red Sea crisis, this increase is marked by its prolonged and consistent nature.

In an interview, Lin Yikun, the Executive Deputy Secretary-General of the Shipping and Logistics Branch of the China Transportation Association, highlighted the impact on businesses. “Companies might find themselves facing a situation where container fees surge from $2,000 to a staggering $8,000 per container. If they had originally contracted at $2,000, they would incur a loss of $6,000 per box.”

When asked about the Container Freight Index (European Route) futures, he explained that these futures are based on the Shanghai Export Container Freight Rate Index for the European route, serving as a transparent pricing reference for the exports of Chinese containers to Europe. This allows market participants to better navigate fluctuations in freight rates while providing companies with tools to hedge against price volatility.

The Container Freight Index futures represent one of the most innovative additions to China’s futures market in recent years. Launched in August 2023 at the Shanghai Futures Exchange’s wholly-owned subsidiary, the Shanghai International Energy Exchange, it is the first shipping futures product globally to rely on a Chinese index and is open to international investors.

Data from the China Futures Association indicate a lively trading environment for these futures in the first three quarters of this year. The national futures market saw a total transaction amount of 441.24 trillion yuan and a trading volume of 5.701 billion contracts. Notably, the Container Freight Index futures garnered significant attention, with a cumulative trading volume of 15.726 million contracts—6.3 times that of over 200 contracts from four overseas exchanges—and a total transaction value of 2.1914 trillion yuan, averaging 12.1 billion yuan per trading day.

The active trading of these futures is closely linked to the continuing rise in European route prices. According to reports, escalating tensions in the Gaza region have disrupted ship movement through the Red Sea, keeping shipping rates to Europe elevated, which in turn increases the need for hedging among related businesses.

These futures offer a new risk management tool for businesses, effectively mitigating the risks associated with price fluctuations. For example, a logistics company based in Tianjin received a request in early June from a foreign trade enterprise seeking transportation services for five containers along the Asia-Europe route, with a shipping rate not to exceed $6,500 per container by the end of July. Anticipating a potential rise to $8,000, the company strategically purchased call options on the Container Freight Index futures. By late July, the price indeed increased to $8,500. However, thanks to their advance purchase of futures, the company significantly reduced potential losses stemming from the hike in shipping costs.

Huang Wei, head of the Futures and Derivatives Department at the Shanghai Futures Exchange, noted, “Ninety percent of China’s exports are completed via sea transport. Seven out of the top ten container throughput ports globally are in China. Our shipping index futures provide these companies with essential tools to manage risks associated with price fluctuations.”