New risk management tool will help buyers and sellers tackle capacity constraints and seasonal price increases
Freight Investor Services, the global leader in freight and commodity derivatives has published the first ever air freight forward price curve, beginning a new era of risk management in this $70bn freight market.
FIS has spent 12 months working with index provider TAC Index to develop a robust methodology for the air freight market which accounts for 35% of global trade by value. The launch coincides with recent constraints in air cargo capacity and seasonal changes in pricing in the second half, when rates traditionally rise.
The weekly forward curve covers a basket route for air freight from Asia to Europe, with another basket from Asia to US to be published next month.
“FIS has been working with a number of buyers and sellers in this market and there is a strong feeling that an over-the-counter futures market is workable in the short term,” says FIS Head of Strategy Michael Gaylard. “The counterparts in this market already have strong bilateral relationships, which means they are comfortable with OTC trading until full clearing is established.”
FIS has significant expertise in developing new OTC futures market contracts, having started broking the $15.8bn dry FFA market some 12 years and supporting the development of the $114bn iron ore futures market. FIS believes that the air cargo market has reached the point where price volatility requires some risk management.
“As we head into the second half of the year there are three forces at play; cuts in airfreight capacity, the effect of rising seasonal demand on prices and the impact of trade tariffs,” says FIS Air Cargo Business Development Manager Nicola Hughes. “We understand that the market will take time and education to develop, but faced with increased volatility for all users, there is real demand for an accurate and usable forward curve.”
As the global leader in freight and commodity futures, FIS works across the transport industry to help users manage the market’s inherent volatility. Using air cargo futures, freight forwarders will be able to manage their exposure and obtain better pricing. Asset owners leasing planes to carriers can use FFAs to manage their forward income stream, working with lessors to hedge their risk by locking in forward cover.
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