FIS is bringing its expertise in financial risk management to the air freight market with the launch of Air Cargo FFAs.
This is a market that is ready for take-off: strong growth, high volatility and an annual value of $70bn with $20bn worth of goods shipped daily. The size of the air cargo market – 35% of global trade by value, but only 1% of trade by volume – puts huge amounts of value at risk every day that needs to be managed.
FIS has partnered with The Air Cargo Index (TAC Index) to provide airlines, forwarders and end users the means to flexibly price air cargo contracts and to hedge their exposure using cleared financial futures contracts.
The air cargo freight market is undergoing a transformation; growing rapidly, with volumes expected to more than double in the next 20 years, it also faces threats from new entrants challenging established business models and promising new levels of transparency using tools that threaten long-standing relationships.
Using the market-neutral TAC Index, FIS will publish a forward price curve, helping market participants with forward planning and budgeting, allowing them to better forecast expenditure and manage budgets effectively while also gaining more flexibility.
Buyers and sellers of cargo space will be able to improve price discovery on physical fixed rate contracts, strike index-linked floating block space agreements and use Air Cargo FFAs to lock in prices.
In order to generate the maximum liquidity in this emerging market, FIS has developed a series of geographically-focussed baskets to represent the most popular routes. Currently available baskets include the six biggest routes on Asia-Europe and Asia-US, generated on a volume-weighted basis set on an historical basis and priced against weekly index publication.
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.