New industry futures forward price curve predicts three forces at play in 2H18

posted on 11th July 2018 by Justin Burns
New industry futures forward price curve predicts three forces at play in 2H18

Freight Investor Services (FIS) has published for the first time an air freight forwarder price curve and says as we enter the second half of 2018 there are three forces at play – cuts in cargo capacity, the effect of rising seasonal demand on price and the impact of trade tariffs.

The new FIS 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 air cargo business development manager, Nicola Hughes said: “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.

“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.”

FIS has extensive knowledge in freight and commodity derivatives and says the first ever air freight forward price curve, begins a “new era of risk management in this $70bn freight market” but air cargo market has reached the point where price volatility “requires some risk management”.

The risk management sepcialist says it has spent 12 months working with index provider TAC Index to develop a “robust methodology” for the air freight market which accounts for 35 per cent 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.

FIS head of strategy, Michael Gaylard said: “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.

“The counterparts in this market already have strong bilateral relationships, which means they are comfortable with OTC trading until full clearing is established.”

FIS works across the transport industry to help users manage the market’s inherent volatility. Using air cargo futures, it says freight forwarders will be able to manage their exposure and obtain better pricing and asset owners leasing aircraft to carriers can use FFAs to manage their forward income stream, working with lessors to hedge their risk by locking in forward cover.