Financial Daily from THE HINDU group of publications
Friday, Nov 26, 2004
MCX launches freight futures contract in India
Mumbai , Nov. 25
IN a significant development for the Indian shipping industry as well as commodity traders, importers and exporters, the Multi Commodity Exchange of India Ltd (MCX), in strategic collaboration with the Baltic Exchange, London, introduced freight futures contract for the first time in the country on Thursday.
This development holds special significance for the industry as the rising cost of freight is increasingly impacting the price of commodities, adding up to nearly 10 per cent of the total trade cost.
Now, with freight futures available on MCX, the risk of adverse impact due to volatility in the freight rates could be minimised by industry players.
According to Mr Jignesh Shah, Managing Director of MCX, "The alliances will enable MCX to gain necessary expertise in launching successful contracts in products such as energy, freight, amongst others."
The scope of the strategic alliance includes mutual cooperation in training, risk management, business development and regulation, apart from development of a vibrant freight derivatives market in this part of the world for freight risk management of trade out of South-East Asia.
Mr Shah said MCX may launch freight futures contracts based on Baltic Indexes and Route Assessments, which suit Indian conditions and trade practices.
"The domestic charters and ship owners could be benefited by access to liquid trading screen to improve price discovery and clearing of contracts to reduce credit risk exposure."
The three proposed contracts are on Route 2 for crude oil movement from Gulf to Singapore on Suez Max tankers, coal movement on Handymax vessels from Australia to India and crude oil transportation from Gulf to Japan.
Mr P.B. Kerr-Dineen, Chairman of the Baltic Exchange, said the Baltic Exchange's controls majority share in the tanker market and 30-40 per cent of the dry bulk chartering business worldwide. It has around 2,000 brokers operating 24 hours a day.
The Baltic also ranks as the world's foremost sale and purchase market. Over half the world's new and second hand tonnage is bought and sold by Baltic members in a market worth $34 billion annually.
"I am delighted to be here to launch the cooperative agreement between the Baltic and MCX. Freight markets worldwide are currently at historic highs and we have seen unprecedented volatility in the last 12 months. Both of these factors tend to be good for derivatives trading and we wish MCX the best possible fortune in the venture," he said.
"MCX would create India-specific freight contracts keeping into consideration India's large coastline of 11 major and 139 minor ports and also India's foreign trade. India is also targeting to increase its foreign trade to represent 1 per cent of the global trade and this would involve huge movement of cargos and the consequent risk," Mr Joseph Massey, Deputy-Managing Director of MCX said.
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