FBX11’s Ascent: Analyzing The Container Market Surge

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Market Overview

With container market spot prices jumping on the back of a pre-tariff cargo surge, the compounding impact of slower sailing speeds, rising port congestion in Asia, and persistent risks with transit through the Red Sea, container FFA prices have leapt ahead, driven by aggressive hedging.

Kicking off on the Singapore Exchange (SGX) in late May, front-month contracts have consistently been bid up through June, July and August. June initially traded through Braemar at $6,650/FEU breaking a volume deadlock on the exchange, immediately picking up further trades at the same level all the way out to Q3’24.

The vast majority of trading interest has been on FBX11 China/East Asia to North Europe. Since then, prices have increased rapidly, with the June contract trading at a high of $7,000/FEU before close, and August picking up to $8,050 with value now closer to $8,100/FEU. This has outpaced settlement prices. However, given physical markets are now anecdotally at $9,000/FEU for July (as per a Maersk rate notice in mid-June), FBX11 prices still present good value for hedging. This is alongside a near 42% increase in spot prices on FBX11 since 31 May 2024, with the index tempering out in the last week of June.

Spread Between FBX11 and FBX13

Meanwhile, the spread between FBX11 China/East Asia to North Europe and FBX13 China/East Asia to the Mediterranean has collapsed, down from $616/FEU on 31 May to $72/FEU on 28 June. This might be pricing in a reduced premium into Mediterranean ports, but this presents an opportunity for end-users hedging on FBX13 to use the more liquid FBX11 route and achieve a more efficient hedge.

Meanwhile, the spread between FBX11 China/East Asia to North Europe and FBX13 China/East Asia to the Mediterranean has collapsed, down from $616/FEU on 31 May to $72/FEU on 28 June. This might be pricing in a reduced premium into Mediterranean ports, but this presents an opportunity for end-users hedging on FBX13 to use the more liquid FBX11 route and achieve a more efficient hedge.

Arbitrage trading against the SCFIS European Service Contract listed on the Shanghai INE has also picked up. INE futures have been consistently supported, even with the potential de-escalation of Red Sea disruptions, with the back of the curve (pricing until June 2025) seeing substantial gains through the end of June, arguably detaching from physical markets. This leaves an arbitrage trade wide-up between INE and FBX futures, driving fresh buying interest on FBX11 Q4’24.

Asia-US Routes and Price Movements

Asia-US routes have largely moved in lockstep, with both the forward curve and futures price action on FBX11. This is also reflected in spot price action on FBX01 China/East Asia to North America West Coast, up 40.4% from 31 May to 28 June.

Asia-US routes have largely moved in lockstep, with both the forward curve and futures price action on FBX11. This is also reflected in spot price action on FBX01 China/East Asia to North America West Coast, up 40.4% from 31 May to 28 June. Whilst there was less basis for spot prices to drive the trans-Pacific market initially, increased demand and port congestion have started to bite. Meanwhile, the improved situation at the Panama Canal has eased FBX01 vs FBX03 spreads, down from $1,778/FEU to $1,194/FEU in the same period. The correlations between FBX11 and FBX01 also provide an opportunity for FBX01/11 spread trading, with bids popping up on FBX01 Q3’24 and Q4’24 largely in line with FBX11.

Underlying the trading on FBX-settled container FFAs is a general and progressive collapse of some physical contract pricing, which has yet again driven end-users onto the spot market as capacity providers have not (in some cases) been able to maintain fixed-price contracts agreed in 2023. Alongside this, growth in index-linked contracting provides more opportunity and more prospective volume on container FFAs. This comes alongside the development of OTC Options on container FFAs and the potential for spread trading between dry FFA and container FFA contracts (particularly Supramax 10 TC FFAs and FBX11).

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Source: Baltic exchange