Forwarders move into finance

Freight forwarders are trading air cargo derivatives in an effort to offset the volatility of the spot market during the low season, according to Freight Investor Services (UK) – FIS.

Since FIS launched the Air Freight Forward Agreement (AFFA) market in July, several leading forwarders have been using futures to hedge their forward exposure to fluctuations in prices.

“The trade offers support against weakening cargo revenue and profitability during an expectedly poor low season, whilst mitigating week-on-week rate volatility,” FIS explained. “The August contract has seen the China & Hong Kong to Europe basket trade at $2.50/kg against the TAC Index as top 10 freight forwarders and commodity funds traded bilaterally.

“The trades represent enterprising moves by key market participants into the financial space, utilising the power and flexibility of financial contracts to manage profitability for physical airfreight businesses.”

An AFFA is a cash-settled derivative contract with no physical delivery, used to hedge against adverse price positions.

FIS provides risk management advice to customers in dry bulk, tanker and airfreight, steel, iron ore and fertiliser derivative markets, as well as offering physical commodity and shipbroking services.

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