Containers transport myriad consumer goods ranging from food for supermarkets to Nike running shoes to Apple computers, but many manufacturers are not familiar with using container shipping derivatives.
Given the recent volatility - over the last 12 months spot freight rates for the Asia-Europe route almost tripled before dropping again by almost a half - the interest of customers in container swaps has increased strongly, HSH's head of corporate sales Wolfgang Schulze-Collenburg said on Tuesday.
"We are registering three-digit growth rates (in container swaps)," Schulze-Collenburg said, adding volumes were still very low with only 400 to 1,000 container transports a week being hedged with swaps.
"Especially among small importers we are seeing strong and growing demand," he said.
The freight derivatives or FFAs that HSH and other banks offer allow a buyer to take a position on freight rates at a point in the future. Container contracts offer the same hedging principle as those traded for the more liquid tanker and dry bulk markets.
"There are a lot more financial institutions who are looking to come into the container derivatives market out of a need from their clients. It is also driven internally," said Cherry Wang, a container freight derivatives broker with ACM-GFI.
"There is a greater focus on risk management now and if you look at freight rates, volatility has increased significantly in recent years."
The container swap market has until now suffered from low volumes as it failed to attract enough manufacturers which ship goods and enough container lines such as Denmark's Maersk Line or German peer Hapag-Lloyd.
Hapag-Lloyd said it has products with fixed annual rates or index-based rates. "We can offer security in freight rates without derivatives," a spokesman for Hapag-Lloyd said.
For HSH Nordbank, the move into the container swap business will come as an add-on product to its core activity of lending to ship owners, giving its debtors an instrument to hedge against volatility of their revenue.
HSH is one of the world's biggest ship financiers and currently suffering from a four-year slump in the shipping industry, one of the worst on record, which prompted it to discuss a second bailout with its state owners last year.
"(Container swaps) will not save the market, but make it more predictable," HSH's Schulze-Collenburg said.
The outlook for container rates this year is unclear. Overcapacity is still dogging the sector, demand stagnating in crisis-hit Europe and the United States. Carriers meanwhile hope to push through rate increases, arguing they need them because they are losing money due to high oil prices.
"By and large, we expect 2013 to look pretty similar to 2012, at least through H1, with relatively muted, but not horrible, containerised trade growth, stemming largely from softness on the Asia-Europe and Asia-U.S. routes," said Michael Webber, senior analyst with Wells Fargo Securities.
A clutch of other financial institutions are also involved in container swaps, including Clarkson Securities, the futures broking arm of the leading ship broker, which launched the first container swap agreement in January 2010. Banks like Morgan Stanley and Credit Suisse also offer container swaps.
"It is in its third year and people are still trying to grasp the concept," said ACM-GFI's Wang of the container derivatives market.
The container swaps eliminate counterparty risk since they are cleared by established clearing houses - the Singapore Exchange and Europe's LCH.Clearnet. They are settled against the Shanghai Containerized Freight Index, which was launched in 2009 and is becoming a benchmark in the industry for container rates. (Reuters)