The competition is completely free, and participants are not required to pay anything to participate.

Yes. In fact, the entire competition is designed to serve as an introduction to the futures market and the accompanying program will introduce both the futures market and the INE container freight contract itself. Our team will organise webinars and in-person events as well as offer individualised support and guidance to participants throughout the competition.

INE Container Freight Index Futures (CoFIF) are a type of futures contract traded on the Shanghai International Energy Exchange (INE). They are a financial instrument designed to reflect the price of shipping containers from Shanghai to Europe. Market participants can buy and sell the contract freely to either benefit from advantageous price movements (speculative trading) or protect their business against adverse price changes in the real world (hedging).

The contract is financially settled, i.e., upon expiry, contract holders are compensated financially according to their position. The final settlement price is based on the Shanghai Shipping Exchange's Shanghai-Europe Export Containerized Freight Index based on Settled Rates (SCFIS) using FAK freight rates declared in bill of ladings for shipment from Shanghai to Hamburg, Rotterdam, Antwerp, Felixstowe and Le Havre.

The INE is regulated by the China Securities Regulatory Commission (CSRC) and serves as every trader's ultimate counterparty. All trading profits and losses are settled through the exchange, and the INE guarantees the enforcement of contracts and payout of profits.

1. Liquidity: The INE's CoFIF contract is highly liquid, making it easy to execute large volumes without impacting the market price, with daily turnover typically equivalent to a container volume of 80,000 x 40' dry.

2. Electronic Trading: All trading happens electronically, so users can see the market live on their own screen and execute trades immediately by themselves.

3. No Counterparty Risk: The INE is a state-owned and regulated futures exchange. It serves as the counterparty for each trade, so counterparty risk is avoided even if individual traders default on their obligations.

4. Pricing: Serving as the underlying price index, the SCFIS is based on the freight rates actually paid in the physical market as opposed to other indices that are based on surveys or even just quotations. The Shanghai Shipping Exchange, the publisher of the SCFIS, produces some of the longest and the most widely used container freight indices, such as CCFI and SCFI.

5. Bonded Marketplace: The INE is able to tap into the ample liquidity in China without being subject to Chinese taxation. International participants can use USD and RMB to trade and profits can be moved back out of China in less than 2h.

No. Container freight rates are volatile and thus prices can change quickly as a result of market expectations. The INE CoFIF market was created as a venue to allow industry participants to hedge their price exposure and thus protect themselves against unexpected adverse price movements. In the market, both speculators and hedgers come together to price their expectations into the market. This is important, as trading can only occur when two parties have different price expectations: every buyer needs a seller, otherwise no trade can occur. Thus, while speculative trading is possible and, in fact, even desirable, industrial users can instead use the market as a pure hedging tool.

Consider the following example: A forwarder has secured 1000 40' slots at $1500 per 40' dry from liners but has not yet fixed any cargo with shippers. As negotiations with shippers can take time or no price can be agreed upon, the forwarder can sell April CoFIFs to lock in the current market price (~$2500) and then take spot cargo in April. If the spot price falls to $1500, the forwarder will earn $1000 less from their spot cargo but gain an equivalent amount in the futures market. If the spot price rises to $3500, the forwarder will lose $1000 in the futures market but earn $1000 more for their spot cargo instead. In either case, the forwarder has locked in an effective price of $2500 and is now protected against price volatility.

Alternatively, consider a second scenario: A BCO has a cargo of 1000 40' dry containers in April but no capacity and rate agreed yet with liners. As negotiations with liners can take time or no price can be agreed upon, the BCO can buy April CoFIFs to lock in the current market price (~$2500) and then book spot cargo in April. If the spot price falls to $1500, the BCO will pay $1000 less for their spot cargo but lose an equivalent amount in the futures market. If the spot price rises to $3500, the BCO will earn $1000 in the futures market but pay $1000 more for their spot cargo instead. In either case, the BCO has locked in an effective price of $2500 and is now protected against price volatility.

BANDS is a futures brokerage regulated by the Hong Kong SFC and an Overseas Special Brokerage Participant (OSBP) of the INE. The combination of these qualifications allows BANDS to act as an intermediary for offshore traders to trade futures and options on China's three main commodity futures exchanges without being restricted by the PRC's capital controls or subject to the PRC tax regime.

In other words, offshore clients trading through BANDS are free to move money in and out of China, convert USD to CNY and vice versa, and not subject to China's tax regime.

CoFIF Pricing

CoFIF contracts are settled against the SCFIS (Shanghai Containerized Freight Index based on Settled Rates), which is based on FAK rates declared on bills of lading.

The SCFIS is published every Monday at 15:05, except for public holidays in China.

CoFIF Contract Value

CoFIF are bought or sold in multiples of RMB 50. For example, if the EC2406 contract trades at 3,976, 1 lot of CoFIF is worth 3,976 × RMB 50 = RMB 198,800. For offshore traders wishing to hedge against the FX risk, brokers like BANDS can provide currency hedging solutions to fix the exchange rate.

SCFIS Composition

The SCFIS is compiled by the Shanghai Shipping Exchange (SSE) and comprises 20% 20'dc and 80% 40'dc FAK rates.

The two available SCFIS indices are:

• Shanghai to Europe with base ports: Rotterdam, Antwerp, Hamburg, Felixstowe and Le Havre;
• Shanghai to USWC with base ports: Long Beach, Los Angeles and Oakland;

The indices are based on FAK rates declared on bills of lading supplied by:

• CMA CGM (China) Shipping Co., Ltd.
• COSCO Shipping Lines Co., Ltd.
• Evergreen Marine Corp. (Taiwan) Ltd.
• Hapag-Lloyd (China) Shipping Ltd.
• Maersk (China) Shipping Co., Ltd.
• Mediterranean Shipping Company (Shanghai) Ltd.
• Ocean Network Express (China) Ltd.
• Orient Overseas Container Line (China) Co., Ltd.
• Yang Ming Marine Transport Corp.
• HMM (China) Co., Ltd.
• Shanghai Syntrans International Logistics Co., Ltd.
• YQN Logistics Co., Ltd.
• Worldwide Logistics Co., Ltd.
• JHJ International Transportation Co., Ltd.
• Shanghai Shendong Shipping Co., Ltd.

SCFIS & Freight Rates

The SCFIS is an index, so although the weighting of 20'dc and 40'dc has been fixed at a 2-to-8 ratio, the freight rate for a 40'dc is not a fixed multiple of the freight rate for a 20'dc. Consequently, there is not a fixed ratio between the SCFIS and 40'dc freight rates.

Based on the EC2404 settlement, against an SCFIS level of 2,153, and the spot rates for 40'dc from 1 April to 21 April, estimated at about $3,400/40'dc, the ratio for SCFIS to actual 40'dc freight rates is approximately 1 to 1.58. But the actual 40'dc rates used by the SSE to compose the SCFIS prints have not been disclosed.

Margining

The initial margin is the minimal deposit that a trader needs to pay to open a long or short position.

The margin rate, as of publication, is between 17% and 18% of the contract value for the currently available contracts.

For example: when EC2406 is trading at 3,976, one lot amounts to a contract value of 3,976 × RMB 50 = RMB 198,800. The margin rate for EC2406 is 18%. A trader would thus need to pay RMB 35,784 to open a one-lot EC2406 position.

Settlement

The contract is financially settled, i.e., upon expiry, contract holders are compensated financially according to their position.

There is no physical settlement; traders will not receive a shipping slot or a shipment of containers.

The settlement price is an average of the last three prints of the SCFIS.

For example, EC2406's settlement date is 28 June 2024. The settlement price of EC2406 is based on the SCFIS prints on 14th, 27th and 28th of June. Assuming the 3 prints average 4,500, a trader who entered a long position of EC2406 at 3,976 on 20 May would make a profit of RMB 26,200, i.e. (4,500-3,976) × RMB 50, on the settlement date of EC2406.

Both are financially settled, i.e. traders will not receive a shipping slot or a shipment of containers.

CoFIF is traded on the INE in China, while CFFAs are traded on the SGX and CME.

CoFIF is priced in index points, while CFFAs are priced in $/FEU.

CoFIF is electronically traded, while CFFAs are traded through voice brokers.

CoFIF has a daily turnover between $100mn and $2bn, while CFFAs still have limited on-exchange liquidity and are primarily traded over-the-counter (OTC).

NYSHEX and the liners' booking deposit arrangements are designed for locking in physical slots/cargo at a fixed freight rate.

CoFIF only allows locking in fixed freight rates. However, the ample liquidity in the CoFIF market allows liners, NVOs and shippers to lock in a freight rate level immediately, before they can find a physical slot or cargo counterparty.

With brokers who are either Overseas Special Brokerage Participants (overseas exchange members / OSBPs) or Overseas Intermediates (OI) of the INE.

BANDS Financial is the only active Overseas Special Brokerage Participant of the INE and provides access to futures listed in China and on overseas exchanges, including the SGX, CME, LME and more.

For more information, please email us at info@bands.financial or give us a call at +852 3903 6000.

Useful links:

Find more information about the INE CoFIF contract here on the official INE website.

Find CoFIF market data and statistics here on the official INE website.

Find more information about the SSE SCIFS index here on the official SSE website.

Find more information on how to access the Chinese futures market here.

Find a summary of the Chinese futures market trading rules here.

Further questions?

Write us at bands-cup-2024@bandsfinancial.com or give us a call at +852 3903 6000. Our team would be more than happy to answer your questions!