Maersk, the Wal Mart of the ocean, has been at the forefront of critics of the fledgling container derivatives market. (In March, boss Eivind Kolding called the business "a casino.") This week a UK retailer sued Maersk for alleged breaches of contract on price and services.
Danaos Shipping lost $15 million in the second quarter because derivative losses outweighed good profits and margins.
Like it or not, derivatives will become an important part of the container trade; and West Coast ports will feel the effects. All the technical jargon and math aside, derivatives are a bet on the future – one side reckons it will be worse and the other hopes it will be better.
Lines are suspicious while the reaction from customers is uncertain. Some are enthusiastic but others fear random rate swings.
At stake is the spot market. Long-term contracts in principle should play no part – but then along came the Maersk lawsuit, with the retailer asserting breach of a long-term contract and accusing the carrier of going for a better deal elsewhere. If that is proved to be so, then Maersk is already caught up in the market (though unofficially) and rate negotiations will begin to include specific conditions on the influence of derivatives in allowing carriers to change agreements.
Back to the West Coast implications. Derivatives are the biggest threat to the future of the TransPacific Stabilization Agreement (TSA), the alliance of about 15 lines that "discusses" container trade. If the pattern of rate changes and peak season surcharges continues unchecked, importers and exporters are likely to get extremely gung-ho about derivatives, because they have been handed the best weapon yet to counteract price rises.
But, some will also start looking at the wisdom of long-term contracts, reckoning that they can get much better rates on future bets.
It's much like the invention of the motor car. Suspicion later gave way to universal acceptance. At the risk of falling into the trap of exaggerated cable news TV reporting, it is possible that what Malcolm MacLean did for the mechanics of ocean trade, Clarksons Securities (the UK shipping broker that has been the main force) will do for container finance.
The biggest supporters of the market forecast that derivatives will make up about 10 percent of container trade by the end of 2011. Maybe so, but don't be surprised that within five years they will make up for more than half – and the TSA will be a relic.