THE Shanghai Shipping Exchange has announced its intention to establish a container shipping derivates market by 2011 as its bid to displace London as the centre of global shipping finance.

These hedging instruments, like forward freight agreements (FFA), will be first marketed to small and medium sized shippers, Shipping Exchange director Yao Weifu told Bloomberg.

While the scheme is awaiting state approval, Morgan Stanley has already backed the first FFA tied to a Shanghai container index in a test run.

Unlike dry-bulk and tanker segments, container-shipping has rarely used FFAs because the wide variety of cargo and customers using each ship makes it more difficult to track rates, said Jay Ryu, an analyst at Mirae Asset Securities Co in Hong Kong.

London's Clarkson Plc, which led the development of FFAs in 1991, helped devise the four-month-old Shanghai Containerised Freight Index to act as a benchmark for container shipping futures.

The weekly Shanghai Containerised Freight Index tracks spot rates for shipments on 15 routes, including to Europe, the Mediterranean and the US. The data, compiled from 15 shipping lines and 15 freight forwarders, reflects more than 60 per cent of global container shipping, Mr Yao said. The index rose 19.01points to 1396.21 on February 12.

"Container rates are influenced by more factors than dry-bulk rates, so it's hard to make an index that reflects the market," said Frank Fan, head of investor of relations at Shanghai-based China Shipping Container Lines Co. "Once the index gets involved with derivatives and traders, it may lose its accuracy."