the Indian Ocean, for the vast majority of its history and until the introduction of European corporate shipping in the nineteenth century, freight rates were negotiable and fluctuated with the level of demand (both for particular goods and destinations), seasons, and the kind of ship that carried them.57 Coastal trade, tramp shipping (maritime transportation that does not have a fixed schedule or predetermined ports of call), and feeders (where goods are transported from a hub port to a smaller port) all commanded different rates. Price-setting for freight rates in the area was influenced by the forms of trade European firms engaged in. As Johan Mathew has written in his engaging account of illicit shipping in the Indian Ocean,
British firms considered cartel arrangements more ethical than competition on price, which might deprive other [British] companies of their business. This form of business ethics derived from the idea that market competition was feasible only when a market was sufficiently developed. In this view, the Arabian Sea was too undeveloped an area to justify capitalist competition. To build up business and develop local economies, profits had to be secured by the coercion and collaboration of firms. This ensured that British companies would receive ‘handsome’ profit margins on a smaller but more secure amount of business.58
Another effect was that, while the British firms monopolised more profitable oceangoing routes, local shippers were pushed into providing services on coastal or feeder routes where profit margins were smaller. This meant that among these smaller or more local shippers, more productive technologies (including steam) were adopted later because of their costs. In his account of travel in the Arabian Peninsula, Ameen Rihani describes Kuwaiti dockyards ‘from which are launched the dhows and baggalas that sail across the Gulf and beyond it, perpetuating trade between India and Iraq, as well as between the towns along the Persian and the Arabian coasts, which are beyond the reach of steam. For another reason, the low rate of freight, the sail is still indispensable.’59 Oral histories show the clever calculations that went into trading from port to port. One old sailor from Ras al-Khaimah recounted how at the beginning of the monsoon season,
we picked up dried dates from Basra … We took these to India on the monsoon. Then we got a bulk cargo of roof tiles from Mangalore near Calicut on the Malabar coast. We waited until the monsoon changed and sailed to east Africa where we sold the roof tiles and bought building wood, especially roof beams, chandal, and big carved wooden doors. These were bulk cargo for the Gulf, and we sailed back here on the southwest monsoon.60
This division of labour has continued with dhows – which began to be motorised from the 1940s onwards – traversing the Indian Ocean, the Red Sea, and the gulfs around the Arabian Peninsula on both longer and shorter coastal routes, responding to demand for specific goods in ports large shipping companies could not or would not serve.61 Their trade flourishes even if they are more vulnerable to piracy, their rates of profit are marginal, and the labour required to operate them is backbreaking and poorly paid. They draw on their longstanding relations of trust, extant legal frameworks for trade, and fine-grained knowledge of local conditions to offer everything from parcelled goods (like bulk packaged foods or notebooks) to electronics and household appliances to livestock, used cars, and sometimes contraband.
Meanwhile, global shipping companies order increasingly larger ships, attempting to keep their costs down all the while. Until 2008, the larger shipping companies based in Europe benefitted from an antitrust immunity conferred on them by European Council Regulation No. 4056/86.62 The 1986 regulation allowed these shipping firms to act as cartels and coordinate in setting prices, polling cargoes, and harmonising schedules for trade. The repeal of the regulation in 2008 was likely in response to China and other rising Asian economies threatening to pass reciprocal protectionist shipping regulations. The effect of the repeal was a precipitous drop in freight rates, exacerbated by the global financial and economic crash that saw a 20 per cent decline in global trade.63 The boom years of 2002 to 2008 and the subsequent crash were pivotal in making new financial devices that better facilitated the financialisation of shipping routes.
Thus far, I have insisted on the interplay between the ephemerality of sea routes upon water and the historical, political, and socioeconomic mechanisms that congeal them into more durable forms. These routes traverse the seas between ports. But, in recent decades, these maritime routes have been joined by freight routes that constitute derivative markets, pulsing through wires and cables. Some of the more significant are the Baltic Dry Index and various containerised freight indices.
The setting of price of goods depends on spot and forward contracts, among other things. Spot transactions follow the price of a good at the moment of purchase. Forward commodity prices, by contrast, are a calculation of the expected price of the desired good at a future date. Forward contracts, when first invented, were intended to mitigate the effect of possible price fluctuations in the future by guaranteeing exchange prices at the time the contract of sale was being drawn up. Forward contracts have long been a feature of most market transactions, as they are often applied to commodities which are subject to speculative pricing but require lead time for production and export.64 Futures and options, ‘derivative’ financial products invented in the nineteenth and late twentieth centuries, respectively, became speculative market instruments that played on the differences between spot and forward prices.
Imagine an index of possible forward prices for a commodity. This index includes that commodity’s prices at different future dates. In a futures contract, a buyer and a seller agree to an exchange on an underlying product at a future price on a given date. In financial futures, that underlying product is not the commodity itself but the value of the market index. In other words, in a futures contract, a bet is made on whether the forward price will fall or rise at a given future time. An options contract gives an investor the right (but not the obligation) to buy (‘call’) or sell (‘put’) an underlying good (again, a set of price indices).65 In both futures and options, the buyer and sellers are speculating on the rise or fall of a price index rather than entering a contract for the sale of a good. What makes derivatives, or futures and options, particularly desirable as speculative products is that they allow investors to make money from a falling market by buying put options or selling forward contracts.66 This ability to hedge against a possible loss is a kind of insurance for future transactions. There are futures indices on oil, on grains, even on weather; they are essentially wagers on whether the price of oil or grain will fall or rise, or on whether the weather will improve or deteriorate.
It is also possible to speculate on the future price of sea routes. The underlying object of trade in freight futures is an index tracking the cost of freight on a given route. Such an index, the Baltic Dry Index, was first devised in the Baltic Exchange in the 1980s. The Baltic Dry Index tracks the freight rates for bulk goods (such as iron ore or grain), and is produced by the Baltic Exchange, a maritime exchange established in mid-eighteenth-century London and purchased by the Singapore Exchange (SGX) in 2016.67 The exchange chooses from among its members and subscribers a number of major shipbrokers (or shipping companies) who provide on a daily basis an assessment of the spot and forward prices on a given route for a range of different dry bulk cargoes on ships of specified sizes.68 The information is weighted and aggregated by the model-builders at the Baltic
