LNG

The London-based Baltic Exchange has added quarterly assessments (GOPEX) on the cost of operating liquefied natural gas carriers and and liquefied petroleum gas tankers to its growing suite of shipping investor tools.

The Baltic Exchange freight derivatives markets for both tankers and dry cargo vessels saw increased traded volumes last year when the exchange also launched the first Forward Freight Agreement (FFA) trades in the LNG market. 

Settled against the Baltic’s recently launched suite of assessments for gas shipping, the first LNG swap took place in July 2019, with cleared trades following at the end of 2019 and open-interest building.

The Exchange said in its annual review that freight derivatives markets for both tankers and dry cargo vessels saw increased traded volumes in 2019.

In LNG, the London-based Exchange collects data from shipping brokers to provide assessment of three routes on the CME Group trading platform.

These are from Australia’s Gladstone port in Queensland to Tokyo, from the US Sabine Pass LNG plant in Louisiana, owned by Cheniere Energy, to the UK. A third freight contract is from Sabine Pass to Tokyo.

In the overall freight derivatives markets Tanker Forward Freight Agreement (FFA) volumes were up 38 percent in 2019 compared the previous year, reaching 473,113 lots. 

Dry FFA volumes hit 1,632,773 lots, up 11 percent on 2018. 

One lot is defined as a day’s hire of a vessel or 1000 metric tonnes of ocean transportation of cargo.

“It was another solid year in 2019 for the freight derivatives market,” said, Baltic Exchange Chief Executive Mark Jackson.

“Underpinning these volumes are both volatility in the freight markets and trust in the Baltic Exchange’s settlement data,” he said.

“Last year both the dry bulk and tanker markets experienced big swings, with issues ranging from the Vale iron ore disaster, attacks on tanker shipping in the Middle East and IMO2020 impacting sentiment,” added Jackson.

The Exchange has also just launched in February 2020 daily spot ocean freight rate indices for 40-foot containers (FEUs).

The rate is now available via the Exchange and the Freightos Group, adding real-time, transparent price discovery and risk mitigation into the container freight market that powers global trade. 

The Freightos Baltic Index (FBX) has been produced weekly since April 2018 by digital freight platform Freightos, based off of live pricing data from hundreds of global logistics providers.

“With the robust, real-time data, as well as oversight from the Baltic Exchange, the FBX is positioned better than ever to provide a true pulse of the market in one of the world’s largest and most important industries,” said Freightos CEO Zvi Schreiber.

“Container shipping pricing has become volatile and FBX will be the foundation of index-linking and future derivatives which allow carriers, forwarders and imports-exporters to hedge their risk, as is already customary in other industries,” added Schreiber.

The Exchange, which already manages a diverse range of benchmarks for the global shipping markets, is also in the process of applying for Benchmark Administrator status with the UK’s Financial Conduct Authority (FCA).   

The Baltic Exchange in London has opted to keep its benchmark shipping indices unchanged, even as some market players had called for the inclusion of exhaust-cleaning systems that vessels can fit due to the International Maritime Organization ban on ships using fuels with a sulfur content above 0.5 percent from 2020.

In one of the biggest changes in the oil and shipping markets in decades, only ships fitted with exhaust-cleaning systems, known as scrubbers, will be allowed to continue burning high-sulfur fuel.

The Baltic Exchange, whose indexes for global shipping rates are also used in the derivatives market, said that after extensive consultation with members and market participants its indices would show “non-scrubber fitted” vessels in its descriptions.

As preparations for the changes  advance, many operators expect that there will be enough low-sulfur fuel readily available to avoid the need to fit the exhaust-cleaners.

However, some ship owners have been switching to LNG propulsion, though this is a slower process in meeting the IMO curbs and other future anti-pollution measures because new ships have to be built.

The Baltic Exchange was acquired in 2016 by the Singapore Exchange and has been looking for new areas to develop such as introducing LNG charter indices.

In its latest ruling the Baltic Index Council (BIC) announced its decision on the implications of the IMO 2020 sulfur cap for the Baltic Exchange’s time charter indices.

“As formally announced to the Baltic Exchange members, the Baltic will be adding clarificatory wording to its Capesize, Panamax, Supramax and Handysize vessel descriptions to confirm that the index vessels are not scrubber-fitted,” said the Exchange in its short statement.

Explaining the consultative decision-making process, BIC Chairman Stefan Albertijn said it was presented with extensive submissions and views from across the market.

“Our unanimous decision to clarify the vessel descriptions as a response to the IMO 2020 change in sulfur limits, involved careful examination of all the data and feedback received from the consultation process,” he explained.

“We are confident that it is the right decision and one which best meets the needs of the shipping markets we serve,” stated Albertijn.

The Exchange said that the clarified vessel descriptions will be applied from 1 April 2019.

“This was a lengthy and rigorous process that underscored the robustness of the Baltic’s IOSCO-based index administrative practices,” said Baltic Exchange Chief Executive Mark Jackson.

“It was essential for us to take the time to gather the necessary evidence and collective feedback, ensuring that our diverse membership and the wider market was properly consulted and provided with an opportunity to be heard,” added Jackson.

The Baltic Exchange in London, one of UK’s oldest financial institutions and now part of the Singapore Exchange (SGX) group, has formed a panel to help develop a new liquefied natural gas index comprising several routes for the evolving LNG shipping market.

April 27 (LNGJ) - Newly appointed Baltic Exchange Chief Executive Mark Jackson has set out the London-based Exchange’s vision of the near future during a speech at a shipping conference in Singapore. One of its plans was to enter the LNG and container indices markets. “The recent acquisition of the Baltic Exchange by the Singapore Exchange has reinvigorated this key international maritime institution, allowing us to grow our leadership profile and play a bigger role than ever before in setting standards, building consensus and leading change in the shipping markets,” said Jackson. “These are bold plans and will ensure that the Baltic Exchange remains at the heart of the bulk shipping industry for the long-term. In 2017 we will be providing more freight market benchmarks and move into the LNG and container spaces,” added the CEO.