Shipping Bourse Reviews Rates as Industry Rout Spurs Speed Cuts

Time:2013-05-13 Browse:51 Author:RISINGSUN
The Baltic Exchange, whose benchmarks cover about 75 percent of global commodity cargoes, is reviewing the assumptions underpinning its prices after ship sailing speeds declined amid the worst rout in rates on record.


The exchange is considering how to reflect the fact slower sailing and new trade patterns are altering vessel earnings, it said in an e-mailed statement today. The bourse’s prices are used for settling swaps that traders buy and sell to hedge future shipping prices for everything from oil to iron ore. The nominal value of those plunged by about 95 percent since 2008.


“The Baltic Exchange will not shy away from its duty to continue to develop the indices in response to these changes,” the London-based exchange said. “The vessel descriptions, including speed and consumption, slow-steaming characteristics, and the balance of routes etc. used in calculating averages are already under active review.”

 
Speed cuts lower fuel consumption, the industry’s biggest expense. That affects the exchange because it instructs shipbrokers about what speeds to assume when providing estimates for ships’ daily earnings. Those estimates then form the basis for the bourse’s assessments.


The Baltic Dry Index, a measure of costs to ship commodities such as iron ore, coal and grains, tumbled 93 percent from its 2008 peak. That helped drive down trading in shipping derivatives, or forward freight agreements, to $7.4 billion last year, according to data from Clarkson Securities Ltd., a unit of the world’s biggest shipbroker. That compares with as much as $125 billion in 2008, according to data compiled that year by Celent, an industry consultant.


Trading Deterrent


Speed cuts by vessels mean the exchange’s prices differ from what ships actually earn, making related derivatives contracts a less-useful means of hedging prices, Peter Kerr-Dineen, joint-chairman of Howe Robinson & Co., a London-based shipbroker, said at a conference hosted by industry newspaper Lloyd’s List yesterday.


Merchant vessels sailed at an average speed of 5.89 knots so far this year, compared with 8.33 knots in 2009, according to data compiled by Bloomberg. In approximately the same period, the price of ship fuel rose 84 percent to $612.43 a ton, data compiled by Bloomberg show.