30 years of Baltic Exchange index production were celebrated in London at the top of 30 St Mary Axe (the Gherkin) on Thursday of last week (26 November). The Baltic indices made their debut in January 1985 with the publishing of the Baltic Freight Index to settle the BIFFEX futures contract. Today the Exchange produces daily assessments for the dry bulk and tanker markets, dry bulk fixtures and market reports, forward curves and trading volumes for FFAs and weekly vessel scrapping prices and asset values.
The party was well attended by past and present directors of the Baltic and members along with many others who have held a close association with the Exchange over the past three decades. Drinks and canapes were enjoyed by all, along with stunning views of the City of London below.
Baltic Chairman Guy Campbell delivered a speech, making reference to the factors that have contributed to the success of the Baltic indices and FFA market over the years.
Please click on this link to access photos of the event.
Text of Baltic Chairman Guy Campbell’s speech
“Good evening ladies and gentlemen and welcome to this event to mark 30 years of Baltic indices.
It is of course appropriate to be holding the event in this particular physical location as we are immediately above the place our trading floor was located for almost 100 years.
The story of our indices is one of innovation, change and development and is the proof of the capacity of the Baltic and its members working together to move with and adapt to changing times.
The Baltic Freight Index, first published in January 1985 integrated reports of the value of a wide variety of routes for the purpose of settlement of the BIFFEX futures contract. The contract was innovative because it was we think the first time a commodity futures contract had been settled for cash. This was clearly essential in the context of international deep ocean shipping.
Innovation though is also seen in the way in which the contract and trading process evolved over time. The original cleared futures contract was, it is fair to say, only partially successful, with trade sizes being generally small and the contract itself being too generalised a representation of the market to meet many hedging needs.
However, Baltic members, led by Philippe van den Abeele of Clarksons among others, led the way in pressing clients to trade individual routes and timecharter averages as OTC contracts (known now as Forward Freight Agreements) which represented a better reflection of their risks than the BIFFEX could. This trading, represents the bedrock of today’s freight derivatives market…With conversion of OTC deals into futures through Baltex we have to some degree come full circle.
We have been fortunate as well as innovative. The advent of Clearing, not always a popular innovation, from 2004 onward meant that the market could survive (though not without drama) the shock of 2008. Without this, 2008 would undoubtedly have killed the market.
Other innovations which have contributed to the success include the introduction of the daily forward curve and of course the publication of the Baltic International Tanker Routes (BITR) rates as recently as 2001.
I would like though to point out a few factors which I think have led to the success of the Baltic indices and the FFA market.
The shipping market is non-standard, international and by any measure, opaque, so to bring the transparency necessary to permit trading in futures and FFAs was not easy. It required a number of factors, not all of which were in place from the outset, but which are without doubt now crucial.
First, broker members of the Baltic had to be willing to act as panellists and contribute market rates. They had to feel this was valued by their clients as increasing transparency is not normally seen as being in the interest of brokers. It remains vital today that panel brokers understand from their clients the value placed on their contributions.
We needed documentation to specify exactly how routes and ships were defined and how rates were contributed. The Manual for Panellists was a true innovation. Peter Kerr-Dineen is to be thanked for his work in writing the initial Manual.
But we also needed to build an extensive and complex engagement with the market, working with the FFA Brokers’ Association, the Freight Market Information Users’ Group and with the Directors who formed the key decision-making body, the Freight Indices and Futures Committee, which is now replaced by a more formal Board structure.
A success then, driven by a high level of cooperation and shared purpose among Baltic members.
All of you have in varying degrees been a part of this story, and I would therefore ask you to join me in a toast to the health of the freight derivatives market.”