- Still open for business
I’m proud of the way in which the Baltic Exchange community has risen to the challenge of Covid-19. Overnight, chartering and trading desks have relocated to spare bedrooms and kitchen tables. Ships continue to be fixed, indices published and FFAs traded. The world, which relies on ships transporting energy, food and medicines, has not stopped moving.
The challenge is to continue our businesses this way for an unknown period of time. As a regulated benchmark administrator, the Baltic, and our panellists, have business continuity plans to ensure regular index reporting. Thanks to the internet, robust systems and processes, the Baltic has been able to continue to provide accurate and timely data.
I would like to thank everyone, from staff in London and Singapore to our worldwide network of panellists, for their professionalism and dedication in this unprecedented crisis.
- BOPEX counts the costs
The Baltic Exchange is helping shipping investors with their financial modelling, allowing them to calculate Net Present Value (NPV) more accurately than ever before with a new index. The quarterly Operating Expense Index (BOPEX) is based on assessments made by a panel of some of the industry’s biggest and best third-party ship managers. BOPEX provides much needed transparency when tracking vessel running costs.
Using the full suite of independent Baltic Exchange indices, investors are now able to benchmark daily vessel earnings, running costs, sale & purchase and recycling prices. The same vessel descriptions are used across the datasets.
For the dry market, BOPEX-D covers capesize, panamax, supramax and handysize vessel types. The Baltic is also currently in the process of developing a set of tanker and gas carrier assessments which are expected to be launched in the next months. These will complement the existing dirty, clean, LNG and LPG freight indices.
Third-party managers key
According to Baltic Exchange member Philip Bacon, a highly experienced ex-operations director at dry bulk owner AM Nomikos who led the project to set up the new index, the role of third-party managers is critical to its success: it sets BOPEX apart from other assessments.
“This is a current and realistic assessment made by people who quote ‘OpEx Budgets’ for owners’ business on a daily basis. It’s not a backward-looking assessment or an assessment by the owner’s accounts department: everything is included.”
Around 15% of the dry bulk fleet is estimated to be managed by third-party managers and the three managers which currently make the assessments (Anglo-Eastern, Columbia Shipmanagement and Fleet Management) collectively provide technical management services to a fleet of around 600 bulk carriers. They also manage a broad range of other vessel types which adds context to their assessments.
The fact that the index is audited by the Baltic Exchange and falls under its strict criteria for benchmark production adds further credibility to the figures.
Ajay Hazari, Chief Risk Officer at Anglo-Eastern, says that a team of four at the company contribute to BOPEX-D. He reveals that for Anglo-Eastern, benchmarking itself against its peers was an important reason to become part of the panel. He also notes that becoming a member of the panel is good for the company’s exposure to the investment community.
He says: “We hope that people using the index will ultimately approach us for our management services.”
Panellist Vikras Greval, head of Fleet Management’s business development division, shares FLEET’s reason to join the benchmarking exercise:
“There are a couple of existing OpEx benchmarking platforms that FLEET contributes to. What made this new project particularly interesting is that it would be the first platform to provide our existing and prospective clients with a complete ship lifecycle cost – sale & purchase, freight and OpEx. And that’s a real value add.” he comments.
Making an assessment
Of course, when it comes to making an assessment on the cost of dry docking, crew, insurance, technical management, there are many variables. The first task for the panellists to agree on were the definitions. What nationality should the crew be? How do you factor for a well-maintained vessel’s drydock costs compared with a vessel which has been pushed hard for five years?
When the project was first trialled, there were concerns that there could be a large variance in the assessments submitted by the rival ship managers. According to Philip Bacon, the returns have all been very close.
The biggest cost included in BOPEX-D is crew. The drydocking costs are assessed but not included within BOPEX-D.
Thanks partially to the strength of the U.S. dollar, crewing costs have not increased significantly in recent years. Crew costs for a capesize vessel were assessed at $2,850 per day in January 2020, which is over half of the daily total of $5,026 of the total BOPEX-D for this asset class.
Deciding on the nationality of the crew for BOPEX-D was not easy. There are currently around 0.5m Chinese, 0.4m Filipino, 0.3m East European and 0.2m Indian seafarers serving aboard the world’s merchant fleet.
In the end the panellists settled on using Indian or Eastern European officers with ratings from the Philippines. The crew assessments also assume that there are no cadets aboard, but that there is an in-lieu training contribution embedded in the crew cost. For capesize and panamax vessels, there is an assumption of 19 crew, but 20 aboard supramax and handysize ships which accounts for the employment of an electrician, required to service the onboard cranes.
The drydocking assessment does not contribute to the BOPEX-D headline figure, but is published separately as a lumpsum and based on a five year drydocking in China. Of the 12 days spent at the yard, five are deemed to be spent in drydock. The assessment assumes that the vessel has been well maintained and ready to sell so that no steel exchange, full blasting of the hull, or cargo hold upgrade are required.
Insurance costs assume that the ship’s P&I cover is provided by an International Group Club, that its Hull & Machinery insurance are first class H&M, that it is classed with a member of the International Association of Classification Societies. It also assumes that there have been no breaches of Institute Warranties Limits or Additional War Risks covered.
The Baltic Exchange welcomes additional third-party ship managers who wish to join the panel. For further details contact Philip Bacon. Email: firstname.lastname@example.org
BOPEX-D is published on a quarterly basis (January, April, July, October). Please visit www.balticexchange.com for further details.
Capesize: 180,000 mt dwt built in “first class competitive yard”, 199,000cbm grain, LOA 290m, beam 45m, draft 18.2m SSW. Not ice classed, not scrubber fitted, five years old and special survey passed.
Panamax: 82,500 mt dwt built in “first class competitive yard”, 97,000cbm grain, LOA 229m, draft 14.43m. Not ice classed, not scrubber fitted, five years old and special survey passed.
Supramax: 58,328 mt dwt on 12.80m draft SSW built in “first class competitive yard”. LOA 189.99m, Beam 32.26m, 72,360 cbm grain, five holds/hatches, 4 x 30mt cranes with 4 x 12cbm grabs. Not ice classed, not scrubber fitted, five years old and special survey passed.
Handysize: 38,200mt dwt at draft 10.538m SSW, built in “first class competitive yard”, 47,125cbm grain, LOA 180m, beam 29.8m, five holds, five hatches, 4 x 30mt cranes. Not ice classed, not scrubber fitted, five years old and special survey passed.
- Crew (USD per day, including all fees)
- Technical (USD per day, including all fees)
- Insurance (USD per day, including all fees and rebates)
The fourth, an assessment of a five year drydock cost, will be amortised over five years to give a USD/day price, but is published separately and does not contribute to BOPEX-D.
- Covid-19: Baltic supports calls for seafarer key worker designation
The ability of shipping services and seafarers to deliver vital goods, including medical supplies and foodstuffs, will be central to responding to, and eventually overcoming, the Covid-19 pandemic. The Baltic Exchange therefore supports a call by the Marshall Islands Registry for seafarers to be designated as key transport workers to enable crew changes amid Covid-19 restrictions around the world. Many countries have imposed travel bans and restrictions on crew changes in an effort to contain the spread of the disease. However, the unforeseen consequence of these travel bans is the prevention of the change of ships’ crews; either to join a ship or for crews to be relieved and return home to their families. We should all recognise the contribution of this invisible workforce which is keeping vital supply chains open and the need for regular crew changes to ensure vessel safety.
The Baltic Exchange endorses the sentiments expressed by IMO Secretary-General, Kitack Lim, in Circular Letter No. 4224, which states: “Defeating the coronavirus must be the first priority, but global trade, in a safe, secure and environmentally friendly manner must be able to continue, too.“
We welcome the stance taken by the UK government designating seafarers as key transport workers.
- Baltic Exchange authorised as Benchmark Administrator in the EU
The Baltic Exchange’s subsidiary, Baltic Exchange Information Services Ltd (BEISL), has been authorised by the UK’s Financial Conduct Authority (FCA) as a benchmark administrator under EU Benchmark Regulation. This means that the Baltic Exchange’s daily dry bulk, tanker and gas freight indices are regulated by an EU National Competent Authority.
“We are very pleased to have received authorisation from the FCA,” commented Baltic Exchange Chief Executive Mark Jackson. “This status ensures that financial institutions, including freight derivative traders using European clearing houses, will be able to continue using Baltic Exchange data for settlement purposes. Users of our index administration services can be assured of our strong governance, robust benchmark design, transparent methodologies and clear accountability. Our high standards of design and governance uphold confidence in the global shipping freight benchmarks that we produce.”
Having come into effect on 1 January 2020 for EU administrators, EU Benchmarks Regulation requires administrators of a range of benchmarks to put in place appropriate governance arrangements, to have effective controls to ensure the integrity of input data and to maintain adequate records. BEISL engages an accounting firm to conduct an annual review of its compliance while panellists are subject to regular audits.
To achieve its authorisation as a benchmark administrator with the FCA, BEISL has strengthened its governance arrangements, adding an independent BEISL Oversight Function.
There are now three bodies responsible for the oversight of the Baltic’s benchmarks: BEISL Board of Directors which has overall responsibility for the administration of the benchmarks; Baltic Index Council which brings together market expertise to ensure that the BEISL benchmarks reflect the economic reality of the shipping markets measured; and BEISL Oversight Function whose main role is to ensure regulatory adherence in all areas of benchmark related activities.
Full details of these bodies can be viewed at www.balticexchange.com/about-us/beisl/
For further details please contact:
T: +44 (0)20 3326 8460
- What does being an authorised benchmark administrator mean?
Baltic Exchange Chief Executive, Mark Jackson writes:
I am pleased to announce that Baltic Exchange Information Services Ltd (BEISL), the Baltic Exchange subsidiary responsible for our wide range of freight market information, is now authorised by the UK’s Financial Conduct Authority (FCA) as a benchmark administrator under EU Benchmark Regulation. This makes the Baltic Exchange the first benchmark administrator specialising in the maritime freight markets to be authorised in the EU.
Whilst the substance of our index administration service has not changed, we have added an extra body to our oversight arrangements. The BEISL Oversight Function oversees the work of the BEISL Board and Baltic Index Council, which have been in place since 2015. It is comprised of voting members who are independent of the benchmark production process, and who have powers to ensure BEISL’s compliance with the EU Benchmark Regulation.
The authorisation of BEISL as a benchmark administrator is an important milestone as it ensures that European clearing houses and financial institutions can continue to use Baltic Exchange data for settlement of financial instruments such as freight forward agreements.
But does the fact that the UK is set to leave the EU make a difference? The short answer is no. The FCA is still an active member of the European Securities and Markets Authority (ESMA) and works closely with regulatory authorities in the EU. Wherever the UK and the EU end up, our financial markets and regulators will remain closely linked. The FCA is introducing the UK Benchmarks Register. This new Register will replace the ESMA Register for UK supervised users, and UK and third-country based benchmark administrators that want their benchmarks to be used in the UK. We foresee that in a post-Brexit world BEISL will eventually be authorised in the UK and recognised as a third-country benchmark administrator in the EU.
It is important to not lose sight of the reason that such stringent legislation covers benchmark providers such as the Baltic Exchange. The LIBOR scandal rocked financial markets and shocked the general public. Since then, huge efforts have been made by regulators around the world to ensure that transparency and robust standards underpin any benchmark used to support financial instruments traded and cleared on any trading venue and clearing house. Freight derivatives, settled against the Baltic Exchange’s benchmarks, fall into this category.
Over the past few years, the Baltic Exchange has worked hard to ensure that its methodologies and governance processes meet the more stringent legislative requirements. Our original Manual for Panellists which set out how we report our market was updated and replaced by the Guide to Market Benchmarks in 2015. Whilst the fundamental philosophy which underpins the Baltic’s indices remains unchanged – assessments by independent shipbrokers reporting on visible routes – we have rewritten our rule book to ensure that we fit with the language of regulatory compliance.
The freight markets rely on the Baltic Exchange benchmarks to function smoothly. We are committed to providing the markets with independent indices and assessments which are well designed, trustworthy and are backed up with robust governance processes. Our high standards uphold confidence in the shipping markets.
- UK P&I Club Webinar: Fuel Quality – Practical and Legal Issues
The UK P&I Club will be holding a webinar on 2 April addressing the practical and legal issues associated with fuel quality.
The agenda will include:
- Fuel testing environment
- Continuing concerns over fuel quality – Total Sediment Potential (TSP), Pour point, Cloud Point, CAT fines
- Enforcement, Carriage ban, de-bunkering and on Board blending scenarios
- Bunker sampling practices
- Bunker contracts and contractual positions with respect to owner/charterer
- Contractual protections
- Recovery strategy for claims related to ISO 8217 Clause 5
Time will be put aside at the end to answer questions from audience members.
To find out more, or to register your attendance, click here.
- Member Update: 25 March
The following company has applied for Corporate Membership:
Company Individual Glow Company Limited
Miss C Kunajitpimol Miss P Kwanrat Miss R Thantrakool Miss P Uthairat Indian Oil Corporation
Mrs M Agrawal Mr P K Bansal Mr N M Bhalerao Mr G Ghatak Wintershall DEA GmbH
Mr F Bloethner Ms A Giesbrecht Mr S Kretschmar Mr J Neumann
The following individuals have applied for membership of an existing Member Company:
Individual Company Aleksander Seeman The Air Charter Association Ltd
Any comments should be passed to either Jackie Harrison or Karen Karanicholas by 1 April 2020 – email: email@example.com
- Mark Porter, GeoSpock
The fundamental driver behind increasingly strident calls for shipping’s decarbonisation is the need to reduce greenhouse gas emissions generated by maritime activity. The scale of this challenge cannot be overestimated. The Global Maritime Issues Monitor, an annual survey of industry executives conducted by the Global Maritime Forum, lists shipping’s decarbonisation as one of the top two most impactful issues of the next decade. However, there is also widespread worry within the industry over its readiness to accommodate potential future changes. In the same survey, decarbonisation ranks in the bottom five responses for issues in terms of industry preparedness. This is largely due to the fact that although potential decarbonisation pathways exist, most solutions are still in early development and untested at scale. The need for decisive action on decarbonisation, but lack of clarity over what this action should be, has heightened levels of uncertainty further in an industry where long asset lives and large capital requirements already generate significant inertia.
The dual sense of urgency and uncertainty surrounding maritime decarbonisation has brought with it a proliferation of activity related to emissions. At the regulatory level, IMO mandated annual monitoring, reporting and verification (MRV) of emissions has begun, along with a counterpart EU scheme for vessels active within European waters. Stakeholder groups with maritime interests are also reevaluating how to integrate emissions information into their activities. The Poseidon Principles is a maritime climate finance scheme currently backed by 17 banks representing $140 billion in shipping finance, and is aimed at helping financial institutions integrate climate considerations into maritime lending decisions. Many owners, operators, charterers and ports also have sustainability and environmental targets for their individual activities. Across the industry, a push has begun to measure, manage and ultimately respond to the challenges posed by maritime decarbonisation.
Whilst this flurry of activity is admirable, it has some weaknesses. The adhoc proliferation of methods, channels and data flows associated with emissions data means information is being communicated in a highly non-standard manner, with different organisations requiring different flavours of information and using different metrics to assess performance. This tangled web of information flows not only increases the overhead on the industry by forcing the creation of multiple reporting channels for what is essentially the same raw data, but also exacerbates the risk that performance improvements and successful examples of emissions management and reduction are lost in an ocean of bespoke reporting methodologies and private communication channels. Standardisation of both emissions data itself as well as its presentation is sorely needed. Regulation is undeniably helpful in setting precedents here, but at present there is limited disclosure of mandated emissions reporting back to the wider industry, and what is provided is often highly aggregated and simplistic in nature. Although this allows macro trends to be identified and discussed, a lack of contextual information makes it difficult for many operators and stakeholders to confidently take control of their own emissions management efforts and make informed decisions on operational behaviours or investment cases.
During this period of rapid development the Baltic has been evaluating how it can support the industry in addressing some of these emissions reporting related challenges. As the leading supplier of maritime market information across the industry, the Baltic is well versed in acting to safeguard and assure information in the interests of industry stability. This trusted, independent position makes it an ideal custodian for not only the traditional forms of market data it has collated for decades, but also the emerging data landscape associated with maritime emissions. With this in mind, the Baltic has embarked on a new program to help bring stability and standardisation to maritime emissions reporting through the creation of the first independent, digital emissions repository.
The Maritime Emissions Project
The maritime emissions project is the Baltic Exchange led initiative to develop a digital repository for maritime emissions data. The repository marries the trust based maritime role of the Baltic Exchange with the technological and spatial data management know-how of project partners GeoSpock, to create a new independent emissions reporting and insights platform for the shipping industry. This platform will serve as a single point of truth for maritime emissions information, simplifying reporting channels and greatly improving the accessibility of emissions information for all parties. By augmenting existing reported data with models, vessel specifications and AIS tracking, the repository will also provide the additional information required to place emissions in context. Users of the platform will for the first time be able to see how the make up of their fleet and its operational behaviour around the world contributes to emissions footprints, and what steps must be taken to help manage and reduce this impact.
As emissions data becomes increasingly important to customers, charterers and operators throughout the maritime supply chain, there is a need to ensure this data remains independently accessible. The repository created by the maritime emissions project is designed to ensure exactly that. As a single point of truth for emissions data, the repository will allow owners and operators to prove their environmental credentials within the market, whilst charterers and other customers will be able to assess this information with confidence. Many mooted decarbonisation strategies, from simple carbon inventorying, through performance benchmarking, to the development of carbon indices and offsetting schemes, rely on precisely the robust underlying emissions information that will reside in the repository, with the Baltic acting alongside industry players to assure the veracity of information and ensure its appropriate use. By acting as a focal point for emissions data curation, the repository will facilitate the creation of a standardised toolbox for emissions communication within the maritime industry, and ensure that all parties across the industry receive acknowledgment for their efforts to reduce carbon.
To enquire about contributing data or becoming a member of the project steering board, sign up at: https://www.themaritimeemissionsproject.com/
About Mark Porter, Maritime Business Development Manager at GeoSpock
Mark looks after maritime activities at GeoSpock, a technology company specialising in spatial data management who are partnered with the Baltic Exchange to build the maritime emissions project. Mark has an MBA from the University of Cambridge and previous on and offshore experience in the upstream energy industry.
- Baltic Exchange and GeoSpock white paper: The connected world
In 2019 the Baltic Exchange partnered with GeoSpock, a geospatial big data company, to look at building a digital platform for maritime industry emissions management. The partnership aims to work with the Exchange membership and broader industry to provide data access at a scale never before seen in the maritime sector.
To support this initiative, Baltic Exchange and GeoSpock published a white paper “The future of data in the maritime sector: driving change through geospatial data”. The document outlines the vision, and first steps in the initiative to help the entire maritime industry uncover value from the vast store of data sat just beyond their fingertips.
The first part of chapter two, featured below, looks at the ‘connected’ world. The full white paper is available to view here.
We live in an increasingly connected world. By 2022, it is estimated that 60 billion devices will be connected to the internet. Each one will create a constant stream of data, much of it geospatial in nature. The ability to understand how people, items and objects move around and interact with each other in near real time will provide a step change in our understanding of everything from supply chains and urban planning, to advertising and consumer behaviour.
The maritime industry has also begun its foray into data driven locational intelligence. AIS data already tracks the position of the ocean-going fleet, relaying positional information to provide updates on global vessel movements many times an hour. With around 80,000 merchant vessels in service on our oceans each day, such technology generates significant quantities of data in its own right. However, this is just the starting point on the journey towards a much more closely integrated global ecosystem. Sensors are increasingly deployed to monitor a whole range of activities in real time, from flow meters which measure exactly how much fuel is injected into vessel engines, to automated detection systems for water ingress and other marine hazards. Tracking is becoming more precise, with systems in development to allow not only the monitoring of vessels, but the individual containers they carry from port to port and country to country.
The alliance of this dense web of locational intelligence with new automation technologies provides a tantalising window into the ships of the future. Remote operations are already becoming common on fixed offshore structures such as oil rigs, and the increasing reliability and bandwidth of wireless communications technology means the development of such solutions for more mobile vessels is close to reality. Although more distant, autonomous vessels are a research priority for many engineering firms. These intelligent craft provide the possibility of a safer maritime environment for vessel crews whilst also increasing operational productivity. All these technologies and their associated benefits depend on a world more connected than ever before, with the ability to harness data with confidence and at scale.
- Steel shutters down… but not for China
In February, world steel production was maintained at a healthy 143.3m tonnes – an increase of 2.8% year-on-year. But with the world’s top steelmakers shuttering mills in response to Covid-19, the next batch of production figures could look decidedly less robust.
Data from the World Steel Association released this week painted a rosy picture of global steel supply. China’s crude steel production for February 2020 was 74.8m tonnes, an increase of 5.0% compared with February 2019; India produced 9.6m tonnes of crude steel in February 2020, up 1.5% on February 2019; while Japan produced 7.9m tonnes of crude steel in February 2020, up 2.2% on February 2019.
Production volumes from the EU and the US were similarly positive, but as countries in the West locked down citizens and businesses in a bid to halt the spread of Covid-19, steel production has become a victim of the virus.
ArcelorMittal – the world’s leading steel and mining company, with a presence in 60 countries and primary steelmaking facilities in 18 countries – has declared force majeure on raw materials supplied to its European steel mills, stunting Australian and US coal supplies.
It will reduce production across all its European operations, has stopped its Asturias blast furnace in Spain and blast furnace number two at Taranto in Italy, and has delayed the restart of its Krakow blast furnace in Poland. Steel demand in Europe has declined, largely due to the cessation of car manufacturing throughout Europe.
The steelmaker is also idling blast furnaces in the US and Canada as the Covid-19 pandemic weakens global demand for steel. More cuts have not been ruled out as the virus spreads. ArcelorMittal produces 89.8m tonnes of crude steel and 57.1m tonnes of iron ore a year. German steelmaker ThyssenKrupp has also confirmed that it will also cut production because of the drop in demand.
In East Asia, Japan’s steel giant Nippon Steel has reorganised its production facilities, leading to the closure of some blast furnaces due to weak domestic demand. In India, one of the country’s largest steelmakers, Tata Steel is closing its downstream standalone units in Maharashtra and Uttar Pradesh. It has also made “production adjustments” at some of its European mills in the Netherlands and the UK.
And while steel production in the world’s largest producer China has not been dented by the pandemic, the continual spew of product is now far in excess of demand, flooding inventories and weighing heavy on prices. The latest data from China from its National Bureau of Statistics reveals that steel mills in China ramped up production in the first two months of 2020 in defiance of Covid-19, with an output of 154.7m, up 3.1% from the same period last year. Inventories were up 45% year-on-year by late February, according to the China Iron and Steel Association.
The fear now, as Europe’s steelmakers take pause, is that China will flood international markets with cheaper steel, feeding oversupply of steel in the market. However, those hoping for a boost in seaborne trade as a result will likely be disappointed as demand simply isn’t there for product.
The long-term impact of closing steel production facilities will likely be moderate to severe. As sector representative association UK Steel explained, primary steel production sites do not have the flexibility to “simply ‘switch off’ production without major long-term consequences”. Another hurdle in the horizon for capesize operators hoping for a fast bounce-back.
Is a briefing on Monday, International Monetary Fund managing director Kristalina Georgieva spoke of negative global growth for 2020 and a “recession at least as bad as during the global financial crisis or worse”. She did add that the IMF expected a recovery in 2021 if containment is prioritised and health systems everywhere are strengthened.
Certainly, there will be no quick fix for steel-related trades which will on recovery need to deal with the growing commodity overhang that China is creating while the West focuses on the pandemic.