- Understanding the Baltic Exchange Operating Expenses Index
Baltic CEO, Mark Jackson, previews the new Baltic Exchange Operating Expense Index (BOPEX).
In addition to exploring the thinking behind BOPEX, Mark provides in-depth insight into what is included in the assessments, who makes the assessments and how panellists benefit.
Mark also discusses how the methodology is calculated, how investors have received the new index, and finally, plans to expand the index beyond dry bulk vessels.
Watch the video in full below.
Note: filming took place before current coronavirus (covid-19) guidelines on social distancing.
- 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: email@example.com
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.
- Free access to the Baltic Exchange App to all members
Given the current disruption we have decided to provide free access to the Baltic App to employees of every member company, regardless of whether the individual employee is a member or not. During this difficult time, we want to ensure members are still able to access market information while so many of us are working away from our offices.
For those unfamiliar with it, the Baltic App is designed for both Android and iOS operating systems. The app provides instant access to a wide range of Baltic information including rates, fixtures, member contacts, news and much more.
Key features include:
- Live market data, including all historical Baltic indices & assessments and charts
- Live and historical FFA data, including forward assessments and volumes
- Push notifications for all Baltic spot data upon publication
- Member search facility. All company and individual contact details easily accessible
- Market intelligence including daily & historical fixtures, market reports, circulars and news
- Listings of all Baltic Exchange meetings, social and educational activities
Users can customise data notifications to receive the information they need as it’s published.
To take advantage of this opportunity, sign up here.
- John Kartsonas: Breakwave
The Breakwave Dry Bulk Shipping ETF (ticker: BDRY) is the first and only Exchange Traded Fund (ETF) dedicated to dry bulk shipping. It offers investors the ability to invest directly into dry bulk freight through freight futures, a market that is quite difficult to access for most market participants. BDRY trades like a stock, is listed in the New York stock Exchange, and it is an easy and efficient way for every investor to invest in dry bulk shipping. Although the mechanics for such an innovative product is complex, the idea behind it is very simple: Provide an instrument to access the freight futures market in such a simple manner as buying or selling a stock.
BDRY, which is issued by ETFMG, does not track a specific index, rather it follows a pre-determined methodology that provides no discretion in what the fund holds. BDRY owns futures on Capesize, Panamax and Supramax freight futures with a breakdown of approximately 50%, 40% and 10%, respectively. In addition, the average tenure of the underlying futures is about 60 days. As a result, BDRY follows the direction of spot rates, to the extent that futures tend to react to spot rate movements. Over the last two years, the weekly correlation of BDRY to the Baltic Dry Index, the main dry bulk spot index, has been approximately 75%. Directionally, it is easy to see the relationship between the two, as the chart below describes.
The advantages of BDRY for the shipping investor are numerous. First, unlike the only alternative out there, namely shipping equities, BDRY is not affected by broader stock market volatility, as it is priced against the dry bulk freight futures market. Given that the correlation of freight futures to other major asset classes is extremely low, BDRY is a very good diversifier for investor portfolios. In addition, as a commodity ETF, BDRY does not have risks such as equity dilutions, company-specific risks, management decisions, operational issues, etc. It basically tracks the freight futures market through pre-determined parameters and a specific methodology. Secondly, BDRY is a simple to use product. Opening and maintaining a freight futures account is extremely difficult and costly for individual investors and very cumbersome even for professional investors. BDRY gives every investor the opportunity to participate in the freight market in a very simple way, just like investing in a stock. Lastly, BDRY invests in freight futures that settle in cash and thus imply full utilization and obviously no operational risk, as there are no assets involved. Compare that with operating actual ships, and one can see the benefit of BDRY versus even physical shipping investments.
BDRY was designed with simplicity and wide investor appeal in mind. It is an instrument to invest in an industry that has a lot of particularities when it comes to different asset classes, sizes, trade routes, etc. BDRY is not an instrument for precise hedging, but it is a very good proxy to take a view on the broader dry bulk shipping sector. It is a volatile investment, and riskier than the average ETF, but that reflects the underlying volatility and risk of dry bulk shipping. However, with higher risk usually come higher returns, and thus investors must adjust their risk tolerance and return expectations accordingly.
BDRY is a very innovative product as it opens a hard to access, non-listed market to all market participants. Over the years, dry bulk shipping has provided exceptional returns, but also significant drawdowns. Unfortunately, until BDRY, there was no easy way to capture such moves. BDRY aims at becoming the leading instrument for investors who view shipping as an important part of their portfolio and have been disappointed with the ability of shipping equities to capture the cyclicality of the industry.
Investing in freight futures can be volatile and is not suitable for all investors.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This material must be accompanied or preceded by a prospectus. Please read the prospectus carefully before investing.
The Fund is distributed by ETFMG Financial LLC, which is not affiliated with Breakwave Advisors LLC.
- Baltic Exchange April 2020 Non Publishing Dates
Due to UK Easter public holidays, the Baltic Exchange will not be publishing its Dry, Tanker or Gas (LPG and LNG) on Friday 10 April and Monday 13 April 2020.
The weekly tanker settlement, Recycling and Sales & Purchase Assessments will be published on Thursday 9 April 2020.
The Freightos Baltic Global Container Index will be published on both Friday 10 April and Monday 13 April 2020.
There will also be no publication of FFA volumes, Dry Option Volume Estimates or Baltic Forward Assessment curves (dry & wet) on both these dates. All indices, FFA volumes and estimates and BFA curves will be published on Tuesday 14 April 2020.
Also please note that due to Singapore public holiday, the Baltic Exchange will not be publishing its BEP-Asia, BES-Asia and BITR-Asia on Friday 10 April 2020. The BEP-Asia, BES-Asia and BITR-Asia will be published again on Monday 13 April 2020.
Questions and comments should be directed to firstname.lastname@example.org
- Message from the Chairman
It will come as little surprise to many of you, but I must formally and most regretfully announce that this year’s Baltic Chairman’s Cocktail Party, scheduled for 13 May in London, has been cancelled.
I have enjoyed attending many previous Chairman’s parties as a guest, meeting industry leaders, speaking with politicians, and chatting with both our trade and national press. However, what I find most enjoyable about the evening, is the special opportunity it provides for Baltic members from across the globe to come together, to network and to socialise. Of course, it’s disappointing to cancel this year’s event, but we will return next year larger, stronger and in style.
Being forced to cancel the event just reminds us of the importance of face-to-face connections our industry is so good at. Today’s communication platforms and screen based information have made it easier to adapt to remote work stations, but the shipping industry thrives when we meet in person and take the time to understand each other’s business interests, personality and culture that make up our rich tapestry. These are life changing times for everyone, but I am proud of the way Baltic members have adapted, applying their skills in dealing with the unexpected, and continued to work servicing the world at a time of turmoil.
It is important that we still come together, but for now, for many of us it will have to be remotely by phone or video conferencing.
From everyone at the Baltic Exchange, our hearts and thoughts are with all the people who have been affected by this completely unforeseen event. We continue to thank all of those who are involved in this COVID-19 fight, healthcare professionals, support groups, and governments for their tireless work keeping essential services going.
We will return to normality over time, but until then, please, continue to stay safe.
Chairman, the Baltic Exchange
- Ticket refunds for the Baltic Exchange Chairman’s Cocktail Party
In view of the continuing COVID-19 coronavirus situation, we have decided to take additional precautionary measures to safeguard the well-being of our employees and guests and have unfortunately decided to cancel the Baltic Exchange Chairman’s Cocktail Party that was set to take place on 13 May 2020 at Christ Church Spitalfields. We are sorry for any inconvenience this may cause and thank you for your cooperation in keeping our events a safe place for all.
Over the coming days we will process refunds for all tickets purchased, if you have any queries, please email email@example.com.
- Member Update: 8 April
The following individuals have applied for membership of an existing Member Company:
Individual Company Mr A Chalita Brazilship Scanbrasil Comercio Maritimo Ltd
Mr U Kurulay ETG Commodities BV Mr N Tripodakis Noble Europe Limited Mr W Lee Pan Ocean Co Ltd
Mr B Andrade Vale SA
The following has applied for Sole Trader Membership:
Any comments should be passed to Karen Karanicholas by 15 April 2020.
- Sailors’ Society launches COVID-19 resources and appeal
International maritime welfare charity Sailors’ Society has launched a suite of practical resources including advice, contacts and podcasts to help seafarers during the coronavirus crisis.
The organisation, which has stood beside seafarers through many dark times during its 202-year history, including two world wars, has also set up an appeal to fund urgent support for our key workers of the sea.
In the past few days, seafarers from all over the world have joined a special Facebook group set up by the charity to share news, tips and words of encouragement.
Shipping companies have also contacted Sailors’ Society, known globally for its award-winning wellness at sea programme, asking for help in supporting crews through the pandemic.
Sandra Welch, the charity’s COO and director of programme, said: “We may not be able to greet seafarers in port right now, but we are here for them and their families as we always have been. Seafarers are deeply worried like everyone else and far from home and loved ones; many do not now know when or how they will get home again. While the rest of us struggle with suddenly only being able to see our family and friends on a video call, this is the reality for seafarers every day. And images of empty supermarket shelves are a stark reminder of how vital these men and women are to our supply chains, bringing almost everything we need by sea.
“Now they need support from us. Please share our resources with crews, partner with us to support seafarers through these turbulent months or give to our appeal enabling us to divert the full resources of the charity to help seafarers who are under immense mental and emotional strain, sick or, with many ports on lockdown, unsure when they will next work.
“We all rely on seafarers. Now, more than ever, they rely on us.”
Two weeks ago, the charity announced it has rolled out virtual chaplaincy to seafarers, with chaplains available to seafarers over the phone or on social media, after it had to suspend port activity in response to the virus.
To talk about partnering with us to help your crews email fundraising@sailors-society.
- Frederick T Rees
Members will learn with deep regret of the death of Mr Frederick T Rees on 17 March 2020.
Mr Rees was first elected a Baltic Member in 1974 for Rank Hovis Ltd. He represented Rank Hovis throughout his membership until becoming a Retired Member in 1991.
- Zdenko Blazic
Members will learn with deep regret of the death of Mr Zdenko Blazic on 7 March 2020.
Mr Blazic was first elected a Member of the Baltic Exchange in 1971. He represented Wescol (Europe) between 1973-89, Lambert Brothers Shipping 1989-96 and Howe Robinson 1996-2000. In 2000 he was elected a Baltic Retired Member.
There will be a private funeral for Mr Blazic.
- Week of reckoning for oil
Tomorrow [April 9] could be watershed moment for oil prices. In the face of plummeting oil prices, OPEC+ – the grouping of 24 oil-producing nations, made up of the 14 members of the Organization of Petroleum Exporting Countries (OPEC) and 10 other non-OPEC members, including Russia – is set to meet to agree production cuts to prop up prices.
West Texas Intermediate crude prices have been on a downward trajectory since the start of the year, more than halving to reach $28.06 per barrel on April 6. Covid-19 and the resultant drop in demand is largely to blame. The market is currently flooded with oil as supply outpaces demand by some margin.
Saudi Arabia and Russia are said to be working on the terms of a deal to cut crude output – both are expected to significantly curb their outputs. However, the wild card in the pack is the US, currently the world’s largest producer. OPEC wants the US to share the burden of cutting production to shore up prices, but questioned about his response to the organisation’s wishes, President Trump said:
“I have been against OPEC all my life. It’s illegal, you can call it a cartel, a monopoly … I couldn’t care less about OPEC.”
He also said that nobody had asked him about production cuts, but “if they ask, I’ll make a decision”. That said, the US is inadvertently helping with production curbs as rock bottom prices have forced US American producers to cut back on supply anyway.
The US does have less to worry about on the energy pricing front as much of its supply is for its domestic use. But the US Energy Information Administration (EIA) expects the US to return to being a net importer of crude oil and petroleum products in the third quarter of 2020 and will remain a net importer in most months through the end of 2021.
Change of status
In its April Short-Term Energy Outlook (STEO), the EIA points out that fewer barrels will be available for export as US crude oil production continues to decline. In addition, net exports of petroleum products will be lowest in the third quarter of 2020, when US refinery runs decline in response to lower demand for refined products.
In September 2019, the US exported 89,000 bpd more crude oil and petroleum products than it imported and became a net exporter of crude oil and petroleum products for the first time since monthly records began in 1973. It continued to be a net exporter through February when net exports reached 1.79 million bpd, and the April STEO forecasts that net exports will continue through May 2020.
However, the recent significant changes in global oil market dynamics have prompted the EIA to revise its March STEO forecast that US net exports would average 0.6 million bpd in 2020 and 0.3 million bpd in 2021. EIA now forecasts in the April STEO that US imports and exports will be nearly equal in 2020 and that US net imports will average 1.4 million bpd in 2021.
This reversal does place greater relevance on global pricing for the US and will have been on President Trump’s mind when he tweeted that the Crown Prince Mohammed bin Salman of Saudi Arabia and Russian President Vladimir Putin had begun talks on how to curb production on April 2 – a ‘fact’ disputed by the Kremlin at the time. Despite the rebuttal, his comments gave oil prices a welcome boost as they climbed nearly 50% in one day.
In subsequent tweets, President Trump has said that a 10-15 million bpd supply reduction is on the table from OPEC and possibly “much more” than that. But even at the higher end of the rumoured cuts, this will fall far short of addressing supply surplus: oil demand is estimated to be down 35 million bpd because of the near-global lockdown of people to stall the spread of Covid-19.
If cuts are not deep enough or unsustainable, oil prices could sink to single-digit lows, Fitch Solutions warned.
“While it is unlikely that nominal storage capacity will be breached, it is possible that the sheer scale of the oversupply will overwhelm global logistics chains, plunging Brent into single-digit lows,” the analyst said.
Therefore the market is hoping not only for agreement from tomorrow’s meeting, but an agreement at a level that will actually make a difference. The OPEC meeting on March 6 failed to reach an agreement on deep supply cuts, meaning that members could effectively pump as much oil as they liked from April 1. Also, Thursday’s meeting is the second attempt to hold such a summit; the first was put off as tensions reportedly flared between kingpins Saudi Arabia and Russia.
If OPEC and its allies do manage to put aside political squabbles aside to meet on Thursday, the outcome will be keenly watched by G20 energy ministers, who plan to convene an emergency meeting the following day to “address energy markets stability”. Any G20 pact will include oil producers the US, Canada and Brazil.
With so many pieces in play, the coming days could prove to be make or break for the oil sector and the tanker sector that supports it. And adding a fly to the ointment, Trump has warned he will not rule out tariffs on oil imports. Keeping to his ‘America first’ promise he pledged that he would consider placing tariffs on oil coming from “outside” to protect domestic energy workers and companies. “I’ll do whatever I have to do,” he said.