- Using Baltic Exchange Data for Financial Settlement
You may have seen a recent advertisement placed by the Baltic Exchange across the shipping industry press, highlighting its data licence policy.
When Baltic Data is referenced for the settlement of contracts, every party to the contract is required to have a valid Baltic Data licence for the entire duration of the contract. This includes – but is not limited to – Time and Voyage Charterparties, Contracts of Affreightment (COAs), Commodity Contracts and Freight Derivative agreements (FFAs) that are not given up for clearing. Specifically, parties are required to have a Baltic Data licence that permits use of Baltic Data for settlement of contracts (“Settlement Licence”), rather than holding only a Level 1 or Level 2 licence, which does not permit such use.
A Baltic Data Settlement Licence can be obtained through:
- A Baltic Panellist- Baltic data is based on assessments made by Panellist Brokers and the easiest way to obtain a licence is to nominate a Baltic Panellist Broker in the contract. Every Baltic Panellist Broker is permitted by the Baltic Exchange to provide Baltic Data (including a Settlement Licence) to its clients in the segment/s for which the Panellist Broker supplies assessments to the Baltic. A copy of the recent advert including a full list of Baltic Panellists can be found here
- Alternatively, a licence can be obtained directly from the Baltic Exchange
To ensure that your company has the correct licence or to learn more about Baltic Exchange market information, please contact firstname.lastname@example.org.
- New Baltic Code
For the past year the Baltic – working with Norton Rose Fulbright – has been reviewing the Code with the aim of updating it to better reflect the compliance and operational challenges created by constantly evolving legal, regulatory and policy in all the jurisdictions where Baltic Exchange Members operate or do business.
The result has been written with input from both the Baltic Membership Council and the Baltic Exchange Council and reviewed by the wider membership.
“Our Word Our Bond” remains at the heart of what the Baltic Exchange and its global membership stand for, it also remains as the basis for the New Code.
The objectives of the New Baltic Code are to:
1. Preserve confidence in and the integrity of physical freight and freight derivative markets.
2. Establish and execute ethical business practices and eliminate poor practices in these markets.
3. Ensure the role of the Baltic Exchange remains at the centre of these markets.
Underpinning the New Baltic Code is set of universally accepted set of principles and good practices that will be applicable not only to Members but also to any physical freight and freight derivatives market participants.
It is therefore built around five key principals:
1. Integrity of Markets
2. Fairness and Competition
3. Ethical Business
4. Good Market Conduct
5. Robust and Credible Benchmarks
The New Baltic Code is now available on the Baltic website and will be applicable from 6 April 2020, giving time for members to acquaint themselves with it.
Read the new Baltic Code here.
- 2019 volatility lifts freight derivative volumes
The freight derivatives markets for both tankers and dry cargo vessels saw increased traded volumes in 2019 according to data released by the Baltic Exchange. Tanker Forward Freight Agreement (FFA) volumes were up 38% on the previous year, reaching 473,113 lots. Dry FFA volumes hit 1,632,773 lots, up 11% on 2018. One lot is defined as a day’s hire of a vessel or 1000 metric tonnes of ocean transportation of cargo.
Commenting on the figures, Baltic Exchange Chief Executive Mark Jackson said:
“2019 was another solid year for the freight derivatives market. Underpinning these volumes are both volatility in the freight markets and trust in the Baltic Exchange’s settlement data. 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.”
2019 also saw the emergence of the first 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, with cleared trades following at the end of 2019 and open interest building.
Dry FFA Volumes
Capesize Handysize Panamax Supramax Total Lots Traded 2019 540,298 600 673,591 173,188 1,387,677 Lots Traded 2018 481,725 2,276 571,850 141,078 1,196,929 % by sector (2019) 38.94% 0.04% 48.54% 12.48%
Option FFA Volumes
Lots Traded 2019 245,096 Lots Traded 2018 268,976
Tanker FFA Volumes
Clean Dirty Total Lots Traded 2019 173,172 299,941 473,113 Lots Traded 2018 117,706 176,823 294,529
The Baltic runs regular training courses on FFA trading. Click here for further details.
- Baltic Exchange Quiz Night
Join us for the annual Baltic Pub Quiz on 6 February (venue tbc).
Tickets are available in groups of 6, at £15 per person. Food is provided, with prizes including:
- A 2015 bottle Rathfinny Blanc de Noirs
- All expense lunch at The Baltic Bar and Restaurant
- The chance to win the Charles Macmillan Cup
- Points towards the David Bradley Inter-Sport Cup
This is a sell-out event, so attendees are invited to book ASAP to avoid disappointment.
Tickets are available here.
- Member Update: 15 January
The following company has applied for corporate membership:
Company Individual ETG Commodities BV
Mr A Bourne Mr S Boutaleb
Grange Resources (Tasmania) Pty Ltd
Ms J Chang Mr T Gower
Mr R Wescombe
Penfield Shipping Co LLC
Mr T Brennan Mr M Moisio
Samsung C&T Corporation
Mr S J Choi Mr D Kang Mr K H Kim Mr Y J Lee
The following individuals have applied for membership of an existing member company:
Company Individual Berge Bulk Shipping Pte Ltd
Mr F Tay Ifchor S.A. Mr Z Quishair Howe Robinson & Co Ltd
Miss E Dardamaneli Miss L Dervenaga JERA Global Markets Pte Ltd Mr M Henry-Roitberg Navios Maritime Holdings Inc Mr G Zorzos United Chartering Ltd
Mrs N Schneider
Any comments should be passed to Karen Karanicholas by 22 January 2020.
- FFABA Tanker Freight Risk Forum
Join the freight side of oil commodity markets and learn alongside other charterers, owners and brokers for the annual market gathering of what has been one of the most volatile years on record. What were the real peaks, how did charterers manage their exposure and limit downsides and what does the tanker freight market have in store for the next 12 months, as freight markets ride-out the IMO 2020 storm.
Registration and further details here.
- 4 February: Bunker Hedging Post IMO 2020
Taking place in Singapore, this half-day course is for bunker buyers, traders and suppliers wishing to understand how IMO 2020 may affect the hedging of bunker fuel prices as the ‘old’ contract disappear and ‘new’ ones emerge. Attendees will learn best practices in bunker fuel price risk management, using new low sulphur fuel oil contracts and gasoil contracts as well as basis risk between ports and how to manage regional discrepancies.
Bunker risk management essentials:
– The economics of a bunker hedge in a COA and for bunkers on redelivery
– Classic signs of when to hedge and when to float on the spot market
– Tried and tested hedging strategies – practical examples
– How IMO 2020 changes bunker hedging, and why
Hedging bunker price exposure with new contracts:
– Term structure and oil market dynamics
– The new low sulphur fuel oil contracts, market mechanics post 2020
– Low sulphur marine gasoil contracts
– Basis risk and regional price differentials, best practice hedging
– New hedging strategies – practical examples
– Execution,clearing, collateral and cash management
The course is charged at USD 600 / SGD 800, with discounts for multiple bookings available on request.
To find out more, or to book, click here.
- 5 February: Managing LNG Freight Risk Using Futures
Taking place in Singapore, this half-day classroom style course is aimed at commercial and risk executives in the LNG market as well as ship operators and ship finance professionals. The course is also suitable for shipbrokers and financiers wishing to expand their knowledge of their clients’ business.
The Baltic BLNG Index:
– Comprehensive understanding of the BLNG Baltic Index and Index methodology
– The role of panels and integrity of the market
– Pricing of the Index on time charter and voyage charter
– Calculating ‘Basis Risk’ between the LNG Index and main LNG trading routes
– Index Settlement mechanisms and correlations
– Term structure of the LNG forward curve
– Contango, backwardation, inversions and seasonality
Putting it all together with FFAs:
– Composition, construction and use of an LNG FFA derivatives contract
– Practical application of LNG FFAs to freight contracts and time charters
– Calculating pricing risk, calendar risk and cash flow
– Settlement mechanisms
– Leverage and Margining and mark-to-market
– Stress testing
– Examples and practical uses of an LNG FFA contract
The course is charged at USD 600 / SGD 800, with discounts for multiple bookings available on request.
To find out more, or to book, click here.
- Legal test for “usual and customary route”
In the context of a demurrage claim in Alianca Navegacao E Logistica Ltda v. Ameropa SA (Santa Isabella)  EWHC 3152 (Comm), the Court, among other things, had to consider whether the route taken by the vessel amounted to a breach of the charterparty. While the Court ultimately found against the Owners (albeit on a different point), its judgement helpfully clarifies the legal test for determining a vessel’s “usual and customary route”.
The facts of this case are that the charterer had timechartered the vessel from the disponent owners to carry a cargo of corn from Topolopambo, Mexico to Durban and Richards Bay, South Africa. About 44,000 tonnes of Mexican white maize in bulk was loaded at Topolopambo in apparent good order and condition.
However, upon the vessel’s arrival in South Africa, the cargo was found to be damaged and infested, resulting in delays. The owner claimed demurrage from the charterer. The charterer disputed liability on the grounds that the delays arose as a result of the owner’s breach of the charterparty, one such breach being that the cargo damage and resulting delay was caused by the vessel taking the Cape Horn, rather than Panama Canal, route from Topolopambo to Durban.
The owner submitted in response that the Cape Horn route was a usual and contractually permitted route to Durban. The charterer also asserted that the owner had failed to comply with their obligations under Article III Rule 2 of the Hague-Visby Rules and had failed to ventilate in accordance with a sound system.
Commercial Court Decision
The Court found that the Cape Horn route taken by the vessel was a contractual route as in the absence of a contractual stipulation of the route, the owner was required to take a route that is both “usual” and “reasonable”.
The “usual” route is presumed to be the direct geographical route. However, evidence may show that the “usual” route is not the direct geographic route and may in fact be a significantly longer route. It is also the case that the “usual” route might change over time; there can be more than one “usual” route between two ports and considerations which determine which route is the “usual” route include navigational or commercial reasons. When seeking to establish a “usual” route, it is not necessary for an owner to prove a custom i.e. that the route was uniform and universal in a trade. To the contrary, a “usual” route can be established even if the evidence emanates from a single shipping line seeking to establish what the “usual” route is and may be inferred from charterer’s lack of objection to the same.
Turning to what is a “reasonable” route, the Court rejected the charterer’s submission that if a vessel takes the direct sea track, i.e. the shortest geographical route, then it has taken a contractual route; but if a vessel diverges in any respect from the sea track, then a full range of considerations, including the way in which the cargo is best protected, apply when deciding whether the route taken is a usual and reasonable route. This was rejected for the following reasons:
- Such a distinction would seem arbitrary in principle;
- The consequences to a carrier of being found to have deviated are severe. For such consequences to ensue where a vessel has taken a standard, commonly used route between two ports, as a consequence of the particular nature of the cargo, would be a marked departure from the generally accepted position;
- To avoid such consequences, an owner would have to comply with a highly uncertain standard. It is also unclear what test an owner is to apply when weighing up the costs/duration of alternative routes with their possible effects on particular cargoes; and
- Although the carrier has the duty to care for the cargo in terms of the on- board operations of the vessel, e.g. ventilation, to extend that duty to routing decisions may well strike the wrong balance between the charterer and the carrier.
Further, the charterer’s submission, and the consequences of such submission, was not supported by the authorities which:
- Indicates that if an owner takes a longer route than the direct sea track, then in order for it to be contractual (putting to one side any liberty clauses) it must be both usual and reasonable bearing in mind the interests of all involved; and
- Tends to support the view that cargo considerations may be relevant in the elementary sense that a much longer voyage is likely to be detrimental to a perishable cargo.
On the evidence before the Court, the route taken by the vessel, i.e. via Cape Horn, was a usual and reasonable route for the purposes of identifying the contractual route and thus did not amount to a deviation. The Court, however, went on to find that the owner had failed to properly and carefully ventilate the cargo in accordance with a sound system in accordance with their obligations under Article III Rule 2 of the Hague-Visby Rules. The owner’s breach in this regard had resulted in the cargo damage which had, in turn, caused the delays that led to the demurrage claim. The charterer was not, therefore, liable for the demurrage.
This case provides clarification in terms of routing, namely as to what will be a contractual route in the absence of a specific contractual provision. It also makes clear that, in the voyage charter context, if a charterer wishes an owner to proceed on a particular route, they should ensure that this is included in the charterparty.
This article was written by Antonia Jackson, a partner at Ince specialising in maritime, commercial disputes and insurance, and co-authored by trainee solicitor Ben Orchard.
- Alexander J Macfarlane
Members will learn with deep regret of the Alexander J Macfarlane on Thursday 9 January 2020.
Mr Macfarlane was first elected a Member of the Baltic in 1971. He represented Angus Graham & Partners LLP between 1982 and 2006, Ravenscroft Shipping (1986-1993), and E A Gibson Shipbrokers Ltd (1994-1997). Mr Macfarlane was also a Baltic Retired Member.
His funeral details are awaited.