Methodology

How Baltic market information is produced

The index model used by the Baltic Exchange was established in 1985 with the launch of the Baltic Freight Index (today’s Baltic Dry Index) and used to settle trades on the world’s first freight futures exchange, BIFFEX. Although there have been a few minor modifications along the way, the model has essentially remained unchanged since its introduction and relies on panels of independent shipbrokers around the world giving their professional judgement as to the prevailing level of the open market within the parameters of the route they have been asked to assess. The numbers produced by the Baltic Exchange are based on an underlying understanding of what is actually happening in the freight markets.

The routes reported are as representative as possible of the world’s principal bulk cargo trades and reflect trades within the Pacific and the Atlantic, as well as trades between the oceans, maintaining a balance between fronthaul and backhaul routes.

All the routes reported have a steady and significant turnover of fixtures, while trades subject to seasonal closures such as the Great Lakes or Goa are avoided. Trades dominated by a limited number of charterers are also avoided and voyage routes where business is largely concluded on standard terms are favoured.

The Baltic Exchange’s indices are widely used and completely trusted by shipowners, charterers and freight derivative traders as an honest, independent assessment of the market. They are not only used to settle multi-million dollar FFA trades but are also the basis for index linked affreightment contracts and period charters.

 
Index production

Factors taken into consideration by panellists:

    Known & recently concluded
    fixtures?

    Current negotiations?
    Vessels available?
    Known stems?
    Laycan?
    Prompt delivery?
    Age factors?

Neither shipowners nor charterers are allowed to make assessments and all the brokers providing assessments are audited to ensure they are fully active on the trades they are assessing. No shipbrokers will have "money in the market."

The assessment is not reporting the “last done” fixture but takes into consideration a professional’s view of the market based on the cargoes and tonnage currently available as well as recent fixtures.

 
 
 

Governance

Overall responsibility for the administration of the Baltic Exchange's benchmarks belongs to the Board of Baltic Exchange Information Services Ltd (BEISL) Governance Council. This Board Council currently comprises a number of directors who also serve on the Board of the Baltic Exchange Ltd (BEL) five representatives of the appropriate segments of the market (including at least a dry bulk, a wet bulk and a shipping derivatives broker panellist) (Market Representatives) and one director of the Board of Baltic or of one of the Baltic’s subsidiaries. The BEISL Governance Council Board meets at least once a quarter to review matters related to the benchmarks and to make any necessary decisions, conduct reviews of the accuracy and suitability of the benchmarks, and will review annually the independent auditors' reports on compliance with the rules for index production.The Governance Council Board receives advice from staff of BEISL and BEL and invited representatives from the marketplace. BEISL and BEL staff, together with the Market Representatives, attend in an advisory role. At this time those representatives are the Chairmen of the Freight Market Information Users’ Group (FMIUG) (dry) and the FMIUG (wet) as well as the Chairman of the Forward Freight Agreement Brokers’ Association (FFABA) for each of the dry and wet markets and the Chairmen of the Panellist Working Group. These groups are informally constituted bodies which seek to represent the views and interests of market participants. The Chief Executive Officer of the Baltic is invited to attend all meetings of the BEISL Governance Council but does not have a vote on any decisions taken by the BEISL Governance Council.  The BEISL Governance Council Chairman will be invited to attend meetings of the board of directors of BEISL where required. 

 
 

Full details of the routes reported and precise reporting criteria can be found in the Guide to Market Benchmarks.

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Baltic Exchange Ltd., St Mary Axe, London, EC3A 8BH
Registered in England Number 64795
Tel + 44 (0) 20 7283 9300, Fax + 44 (0) 20 7369 1622.
Calls to Baltic Exchange staff are recorded
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