Market Practice and Terminology
This section sets out information which shipping market participants are expected to understand. In the past this part of the document was used as the basis of a test for new Members to ensure they were appropriately knowledgeable. The test is no longer required, but the information is retained as many still find it a useful reference. It represents an introductory overview of the aspects covered and the reader should not consider it comprehensive.
The Baltic encourages all its Members to study for exams with the Institute of Chartered Shipbrokers with a view to becoming a Member of the Institute.
The Baltic Exchange also runs a number of educational courses and activities including practical shipping modules as part of the Baltic Academy.
Moving world trade
The world’s fleet of 90,000 merchant ships keeps the planet moving. 90% of international trade is moved by sea: 10.7 billion tonnes of commodities and goods were transported in 2020.
Whilst some high value, urgent goods are moved by air, shipping by sea is the most cost effective, efficient and environmentally friendly option for most cargo.
However, ships are still carbon intensive consumers of energy. Like every other industry, the maritime industry is challenged to reduce its environmental impact on the planet.
Why do freight rates fluctuate?
A shipowner will “charter” their vessel to a cargo interest (the charterer) at the prevailing market rate. The contract between the owner and the charterer is the “charterparty”. Depending on the type of charter, the shipowner will generally earn a “dollar per day” rate or a “dollar per tonne” rate for the ship.
The rate an owner can achieve for his or her ship is established by free market forces. Rates fluctuate depending on a range of factors.
• Supply & demand - how many ships are available for charter at any one time
• General economic conditions and the state of global trade
• Seasonal trading patterns/industrial cycles
• Strikes and port delays which will tie up ships
• Vessel speed – slow steaming ties up more ships
• Vessel orderbook – lots of newbuildings can swamp the market
• Vessel recycling – lots of scrapping decreases supply
• Floating storage – storing commodities at sea will decrease vessel supply