Why do the coal freight markets rely on Baltic Exchange indices? 16.03.2021 by Andy Symonds, Senior Assessor – Freight Market Singapore, Baltic Exchange. You can hear more from Andy on 13 April 2021 at School of Coal Digital Training Course 2021. Pricing the market for the movement of coal by sea is a tough job: shipping contracts are ultimately private transactions between two parties. The shipping markets therefore rely on the Baltic Exchange, its standardised benchmarks and panel of independent shipbrokers to provide daily assessments for the cost of chartering a vessel. These assessments are relied upon to settle Forward Freight Agreement (FFA) trades as well as for index linked charters. Without indices and assessments, the shipping markets would be blind. Contract terms are not standardised; the full terms and the exact time and date of transactions are only known with certainty by the parties to the contract. Rates and prices may be agreed between the parties, but subject to other conditions being fulfilled. Individual transactions are often of high value but infrequent. This means that by the standards of financial markets, shipping markets are illiquid. There is no requirement for shipping contracts to be reported, and therefore much remains unreported. However, shipping markets are also highly volatile and may move significantly in very short periods of time. At the same time there are lots of different sorts of dry bulk vessels. From Capesize (180,000 dwt) to Handysize (38,000 dwt) types, ships come in all sorts of shapes and sizes. The design and performance of ships relative to a standardised benchmark varies from trade to trade, and in relation to other key inputs such as bunker prices or installation of equipment such as scrubbers. How the ship has been maintained between dry dockings as well as the creditworthiness and perceived competence of the shipowner may also be a factor in the value the market puts on a particular ship. The same class of ship may carry a range of cargoes on a great variety of routes. Different ships, different trades, different cargo sizes, and a myriad of different contract terms can all have a bearing on how individual transactions can be related to standardised market benchmarks. Different market participants may well place differing values on these variants. Since 1985 the Baltic Exchange has helped shipowners, charterers and traders agree on a fair value for the spot market for a range of different ships and routes. For the coal markets, the Baltic Exchange provides daily assessments for the Capesize, Panamax, Supramax and Handysize markets. Assessed on a timecharter or voyage basis, the assessments are produced at 1100 & 1300 (UK) from the Baltic Exchange’s London and Singapore offices. Historical data is available as are forward curves. The Baltic’s dry bulk, as well as our tanker and gas assessments, are regulated by the UK’s Financial Conduct Authority (FCA). This means that our information is covered by EU Benchmark Regulation and that FFA traders using European clearing houses can use our information to settle their trades. We are currently the only provider of freight benchmark with a recognised Benchmark Administrator status. 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. Underpinning the whole operation are the Baltic’s robust and transparent governance arrangements. The management body for the administrator is the BEISL Board of Directors. Certain aspects of the governance of BEISL benchmarks are provided jointly by the BEISL Board and by the Baltic Index Council. On top of this, oversight is exercised by the BEISL Oversight Function, which is an independent committee who are not directly involved in provision of benchmarks. For full details of the Baltic’s freight market information services, please visit www.balticexchange.com. .