Monday, December 29, 2008
The Baltic Exchange Index Explained
The Baltic Exchange is a global marketplace of shipbrokers, ship owners and charters, based in London, England. The Baltic Exchange provides freight indices and route assessments and also operates as a maker of markets in freight derivatives, specifically a type of forward contract known as forward freight agreements (FFAs) that are traded over the counter. The Freight Indices and Futures Committee (FIFC) at the Baltic Exchange is responsible for production of the Index and other freight indices published by the Baltic Exchange, utilizing the professional assessments made by a panel of reporting shipbrokers on the prevailing open market levels. In compiling any of the sub-indices, the FIFC
selects the component routes and determines their weightings with a goal of producing a weighted basket of routes which is as representative as possible of the world's principal bulk cargo trades for that sub-index. The daily level of the sub-index is based on the average assessment made by all reporting panelists of the current market rate with respect to each route included in the sub-index and the applicable weighting for such route.
The publication of the Index and other freight indices of the Baltic Exchange is governed by the following rules.
Publication
The component sub-indices of the Index and the Index will normally be published by the Baltic Exchange at approximately 1 p.m. London time on each business day.
The Baltic Exchange may delay or cancel publication of the indices and routes if considered necessary or desirable. The Baltic Exchange provides route and index data only if it is fully satisfied that sufficient assessments from an adequate quorum of its reporting panelists have been received. If there are not sufficient panelists able or willing to report their assessments on any route or index then the Baltic Exchange has the right not to report on that day or any subsequent days until an adequate quorum has been assembled.
The Panel
The Baltic Exchange appoints a panel of shipbroker companies from its members. The Baltic Exchange may change the number of panelists and the composition of the panel at any time but aims to have panels consisting of at least seven panelists per index. As of July 2007, the number of panelists on each of the four sub-indices of the Index ranges from 12 to 22.
The Routes
The Baltic Exchange has the right to decide which routes are to be included and may alter the composition of the routes from time to time. Since September 2002,
All panelists' returns have been included in establishing the average assessment on dry routes. Prior to that date, both the highest and lowest returns were included.
Weightings
The Baltic Exchange from time to time decides the weighting applied to any route for the purpose of ascertaining its contribution to an index.
Weighting Factors
For the purpose of calculating the indices, the average rate for each route will be multiplied by the weighting factor for that route. The weighting factor for each route is ascertained by the Baltic Exchange and may be adjusted by the Baltic Exchange to take account of alterations to routes or route weightings.
Alterations to the Indices
No more than one route will be removed from an index at any one time. If a route is removed, one or more routes may be substituted for it.
The weighting of an existing route will not be altered by more than an amount equal to 25% of its existing weighting or 2.5% of the index at the date of the decision to make the alteration, whichever is the larger. No such limitation will apply to routes that are removed from or added to an index.
Any one alteration to an index will not result in an adjustment of more than 5% in the regional or commodity composition of a given index. The meaning of "region" and "commodity" for this purpose will be in the absolute discretion of the Baltic exchange.
When an alteration is made, a revised set of weighting factors will be applied to the routes, so that the new index will have the same level as the old index at the date of the alteration. The dry cargo freight market is sensitive to a variety of external variables, the most important of which include the following:
o Fleet supply: The number and types of ships available have a significant impact on the dry cargo freight market. The recent short supply of bulk ships, even as compared to oil tankers or container
ships, has driven up the dry bulk cargo rates.
o Commodity demand: The level of industrial production significantly
affects the dry cargo freight market. The pace of industrial
development in China, India and other developing countries has
compelled those countries to look farther for resources.
o Seasonal pressures: The weather has a meaningful impact on the dry cargo freight market, from the size of agricultural harvests to river
levels or presence of ice in ports that can cause delays.
o Fuel prices: With bunker fuel accounting for between one quarter and one third of the cost of operating a vessel, oil price movements
significantly affect the dry cargo freight market.
1 comments:
With regard to:
"Since September 2002, all panelists' returns have been included in establishing the average assessment on dry routes. Prior to that date, both the highest and lowest returns were included."
I would suggest that the last word should be EXcluded?
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