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Monday, June 08, 2009

Questions asked over 'erratic' Baltic index

Michelle Wiese Bockmann - Friday 5 June 2009


FREIGHT traders have questioned the accuracy of some dry bulk index panellists’ assessments provided to the Baltic Exchange, which last week resulted in the capesize index’s largest one-day rise since records began in 1999. 
A number of members of the Baltic Exchange Freight Market Information Users’ Group raised concerns about the “seemingly erratic” index movement in rates, according to the group’s newly elected chairman, Stefan Albertijn. 
“Nobody disputes the accuracy and the relevance of the Baltic indices,” said Mr Albertijn, senior manager at Hamburg-based Alfred C Toepfer International. 
The Baltic Capesize Index rose by 18% on June 2 to 7,724 points. The spike reflected record levels of Chinese port congestion tying up nearly 10% of the 855-strong global capesize fleet, causing a critical shortage of immediately available ships. 
Thirteen shipbrokers, known as panellists, provide a daily and confidential summary of capesize vessels rates to the exchange, used to compile the index. 
Mr Albertijn said his role involved collating any concerns about assessments, asking for feedback on how this could be prevented in the future, and consulting with Baltic panellists and the Baltic index team to get their feedback. 
“If these comments come up, I think we should look together with the Baltic at the reasons for this,” Mr Albertijn said. 
“Are the panellists also factoring in their expectations instead of what they spot-fixed, or do we have the wrong panellists? Or are there just fixtures we missed? 
“For me, this is a process the Baltic is already working on, and making good progress, but maybe it should be a little more open about when it does what. But I must say that the dialogue with the index team is constructive.” 
He said some members of the group felt that some panellists may look at freight derivatives contracts when making their spot market assessments. 
The manual for panellists clearly said their inputs must be based on fixtures observed in the market that were done for principals. 
“I think a large majority of the panellists are working in that way, but what I’m saying is that if these concerns or doubts come up, we have to coach the Baltic and the Baltic team to be open and say ‘Look, based on this and this input from the panellists, we have arrived at this index and that is backed up by the following fixtures’.” 
He reiterated his confidence in the exchange’s indices, but said users should be able to voice their concerns about any discrepancies between what was fixed in the physical market and what the index showed. 
This could also reflect that the underlying index vessel might not be best to be represented for that trade, he said. 
“This is also why the Baltic index team is reviewing these on a regular basis. The Baltic indices are a great guidance for our markets but we should together try and make them even better,” he added. 
Baltic Exchange chief executive Jeremy Penn said it was fundamental to the independence and the integrity of the indices that brokers’ input remained confidential. 
“Clearly these violent movements cause the freight market department to review very closely what the panellists’ inputs are and to consider with the panellists whether they are getting the inputs right,” he said. 
The exchange’s team was happy to discuss reasons and how indices levels were arrived, he said. 
“But what they won’t discuss is the input of an individual panellist, because the moment you do that it’s open to a party to contact the panellist and give them advice and put them under pressure. That’s not going to change.”