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China to launch its own dry freight index
The Shanghai Shipping Exchange (SSE) will launch China’s first dry bulk and oil import indices to track vessels carrying goods and energy to the world’s largest commodities consumer, the exchange president told Reuters.The new dry bulk index will launch on Nov. 28 based on strict price collection from charterers, brokers and ship owners and focus only on China, SSE President Zhang Ye said in an interview.
He said it was not aimed at challenging the Baltic Dry Index which has long been the benchmark for the global dry bulk and shipping markets.
“China owns the world’s largest shipping capacity and is one of the world’s biggest dry bulk consumers… so we hope to provide an index that focuses on China’s market, which is very important for us,” Zhang said.
“We didn’t have our own index in the past, while BDI can reflect the overall global trade market. So, I don’t think the Baltic Exchange needs to worry as the market won’t give up on the BDI,” he added.
“We adopt a different pricing system. The BDI is more of global index and China is just part of its index.”
London’s Baltic Exchange, the hub of the global shipping market since its founding in 1744, publishes daily freight rates and indices.
The overall dry freight index, known as the BDI, gauges the cost of shipping commodities including iron ore, coal and grain.
The Baltic Exchange has described SSE’s benchmarks as “poorly modeled on the Baltic indices”.
Baltic Exchange Chief Executive Jeremy Penn said the Baltic already reported the vast majority of routes planned by the SSE.
“It’s not about the BDI. It’s about people wanting an accurate benchmark for the freight routes which affect China and we believe that we provide already an accurate and well managed system of reference rates,” Penn told Reuters on Friday.
“I am not sure their (SSE’s) review and audit processes are in place. But most importantly we will always get a more reliable result and a more defensible result because we only take inputs from competitive ship brokers.”
The Baltic’s indices and rates are compiled by a global panel of shipbrokers. The exchange says what it publishes is neutral and reliable because the panelists do not trade the market on their own account.
Zhang said the SSE had different compiling committees for both the dry bulk and tanker indices.
“We have our own index compiling committee and are adopting a very strict index compiling process,” Zhang said.
SSE Eyes Expansion
SSE’s Chinese bulk dry index will be listed in dollar terms on either a per ton basis or a daily basis. It will also track more than 10 freight routes to China.
The oil index will specialize in two freight routes for Very Large Crude Carriers and the exchange wants to expand to more than five routes next year.
Global shipping is facing one of the worst downturns ever as it struggles with a glut of ships ordered when times were good and global economic turmoil.
Many small and medium-sized Chinese shipbuilders are suffering from heavy losses, with some battling with bankruptcy.
“The surplus capacity for either oil tanker, dry bulk or container has exceeded by more than 40 percent the real market demand,” Zhang said.
“I hope the market can stabilize, even at low price levels, next year.”
China’s biggest ship container port city Shanghai aims to become a global financial and shipping centre by 2020.
The SSE launched the China coastal bulk coal freight index to track spot rates to Shanghai and Guangzhou last year.
This followed SSE’s compilation of the world’s first ship container export freight index as well as the affiliated freight derivatives contracts.
The SSE hopes to launch new freight derivatives contracts based on the two new indices, but Zhang would not give a specific timeframe.
“The derivatives will not be launched until the indices are widely recognized by the market, so there is no timeframe yet.” (Reuters)
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