Dimitris P.Iliou*, elected member of the B.O.D, of The Baltic Exchange talks to Hellenic Shipping News about the role of the institution in today's booming freight rate environment. He also elaborates on the new trend, as well as
the prospects of the Freight Forwarding Agreements (FFA's) and their increasingly important role for various stakeholders in the industry.
Baltic Exchange plays a crucial role in today's maritime industry. Could you elaborate on the activities and information provided by the Baltic Exchange?
Provision of freight market information including the indices which form the basis of settlement in the FFA market. We are also a membership organisation devoted to protecting and supporting the interests of our members. We provide a dispute resolution service as well as meeting, conference and dining facilities in the City of London.
Having established panels of well known and leading international shipbrokers, is providing daily, assessments on over 50 dry and wet routes, weekly sale and purchase including demolition assessments, as well as daily forward prices.
Could you give us a historical profile of Baltic Exchange with information such as when it was created, how and by whom?
The modern Baltic Exchange started in 1903 when the Baltic Mercantile merge with the Shipping Exchange and a lavish building was constructed to house the new market Floor. Money for the Building was raised a subscription for shares among the members. Members were Merchants and shipping interests who used the "FLOOR"to trade commodities,especially grainΒ and to fix ships
for cargoes as well as buying and selling vessels.
Which have been the major developments and highlight dates in the history of Baltic Exchange?
Its foundation in 1744 in a coffee shop in London, new building constructed in 1903, Futures Trading based on Baltic Rates starts in 1984, bomb destroys old building in 1992.
There's been a lot of talk during the previous months on the increasing role of the freight derivatives market and the FFA's as called. How does this sub-market, if we could call it like that, operate?
This is primarily an over the counter (OTC) market where brokers arrange trades between counterparties. However, it is also possible for trades to be passed to a clearing House. Trading takes place mainly on certain individual routes reported by the Baltic such as C4 (Richards Bay-Rotterdam coal) and on averages of daily timecharter rates for the Capesize, Panamax,Supramax and Handisize vessels.
Who can take advantage of FFA's?
Anyone who has an interest in managing exposure to the shipping markets through the use of derivatives. Heavy users are Oil Majors,Major Houses in dry bulk chartering interests, Operators and Shipowners.
How useful can they be from a ship owner's point of view?
An Owner can use the FFA Market to manage his exposure.He can secure his future revenues at a known fixed rate by hedging in the FFA Market. A vast number of free market players, but also many listed companies in US, London and other Stock Exchanges, as well, are using those assessments to negotiate and conclude their deals. Alternatively they can quickly increase exposure to the market if the are bullish,without having to find a ship to buy.
Which are the prospects of this market?
They are excellent. We have seen significant increases in volumes in both Dry and Wet Market in the last few years. We now also see more and more trading in options and an incrreased use of clearing.
How is the reliability and integrity of the data released by the Baltic Exchange, through its indexes secured?
The data published by the Baltic Exchange is sourced from independent shipbrokers who are members of the Baltic and who have significant business in the trades they report.
All reports are subject to scrutiny before they are integrated for
publication. Reports from brokers are treated in the strictest confidence by the Baltic Exchange. The brokers report against a published set of guidelines which specify in detail the the vessels and routes to be valued (manual to the Panelists).
Supervision of the quality of the data is by a Committee of the Baltic
Board,the Freight Indices and Futures Committee (FIFC).
The Baltic Exchange, as a unique organization, has got its own Constitution with rules which are guarded by the Elected Board of Directors. Furthermore, is got Code of Practice. All members are obliged to follow strticlty and,written rules, including ethics and market practices, are the main care of the Baltic.
All relevant business conducted between the members whether at the Exchange or elsewhere is subject to these rules. In other words The Baltic Exchange is an over 250 years live organisation and giving the tone in the shipping and commercial market on a daily basis.
Somewhere in early 1800"²s when Committees split as West, East, for short period of time West Committee moved to other places including the Grecian (*) Coffee House. In this particualar point, it is interesting for the Greeks toΒ know that there are written evidences, at least 12 Greek Companies and/or individuals were members earlier than 1865. (Nikos Roussanoglou, Hellenic Shipping News)
*Dimitris P.Iliou, with studies in Athens, Norwich and London, has been involved in ship ownership and broking for 30 years in both Greece and London, having started in finance with Navarone Sa in Piraeus. Since then he has been with Elka Shipping London- European Navigation and, for 22 years with the Dalex Group as Director and Managing Director of Rota Shipping, prior to running
his own shipping office in Athens. He is a former member of the Freight Control Committee at the Bank of Greece, representative of the Hellenic Shipbrokers Association (HSA), at Bimco's consultative panel since 1990, Member with other relative Committees and with British-Hellenic Chamber of Commerce. He has been a Baltic member since 1981 and joined the Board in 2004.
Hellenic Shipping News