Shanghai Shipping Exchange introduced dry-bulk and oil-tanker indexes in a challenge to a 268-year-old London bourse that sets freight rates covering about 75 percent of global commodity cargoes.
The indexes will track China-import shipping rates using data collected from shipowners, brokers and charterers, the Shanghai exchange said in an e-mailed reply to Bloomberg News questions. The gauges will initially run on a trial basis starting today. Derivatives, used to speculate on future rates, will be added at a later date, it said.
The Shanghai bourse is introducing the gauges as China’s biggest port tries to compete with London and Singapore as a shipping-finance center. The bourse will need to overcome concerns about the use of data from operators and slumping derivatives trading to lure investors using indexes compiled by Baltic Exchange Ltd.
“They have to convince the shipping market that their data is independent and objective,” said Ralph Leszczynski, the Beijing-based head of research at shipbroker Banchero Costa & Co. “They shouldn’t create indexes that are only handy for Chinese state-owned companies.”
The Shanghai exchange will take data from 23 companies for dry-bulk indexes tracking three vessel types. The oil tanker gauge, which only follows very large crude carriers, will use information from 18 companies. It will track rates on the Middle East-Ningbo route and from West Africa to the Chinese port, according to a press release today.
State-controlled companies contributing data for the indexes will include ship operators China Cosco Holdings Co. (1919) and CSC Nanjing Tanker Corp. (600087) and oil company China Petroleum & Chemical Corp. Overseas companies such as brokers Fearnleys A/S and ICAP Plc will also provide information.
Baltic Exchange only takes data from shipbrokers for its gauges, which include the Baltic Dry Index. That will remain an advantage for the London bourse as brokers are perceived to be neutral, unlike shipowners and charterers, said Philippe van den Abeele, managing director of London-based Castalia Fund Management (UK) Ltd., a shipping hedge fund that trades in freight derivatives.
“I am against any type of index that is partially determined by principals that have a vested interest in the market,” he said.
Shanghai Exchange President Zhang Ye said today in the city that the wider range of contributors will ensure that its indexes accurately reflect rates in the market.
“With more sources of data, you can track abnormalities in case there are discrepancies,” he said. “It’s also a transparent market, and we’re not just getting data from one company.”
The exchange has also published the names of contributors and it intends to ask more companies to join the data panels in future. The bourse already runs container-shipping indexes, a market the Baltic hasn’t entered.
The exchange said its China focus will help differentiate its indexes from the Baltic Dry Index (BDIY) and other global gauges run by the Baltic, which has about 600 corporate members. The different basis means the Shanghai indexes will complement Baltic ones rather than being competitors, it said.
“We just want to do a good job in providing freight rates for China imports,” the bourse said. “A lot of foreign companies care about rates for goods imported by China.”
The nation is the biggest user of iron ore and coal, which are carried on dry-bulk ships, as well as being the second- biggest oil importer after the U.S.
The Baltic produces more than 40 daily route assessments, drawing from shipbrokers worldwide, along with a sale and purchase index, forward prices, fixture lists and market reports, according to its website.
“It’s a pity that the Shanghai Shipping Exchange has decided to produce these indexes because the Baltic already provides benchmarks for the bulk of the routes that they are proposing to cover,” said Baltic Chief Executive Officer Jeremy Penn.
Shanghai is adding the indexes as slower economic growth and global overcapacity saps rates and derivatives-trading. The Baltic Dry Index has plunged about 40 percent in the past year. Average daily earnings for very large crude carriers were the lowest in records going back to 1997 for the quarter ended September, according to data from Clarkson Plc, the world’s largest shipbroker.
Trading of derivatives used to bet on or hedge shipping costs will plunge 53 percent to $7 billion because of falling rates and fewer transactions, broker Freight Investor Services Ltd. said in September. Freight-forward agreement trading this year through Nov. 23 totals 871,439 lots, a 9.3 percent decline from a year earlier, according to Baltic data. One lot equals 1,000 metric tons of freight or one day’s vessel hire.
The new Shanghai indexes may fragment the market and cause confusion, especially because of overlap with Baltic ones, said John Banaszkiewicz, managing director at London-based Freight Investor. They may also provide a spur to the Baltic, he said.
“The Baltic needs to re-establish itself as the world’s leading freight market information provider and consolidate its market position, especially in Asia,” he said.
The Baltic traces its roots back to a London coffeehouse, which changed its name to Virginia and Baltick in 1744 to reflect the business of the merchants and shipowners who gathered there, according to its website. It introduced the Baltic Freight Index in 1985, as it opened the first freight- futures market.