The Baltic Market
Baltic Exchange members are at the heart of world trade, arranging for the ocean transportation of industrial bulk commodities from producer to end user. The bulk freight market relies on the co-operation of shipbrokers, shipowners and charterers to ensure the free flow of trade.
Baltic Exchange shipbrokers undertake to abide by a code of business conduct based on the motto “Our Word Our Bond” and those who breach the code are disciplined or expelled.
With a total membership of over 550 companies and 2000 individuals (December 2006), approximately 400 Baltic member companies are based in the UK. The Baltic also has a growing membership base in the USA, Europe and the Far East.
Membership of the Baltic Exchange is not just limited to shipbrokers, charterers and shipowners, but also includes financial institutions, maritime lawyers, educators, insurers and related associations.
The Baltic Exchange is a company limited by shares and owned by its shareholders, most of whom are member companies. The Baltic is governed by a board of between 12 and 15 directors, with up to 12 elected by shareholders and up to three elected by non-shareholding members.
The freight market
The freight market is huge and complex with shipowners, operators and charterers at the mercy of fluctuating freight rates. Thousands of events can have an impact on the cost of sea transport and anyone moving bulk commodities operates in an extremely volatile environment.
Seaborne trade is a vital in enabling the global economy to function. The world relies on a fleet of ships with a cargo carrying capacity of 960 million deadweight tonnes to carry every conceivable type of product. From grain to crude oil, iron ore to chemicals, the latest United Nations figures show that more than 7.1 billion tonnes of trade was transported by sea in 2005.(Source UNCTAD)
World trade is dependent upon the availability of adequate shipping capacity.
The cargoes
Vast amounts of fuels, foodstuffs and fertilisers, construction materials and other raw goods are moved by sea. Half of these cargoes are energy related – oil, coal and gas. Container traffic is just over 10% by weight, but much higher in terms of value.
The growth of the world economy has seen a huge growth in the volume of seaborne cargo over the past 30 years.
- World seaborne trade for 2005 reached 29,045 billion ton miles
- The cargo carrying capacity of the dry bulk fleet is 346 million dwt
- A record 645 million tonnes of iron ore was transported by sea in 2005
- The average age of the world fleet on 1 January 2006 was 12.3 years
- Greece, Japan and Germany are the world's top three shipowning nations
Why do freight rates fluctuate?
The freight market is subject to a wide range of external variables, but it is fundamentally driven by the following factors:
- Fleet supply. How many different types of ships are available? How many vessels are being delivered and how many are being scrapped?
- Commodity demand. What are the levels of industrial production? Has the grain harvest been successful? Are the power stations importing more coal? How is the steel industry performing?
- Seasonal pressures. The weather has a big impact on the shipping markets from the size of harvests to ice in ports and river levels.
- Bunker prices. With bunker fuel accounting for between one quarter and one third of the cost of running a vessel, oil price movements directly affect shipowners.
- Choke points. This factor can particularly affect tankers with almost half of the world’s oil passing through a handful of relatively narrow shipping lanes. These points include the straits of Hormuz and Malacca, the Suez and Panama canals, the Bosporus and other important channels whose closure – either from conflict, terrorist attack or a collision in the overcrowded shipping lanes - would change the entire world’s supply patterns.
- Market sentiment. Because perhaps as little as half of the demand side is known in a timely fashion, market opinion affects the freight market just as much as the actual supply and demand of ships and cargoes.