Baltic Exchange Seeks To Double Asian Membership As Trade Shifts

By Michelle Wiese Bockmann - Jul 5, 2012
Bloomberg
The Baltic Exchange, whose benchmarks for freight rates cover about 75 percent of global commodity cargoes, plans to double its Asian membership in the next two years to reflect a decade-long surge in trade to the region.

Quentin Soanes, who starts as chairman today, wants 25 percent of the Baltic’s members to come from Asia by the end of his two-year term, from 10 percent to 15 percent now. The 268- year-old London bourse will convert its Singapore representative office into a full subsidiary that can collect fees and recruit new members, he said in an interview.

Asia now accounts for about 63 percent of global seaborne imports of crude oil and dry bulk commodities such as iron ore and coal, from 45 percent in May 2002, according to London-based Clarkson Plc, the world’s largest shipbroker. Companies from BHP Billiton Ltd. (BHP) to Cargill Inc. are also expanding in Singapore, increasing the number of ships chartered there, Baltic Exchange Chief Executive Officer Jeremy Penn said in an interview.

“The Baltic has been perceived as a very London-centric organization,” said Soanes, 57, who retires July 31 as an executive director at Braemar Shipping Services Plc (BMS), the U.K.’s second-largest publicly traded shipbroker. “If we are going to be relevant to the world, Asia is where we’re going to have to do a lot more.”

The Baltic Exchange has its origins in a coffee house in the British capital where ship captains met with merchants to arrange charters. Its offices in London’s financial district are near the Gherkin, the Swiss Re tower built on the site of the old Baltic Exchange which was destroyed by an Irish Republican Army bomb in 1992. The attack killed three people.

Million Barrels

The bourse publishes more than 50 indexes a day related to individual trade routes, derived from prices submitted by 52 brokers. They are used as benchmarks for determining charter rates for everything from tankers hauling 2 million barrels of oil from Saudi Arabia to Japan to Capesizes carrying 150,000 metric tons of coal from South Africa to the Netherlands.

About 6.5 billion tons of commodities were moved by sea last year, accounting for more than 70 percent of all seaborne cargoes, according to Clarkson, which is also the Baltic Exchange’s largest shareholder. Most of the rest is carried in containers, which the Baltic Exchange doesn’t track. About 90 percent of world trade moves by sea, according to the Round Table of Shipping Associations.

Iron Ore

Singapore had more than 10,000 jobs linked to offshore trade in commodities and energy in 2010, 40 percent more than in 2006, according to government data. That means more ship charters are being agreed to in Asia’s trading hours, spurring the Baltic Exchange to alter the times at which it publishes assessments for some routes, Penn said. The bourse now issues at least 10 such prices, including rates for Supramaxes shipping Indian iron ore to China.

Chinese companies own the world’s fourth-biggest fleet, after Greece, Japan and Germany, according to data from the United Nations. China’s fleet capacity expanded 65 percent in the five years through 2011 as iron-ore imports more than doubled and coal shipments rose sixfold. A unit of China Cosco Holdings Co., the nation’s largest ship owner, is already a member of the Baltic Exchange.

The bourse reported net income of 1.6 million pounds ($2.5 million) in the year ended March 31, 2012, on revenue of 5.5 million pounds. Its membership consists of 593 companies and 2,449 individuals, with shareholders ranging from Cargill to Royal Bank of Scotland Group Plc to Glencore International Plc.

Hong Kong

It is one of the last member-owned bourses along with the London Metal Exchange, whose board agreed to a $2.2 billion takeover bid from Hong Kong Exchanges & Clearing Ltd. last month. The Baltic Exchange has received no such offers and its rules were changed three years ago to stop anyone having a controlling stake, said Soanes, who takes over from Mark Jackson in a role that normally rotates every two years. Jackson works as a managing director at A.M. Nomikos & Son (U.K.) Ltd.

The bourse rejected a proposal from the LME in 2010 to cooperate on starting a freight derivatives exchange, instead opting to create its own Baltex product, Penn said. The screen- based trading platform handles forward freight agreements, used by traders to bet on, or hedge, future transport costs.

The new product, developed for financial markets, is another reflection of how the Baltic indexes are expanding beyond the traditional London shipping base. About 90 percent of vessel charters arranged by Braemar’s brokers in London now involve companies outside the U.K., compared with about 20 percent 15 years ago, Soanes said.

“Singapore is becoming Far Eastern London,” he said. “You can’t defend what is already changing and that’s why we’re looking to expand overseas.”