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Baltic Exchange’s IMO 2020 move could shake up dry bulk FFA market.  02/04/2019

London-based Baltic Exchange last week confirmed it would adapt its benchmark dry bulk freight indexes to upcoming marine fuel regulations of the International Maritime Organization, called IMO 2020, by continuing to use vessels not fitted with scrubbers in its underlying timecharter calculations.The decision comes after several months of consultations and some backlash from financial market participants exposed to shipping derivatives affected by IMO 2020, highlighting the ripple effect of the IMO directive on shipping and fuel markets, and how the industry is struggling to cope with the changes.The Baltic Exchange publishes freight rates for benchmark shipping routes across the tanker, dry bulk and container sectors, and freight indexes. S&P Global Platts competes with the Baltic Exchange in the publication of freight indexes including benchmark shipping assessments.The indexes form the basis of shipping derivatives called Forward Freight Agreements (FFAs), that are used by ship owners and charterers for hedging, or traded by financial institutions like banks and funds. The most liquid FFA market is for bulk commodities like iron ore and coal.The benchmarks are based on standardized specifications like the vessel type, major trade routes, bunker fuel costs and port charges, among others. Since IMO 2020 requires tighter 0.5% sulfur fuel specifications from January 1, 2020, an evaluation of underlying fuel specs was needed.Vessels underlying the Capesize, Panamax, Supramax and Handysize timecharter indices will continue to be ships that are not fitted with scrubbers, the Baltic Exchange said Wednesday in a statement. Scrubbers are exhaust gas cleaning systems used by a ship burning high-sulfur fuel.It told members in a circular that “no change was required to the existing fuel reference in the timecharter indices, which represents all the physical fuels a vessel is required to burn up to a limit of 380cst.”It said maintaining the index vessel as a non-scrubber vessel was backed by Baltic panellists including a majority of Capesize panellists as no reliable prices for a scrubber fitted vessel were available based on the current market.

Source: Dry Bulk Market, Freight News, Hellenic Shipping News

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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