Imarex and Baltic clash on Worldscale rate equivalents

DISCREPANCIES of up to $12,300 per day for the same rate assessments of key tanker routes have emerged between the Baltic Exchange and major derivatives broker Imarex.

The Baltic ended years of tradition on Monday when it began listing a dollar-per-day time charter rate for 13 clean and dirty tanker routes in the spot market, alongside the Worldscale rate it has always provided.

The move was taken to help the $6.7bn tanker derivatives market, and to provide brokers with greater rate transparency. It will also end confusion among traders unfamiliar with the complex Worldscale system. Tanker forward freight agreements are settled against the Baltic Exchange’s daily Worldscale voyage rates for different tanker types trading on specific routes.

But the Baltic Exchange found itself fielding inquiries after their dollar amounts, launched on Monday, differed widely with Imarex, even though they are based on the same rate.

Imarex calculates W214.77 on the TD7 route as $64,296 per day, while the Baltic Exchange arrives at $51,955 per day — a difference of more than $12,300 per day.

The TD7 covers aframaxes transporting 80,000 tonnes of crude from the North Sea to Europe.

Differences of more than $9,400 per day were also seen on the benchmark TD3 route — the most commonly traded tanker derivatives contract — covering very large crude carriers transporting oil from Saudi Arabia to Japan.

There was also a difference of more than $3,500 per day for another major suezmax route.

“We believe that we are providing an appropriate benchmark for the market,” said Baltic Exchange chairman and chief executive Jeremy Penn.

“At the end of the day, a lot of brokers put out benchmarks and rates to support their customers and that’s fine, but hopefully the rates which the market can use for settling FFA transactions will be the Baltic rates.”

He agreed that Imarex and the Baltic should have more similar rates. “It only makes sense that everybody should be on the same page,” he said.

Imarex is now reviewing how it calculated its Worldscale rate, according to Oslo-based Imarex desk manager Magnus Kristian Dehli.

He told Lloyd’s List that the discrepancies had arisen from differing consumption levels of bunkers, compared to the Baltic, when doing the sums.

“We are now assessing our assumptions to find out whether or not we should change them or not,” he said.

A variation of 15 tonnes of daily bunker consumption for a VLCC on the TD3 route changed the dollar-per-day rate by $11,000, he said.

The Baltic move is seen as vital to boost liquidity for the wet derivatives market, which grew substantially in the second quarter, according to Baltic Exchange figures released today.

Trades totalled nearly 7,000, covering 127.2m tonnes of freight worth $2.9bn. That is up from first quarter figures of nearly 5,200 trades covering 90.6m tonnes of freight worth $1.7bn.

Forward Freight Agreement Brokers’ Association chairman Ben Goggin said a licensing dispute between the Baltic Exchange and Worldscale had been resolved, allowing the daily dollar rates to be published.

The Baltic has provided time charter rate equivalents for three tanker types since the beginning of the year, but no trades had been done against them.

“I don’t think this is going to be a complete revolution, especially overnight,” said Mr Goggin about the new Baltic move.

“But I think it will appeal to a whole other section of possible FFA players, which are both Greek shipowners, who always work in dollars per day relating it back to time charters, but also financial players that are not privy to the workings of Worldscale and understand a simpler dollars per day.”

The Freight Market Users Information Group, representing FFA traders, has sided with Baltic over the rates differences.

Group chairman Barry Bednar said he was personally supportive of Imarex but felt more confident of the Baltic assessments.

“The basic stance of the people that use and trade these numbers and need to have them settled, is that it’s better to have the Baltic Exchange to provide these numbers as they’re a third party that has been audited and provide these numbers on a daily basis, that’s their business.”