Competitive Ship Brokers Ltd (CSBL) — created in the run-up to Singapore’s SGX acquiring the Baltic Exchange — has appointed Pierre Aury as its chief executive.
Aury is tasked with drawing up a roadmap as CSBL faces up to various challenges in the months ahead, including Baltic panellists renegotiating their agreement to provide information to the London-based exchange for compiling route indices next year.
CSBL was established when it became clear the Baltic would be sold, switching from a mutual to a commercially owned operation, and brokers needed to find a new body to represent them and protect what they see as their intellectual property.
Existing members
Its 11 shipbroking members include the likes of Arrow, Banchero Costa, BRS, Fearnleys, Ifchor and Maersk Broker, but not some of the other big players such as Clarksons, Braemar, Howe Robinson and SSY.
Non-members are claimed to share the same concerns.
One of Aury’s tasks will be to bring more brokerages onboard. But central to his brief will be spearheading efforts to ensure they retain control over market information they provide.
Concerns are that it could be exploited for commercial purposes by third parties and the growing trend towards principals using the Baltic indices data, which currently can be obtained relatively cheaply, to transact directly and exclude brokers.
Aury, who has a long track record in shipping and lives in southwest France, has already begun regular visits to London to meet members and non-members of CSBL.
“I am optimistic,” Aury says. "I think the Baltic, and more importantly, Singapore Exchange [SGX] are showing a strong willingness to work with all market participants and that includes the brokers. We should not have pre-conceived ideas.”
Unified front
Chris Reilly, managing director of BRS London and chairman of CSBL, tells TradeWinds: "We are keen to address the issues facing the shipbroking industry in a unified way and, to that end, we have recruited a CEO.
“One of the concerns of shipbrokers is that the business we are in is generating data which may be commercially exploited by others to our disadvantage.”
A lot of non-shipping money is being thrown at attempts to develop commercial tools, Reilly says.
"It is in the interest of shipbrokers to have an active part in that space and get something out of the data we help generate,” he adds.
This is where the relationship with the Baltic is taking centre stage, including its plans to develop an online charterparty recap management system for the dry bulk market in partnership with Sweden’s Chinsay.
Baltic chief executive Mark Jackson has described it as a broker-centric product, but Reilly says that if all the transactional data is aggregated on a central platform, there is the potential for it to be extracted and used by others. He says the Baltic has given assurances this will not be the case.
Baltic agenda
Various discussions have already been held with the Baltic about what has been christened the Baltic Exchange Recap Manager (BERM). The brokers are adamant they will only support the project if they have control, especially of the data, Reilly says.
Others in the same space include Dubai-based Marcura, with its charterparty management system, while Clarksons is also launching its own recap manager. Some feel such a tool should be provided collectively by the shipbroking community.
Reilly also points to concerns over the growing trend towards disintermediation — or, the removal of brokers from transactions.
He says in a free world, of course, principals have the option to transact directly without using a broker.
"But a large volume of the business transacted on a direct basis uses Baltic Exchange indices to settle against, and index-linked contracts use Baltic data compiled from the input of shipbrokers," he says. "You can see where we are coming from.”
That information is provided free by brokers to the Baltic, although the exchange makes certain concessions such as waiving membership fees.
SGX takeover
When SGX took over the Baltic, it said it valued brokers, wanted to involve them, and would seek to make it harder for principals to transact directly.
TradeWinds has acquired details of a letter sent to panellists by the Baltic in July 2016, which stated that subject to SGX acquiring the exchange, it would “use its reasonable endeavours to revise the terms of data licensing and subscription to clarify the usage of Baltic indices and/or data for physical or financial settlement without the involvement of a Baltic panellist is unacceptable, unless explicitly permitted by licence”.
The caveat is seen as providing the Baltic with a potential escape clause but Reilly says CSBL took it as a pledge to “do something to help us”.
"We are waiting for evidence that they will make good on these undertakings,” he says.
Reilly acknowledges that data licensing has been tightened and the Baltic Code is being revised. TradeWinds understands stakeholders have been asked to comment on a draft of the new code by the beginning of September.
SGX locked itself into an undertaking at the time of acquiring the Baltic not to increase fees for five years. But SGX needs to improve revenues to recover the “very large investment” it made, Reilly says. The implication is that it is under pressure to market information as widely as possible.
The Baltic already sells to various sectors, including forward curves and index data to the clearing houses and news organisations such as Bloomberg and Reuters.
Large users such as charterers can execute cheaply numerous Baltic indices-based transactions without a broker, Reilly says. A data licence costs between £4,000 ($5,250) and £5,000 per year.
User trends
Such trends, including BHP Billiton’s online chartering system, could lead to only a fraction of fixtures being seen and the benchmark Baltic indices becoming unreliable. That would threaten the exchange's claim that it is the gold standard for freight market information.
Reilly stresses this is happening at a time when financial regulation is tightening, in particular with regard to market benchmarks.
One source notes that if the Baltic gets too tough with the mining company charterers, it risks losing their custom to the likes of information provider Platts. It is a “poker game”, but one where the Baltic can still argue it holds the ace card of infinitely superior benchmarks.
Aury says an increase in index deals could destroy the indices. Without the reporting of flat deals, there is no raw material to construct them.
"It is shooting yourself in the foot,” he says. “Shareholders of CSBL are fully aware of the issues and basically have asked me to help them organise their thinking about what is happening in the market and how to react.”
The Baltic has proposed creating a joint stock company that would hold and market data supplied by the brokers, who would have only a minority stake.
Aury says to pacify brokers, the Baltic needs to grant them the right of veto on a range of issues.
Dry bulk focus
Reilly says CSBL is currently only talking about the dry bulk market, but there is definitely room to expand membership into tankers, where brokers also fear being cut out.
However, Reilly acknowledges the Baltic has been very active in positioning itself as the “only relevant place to go if you want to know anything about shipping globally and that is part of the Singapore drive to be the world’s shipping hub”.
As well as developing the indices and tightening the Baltic Code, progress includes dispute resolution, launching a new escrow account, where buyer and seller put money into the same neutral account, and plans to apply for European Union recognition as an approved benchmark provider.
“There is a lot of energy being thrown into various initiatives, which means we have to do the same or we get trampled underfoot,” Reilly says.
But the “jury is out” on whether brokers were right to place their trust in the Baltic and its new owner, SGX.
“The outcome will be determined by what happens when we renegotiate our agreement next year,” Reilly concludes.
