V E N A I R F E I G H T

the group was involved in the initiative, adding that it expected the new indexes “to be beneficial”.

For SGX, which acquired the Baltic in 2016 for 87 million pounds ($121 million), the new indexes could boost its market share in FFA clearing volumes — currently estimated at about 50 per cent — and fend off rival clearing houses such as US exchange Nasdaq and Europe’s EEX, part of the Deutsche Boerse group.

Mike Syn, head of derivatives at SGX, stressed that the Baltic needed to expand its global customer base. “Profitability will result if we are able to get the world to accept that they need these tools,” he said.

Strategic risks

The Baltic Exchange, which has been located in the heart of the City of London since its founding in a coffee house in 1744, produces daily benchmark rates and indexes that are used to trade and settle freight contracts. It also publishes data used in the multi-billion dollar freight derivatives market.

It did not disclose how much the new products would cost to develop, launch and operate. But there are risks — the indexes may never take off, or could take years to gain traction or fail to provide significant returns.

SGX, which has a market value of S$8 billion ($6 billion), does not break out the Baltic’s financial performance. The last annual report directly filed by the Baltic Exchange, for the year ending March 2016, showed its profit after tax more than halved to 968,570 pounds.

The Baltic does not have any direct competitors at this stage. But with growing interest from investors in shipping this year, following an improvement in the market, the firm could face potential challengers from players like data provider S&P Global Platts or companies in China such as the Shanghai Shipping Exchange, according to industry sources.

Taking to air

The Baltic Exchange is also exploring the possibility of moving into air freight in the future, to provide indexes for freight routes potentially in Europe, according to two sources familiar with the matter.

CEO Jackson did not confirm this, saying the firm presently had “nothing in the pipeline for air freight”, but he added: “We are an established benchmark provider and if it has got the word freight in it we should be looking at it.”

SGX’s Syn added: “For air freight as a concept, we would need to learn to get to know a new group of people and it would not be a stretch.”

Before SGX’s acquisition of the company, the Baltic was privately owned by shareholders, many of whom were in the shipping industry and included ship brokers, companies and individuals.

“The shareholders (before the acquisition) did not want the Baltic to take any risks,” Jackson said.

“We are more reactive now, more willing to test things and take the risk of failure,” he added. “Our decisions are a lot more commercial.” — JONATHAN SAUL/Reuters