The Baltic Exchange is moving into the air cargo market following a tie up with air cargo pricing publisher TAC Index Company of Hong Kong.
The partnership will see the two providing new regional general air cargo rate assessments, and TAC’s Regional General Air Cargo Indices will be rebranded as the Baltic Air Freight Index (BAF Index) powered by TAC Index and come under the governance of Baltic Exchange Information Services Limited (BEISL). TAC Index will act as the Calculating Agent.
The global air freight market is estimated to be worth $100bn, with 65 million tonnes of general cargo moved by air annually
Baltic Exchange Chief Executive Mark Jackson (pictured) said: “Our status as a regulated benchmark administrator opens up all sorts of possibilities for the air freight market. We are confident that the index will provide a completely independent and uncompromised view of the air freight market and the audited Index will become listed by financial clearing houses. This would provide the industry with new ways of managing its freight rate risk and potentially bring in new market participants.”
TAC Index provides weekly average assessments for general cargo on 32 major air trade lanes and is based on transaction data submitted by global freight forwarders. Launched in 2016, the TAC Index is widely referenced in the air cargo market and has established itself as a trusted and independent source for market freight rates.
The Baltic Exchange will initially undertake a rigorous review of the TAC Index’s methodology and processes to establish a governance structure which will ensure the index’s compliance with UK’s Financial Conduct Authority’s (FCA) rules for benchmarks.
The Baltic Exchange already provides benchmark assessments for the maritime markets which are used to settle billions of dollars-worth of derivatives and physical trades every year. Baltic Exchange Information Services is itself authorised by the UK’s FCA as a benchmark administrator under EU Benchmark Regulation. This means that the Baltic Exchange’s main daily maritime indices are regulated by an EU National Competent Authority.
TAC Index Managing Director John Peyton Burnett said: “We are very excited to be partnering with the Baltic Exchange. TAC Index has seen its air freight indices become the primary price benchmarks for carriers, lessors, shippers, forwarders and end-buyers globally. The partnership with the Baltic Exchange will drive further integration of air freight into the global commodity markets and put the indices at the heart of a substantial new global forward freight market.”
It is estimated that less than 1% of world trade by tonnage is carried by air, but because of the high value of these goods, they represent about 35% of the value of goods shipped globally.
Baltic Exchange member Freight Investor Services (FIS) launched the Air Freight Forward Agreement (AFFA) market in 2019, using TAC as the basis of settlement. FIS worked with TAC to develop a robust methodology for air freight.
“Freight Investor Services has been instrumental in pioneering the development of the airfreight derivatives market from the ground up and the highly volatile market movements of the last few weeks demonstrate the need for better risk management tools,” said Peter Stallion, Airfreight Derivatives Broker at FIS. “Our work with TAC Index has helped to lay solid foundations and this agreement with the Baltic Exchange will help to drive forward liquidity in the airfreight derivatives market.”
The Baltic Exchange is the provider of daily assessments for the dry bulk, tanker, gas and container markets. Shipping companies, traders, charterers and shipbrokers use Baltic Exchange to settle Forward Freight Agreements (FFAs) and index-linked trades. The Baltic Dry Index is the Exchange’s best-known index and is a barometer of the cost of moving commodities such as grain, coal and iron ore by sea. The Baltic Exchange is a subsidiary of the Singapore Exchange (SGX).