Tanker freight derivative traders meeting at the Freight Market Information Users’ group at the Baltic Exchange yesterday (17th November 2011) agreed that from the new year, all Tanker FFA contracts which are traded in Worldscale will be converted to a dollar per metric tonne ($/MT) price when presented to the clearing houses.
The move is designed to help spur trading and follows a successful transition of most trading of FFAs from Worldscale to $/MT. It will allow traders who prefer to continue to quote trade in Worldscale for near-dated contracts to execute against $/MT prices from counterparties.A working group was formed to resolve some details of future market practice.
Traders are already pricing contracts for settlement on a $/MT basis for trades which settle in the next and subsequent calendar years, and the decision removes the uncertainty faced by the market when using the Worldscale points based system. With the calculation of Worldscale flat rates changing at the end of each year to reflect movements in bunker prices, port costs and exchange rates, and occasional ad hoc changes during the year, uncertainty about the future flat rate has been a problem for derivative traders in the past.
The move does not in any way affect the use of Worldscale in the physical market and the Baltic Exchange will continue to provide its daily index tanker assessments on a Worldscale basis.