Baltic Exchange to launch freight futures in India

The UK-based Baltic Exchange wants to bring freight derivatives services to India as a part of its efforts to expand in the Asian market. The Baltic Exchange has already set up an office in Singapore, its first outside the UK.

Baltic Exchange Chairman Anthony R C B Cooke said the Asian region had seen a steady growth of maritime business with the growth of industries in the region.

"India has been seeing a steady growth in industries leading to a surge in maritime business. Freight derivatives will make the industry more competitive," Cooke said. The exchange has entered into a strategic alliance with the Multi Commodity Exchange of India (MCX) to bring in freight derivatives to the country, subject to regulatory approvals.

A large number of domestic companies were using the product by buying it in the London market and legislative reform would allow this to be transacted in India, said John Stuttard, Lord Mayor of London.

Currently, India does not allow futures contracts in non-physical items. Freight derivatives, a unique product, help organisations hedge cost of freight beforehand against possible price rise in future shipments.

Cooke said, the MCX, interested in introducing freight derivatives in the country, was pursuing the government to bring in the required legislative changes to introduce freight derivatives.

However, no laws exist in this space and these will have to be introduced by the government.

The Baltic Exchange, with 550 members, already offers offshore freight derivatives services to Indian shippers. Legislative changes can only enable the company to offer onshore freight derivatives services. The Baltic Exchange's value of trade stands at $60 billion.

A growing need to hedge transport price risks was driving the growth of the segment, Cooke said. The exchange operates for shipbrokers, ship owners and charterers.

It provides daily freight market prices and maritime shipping cost indices, and a market for freight futures known as Forward Freight Agreements (FFAs), as well as port information and serves as a sea-vessel marketplace and a venue for dispute resolution.

Originally operating a trading floor, the exchange's transactions are today done solely over the telephone.

Cooke recently met Finance Minister P Chidambaram to impress upon the need for the product by Indian shippers. He had argued that the product would help the Indian companies to be in line with the international practices.