Research & insight

The Baltic Exchange

By
Jonathan Foxwell
March 31, 2023
5
 min read
 min watch
The Baltic Exchange
Research & insight

The Baltic Exchange

By
Jonathan Foxwell
March 31, 2023
5
 min read
 min watch

Enabling growth and innovation through a bespoke index management platform for the Baltic Exchange. The Baltic Exchange is systemically important for the shipping industry.

Client Introduction

The Baltic Exchange is the world's only independent source of maritime market information for the trading and settlement of physical and derivative contracts.

Their indices and assessments are used as a settlement tool for freight derivative trades, for benchmarking physical contracts and as a general indicator of the freight markets’ performance.

Problem 

In 2019, The Baltic Exchange required a new bespoke data platform for all activities related to the submission, data collection and calculation of the Baltic Exchange’s financial benchmarks as the existing legacy system was not scalable for future growth and demand, and was inhibiting innovation.

The goal was to develop a new data platform from first principles for calculating, managing and distributing next generation shipping indices, intelligence and data products.

Solution

Neural Alpha was chosen because of our track record and expertise in delivering and managing complex systems. Our ability to demonstrate performance in the migration process from old platform to new system was specifically important to the client. Finally, a successful proof of concept exercise delivered a functional prototype and gave a good indication how the end system would look like.

The Baltic Exchange Data Platform (BDP) design took 18 months. It included the design of new processes and work environment with a focus on simplification & reduction of non-essential activities. The last month was run as a transition phase with both systems (old and new) running in parallel.

The system today consists of two fundamental components:

  1. A management application for Baltic Exchange staff which allows highly customisable changes to calculations and functions, with full audit and control data aspects for any time that data have been changed or a process has been enacted.
  2. A contributing application for external panellists which is used by shipping brokers who provide data: dry cargo market estimates. Here the focus is on highly convenient, secure and tight user access.  

In addition to developing, implementing and running the bespoke data platform tailored to the Baltic Exchange’s needs, Neural Alpha developed a quality control system within BDP that is able to tackle the challenge of benchmark validation in a market with the unique challenges of ocean freight: unpredictable liquidity, extremely high volatility, and highly siloed market activity, with often restricted information. BDP deploys a battery of univariate and multivariate tests to be able to assess the contributors to The Baltic Exchange’s indices for quality, relevance, and conformity to expected standards.

Benefits and results

BDP has facilitated an increase in benchmarks published.  The benchmarks underpin a freight derivatives market that has grown 45% for Dry derivatives between 2019and 2021 with a high of 2,524,271 lots, and a 33% increase in Tanker derivative volumes in 2022 alone totalling 734,972 lots.  

The platform offers a whole set of benefits:

  • New capabilities around audit, compliance, assurance
  • Innovation: ability to launch new types of products
  • Business growth, upscaling
  • Cost reduction
  • Reliability (error reduction)
  • Security, safety   

The success of this new platform has led to the launch of new benchmarks and market intelligence products covering:

  • Liquid Natural Gas
  • Container Shipping
  • Fuel Reporting
  • New Ocean Freight Vessel Sizes
  • New Oil Tanker products
  • Investor Reports covering the entire lifecycle and risk of a bulk cargo vessel
  • Trading activity
  • Carbon Consumption and Benchmarking
“Neural Alpha have been a leading technology partner for the Baltic Exchange since 2017 delivering a number of successful projects.  They lead complete development from first principles of a new index management system enabling new capabilities and compliance with UK & EU regulatory regimes. Their ongoing support and commitment to us has been invaluable” - Mark Jackson CEO
Data
Technology
Maritime
Jonathan Foxwell
Jonathan Foxwell
Head of Fintech
Neural Alpha

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