Fixing barges on BL date

Trading on BL dates

A term commonly encountered when booking barges in the spot market and for Contracts of Affreightment (COAs) is fixing a barge on "BL date: bill of lading date." This means that no fixed price has been agreed upon at the time of booking. Instead, the price will be determined by the market, reflected in the price index on the date the barge completes loading.

For example, when the current index price for a trip from ARA to Basel is €20 per ton, and the charterer and the shipping company prefer to book a shipment on a BL date for loading in two weeks, the price could fluctuate. It might end up being €25 per ton or €15 per ton, depending on market conditions at the time of loading.

Why do companies book on BL date?

Both charterers and shipping companies have various reasons for doing so:

• Time constraints: Booking BL date can be expedient when time is limited.
• Convenience: In some cases, it may simply be easier or more convenient to book at BL date.
• Market speculation: Both parties may agree not to negotiate a fixed price, allowing the market to dictate the price. This can be advantageous if one party expects the market to move in their favour.
• Avoiding price influence: Companies may choose BL date booking to avoid influencing price reports, as BL date quotes are not factored into pricing until the future. This can be particularly relevant when internal pricing is tied to price reports, and spot bookings could cause internal conflicts.
• Unfavourable: It may also be that one of the parties expects price negotiations to be unfavourable to them and price to be even lower or higher at the time of barge loading.
• Relationship: The parties can reach a mutual agreement for booking on a Bill of Lading (BL) date, with the understanding that neither will attempt to secure the highest or lowest price, in the interest of maintaining a good relationship.

Consider these factors before booking on BL dates

1. Panel Composition

When utilising any price report which is used for spot or BL date pricing, it is important to know which companies are providing quotes to the Price Reporting Agency (PRA). This also tells you something about the quality of the price reports.

2. Liquidity of routes

To assess the reliability of trading BL date on a specific route, consider the following:

-              How liquid is the market for these routes?

-              How many trips/tons are booked per day/week/month?

This information will give you an indication of whether trading on this route is reliable. For instance, if there are 2 trades per day compared to only 3 trades per week, it can significantly impact the strength and reliability of the generated quote.

3. Number of quote providers

Another crucial factor is the number of companies providing quotes for specific areas (ARA/Rhine). For example:

-              If only two companies are providing quotes, they can significantly influence the market in their favour.

-              If there are 20 companies, the panel is likely to be more balanced and representative of the market.

The diversity and quantity of quote providers can greatly impact the reliability and fairness of the market prices. Without this information, you could be relying on data from just one company or even none at all.

4. Diversity of the panel

The diversity of the panel providing quotes is a critical factor to consider. Shipping and oil companies operate in various ways, Shipping companies (technical operators), brokers, oil majors, trading houses, and retailers and more can all be part of a panel. A panel consisting of a mix of entities will better represent the market.

Greater diversity in the panel ensures a more comprehensive and accurate reflection of market conditions, as each type of entity brings unique perspectives and operational methods to the table which impact the price differently.

Making informed decisions

If your company lack clarity on these points, it might be prudent to reassess your decision to trade on a BL date.

After assessing these points, you can make an informed decision about whether to trade on spot BL dates or opt for a yearly contract on BL dates. Alternatively, you might choose to shift your strategy, for example, by allocating 50% of your bookings to fixed price spot transactions and 50% to Contracts of Affreightment (COAs), rather than committing 100% to one approach. This balanced approach can help mitigate risks and ensure more reliable market engagement.

Who favours trading on BL dates

When booking a spot barge on BL date, companies consider market trends. In a declining market, there is a high chance that the BL date price will be lower than the price at the time of booking, which favours the charterer. Conversely, in an upward trend, the BL date price might be advantageous for the shipping company.

However, when negotiating a fixed price, there is a strong likelihood that in an upward trend, a higher price than the BL date can be agreed upon, and in a declining market, a lower price than the BL date may be negotiated.

Risks of trading on BL dates

If the panel is not diverse and you are not a participant in price reporting, other companies will effectively control the price fluctuations. The price index, or start price of your bookings are created and influenced by their negotiation skills, effort, and relationships with counter-parties. This can leave you vulnerable to market movements that are not in your favour.

Timing considerations, if certain members of the panel are not actively trading within a specific time frame, or if they choose not to report prices during a rising or falling market, the quoted price can become stagnant. This discrepancy means that the reported price may not accurately reflect the actual market conditions, leading to potential inaccuracies and misjudgments.

Example: The Rhine Market

The Rhine is a notably illiquid market for the past years, as a significant number of barges are booked under Contracts of Affreightment (COAs) and Time Charters (TCs) due to the unreliable waterlevels.

In the ARA market more trading activity takes place, while barges on the Rhine are more actively engaged in supply operations. The constant flow and fixed volumes of river traffic makes managing this activity more straightforward. Therefore it’s logical to make more use of TC or COA’s.

However if there is hardly any spot, is it wise to price your TC or COA’s on a BL date?

In 2022, an average of only five to six quotes per day were registered for the Rhine across seven key areas. This could mean, for instance, four quotes for Duisburg area and two for Frankfurt area, with no quotes for other areas or six quotes for one area, or each area one quote.

Over the past 6 months in 2024, with 'high/normal' water levels on the Rhine, the market has become even less liquid as spot is hardly booked, making (BL dates) pricing even more unreliable.

Hundreds of barges are sailing in the Rhine through Germany, France, and Switzerland, indicating ample liquidity. However, the current terms under which they operate render their data incompatible for use in price reports. The lower the market liquidity, the higher the risk of price unreliability, the rhine area is an example thereof.

Possible solutions

If your company prefers not to book/offer barges on the spot market and is seeking alternative solutions for BL date pricing due to low liquidity, consider the following options:

1. Fixed Price Agreement: Both companies can agree on fixed rates for specific routes. These rates can be negotiated at the beginning of the year or every six months, for instance.
2. Average Pricing: Trade on BL date, but use the average price over a 7-day period or even a month to strengthen quote liquidity. The drawback is that your company will still not have impact in pricing, as it is not participating in the market panel.

Summary

Booking barges on BL dates is not inherently problematic, but it's important to understand that if every company adopts this practice, the input and liquidity can diminish significantly, making the BL date quote unreliable.

Therefore, companies utilising BL dates should consider also engage in spot bookings with fixed prices to maintain market liquidity. If your company uses BL dates bookings/offers for Contracts of Affreightment (COAs) and/or spot, consider a certain percentage (X%) of your fixing portfolio to be spot transactions. This approach helps to create more liquidity and reliable pricing in the market.