Baltic Operating Expense Index (BOI)
London based shipping organisation Baltic Exchange launches ship operating costs index named Baltic Operating Expense Index (BOI) which aims to promote transparency for shipowners with a new assessment of ship operating costs. Baltic Operating Expense Index (BOI) will be published every three months. Baltic Operating Expense Index (BOI) will be based on assessments from three (3) ship managers:
- Columbia Shipmanagement
- Fleet Management
Three (3) giant ship management companies handle more than 1,800 vessels. Furthermore, in near future three (3) giant ship management companies will join the panel to calculate a residual price. Initially, Baltic Operating Expense Index (BOI) will cover bulk carriers, but will later cover tankers and other sectors. London based shipping organisation Baltic Exchange’s CEO Mark Jackson mentioned that Baltic Operating Expense Index (BOI) is aiming to provide transparency to the fluctuations in running costs. According to CEO Mark Jackson, ship’s daily operating costs are one of the variables used by shipping investors to calculate the profitability and residual value of their assets. Baltic Exchange has already provide independent freight, sale and purchase and recycling assessments. Baltic Operating Expense Index (BOI) will assist shipping investors to manage their risk and aide decision process.
Each panel members (Anglo-Eastern, Columbia Shipmanagement, Fleet Management) will submit daily expenses:
Dry-dock reflects a five-year (5) period and will be published separately and not used towards the Baltic Operating Expense Index (BOI). Baltic Operating Expense Index (BOI) will be released on 17 October 2019. Baltic Operating Expense Index (BOI) will cover five years (5) old and special surveys (SS) passed handysize, supramax, panamax and capesize bulk carriers.
What is Baltic Operating Expense Index (BOI)?
The Baltic Operating Expense Index (BOI) was introduced by the Baltic Exchange, which is based in London and provides a range of indices to assist stakeholders in the maritime industry in decision-making. The Baltic Exchange has traditionally been known for its shipping market benchmark rates, including the Baltic Dry Index (BDI), which tracks the cost of shipping major raw materials.
Here’s a brief outline of the Baltic Operating Expense Index (BOI):
Baltic Operating Expense Index (BOI):
- Purpose: Baltic Operating Expense Index (BOI) provides a benchmark for the ship operating expenses. Operating expenses in shipping include costs related to crew, technical management, insurance, lubricants, and maintenance, among others. It excludes items like capital expenditures, financing, and dry-docking costs.
- Components: The BOI is made up of multiple sub-indices related to various vessel types. This allows stakeholders to get a more granular view of operating expenses associated with different ship categories.
- Utility: The index is useful for shipowners, operators, and financiers as it provides transparency to the ship operation costs. With the aid of the BOI, industry stakeholders can compare their own operating expenses with industry benchmarks, potentially identifying areas for improvement or reassessment.
- Data Collection: Data for the BOI is collected from third-party service providers, ensuring an objective and unbiased perspective on operating costs.
- Frequency: The index is typically updated on a regular basis, allowing for consistent tracking and assessment of shipping operating expenses.
The introduction of BOI complements other indices provided by the Baltic Exchange, offering a more comprehensive view of the costs and returns of maritime transport. As with any index, its value lies in its methodological consistency and the regularity of its updates, ensuring that stakeholders get an accurate and timely picture of the industry’s dynamics.
Benefits of the Baltic Operating Expense Index (BOI):
- Informed Decision Making: By providing a transparent and regularly updated benchmark of ship operating expenses, the BOI aids stakeholders in making informed decisions about ship operation, budgeting, and forecasting.
- Performance Assessment: Shipowners and operators can compare their own vessel operating expenses against the BOI, giving them an objective measure of their operational efficiency. It can act as an invaluable tool for self-assessment, pointing out areas that may need improvement or further investment.
- Contractual Adjustments: The BOI can be a reference point in charter party agreements. Some long-term charter contracts might incorporate BOI-linked adjustments to account for fluctuations in operational costs.
- Financial Transparency: For investors or financiers in the shipping industry, the BOI provides a clearer picture of the operational costs associated with vessel types. This transparency can be invaluable when assessing the viability of investment or financing decisions.
- Risk Management: By being privy to industry-standard operating expenses, stakeholders can better manage and mitigate financial risks. Insurance companies, for instance, can leverage BOI data to better understand the operational landscape of vessels they insure.
Challenges and Considerations:
- Data Authenticity: While the BOI is sourced from third-party providers, the accuracy of the index relies on the authenticity of the data provided by these entities. It’s essential for users of the index to recognize that, like all benchmarks, the BOI represents an average and may not capture specific nuances or unique operational scenarios.
- Dynamic Industry: The shipping industry is susceptible to various factors, from geopolitical events to environmental regulations. The operating costs represented in the BOI might change due to unforeseen global events or new regulations, and stakeholders must remain adaptable.
- Complementary Tool: While the BOI is a valuable tool, it should be used in conjunction with other data points and insights. Decision-makers should take a holistic approach, considering various factors beyond just operating expenses.
The Baltic Operating Expense Index (BOI) represents a significant stride in adding transparency to the maritime sector’s operational landscape. By providing a consistent and objective benchmark, it empowers stakeholders with deeper insights and fosters an environment for improved efficiency, competitiveness, and growth in the shipping industry. However, as with all indices, users should employ the BOI as one of many tools in their decision-making arsenal, considering the broader context and specific nuances of their operations.
Adoption and Implementation of BOI:
- Industry Recognition: Over the years, as with other indices provided by the Baltic Exchange, the BOI has the potential to gain significant recognition and trust within the maritime industry. Being backed by a reputable institution like the Baltic Exchange, the index will likely find its way into the regular assessments and analyses of industry analysts, shipping companies, and other stakeholders.
- Incorporation in Commercial Agreements: As the index gains traction, it’s conceivable that BOI might be directly referenced in various commercial agreements, such as ship management contracts or time charter parties, as a mechanism to adjust fees or rates based on the fluctuation in operating expenses.
- Benchmark for New Technological Solutions: As the maritime industry moves towards adopting newer technologies for better operational efficiency, the BOI can act as a benchmark to gauge the effectiveness of these technologies. If a particular technological solution can demonstrate cost savings compared to the BOI, it might receive quicker acceptance in the industry.
- Expanding Coverage: In its future iterations, the BOI might expand its coverage to include more vessel types or specific operational nuances to cater to a broader segment of the industry.
- Integration with Digital Platforms: As shipping companies adopt digital platforms for their operations, integrating BOI into these platforms can provide real-time comparisons and insights to shipowners and operators.
- Feedback Mechanisms: The Baltic Exchange might introduce feedback mechanisms to continually refine and improve the BOI based on inputs from industry participants, ensuring that the index remains relevant and accurately reflects the industry’s pulse.
- Environmental and Sustainable Practices: With the increasing emphasis on sustainability and green shipping practices, future versions of BOI might incorporate metrics related to eco-friendly operations, thereby promoting sustainable practices in the industry.
While indices like the Baltic Operating Expense Index (BOI) serve as essential tools to bring transparency and standardization to the maritime industry, the continually evolving nature of global trade and shipping means that such tools need to be adaptive and forward-looking. It’s crucial for stakeholders to not just rely on such indices passively but actively engage with them, provide feedback, and utilize them in tandem with other insights and data points. The more integrated and responsive such tools are to the industry’s actual needs, the more valuable they’ll be in shaping the future of maritime commerce.