BIFFEX and the Baltic Freight Index

The Baltic International Freight Futures Exchange listed the first exchange-traded freight futures, settling against the Baltic Freight Index, the composite predecessor of the Baltic Dry Index. It was the industry’s first attempt to hedge freight on an exchange rather than bilaterally.

It failed for a reason that shaped everything since: the contract settled against a composite of many routes, so a hedger with exposure on one route carried unmanageable basis risk against a basket that moved for reasons unrelated to that route. The freight derivative market that replaced it settles against individual routes and single-class timecharter averages instead. The full article will cover its launch, contract design, volumes, closure, and the design lessons carried into the forward freight agreement market.