William Chin, head of the SGX commodities division (Singapore Exchange), refers to transformations in maritime transportation markets that are taking shape both structurally and psychologically. He states that these changes have resulted in financial risks being transferred and managed more effectively.
Change in Attitude Towards Transportation Risks
Chin notes that two decades ago, transportation risk was primarily physical. However, now, with technological advancements and financial markets, managing financial risks has become a feasible task. He also points to a change in attitude among market participants, who have now recognized the importance of managing transportation price volatility.
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Chin explains that this change in attitude has been particularly felt in this decade, as geopolitical developments have affected trade patterns and revealed vulnerabilities in transportation. This coincides with the financialization and digitization of transportation, and the use of better data and advanced analytics, leading to changes in how market participants make decisions.
The Role of Clearing Infrastructure in the Market
Another key development is the establishment of central Clearing systems. In this system, instead of each company making decisions about its credit risk independently, a Clearing house is placed at the center of the transaction. Chin believes this has allowed the market to access a broader group of participants.
He further emphasizes the importance of Baltic transportation benchmarks as a reference point in the industry, stating that the Singapore Exchange has become the largest Clearing venue for commercial transportation contracts. The combination of these reliable infrastructures and benchmarks has contributed to greater transparency and liquidity in the market.
Chin also points to the increasing presence of non-transport companies in transportation contracts, noting that this could raise concerns for owners and operators. However, he believes that diversity among market participants helps improve liquidity and reduce operational costs.
Chin stresses that transportation contracts should not be divorced from physical realities, and physical principles such as vessel accessibility and cargo demand should be considered as pricing references. He believes that a mature market needs Hedgers, liquidity providers, and risk-takers.
Chin also mentions Singapore's role in these transformations, asserting that the country should be recognized as a major financial and risk center in global transportation markets. This transformation becomes even more significant with economic changes and global trade policies.
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