Baltic Exchange and Mercuria trial tests tanker index reliability

The conclusion of the High Court battle between the Baltic Exchange and Mercuria leaves the shipping industry waiting for a definitive ruling on whether freight benchmarks can remain valid when physical liquidity disappears. The three-week trial in London ended yesterday, with a judgment expected in several months that will define how indices must be governed during geopolitical shocks.

At the heart of the dispute is the TD3C benchmark, which tracks VLCC rates from Ras Tanura to Ningbo. Mercuria argued that hostilities erupting on February 28 made the index unreliable because there was insufficient physical tanker activity to support the assessments. The trader claimed the Baltic Exchange failed its statutory and contractual duties by continuing to publish rates despite internal communications from assessors describing the figures as utter nonsense.

The Baltic Exchange, owned by the Singapore Exchange, rejected the allegations. Its lawyers argued that experienced shipbrokers can still determine market values using vessel movements, derivatives pricing, and market intelligence, even when fixtures are scarce. While Mercuria dropped its demand to retrospectively invalidate the index, the Baltic warned that judicial intervention in benchmark procedures could create massive uncertainty for freight derivatives and physical contracts.

Why it matters

This case puts the shipbroker-led assessment model on trial. If the court finds the Baltic failed its obligations, index providers may be forced to suspend benchmarks the moment physical fixtures drop below a specific threshold. For shipowners and charterers, this means the tools used to hedge risk could vanish exactly when market volatility makes them most necessary.

The litigation also exposes the vulnerability of the tanker derivatives market to circular pricing. Mercuria’s challenge to the use of forward freight agreement prices to calculate the underlying benchmark targets the integrity of the VLCC market. A ruling that questions this methodology would force a total rethink of how freight benchmarks are maintained during future market emergencies.

For the wider industry, the trial reveals the friction between traditional broker judgment and the need for data-backed transparency. The Baltic Exchange’s defense relies on the idea that a market exists even when no one is fixing, a position that will now be tested against the reality of a war-disrupted trade lane.

What to watch

Mr Justice Andrew Baker is expected to deliver a ruling in several months that will determine if the Baltic’s procedures satisfied its legal obligations during the disruption.

Source: Splash247