‘Nonsense Rate’: Court Battle Exposes Crisis Inside Tanker Benchmark TD3C

A freight derivatives market worth €17.4 billion ($19.4 billion) in the first six months of this year was anchored to a benchmark that the Baltic Exchange’s own assessor privately called a “nonsense rate,” according to filings and testimony in a London court battle between the Baltic and oil trader Mercuria Energy Group.

The case has produced an unprecedented fly-on-the-wall record of how the Iran war played out inside the 282-year-old institution whose indexes price global oil shipping — and it shows that numerous people involved in producing the key tanker rate, TD3C, voiced reservations while the Baltic kept publishing it through the war’s opening months.

What does the dispute turn on?

Mercuria, which launched the case in April and has since changed its demands several times, now wants the judge to rule that the Baltic was wrong to keep publishing TD3C from March to July — the initial phase of the war. Lawyers for both sides are due to make closing arguments this week; a decision could take months.

TD3C represents the cost of hiring a very large crude carrier (VLCC) on the route from Ras Tanura in Saudi Arabia to Ningbo in China. It is published just after 4 p.m. daily, averaged from assessments by nine broker “panelists,” and underpins billions of dollars in forward freight agreement (FFA) trading.

When the US and Israel attacked Iran on February 28, several key Baltic routes, including TD3C, involved transiting the Strait of Hormuz — something ships had abruptly stopped doing over that weekend. On March 2 at 9:15 a.m., the first working day of the war, the Baltic’s small team held a call, according to the witness statement of Christopher Loveday, the employee responsible for overseeing the TD3C process.

CEO Mark Jackson, a shipping veteran who had led the Baltic since 2017, even commissioned a draft notice announcing the suspension of all Hormuz routes, he said in his witness statement. But hopes the war might end quickly prevailed. At a panelist call on March 4, brokers said they were willing to keep submitting assessments, and TD3C continued.

How deep did internal doubts run?

Loveday — a shipbroker of roughly 28 years before joining the Baltic in 2019 — stopped inputting his own sense-check estimates into the spreadsheet entirely. It was only after a complaint prompted the head of compliance to investigate TD3C that his boss noticed the missing numbers and told him to restart, Baltic executives testified.

His protest went into the spreadsheet notes. “I don’t see how we can possibly report here,” he wrote on March 20 — composed, he later explained, while waiting for a flight at Houston airport and “feeling a little ‘non-compliant.’” On March 23 he wrote “nonsense rate”; two days later, “still a nonsense”; on March 31, “b/s rate.” He kept inserting snide comments until early April, when a colleague took over as TD3C assessor.

Loveday told the court his comments were specifically about the futility of estimating the rate, not the benchmark itself — but he also said he had believed from the war’s start that TD3C should have been suspended. He was not alone:

• One Baltic staffer said in early April the rate was “starting to lose credibility.”
• Another told colleagues that, were he not at the Baltic, he would have “zero confidence” in the rate.
• One assessor described the company in an internal call as “so rotten at the moment.”
• At the March 16 panelist meeting, one broker argued: “It’s purely hypothetical…I think it’s just complete nonsense, the whole thing.”
• One panelist refused to submit assessments for several weeks; two others submitted the same value every day for weeks at a time.

The Baltic has countered that it followed the panelists — the brokers closest to actual tanker deals — and that at no point did a majority say they could not assess the rate.

Why did the FFA guidance cause outrage?

Among the most controversial revelations is Baltic guidance issued in early March allowing panelists, in “extraordinary circumstances,” to judge the physical market by looking at FFA prices — derivatives underpinned by TD3C itself. One trader wrote to the Baltic: “You are literally leaving your index open for direct abuse…It’s like having a criminal write his own sentence.”

When a panelist noted in the spreadsheet that they had used the FFA market as a guide, CEO Jackson told a colleague the information should not “get out.” Jackson told the court he simply wanted to avoid further discussion, though he agreed with Mercuria’s barrister that the remark did not reflect the Baltic’s motto, “Our Word Our Bond.” The guidance still stands, a senior assessor confirmed.

Expert witnesses from both sides agreed physical and FFA markets may inform one another, but FFA data “should not be used as the sole determinant of a physical TD3C assessment.”

What is at stake commercially?

Mercuria was the largest user of TD3C derivatives, holding between 25% and 50% of total open interest, according to its freight derivatives trader David Schickler — generally short, as a hedge for its tanker fleet’s earnings. When TD3C soared at the war’s start, its derivatives positions took heavy losses while its own tankers, unable to sail through Hormuz, saw no matching earnings surge. Mercuria once put the mismatch at hundreds of millions of dollars, though it has dropped that claim from recent filings. Asked by Baltic counsel whether the position had been a “disaster,” Mercuria trader Renaud Hauspy replied: “It has not been positive.”

Mercuria’s lawyers argued the FFA market’s size itself influenced the publishing decision. In a mid-April call, the Baltic’s head of benchmark production, Matthew Cox, asked whether TD3 would have been suspended “had it not been for the FFAs” — suggesting any other index would have been. Cox later told the court he was incorrect to say every other suspension criterion had been met.

The Baltic argues its decision was justified and that any breach of obligations belongs with its regulator, the Financial Conduct Authority, not private litigation. It declined to comment during the trial. For context on its scale: despite its central role, the institution employed just over 30 people last year and posted pre-tax profit of £379,000; it is not actually an exchange, but collects broker assessments — a business rooted in the Virginia and Baltick Coffee House of 1744. Its head of compliance has received four formal complaints since starting in April 2022 — all since the war began, all about TD3C, the latest from Mercuria on August 12.

Hormuz traffic has rebounded in the second half of the year, with non-Iranian exports nearing prewar levels — but Ambrey data produced for the case shows Sinokor alone made more than 50% of transits since early July on the “southern” route by the Omani coast, in a trade shrouded in secrecy. “Any commodity market needs reliable benchmarks and freight is integral to that,” said Halvor Ellefsen, a London-based director at Fearnleys Shipbrokers UK. Whether the court forces a retroactive suspension or leaves the methodology intact, the difficulty of assessing tanker rates through Hormuz has plainly not gone away.