The shipping industry is a volatile market. Every shipper has to live with its ups and downs – no-shows and roll-overs. Contracts are written for volumes that are hard to accurately predict.
Even so, long term sea freight contracts are a necessity in order to have any sort of stability and reliability for your oversea freights.
Now, let’s say your volume forecast in your contract wasn’t great, and you could not commit to your actual volumes. You need to guarantee that your shipments are actually shipped on that vessel that day. What do you do? Apart from crossing your fingers and holding your breath, that is…
One potential solution could be the fairly young New York Shipping Exchange (NYSHEX), at least as long as you’re not motivated by price alone. NYSHEX’s business idea is to act as a broker between shippers and carriers, for high-priority shipments. Carriers reserve volumes on vessels that shippers can book to secure that their volumes are shipped. It’s like buying premium tickets for your ocean containers instead of economy class. The “economy class” seats are easily filled and overbooked, but the premium seats can be reserved – sort of like Maersk’s previous “business class” shipping solution. The backside? Well, you’re unlikely to come away from such an arrangement without a significantly lighter wallet.
In the name of simplicity, standard contracts for all carriers are used and all-in prices are offered, without the usual flurry of surcharges that is usually added in order to counter the previously mentioned uncertainties. Importantly, the contracts are fully enforceable with hefty penalties if either party fails to live up to the contracted service. The idea is that as such, performed service levels shall be able to be significantly improved.
This is not to say that long term contracts are without merit, they are of course necessary for any type of stability over time, as well as to ensure best possible negotiated prices (whereas NYSHEX will offer standard rates supplied by carriers). And by all accounts, the spot market as we know it will live on as well, due to it’s simplicity and ability to provide market rates for one-off shipments.
So NYSHEX cannot serve as a substitute for neither long term contracted rates or the spot market - nor does it aim to – but it can perhaps serve as a compliment for when you want to guarantee a priority shipment. At least it is an interesting proposition. And hey – if NYSHEX helps carriers reduce cost incurred by inefficiencies, perhaps that will benefit your next long term contract negotiation.