The Original Sin of Shipping
By Kimberly Cockrell
"If there is one original sin of the industry, it’s a fundamental lack of integrity in freight contracts."
I wish I could take credit for it, but I can't. This accurate quip by Peter Tirschwell came about during a JOC interview with our CEO, Gordon. Indeed, so many of the inefficiencies that plague shippers and carriers today stem from that tempting tree and its fruit that we all tasted. Now, with $23Bn in annual waste caused by broken ocean contracts, we have found ourselves disappointingly far from Eden.
Peter goes on to say, "Fixing the chronic overbooking and no-show issue, in turn, opens the door for carriers to price dynamically based on micro-factors, such as supply and demand on an individual vessel or the actual cost of supplying a container to a particular shipper, improving profitability... Digitalization will allow for game-changers, such as the ability for mutually enforceable transactions, to become the industry norm."
Some may fear the changes associated with digitization, but ask any member of NYSHEX who has experienced the alternative to broken contracts and they'll set your mind at ease that it breathes new life into supply chains. In fact, NYSHEX numbers prove it.
Guarantees are no longer just for spot cargo
NYSHEX may have started out with a solution addressing the unreliable spot market, but you may be surprised to learn that spot is less than 10% of the cargo we handle today. In fact, average volumes per NYSHEX contract have risen from 37 containers in Q1 2019 to 466 containers in Q1 2020. That's 12X growth.
The rise in volume per contract is a trend we've been observing since the April 2019 inception of contracts we call "Block Deals." Our members, who may have even started out just buying spot contracts, have seen the benefits of guaranteed space, competitive, locked-in pricing, and the outsourcing of exceptions. They've begun to demand the same standard for their regular contract cargo.
As the JOC article pointed out, "these numbers prove that mutual enforceability is extending from spot into the contract environment." And this is a great thing for our industry.
What are block deals?
In this blog post, we touched upon the fundamentals of block deals and how they benefit both buy and sell sides in equity markets. NYSHEX block deals function the same way, and are an upgrade to today’s ineffective, unenforceable ocean contracts.
Here's how it works. Shippers make a monthly, quarterly or even annual volume commitment to a carrier who in exchange provides prioritization of that vessel space and equipment, at fixed rates.
It's like the contracts shippers and carriers negotiate every day, but with clear terms, two-way financial commitments, and an unbiased advocate to help amicably resolve exceptions. (For more details about block deals, visit our FAQ page.)
Why are shippers and carriers securing these block deals through NYSHEX versus directly?
The rules outlined in the NYSHEX Member Handbook clearly explain how contracts are enforced, covering a broad range of practical circumstances. From simple cases of booking downfalls and shipment rollings, to more complex circumstances where chassis may be in short supply or terminals are congested. The rules are continuously updated through a governance structure controlled by the NYSHEX members themselves, and overseen by the Federal Maritime Commission. This provides a framework that trust can be built upon. All six of the carriers registered on NYSHEX subscribe to the same rules, their contract terms are standardized, and the process for contracting, booking, and shipment execution is conveniently aligned.
Additionally, NYSHEX protects the shipper-carrier relationship by investigating, resolving and settling any liquidated damages automatically. As NYSHEX is not a party to the contract, the resolution is unbiased and fair.
How contracts are meant to function
Across 115,000 containers and counting, NYSHEX has maintained 99% contract fulfillment and on-time departure. We believe that accountability and two-way commitments are the well-lit pathway back to paradise and here's why:
1) When your carrier knows exactly what you are willing to commit to they can see the benefits of contracting with you and price competitively. They know you are looking for a partnership rather than just going through a rate quote exercise and can therefore fast-track you to the real freight levels which are going to move the cargo.
2) When there is a transparency into how bookings and shipments are performing against what was agreed in your contract, you will obtain far better service from your carrier as both parties can see what needs to be done to keep the contract on track.
3) When framework is in place outlining what will happen in the event of a rolled or declined booking, you can address the problem quickly, obtain the attention and compensation from the carrier, and get service back up to expectations.
4) When the true value of doing business together is evident, the contract is no longer just a list of rates. There is an alignment of expectations that both you and your carrier are working toward, which is necessary to keep your goods moving.
It is virtuous to the core! But don't just take our word for it.
How do I initiate a NYSHEX block deal?
Click the link below to create your free NYSHEX account today. Next, speak with your carrier sales executive or email me regarding the type of contract you wish to build. It's simple and it's free!