"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.