Maersk Line joins New York Shipping Exchange (NYSHEX)

( Photo: Wikimedia Commons )

NYSHEX highlights structural problems in container shipping

Yesterday Maersk Line became the sixth major container shipper to join the New York Shipping Exchange (NYSHEX), a new digital platform connecting shippers with ocean carriers. NYSHEX has pioneered what they call a ‘third option’ for forward freight contracts that locks in price and guarantees space two weeks to six months in advance.  NYSHEX calls their new, fully enforceable contract the NYSHEX Forward. On NYSHEX’s digital platform, ocean carriers post specific offers, which can then be instantly accepted by a shipper, a process much more efficient than the negotiations on the contract market and the spot market’s closing period, which can be anywhere from 48 hours to a week.

“We are very pleased to have Maersk Line join NYSHEX as a founding member,” said Gordon Downes, CEO of NYSHEX. “Maersk Line has been a pioneer of many digital initiatives, and we are delighted to be working together in digitizing the freight contracting process, as well as improving shipment reliability. With each additional carrier that joins the exchange, our members benefit from more offerings and services to choose from.”

“The time is now to create a more collaborative environment for all participants in the ocean transportation industry,” said Omar Shamsie, president of Maersk Line North America. “That is why we’re excited to begin piloting NYSHEX’s processes and technology in North America starting March 2018 to increase visibility and certainty for shippers, which we hope will result in a better end-to-end experience for our customers.”

Maersk joins NYSHEX members Hapag Lloyd, CMA CGM, OOCL, COSCO, and MOL, all major ocean carriers representing a combined 46.8% of global TEU capacity. Container lines will begin offering contracts on NYSHEX in March, beginning with American agricultural exports to Asia. NYSHEX says its financially secured contracts should create more trust between carriers and shippers because carriers will have 95% certainty in their freight flows—according to NYSHEX—and shippers will get space protection when they need it. 

As NYSHEX sees it, the container shipping industry is beset with systemic inefficiencies stemming from a lack of transparency and enforceability. The existing, non-enforceable service contracts don’t actually provide predictable cargo flows. And the spot contracts don’t specify service levels from the carrier or volume commitments from the shipper. Spot shipments are therefore subject to high rolling rates when space is tight, and spot contracts are often valid for a period covering multiple sailings, meaning that that shipments can be moved week to week. Service contracts also cover multiple months and several origins and destinations, creating variability that can be difficult for carriers to manage. 

The result is twofold—under-utilized ships sailing with empty space and rolled shipments that are delayed on their way to the customer. This contradiction highlights the basic inefficiencies in the container shipping market: unenforceable service contracts and volatile spot rates have not been able to smooth out irregular supply and demand. If anything, the current contracting system has made the problem worse, by incentivizing over-booking and then no-showing and rolling while holding out for better rates, all while cutting costs and service. NYSHEX wants to flip the script so that industry participants have an incentive to allocate vessels correctly and invest in services that best meet market needs. 

The ‘vicious circle’ described by NYSHEX has played out by locking carriers and shippers into a boom-and-bust cycle that ultimately helps no one. For instance, last spring, container lines were talking about excess capacity, with 10% of the global shipping fleet out of service, either scrapped or laying idle. But by the winter, CMA CGM and Mediterranean Shipping Company (MSC) had gone on another buying spree, placing orders for a total of 20 record-breaking 22,000 TEU ships. It won’t be long before rates collapse again like they did in 2015, and carriers will be shedding capacity as quickly as they can. 

The three biggest benefits of participating in the NYSHEX for shippers and forwarders, NYSHEX says, are improved supply chain reliability (ability to get space protection); more visibility into carrier offerings (shippers can compare multiple digital quotes simultaneously); and increased procure-to-pay efficiencies. Benefits for carriers include being able to reliably plan exact volumes week by week, enhanced capacity management including vessel-specific pricing, and, again, more efficient quote-to-cash processes. 

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John Paul Hampstead, Associate Editor

John Paul writes about current events and economics, especially politics, finance, and commodities, and holds a Ph.D. in English literature from the University of Michigan. In previous lives John Paul studied Shakespeare in London and Buddhism in India, but now he focuses on transportation and logistics in the heart of Freight Alley--Chattanooga. He spends his free time with his wife and daughter herding cats, collecting books, and walking alongside the Tennessee River.