With expanded offerings, New York Shipping Exchange users now will be able to request binding contracts for multiple weeks at multiple ports.
The New York Shipping Exchange (NYSHEX), a company that helps shippers and carriers arrange guaranteed liner shipping contracts, has introduced a product that will allow parties to enter into agreements that cover multiple sailings and multiple ports.
Currently the exchange is used for single shipments moving between single port pairs.
Gordon Downes, the chief executive officer of NYSHEX, described the new product, called Forward Select, at the annual meeting of the Agriculture Transportation Coalition (AgTC) in Tacoma, Wash., last week.
While movement of containers loaded with many sorts of cargo has been arranged on NYSHEX, Downes said that agriculture shippers have accounted for the majority of moves — more than 37,000 TEUs of the approximately 45,000 the exchange has arranged. Use of NYSHEX has grown from 2,700 contracts arranged in 2017 to 18,600 in 2018 and about 23,900 in the first half of 2019.
Agriculture shippers have “been our area of focus,” said Downes. They “value commitment on space and equipment and, quite frankly, they know that carriers value their commitment.”
Currently NYSHEX contracts are available in the transpacific trade, but the company plans to expand to other markets.
NYSHEX was designed with a dual purpose in mind: on one hand, helping shippers obtain a commitment from carriers that equipment and space on a ship would be available once they booked shipments, and on the other hand, helping carriers avoid cargo “fall-downs” that arise when a shipper who has booked space on a voyage fails to show up with cargo.
Fall-downs are a major problem for carriers in the westbound transpacific trade. Downes said a staggering 48% of the bookings made on the transpacific westbound don’t show up — compared to a global average failure rate of 24%.
Because of the lack of exports from North America to Asia and the large number of fall-downs, exporters booking shipments to Asia through NYSHEX are able to negotiate better freight rates because of the guarantee the contract provides carriers.
Globally, about 9% of shipments get rolled or moved to a different vessel, and Downes said another problem for shippers is that a carrier may not have equipment available for a shipment. One of the reasons that shippers overbook space is to increase their odds that they will not have their cargo rolled or find a carrier does not have an available container.
NYSHEX has been effective in helping both carriers and shippers avoid those problems. Downes said the average fulfillment of an agreement in the transpacific westbound trade is just 52%, but that with contracts arranged through NYSHEX, the fulfillment rate is 96%. He said that 2.6% of the time that is because of a carrier having to roll cargo or being unable to provide equipment as promised and 1.4% because of shipper fall-downs.
Under NYSHEX contracts, carriers and shippers agree to a penalty if either party does not live up to their end of the bargain. Carriers or shippers agree to pay 35% of the freight rate if they fail to perform on a shipment moving in the westbound transpacific trade and 25% of the freight rate in the eastbound transpacific trade. The difference recognizes the much higher average rate from freight moving from Asia to North America.
There is a safety valve that is available to shippers if they find they are not going to be able to meet their commitment to the carrier. They can resell the slots they have purchased to another shipper.
NYSHEX acts as an “independent mechanism for enforcement of contracts,” Downes told the AgTC members. “Just like a good game of soccer between two competitive teams, it actually pays to have a clear set of rules that both teams follow and a referee that is independent. You can help the teams play effectively and avoid all kinds of friction and scuffles.”
The fact that NYSHEX is a neutral party is important to shippers.
“A carrier can’t just unilaterally decide ‘I’m going to penalize the shipper.’ The decision to penalize the shipper is made by NYHSEX and we look at all the facts, to understand, was it actually the shipper’s fault,” explained Downes. For example, was the shipper late in tendering cargo or was the carrier at fault because it failed to provide equipment?
“It’s difficult for carriers to enforce their own contracts because they are inherently biased in their own interests,” he said.
So far there are a half-dozen carriers that are using the exchange: Maersk, CMA CGM, COSCO, OOCL, Hapag-Lloyd and Hyundai Merchant Marine. There are 400 shippers and NVOCCs that have registered to used the platform and about 100 utilizing NYSHEX to arrange shipments on a regular basis.
NYSHEX charges a $5 per-TEU fee booked through the exchange, which is paid by the carrier.
“When you look at exchanges, they charge very low transaction fees by design because they are large, efficient markets,” said Downes.
While most of the business on the exchange is done by carriers posting offers and shippers booking those offers, the exchange also allows shippers to post binary requests seeking a guaranteed contract for a shipment between a particular port.
With the creation of Forward Select, shippers now will be able to request contracts for multiple sailings and between multiple ports. Shippers also will be able to specify a particular size of equipment, delivery options for receipt and delivery of containers, prices and other criteria — for example, they may request that a carrier deliver a certain number of boxes on certain days.
NYSHEX owners include General Electric, Maersk, CMA CGM, Hapag-Lloyd, Goldman Sachs and the employees of the company.
It has taken some time for NYSHEX to gain traction — the company was founded in 2015 and started guaranteeing contracts in 2017. But Downes said, “I’m very confident that it will succeed.”
Downes spent 12 years working at Maersk and said he understands it takes time for the industry to “get its head around things and change processes.”
“We have a five-year plan that we’re working towards and we’re well on track with our plan. In fact, we are well ahead of our plan in many ways.”