From the Loadstar Long Read: NYSHEX to transform "unreliable" freight contracts
Industry innovator New York Shipping Exchange (NYSHEX) is on a mission to transform the “unreliable” freight contracts plaguing the container shipping industry. The lack of accountability within traditional ocean freight contracts is the root-cause behind shipper no-shows and carrier roll-overs - a US$23bn industry problem - according to Don Chen, the NYSHEX managing director for Asia.
Chen joined the outfit last year, and has since been busy setting up offices in Hong Kong and Guangzhou in order to facilitate bookings and payments in China. “We’re now focussing on the commercial side, developing the membership and helping carriers to offer rates on more trade lanes,” he says. It’s been a brisk start for NYSHEX. On the transpacific trade, 19,000 teus were contracted through the exchange last year, up from just a couple of hundred after launching two years prior.
Maersk, CMA CGM and Hapag-Lloyd are all investors, while Cosco/OOCL and HMM are also signed up and offering rates. There are 339 shippers on NYSHEX, around half of which are NVOCCs, Chen notes. The company says it achieved a 98% fulfilment rate in 2018, which is “22% better than the industry average”. “We look at the booking process from a market perspective, unlike some other technology firms who want to apply techsolutions onto the market,” claims Chen. “Most of the NYSHEX senior management are from the industry, and are looking at the problem from both the shipper and carrier perspective.” He says there’s a “vicious cycle” in the booking process, whereby shippers overbook in an attempt to secure lower rates, leaving carriers to suffer shortfalls when the cargo doesn’t show up.
In turn, carriers also overbook vessels which often leaves shippers empty handed during peak season when carriers roll cargo. “It means the market is quite unreliable, service quality is low, freight rates are fluctuating and no one is benefiting,” Chen says. On NYSHEX, shippers can view and compare different carrier offers and service levels. If they like what they see, they make a down payment which locks in space, equipment and, importantly, the rate. This allows the platform to introduce what Chen calls the Price Calculation Date (PCD) at time of contracting, a concept he compares with the hotel industry, whereby prices are lower when you book further in advance since there are more rooms (ie. capacity) available. When used in container shipping, PCD introduces the conspicuously absent market forces of supply and demand into the booking process. “Containers are usually priced altogether on the shipment date, but this is not the best for both sides. The contract price should instead be on the contracted date,” Chen reckons. With the annual contract season underway, Chen is encouraging shippers to place some of their volume on NYSHEX, which currently allows them to book containers for a specific week, and up to six months in advance. “They can also discuss rates with carriers and use NYSHEX as a platform to monitor shipments and contracts,” he adds. Chen says the exchange will expand to Asia-Europe and intra-Asia trade lanes later this year. “Intra-Asia suffers from bigger booking shortfalls and greater unreliability than the deepsea trades, so regional carriers stand to greatly benefit,” he adds.
Reporting by Sam Whelan at The Loadstar ahead of the TOC Asia Conference which is held in conjunction with Singapore Maritime Week.
Don Chen is speaking in the Automation, Digitalisation & Standardisation seminar at the Container Supply Conference during TOC Asia:
Key talking points in this session include:
? A long-term view of digital transformation
? Who are the new disruptive digital players redesigning container supply chains?
? E-commerce, automation and digitalisation – reshaping container supply chain dynamics?
? Blockchain: viability, challenges and opportunities
? Is blockchain a ‘foundational’ technology which will provide the platform for new business models as opposed to the ‘game-changer’ people talk about?
? The need for Standardisation
? Is there industry will to forgo its competitive strategy and collaborate to develop workable industry standards.
? Are lines and ports embracing digitalisation quickly enough?