Collaboration & Compliance: FMC Confirms NYSHEX Governance

I was just a few days into working full-time on NYSHEX when I gave my first pitch to a senior executive with one of the top global ocean carriers. A few sentences into my presentation, that senior executive interrupted with a question that would change the course of NYSHEX permanently… “Is this compliant?”

I was caught off guard by this question. Nonetheless, I outlined the  research we had done on the regulations, and how we had found nothing to prevent us from going ahead with our plan. That clearly wasn’t the answer he was looking for, and so he politely explained it wasn’t worth moving forward until all the compliance checks had been done.

And so began our million dollar investment into compliance

The shipping industry is tightly regulated in the United States by the Federal Maritime Commission (FMC) who oversee the freight contracting and filing process. The FMC sets standards and regulates shipping activities, including requirements that all service contracts with ocean carriers meet strict standards. 

They ensure the businesses which fuel the U.S. economy have reliable and competitive ocean transportation. Their mission is a noble one.

Compliance as a value proposition

The team and I have been working on NYSHEX for over two years now, and one thing I am grateful for is that we started building our compliance program so early on. Compliance has become one of our guiding principles. It has grown from a list of check boxes into a core part of our value proposition.

To set the scene, let me explain that NYSHEX provides a digital and reliable way for carriers and shippers to make shipping contracts. We developed a digital contracting framework which shippers and carriers use to lay out a set of simplified yet comprehensive terms, as well as clear responsibilities for each party in the shipment process.  Our technology then tracks each shipment to make sure that both the carrier and shipper do exactly what they had agreed to in the contract.

The great news is – it works! Thousands of containers have shipped through NYSHEX since we launched in August of this year. We’ve integrated with five of the top ocean carriers, and the sixth is in progress. We’ve reduced the time to contract for all of our members from days to seconds, and we’ve improved shipment reliability from 76% to well above 99%.

Before we could start, we had to answer a fundamental question

Why would shippers and carriers trust NYSHEX to play such an important role in the contracting process? The answer was in large part our robust legal and compliance framework. This provided the industry with necessary assurance that we were serious, and up for the task at hand. There are two key parts to our framework:

1. We spent a tremendous amount of time (and legal expense) reviewing the existing regulations around ocean freight contracting, and exploring ways in which a freight contract could be simplified, standardized and digitized. This culminated in the contracting framework we now call the NYSHEX Forward Contract™. We then worked closely with the staff and Commissioners at the FMC to ensure they were comfortable with the development of the forward contract and the enabling technology, significantly streamlining the typical contract filing process.
2. We designed a fair, transparent, and balanced governance process to ensure we operate in a way that really does serve all stakeholders in the shipping industry. We worked with innovative BCOs, NVOCCs and Ocean Carriers to understand their needs, and their concerns. We then encapsulated this into a set of standard operating terms (or rules), which we follow when tracking each contract. Since the ‘rules’ would need to evolve as NYSHEX develops and expands, we also needed a governance structure that would include all parties from the industry. This empowers representatives from the industry to decide how and when the ‘rules’ are changed and improved.

There is no other governance model like it in ocean shipping

We believe our governance model speaks volumes about the difference collaboration can make. The mechanics of our governance structure are robust:

• Our member council of shippers (BCOs and NVOCCs) and carriers is elected by the members of NYSHEX each year. The member council is tasked with reviewing proposed changes to the ‘rules’ that will be received each quarter via a formal survey processes run by our Head of Compliance. This feedback is voted on and changes to the ‘rules’ are then brought to the Board of Directors.
• Our board of directors then reviews the conclusions from the member council and makes the relevant changes to the ‘rules’. To ensure fairness and balance on our board, we will always have two ocean carriers representative directors and two shipper representative directors.
• The recommendations from the member council and the changes made by the board are also documented and presented back to the members of NYSHEX each quarter. This ensures the decision-making process is fully transparent.

Regulation from 1998 didn’t stop innovation in 2017

When the US Ocean Shipping Reform Act was enacted in 1998, the lawmakers probably hadn’t envisioned the digital innovations that would radically transform the way business would be done twenty years later. Developing our modern-day compliance program within a set of laws from two decades ago wasn’t always easy.

The FMC Commissioners and staff deserve a special note of gratitude from NYSHEX and our members.

From my very first meeting with them they have been open to evaluating and discussing how to balance the integrity of shipping regulations with the need to modernize through innovation. You might say, the collaboration we strive to bring to ocean freight contracting every day was created with the hard-working staff and Commissioners of the FMC. A collaboration that continues today as we play a role in the FMC’s Supply Chain Innovation Team.

An exchange everyone in ocean shipping can trust

On December 2^nd, we passed a major milestone. The FMC voted in favor of agreements that formally approve our governance model, and allow us to agree on standards for digital freight contracting. This is the ultimate validation of our compliance program, and allows us to further develop our contracting framework and technology to better serve the industry.