COFCO International

A global agri-business hedges against volatility, saving a lot of money during the COVID-19 pandemic.

COFCO International has some serious growth ambitions. They are making sizeable investments into the geographies and markets where they see the most opportunity for sustainable growth of their core products: grains, oilseeds, and sugar. They pride themselves on innovating and integrity in serving their customers.

Due to volatility in ocean contracting in recent years, COFCO, like many of their peers, has found it increasingly more difficult to provide consistent service to their customers. In the most recent months, it is more than ever a challenge to maintain a level of being a value-added service to customers.

Lock-in-rates

THE CHALLENGES

1)  FREIGHT COST UNCERTAINTY

Like most exporters of commodities, COFCO receives a generic rate sheet from their ocean carriers which is only valid for the coming calendar month. This makes it impossible to quote a customer for a contract sailing beyond the next month or two without making an educated guess. Many like to use historical analysis but they call it history for reason; the past is the past.  Throw in GRI’s, blank sailings, and lack of equipment into the mix and you get a formula for disaster. 

guranteed-space

2) CONTRACT UNABLE TO BE FULFILLED WITHOUT CONTAINER EQUIPMENT AND VESSEL SPACE TO EXPORT IT.

Containers in the heartland of the USA where grain is grown are already scarce as export volumes exceeded imports. Combine that with trade tariffs and a global pandemic which led to ocean carriers withdrawing as much as 60% of weekly vessel capacity and you have a recipe for customer dissatisfaction. Furthermore, the rate sheets they receive are just that – a list of rates – with no commitment that there will be space available to ship the cargo.

THE NYSHEX SOLUTION

COFCO trusts Clayton Charles, Container Trader, to see the writing on the wall before others do and to ensure they are prepared for whatever lay ahead. Familiar with the NYSE, Intercontinental, and the Chicago Mercantile, Clayton knows that exchanges drive out risk and volatility. He didn’t need convincing that an exchange for shipping functions to keep parties honest in delivering against the contracts they mutually form.  

“We began contracting through NYSHEX in July 2019 and had success early on locking in space and equipment. We took it to the next level in Q4 2020 by building a full-Q1 contract for thousands of containers when we saw ocean carriers laying up vessel capacity in response to the COVID-19 pandemic. Being short on freight [not being able to get bookings] is scary because we have contracts with our customers to satisfy. And when carriers pull out capacity, rates can easily shoot up. Our profit lies solely in the execution of a customer’s contract (with ocean freight a big piece of the pie), so we can’t absorb unforeseen cost increases.”

Clayton customized COFCO’s three-month contract through negotiations with their desired carrier partner. He ensured that each origin, destination, and the commercial terms he needed were included in the contract and with pricing which reflected current market conditions. Once all was agreed to, NYSHEX uploaded the digital contract, Clayton and his carrier partner digitally signed, and it was filed with the FMC before the new year and before all the volatility hit the USA. And hit it did.

NYSHEX Customer Testimonials

“NYSHEX is a hedge against freight exposure risk. When we foresee potential impact to our business, it just makes sense to mitigate that risk by having guarantees for a portion of our business. Even when there’s not any potential disruption on the horizon, it still pays to have a hedge. Anyone who’s been in shipping for a while knows there is no such thing as smooth sailing.”

- Clayton Charles, Container Traders

COFCO'S RESULTS

According to Clayton, “Overnight, many interior US grain origins became extreme equipment deficits due to the lack of imports, and bookings were not available for at least weeks out. Everyone was scrambling to find options, but we were able to maintain some consistency. We had enough committed space and equipment to prioritize our most urgent shipments.”

While COVID-19 qualified as a Force Majeure event, cargo moving under a NYSHEX contract - even during a Force Majeure event – receives prioritized handling, and any amendment to the rates or commercial terms is strictly prohibited.

“The rates for the port pair(s) on which we were shipping the most volume increased significantly in the market, so we mitigated freight increases for the entire quarter by having locked in contracts on NYSHEX – AND our cargo kept moving.”

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