Back in 1823, the shipping markets were characterized by “wild gambling”. To combat this, the Baltic Exchange was established as a private meeting room where admission was strictly limited to trustworthy merchants and shipowners. Their motto enshrined this principle as “our word, our bond"(1).
Today, however, container freight rates are even more volatile than share and oil prices [see chart below]. One in four bookings downfall and, when peak season comes around, shippers struggle to get their cargo on-board. I regularly hear from both shippers and carriers that they treat their traditional service contracts more as guidelines, than contracts. So, in many ways, it seems like we’ve gone back in time to shipping’s old days of “wild gambling.”
But there is good news. The tides are changing, and the value of trust is making a comeback. Some of the major carriers are beginning to roll out new versions of enforced contracts and bookings. This month, the world’s largest forwarder, Kuehne + Nagel launched their own version of a “guaranteed” contract"(2). We also see this trend reflected in the NYSHEX data. Six global carriers and over four hundred shippers are now members, and contract volumes are growing at 765% annually. Most importantly 98% of containers are shipped as contracted on NYSHEX, that’s an enormous 22% improvement!
So, what’s NYSHEX got to do with all this?
I’m often asked why the shipping industry needs NYSHEX. The answer is very similar to why in 1823 merchants and shipowners went to the Baltic exchange’s meeting room; for a convenient location where they could trust one another.
A. How NYSHEX facilitates trust
All carriers and shippers agree to a common set of “rules” when they join NYSHEX. These rules clearly explain how contracts are enforced, covering a broad range of practical circumstances. From plain and simple cases of booking downfalls and shipment rollings, to more complex circumstances where chassis may be in short supply, or where terminals may be congested. The rules are continuously updated through a governance structure controlled by the NYSHEX members themselves, and overseen by the Federal Maritime Commission. This provides a framework that trust can be built upon.
Secondly, NYSHEX technology records the contract terms that are agreed to between the carrier and shipper, and then tracks each shipment to ensure the cargo flows in line with the contract terms and agreed rules. NYSHEX then uses financial security to ensure any penalties or liquidated damages are settled accordingly. This is a very efficient and fair mechanism that facilitates mutual accountability and avoids straining shipper and carrier relationships when things don’t go as planned.
B. Why NYSHEX is convenient
For most shippers that use multiple carriers, NYSHEX provides a convenient ‘venue’ to enter enforceable contracts without needing to compare and contrast different terms and workflows. All six of the carriers registered on NYSHEX subscribe to the same rules, their contract terms are standardized, and the process for contracting, booking, payment and shipping is conveniently aligned. This saves a great deal of time and reduces complexity.