This week some really exciting news came out in the industry. Maersk announced that they are launching “Maersk Spot” which will offer shippers guaranteed equipment and space in exchange for a penalty if they don’t show up with promised cargo.
Over the past few days many industry friends have emailed, called and texted me asking what this means for NYSHEX. It’s such a great topic I knew it would make a solid blog post!
We are actually excited to see carriers and the industry taking steps toward mutual guarantees. Our CEO, Gordon, said it best:
“[The launch of Maersk spot is] a very good sign because it shows the industry is taking the problem of downfalls and rollings far more seriously now. There will be more carriers doing something similar in the not-too-distant future. Overall, this is very good for both shippers and carriers, as well as NYSHEX. You may wonder why this is very good for NYSHEX, and the answer is NYSHEX becomes even more relevant in a world where it is ‘normal’ for carriers and shippers to enter binding and enforced contracts.”
Plenty of other industries have struggled with two-way accountability, ultimately finding the solution. Having intensely studied the solutions which have worked for other, now flourishing industries, we got to the heart of the matter and proposed something truly new and transformative to shipping. NYSHEX is collaborating alongside of shippers and carriers to drive real change in the industry, and are supported by both shippers and carriers to take it one step further because of our neutrality:
Having 52% of the world's global capacity represented in our member carriers (and others joining soon...) on the exchange really saves our members time and effort. They can compare and select the offers which work best for them, book and even manage their shipments with six carriers, all on the same platform. The best part is that the offers are truly all-inclusive, subject to zero price fluctuation, and the cargo is guaranteed to move on time!
We are able to do this because of two unique FMC discussion agreements. If you study other industries that have managed to flip this script, you'll see that real behavior shifts happen when all industry players agree to the same standards, expectations and processes. 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.
As aforementioned, NYSHEX contracts are governed by a transparent Forward Contract boiler plate standardized across all carriers, and supplemented by an exhaustive 'rule book' outlining every eventuality. That rule book was created by, and is only amended upon, a consensus from a body of shipper and carrier members. Even after a default, our members maintain their positive direct relationships because NYSHEX manages the audit process and the disbursement of penalties.
Two-way penalties have historically failed in direct carrier-shipper relationships because, inevitably, there will be temptation for one party to request forgiveness from the other in the event of a default. Both sides really need and value one another, and thus, the righteous party will feel intense pressure to sweep a breach of contract under the rug when asked. When the judge, jury and executioner stands to be financially impacted, the ruling will never be truly unbiased. At NYSHEX, neutrality is our bond and we don’t profit from defaults in any way. It really ruins our day when either party disappoints the other, so we pride ourselves on going above and beyond to do all we can to ensure both sides stay conscious of their contractual milestones. Fortunately, as we quickly approach our 50,000 container threshold, the shipper default rate is 1.6% and for carriers it’s still a low 2.4%. Even in the rare default case, 100% of the time your relationship is safe-guarded and you get a fair shake!
Outside of NYSHEX, once a shipper makes a guaranteed booking directly with a carrier, the shipment either sails or they forfeit the cancellation fee. Because of the liquidity of shipper members on NYSHEX, shippers can take advantage of the secondary market through an “exit.” Let’s say a shipper has contracted for 100 containers for a particular week and then, as the sail date approaches, they realize they only need 80. That shipper can re-post the 20 containers they don’t need anonymously back onto NYSHEX. They can even price the offers as they see fit, potentially earning a profit margin. NYSHEX facilitates this process and, upon purchase by another shipper, the original buyer is released from the FMC service contract and the transaction is cleared.
So, in summary, we think it’s pretty great that that the industry is going in this direction. We know that our partner, Maersk - and all carriers who make strides toward guaranteed contracts - will have huge success in this endeavor, and we’re proud for our business model to have proven the industry is indeed ready for change!
As if seeing the industry we love become even stronger isn't enough great news, you can rest easy that the Maersk and NYSHEX partnership has only just begun:
[Maersk Spot] “is purely Maersk operated with customer engagement going via Maersk channels, whereas NYSHEX is a multi-carrier platform governed by a council of carriers and shippers in accordance with the FMC regulations. However, launching our own product does not mean we will not commit to any partnerships with third parties anymore. We believe in cooperation and learning experiences across the digital ecosystem of our industry. We are very happy with our partnership with NYSHEX and will continue to be committed to this platform as well.”
If you want to hear more on this topic, check out Gordon's post about trust making a comeback in shipping.