Could This Contract Stop Cargo Rollovers & No-Shows?
Gavin van Marle reported in the Loadstar about a new contract arrangement between shippers and carriers designed to prevent both cargo shipment delays from carriers and cargo no-shows from shippers.
Experienced shippers know cargo rollovers are a problem in the international shipping industry. Carriers are notoriously unreliable. Blank sailings, overbooking, switching sailing schedules on shipments… There are shippers out there who consider international shipping delays, measured in days and weeks, to be the norm in the industry.
The Loadstar article quoted Bjorn Vang Jensen, vice president of global logistics at Electrolux as saying, “I ship 170,000 teu year and I still get rolled over all the time; I have problems with getting the containers.”
As a freight forwarder, we here at Universal Cargo work hard to make shippers’ cargo delivery as smooth and dependable as possible, knowing we face the challenge of unreliable carrier schedules.
What we didn’t know was just how costly carrier unreliability is for shippers per year.
The article by van Marle says, “shippers globally have to invest $14.7bn in additional inventory costs – storage fees, working capital costs etc – due to uncertainties over shipment delivery times, while another $3.8bn per year is sunk into blank sailings.”
That’s $18.5 billion dollars a year shippers lose due to carrier unreliability!
But it turns out shippers can be unreliable too.
Cargo no-shows from shippers are quite common. Shippers make a booking, find something cheaper, and then just go with that booking without so much as a cancellation. This practice from shippers is costly for carriers and, to read the Loadstar article, might be happening as often as a quarter of the time:
Hapag-Lloyd chief executive Rolf-Habben Jansen told The Loadstar that some 25% of bookings never appear at its ports of loading and, according to NJIT research, some 5m teu a year is classified as downfall, which it calculates costs carriers around $4.4bn a year.
From the numbers, carrier unreliability is more costly to shippers than shipper unreliability is to carriers, but both are problems. So how can these problems be fixed?
Enter the New York Shipping Exchange (NYSHEX) and their new contract arrangement between shippers and carriers. NYSHEX exists to deal with the breakdown in reliability between shippers and carriers.
The Loadstar article quotes NYSHEX chief executive Gordon Downes on how his company’s new service that uses enforceable “forward contracts” works:
“It works in three steps: first, the contract is specific to the departure port, sailing date, destination port, freight rate and number of containers; secondly, it is secure – shippers must pay a bond or pay a deposit to Citibank to secure the contract, and payment is released on fulfilment or a penalty paid on default, while the shipment is tracked to make sure the contract is performed; and thirdly, the contract is exitable, so that shippers with downfalls can leave the contract without losing their deposit by finding a replacement shipper to take over their contract.”
Shippers’ flexibility is certainly limited a bit by this sort of contract. I’m not sure I wholly like the idea of a shipper having to find a replacement shipper if they want out of a contract. However, a contract made should be kept unless made void by both parties or reasonably exited by one party under circumstances previously agreed to by both parties.
Contracts that hold both shippers and carriers responsible for their end of the agreement and cut down on unreliability in the industry certainly sound good.
What do you shippers out there think? Do you like the idea of a contract like this? What if this becomes the new norm in the international shipping industry?
Let us know your thoughts in the comments section below.