The exchange was the subject at a lively meeting hosted by NYMAR (New York Maritime), at a recent midtown gathering. Historically, NYMAR’s focus has tended towards bulk shipping, and attendees learned that the deregulation of liner shipping, underway in fits and starts since the mid-1980s, has come with a price attached. In its later stages circa 2008, where carriers lost their anti-trust immunity in the European Union, competition ramped up bringing about a dramatic ascendancy of the “spot” market - with the market share of more durable “service contracts” being significantly reduced.
The result, as explained by NYSHEX chief Downes, has been a chaotic marketplace where: “There is a lack of transparency generally. And, further, the existing ways of handling liner bookings do not provide predictable cargo flows and spot contracts generally do not specify service levels from the carrier or volume commitments from the shipper.”
NYSHEX has garnered the financial backing from not only financiers including GE Ventures and Goldman Sachs, but also from leading carriers - Maersk Line, Hapag-Lloyd and CMA CGM . Importantly this differs dramatically from previous dotcom era venture capital backed efforts where carriers had no skin in the game and, indeed, worked hard to sink efforts at transparency.
One objective of NYSHEX is to move the business from its increasingly unreliable, and inefficient status quo, which Downes calls a “vicious cycle”, towards a “virtuous circle”. His ideas are well beyond aspirations at this point, he told Seatrade Maritime: “Approximately 8,000 teu has been contracted in total so far.”
There is a technology play at work here. Bids for cargoes can be matched with carriers’ offers, and the architecture facilitates digital linkages with systems for payments, and further tracking/ supply chain management. But, as explained Downes, the virtuous circle also extends way beyond technology into business cultures and architectures. Digitalization enables economies less executive and sales time, and more accuracy, in an industry still characterized by a morass of paperwork.
Importantly, NYSHEX contracts consist of a fixed all-in price, ie no “accessorial” charges, fuel adjustments and other items that can, and frequently do, lead to disputes between carriers and their customers.
Futures and forward freight contracts, when tied to financial guarantee mechanisms, can force performance in arenas that would otherwise see inefficiencies that bring substantial economic costs to the carriers, and to the cargo interests. By injecting a financial guarantee mechanism, from the world of futures and cleared forward contrac into bookings of liner shipments- the result is real reliability, instead of wasted time and waffling by counterparties who cancel their shipments,or delay their sailings.
NYSHEX explains that: “The NYSHEX forward contract is secured by collateral or prepaid deposits…paid to NYSHEX in accordance with contract requirements.”
Downes did not have a ready number for the value of freight booked, but did say that “Cargo shipped includes agriculture products, cotton, hay, high end furniture, home goods, GDSM (general department store merchandise), it’s a real mixed bag and there is a huge variation in values.” Clearly, NYSHEX is on to something and its successes show it, with Downes telling Seatrade Maritime: “Volumes are growing, volumes this quarter are more than three times last quarter.”