Index-Linked Container Contracts Take-Off

Monday, December 12, 2011

Half of all index-linked contracts filed with the US Federal Maritime Commission reference Drewry’s Container Freight Rate Insight pricing benchmarks.

 

Drewry Maritime Research’s container freight rate benchmarks are the index of choice in index-linked container contracts, according to the US Federal Maritime Commission (FMC). The agency also indicated that uptake of index-linked container contracts on US trades was fast growing. Index-linked contracts allow freight rates to be adjusted during the life of the agreement by reference to an external, independent market price index.

 

Speaking at the Container Freight Derivatives Association’s (CFDA) Global Container Freight Forum in London last month, FMC chief of staff Lowry Crook said that over 50 index-linked contracts had been filed with its organisation this year. Many more are expected to be filed in the upcoming contracting season. “Of the roughly 50 service contracts filed with the FMC that reference freight indices, nearly half refer to Drewry’s index,” confirmed Crook. These benchmarks are published monthly and online in Drewry’s Container Freight Rate Insight. The FMC has a good knowledge of shipping agreements as all carrier-shipper service contracts covering US trades must be filed with the agency by law.

 

“The Commission’s comments quash any misplaced impression that carriers will not sign index-linked contracts that reference spot rate indices,” commented Martin Dixon, research manager of Drewry’s Container Freight Rate Insight. “Indeed, several carriers have requested that we expand the range of aggregated indices to meet the fast growing demand for index-linked contracts from cargo owners.”

 

Index-linked contracts enable more stable, multi-year contract terms and reduce the threat that either party will walk away from the contract when market conditions change. Traditional fixed-rate annual contracts run the risk of locking shippers into high relative freight costs when the market falls and potential capacity shortfalls when market rates rise.

 

The FMC official explained that most index-linked contracts are based on annual price adjustments, although some adjust half-yearly or quarterly. Drewry’s Stable Market Adjusted Rate Terms model (SMART), a type of index-linked contract, incorporates a “ceiling rate” and a “floor rate” to mitigate the risk of extreme price volatility. “More and more retailers and manufacturers are coming to Drewry for advice on how to construct index-linked contracts,” added Dixon. “We recommend our SMART model to companies considering the use of index-linked contracts.”

 

Drewry is the market leader in the provision of container freight rate market intelligence and sea freight procurement advice. It publishes container freight rates on over 550 different port pairs as well as several aggregated indices, in its Container Freight Rate Insight. This is published both online and as a monthly report. These container freight rates and aggregated indices are widely used for benchmarking, market analysis and as a reference point for index-linked contracts.

 

Drewry also publishes container freight rate indices on 11 East-West routes in collaboration with Cleartrade, through the World Container Index (WCI) joint venture. Unlike Drewry's Container Freight Rate Insight, the WCI is designed to be used as a pricing mechanism for the settlement of derivative trades and hedging. However, the WCI can also be used as a reference point for index-linked contracts.


People & Company News

Kongsberg Performs Well in Q2

Norwegian defence and marine technology company Kongsberg Gruppen's second quarter 2016 (Q2) financial results shows sales performance broadly in line with recent trends,

Rickmers Holding, E.R. Capital Drop Merger Plan

Rickmers Holding AG and E.R. Capital Holding have jointly decided not to pursue the merger of their ship management activities.   For many years the companies

MN100: Conrad Shipyard

The Company: Conrad Shipyard was established in 1948 and is headquartered in Morgan City, Louisiana. The company designs, builds and overhauls tugboats, ferries,

Contracts

BP, ExxonMobil, ConocoPhillips 'Quit' Alaska LNG Project

BP, Conoco Phillips, and Exxon Mobil said that the 65-billion dollar megaproject would be too unprofitable for them to move into the next phase of development.

C-Job Designs Flettner Freighter for Switijnk

The Dutch shipping company family Switijnk has contracted C-Job Naval Architects to develop a Rotor Sail-equipped design to meet their specific loading and sailing profile.

Yangzijiang Shipbuilding to Slash 2,000 More Jobs

Chinese shipbuilder Yangzijiang Shipbuilding Holdings Ltd said it plans to cut 2,000 additional jobs, just under 10 percent of its current workforce, stepping up

Finance

Skaugen Goes to Red Again

Norwegian Marine Transportation Service Company I.M. Skaugen SE reported interim losses but cautiously positive and expecting a gradual recovery of trading opportunities

Kongsberg Performs Well in Q2

Norwegian defence and marine technology company Kongsberg Gruppen's second quarter 2016 (Q2) financial results shows sales performance broadly in line with recent trends,

How Rapid is the Fleet Growth?

During July 2016, the containership fleet reached a landmark 20 million TEU in terms of aggregate capacity, says Clarksons Research.   To many it only seems

Container Ships

Maersk Line's Innovative Smart Reefers

Have you heard about Maersk Line's smart reefers that can listen and talk? Cutting edge technology that reduces risk in customer supply chain, claims Maersk Line.

Rickmers Holding, E.R. Capital Drop Merger Plan

Rickmers Holding AG and E.R. Capital Holding have jointly decided not to pursue the merger of their ship management activities.   For many years the companies

Hapag-Lloyd: UASC Merger Benefits to show in 2017

German container shipping line Hapag-Lloyd expects to reap a third of targeted annual synergies of $400 million from the planned merger with Arab rival UASC already next year,

 
 
Maritime Careers / Shipboard Positions Maritime Security Maritime Standards Naval Architecture Navigation Offshore Oil Port Authority Salvage Ship Electronics Sonar
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1131 sec (9 req/sec)