Global Forwarders Favour Index-Linked Container Contracts

MarineLink.com
Tuesday, March 25, 2014
Fluctuations:Image courtesy of World Container Index assessed by Drewry

Index-linked contracts between shippers and carriers, and between shippers and forwarders, appear to be increasing for valid reasons, according to the latest edition of Drewry's Container Insight Weekly.

According to Freight Investor Services, which specialises in helping contracting parties soften market volatility through hedging, shipper interest in Index-Linked Container Contracts (ILCCs) has increased significantly during the past 12 months. Most of the top 10 global forwarders now have quarterly ILCCs with shipping lines, and the contracts are also becoming more interesting to medium-sized beneficial cargo owners.

The biggest driver appears to be the need to simplify the freight rate negotiating process during periods of high freight rate volatility, as ILCCs provide a good framework for long-term agreements. In principle, carrier/customer relationships are also improved, and customers should get more freight rate stability, particularly where rates are reviewed every three months.

Spot freight rates from Asia to Northern Europe have been oscillating wildly since the middle of last year, in particular, with astronomical 165%, 109% and 56% increases being obtained within one week at the beginning of July, November and middle of December (see chart above). It has put shippers in an impossible position. On the one hand, signing long-term fixed rate deals has become risky as far too much freight might be paid, depending on when their deals are struck, and on the other, playing the spot market has become very unpredictable and time consuming.

Only fixed long-term rates – usually the preserve of big shippers – and hedging avoid freight rate volatility completely, but ILCCs on their own can provide a half-way house based on the limited information so far declared by contracting parties. This is achieved by the contracts incorporating freight rates that track the market similarly to ‘tracker funds’ on the stock market.

The extent to which they reduce freight rate volatility clearly depends on the period over which rates remain valid. Quarterly reviews are better than monthly reviews, and both are better than playing the spot market on a weekly basis.

Based on a survey conducted by World Container Index, only 10% of beneficial cargo owners used ILCCs in the middle of last year, compared to 28% of forwarders and 38% of ocean carriers, so there is much scope for improvement, even though change is in the air, as mentioned at the outset.  In terms of cargo volumes, the proportions were probably far greater due to ILCCs previously being the domain of very big shippers only.

Drewry's View

Shippers and forwarders will increasingly turn to Index Linked Container Contracts to simplify freight rate negotiations during periods of high market volatility.
 
Source: Drewry Maritime Reseach

 

 

Maritime Reporter November 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Madsen to Chair Norway’s Research Council Executive Board

Henrik O. Madsen appointed chairman of the executive board of the Research Council of Norway   DNV GL president and CEO Henrik O. Madsen was appointed as chairman

Port of Houston Expecting Record Year

The Port of Houston Authority is expecting 2014 to close as a banner year for the port, with 34 million tons of cargo handled through November, Executive Director

Hapag-Lloyd Completes CSAV Merger Capital Increase

Hapag-Lloyd completed the planned capital increase of EUR 370 million (approximately $452.5 million) as part of the business combination with the Chilean shipping

Contracts

Shipbuilding: NAT Finalizes Deal for Two New Tankers

On December 9, 2014, Nordic American Tankers Ltd. announced that preliminary contracts had been entered into with a South Korean shipyard, for the construction

Wärtsilä to Begin Building LNG Terminal in January

Wärtsilä has been given full notice to proceed (NTP) from Manga LNG Oy for the supply of a liquefied natural gas (LNG) import terminal in Tornio, Northern Finland.

Polarcus Awarded 3D Project Off West Africa

Polarcus Limited has signed a letter of intent with Perenco Oil & Gas Gabon S.A. for a 3D marine seismic acquisition project offshore West Africa.   The project,

Finance

Oil is on the Rise

Oil prices rose in early trading on Monday as Asian markets opened strongly into a holiday-shortened week and as consensus spread that Brent crude prices would

Larger Tankers May Offer Better Return Chances

Investors looking for returns in the tanker markets can invest their capital in a variety of ways. Should an owner invest in a VLCC or an Aframax? How about an

US Plans to Shut Royalty Loophole on Coal Exports

U.S. coal companies will no longer be able to settle royalties at low domestic prices when they make lucrative sales to Asia according to reforms proposed by the Interior Department on Friday.

Container Ships

NZ Report: Human Error to Blame for Rena Grounding

New Zealand's Transport Accident Investigation Commission (TAIC) published its final report into the grounding of containership Rena in October 2011. The TAIC’s

Port of Houston Expecting Record Year

The Port of Houston Authority is expecting 2014 to close as a banner year for the port, with 34 million tons of cargo handled through November, Executive Director

Costa Rica Approves APM Terminals Project

Port operator APM Terminals, a unit of Denmark's A.P. Moller-Maersk, said on Friday Costa Rica's environment agency had approved the construction of its Moin Container Terminal project.

Logistics

Port Workers in Argentine Grain Hub End Strike

Port workers in part of the Argentine grains hub of Rosario lifted a work stoppage on Friday, only a day after they went on strike over demands for higher year-end bonuses, a union official said.

Port of Houston Expecting Record Year

The Port of Houston Authority is expecting 2014 to close as a banner year for the port, with 34 million tons of cargo handled through November, Executive Director

Costa Rica Approves APM Terminals Project

Port operator APM Terminals, a unit of Denmark's A.P. Moller-Maersk, said on Friday Costa Rica's environment agency had approved the construction of its Moin Container Terminal project.

 
 
Naval Architecture Navigation Offshore Oil Pipelines Port Authority Ship Electronics Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | 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: 0.2310 sec (4 req/sec)