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 Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter February 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

SunEdison Restrained from 'Unusual' Asset Transfers

Solar company SunEdison Inc said a U.S. court has restrained the company from making any unusual asset transfers until a hearing in a lawsuit brought on by investors

Maersk to Scrap Ships at India's Alang Beaches, NGO Dismayed

Maersk Line said on Friday it had chosen four shipbreaking yards along India's Alang beaches to handle an increase in vessels that need to be scrapped, to the dismay

Teknotherm Marine Moves HVAC Arm to Bergen

Maritime heating, ventilation and air conditioning (HVAC) firm Teknotherm Marine has established a new subsidiary is established with the name Teknotherm Marine HVAC AS.

Contracts

Sea IT, Veritas Tankers Ink Long-term Software Deal

Sea IT has entered a long term ICT agreement with Veritas Tankers. The agreement comprises installation of BlueCORE Generation 4, an ICT platform specifically developed for the marine industry,

Interior Facelift for Queen Mary 2

Cunard’s luxurious flagship, the iconic 2,620 passenger ocean liner Queen Mary 2, will undergo an interior refit at the hands of McCue Marine during a 25-day multimillion-pound

Chemical Shipping Freight Rates to Remain Under Pressure

On the back of low bunker prices and more new buildings to be delivered in 2016, chemical shipping freight rates for both contracts of affreightment and spot cargoes

Finance

Brazil's CEEE to sell stakes in Wind Farms, Dams

Brazil's Companhia Estadual de Energia Elétrica (CEEE), a power utility controlled by the state of Rio Grande do Sul, will sell assets including stakes in wind farms,

DP World Bolsters Investment in India

DP World Pvt. Ltd, the world’s fourth biggest container port operator majority owned by the Dubai government, has plans to invest over $1 billion in India for augmenting its port-related operations.

SunEdison Restrained from 'Unusual' Asset Transfers

Solar company SunEdison Inc said a U.S. court has restrained the company from making any unusual asset transfers until a hearing in a lawsuit brought on by investors

Container Ships

Hapag-Lloyd Enhances Conosur Service

Hapag-Lloyd has informed about its service enhancements on the Conosur Service (South America West Coast to South America East Coast). This is being upgraded by

Adani Ports Income Up by 15%

Adani Ports and Special Economic Zone Limited (“APSEZ”), India’s largest port developer and part of Adani Group, today announced the financial results for the quarter

Shipping Corporation Q3 Profit Surges

The Shipping Corporation of India (SCI) declared its unaudited financial results for the quarter ended 31st December 2015 posting a net profit of Rs. 59.66 crores as against a net profit of Rs.

Logistics

Hapag-Lloyd Enhances Conosur Service

Hapag-Lloyd has informed about its service enhancements on the Conosur Service (South America West Coast to South America East Coast). This is being upgraded by

Indiana Ports Sets Cargo Record in 2015

State's three ports handle 12 million tons for first time in 54-year history  INDIANAPOLIS (Feb. 11, 2016) - The Ports of Indiana handled over 12.2 million tons of cargo in 2015,

DP World Bolsters Investment in India

DP World Pvt. Ltd, the world’s fourth biggest container port operator majority owned by the Dubai government, has plans to invest over $1 billion in India for augmenting its port-related operations.

 
 
Maritime Careers / Shipboard Positions Maritime Security Naval Architecture Navigation Pipelines Pod Propulsion Port Authority Ship Electronics Shipbuilding / Vessel Construction 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: 0.1220 sec (8 req/sec)