Global Forwarders Favour Index-Linked Container Contracts
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 May 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Tideland Signal Acquires Julius Signal

Tideland Signal Corporation, now part of Xylem, has entered into a definitive agreement to acquire certain assets of Julius Signal, extending the company’s portfolio

North P&I Club Repots Positive Financial Performance

North P&I Club reports that an exceptionally low year for claims has helped it increase its free reserves by $90 million to $428 million and deliver a combined ratio of 73.

Seaspan Responds to Canada’s NSS Announcement

In response to the Government of Canada’s announcement of a series of enhancements to strengthen the National Shipbuilding Strategy, Seaspan Shipyards’ president


TAMRF Extends Research Vessel Charter

Overseas Drilling Ltd., a 100 percent owned subsidiary of Siem Offshore Inc., and Texas A&M Research Foundation (TAMRF) have agreed to extend the charter of the

BWTS Refit for Netherlands Naval Vessels

The Defense Material Organization has awarded three contracts to Goltens Worldwide’s Green Technologies business unit for the engineering and turnkey installation

Raytheon Anschütz Selected as INS Provider for Canada’s OFSV

Raytheon Anschütz Selected as INS Provider for Canada’s OFSV   Thales, a major system integrator in Canada, has chosen Raytheon Anschütz as the supplier of the


North P&I Club Repots Positive Financial Performance

North P&I Club reports that an exceptionally low year for claims has helped it increase its free reserves by $90 million to $428 million and deliver a combined ratio of 73.

DONG Energy Listing to Value Group at up to $16 Bln

DONG Energy's has set a potential $16 billion price tag on its stock market debut, giving investors a chance to buy into the growth in offshore wind power, but

WSS: Post-combustion Fuel Treatment Cuts Vessel Costs, Risk

Wilhelmsen Ships Service, a provider of products and services to the shipping industry, is advising vessel operators to wage war on soot. According to WSS, soot

Container Ships

SOLAS Container Weight Requirements FAQ

With new rules regarding the declaration of the accurate gross mass of a packed containers due to enter force, the International Maritime Organization (IMO) answers

CMA CGM Proceeds with NOL Takeover after China Okay

CMA CGM, the world's third-largest container shipping firm, is to go ahead with its planned acquisition of Singapore's Neptune Orient Lines (NOL) after receiving regulatory clearance from China,

Singapore Exchange in Talks to buy Baltic Exchange

Baltic Exchange privately owned by 380 shareholders. The Singapore Exchange (SGX) is in exclusive talks to buy London's Baltic Exchange, which has been at the


Lower Large Dry Bulk Rates drag Baltic Index

The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Thursday dragged down by lower demand for larger vessel segments.

EGAS: Egypt to tender for 10 LNG Cargoes

Egypt will tender next week to import 10 cargoes of liquefied natural gas (LNG) for delivery in July and August, an official from the state gas company, EGAS, said on Thursday.

Asia Dry Bulk-Capesize Rates Could Climb

More coal cargoes, rising oil prices could support rates. Freight rates for large capesize dry cargo ships on key Asian routes are likely to rise next week on

Maritime Careers / Shipboard Positions Maritime Contracts Navigation Pipelines Port Authority Ship Electronics Ship Repair Ship Simulators 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: 0.2882 sec (3 req/sec)