Multiyear contracts underpinned by adjustable freight rates are moving into the Asia-Europe trade and may reach the trans-Pacific next year.
Maersk Line says it already has signed such pacts with some European importers and hopes to start using the mechanisms being developed for trans-Pacific markets in multiyear contracts next year.
The rate levels are indexed to rates published by the U.K.-based Containerized Trade Statistics. The carrier plans to use the new index CTS will start publishing for dray and reefer cargo on various trans-Pacific trade lanes in July.
“We have seen renewed interest in discussions surrounding longer-term contracts on the trans-Pacific. While a portion has matured in to contractual agreements, others remain active in the exploratory phase. A key component in these discussions is a reliable and accurate index that is a reflection of the market. Given the positive reception by customers to CTS in other geographies, we would welcome the broadening of CTS’s scope to include the Asia-to-North America trade,” said Bill Woodhour, Maersk Line’s senior vice president of North American sales.
CTS was established last year as the successor to the European Liner Affairs Association that would collect information on shipping for use by its carrier members and others in the supply chain.
Shipping lines view multiyear contracts as a way to achieve revenue predictability and stability, said Bob Sappio, senior vice president of Pan-American trade at APL. He said some customers are asking for multiple-year contracts indexed to third-party indexes. “Nobody wants to go through the negotiations every 12 months. That’s insanity,” Sappio said at a March meeting among carrier members of the Transpacific Stabilization Agreement and their shipping customers.
Carriers and shippers have been searching for a reliable, neutral rate mechanism for the past year. Clarksons and the Shanghai Shipping Exchange have pressed the idea of using container freight derivatives to reduce spot rate volatility. But few operators have bought into the idea, and carriers and shippers at recent industry meetings have outright rejected the idea of basing rates on the SSE’s Shanghai Containerized Freight Index.
And Drewry Shipping Consultants, whose Container Rate Benchmark covering the Hong Kong-Los Angeles trade goes back to December 2005, last week introduced a global index of rates covering 11 major east-west trades, in partnership with Cleartrade Exchange, an electronic marketplace for freight and commodity swaps.
CMA CGM said at an industry meeting in London last month, hosted by Containerisation International, that its idea of long-term contracts that include a “market adjustment factor” was being “well received by customers” but no such contracts had been signed yet.
The new indexes for the trans-Pacific are part of CTS’s expansion of coverage to all global trade lanes. “We are in the process of expanding what we do from Europe,” CTS CEO Rod Riseborough said. “We are getting the data from the lines now.”
CTS already publishes rate indexes for the trans-Atlantic trade between Europe, Canada, Mexico and the U.S. and will start publishing various trans-Pacific indexes in July.
Risborough said several carriers are discussing the use of various CTS indexes as the basis for multi-year contracts. “We’ve also had three European-based shippers come to us to ask if we can give them the index for 30 to 40 different trades,” he said.
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