Major carriers express disappointment that customers have not been more enthusiastic. Lloyd's List reports
Shippers of containerised cargo are showing more interest in index-linked contracts but remain reluctant to put pen to paper and actually make a commitment.
Anecdotal evidence indicates that relatively few such contracts linking freight rates to an index that tracks price movements have been negotiated, to the disappointment of some ocean carriers that had hoped their customers would be more enthusiastic.
Major carriers express disappointment that customers have not been more enthusiastic. Lloyd's List reports
Shippers of containerised cargo are showing more interest in index-linked contracts but remain reluctant to put pen to paper and actually make a commitment.
Anecdotal evidence indicates that relatively few such contracts linking freight rates to an index that tracks price movements have been negotiated, to the disappointment of some ocean carriers that had hoped their customers would be more enthusiastic.
“We had expected to see more,” Maersk chief trade and marketing officer and management board member Vincent Clerc told Lloyd’s List.
The head of an Asian line also agreed that index-linked contracts “have not been runaway successes” so far.
“It’s a slow process,” another industry insider admitted, probably reflecting a natural tendency to steer clear of the unknown.
But neither are carriers and their customers opposed to the idea of designing contracts in which there is scope for rate flexibility.
“We are seeing more discussion about index-linked contracts,” said a senior executive. “They are gradually gaining momentum with bigger customers.”
Another agreed that interest was growing, particularly among freight forwarders, “who are asking more questions”.
Nevertheless, such contracts “are still not common practice”, with problems such as how to cope with seasonal fluctuations still to be resolved.
Another major challenge is to agree an index starting point that is fair to both sides and covers lines’ costs from the beginning.
When contracts were being negotiated earlier this year, shippers were aware that prevailing rates were very low and so were happy to lock themselves into those levels for up to a year.
“They knew they were getting a good deal and so had no incentive to sign index-linked contracts,” said one source speaking on background.
There are also concerns that the available indices are not always an accurate measure of trade fundamentals, including the contract as well as spot market.
Nevertheless, those firms keen to see more index-linked contracts are confident that they will eventually gain traction.
“Freight rate volatility will continue to be a feature of container shipping for some time to come,” said Drewry’s freight rate research manager Martin Dixon. “How industry participants adapt to this change of circumstances will be fundamental to the future of container freight contracting and shipper-carrier relations.”
His comments coincided with publication of a paper produced by Drewry and the World Container Index explaining how index-linked contracts can help mitigate the impacts of such instability.
Persistent freight rate volatility is forcing container shipping to consider alternative forms of shipper-carrier contracting arrangements that enable the contract rate to vary relative to an external index, the two firms said. Index-linked contracts are a response to the failure of traditional fixed-rate forms of contracting to provide the necessary space, volume and price protections.
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