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            november 20, 2019

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Indiaexportnews.com

Dynamic pricing has potential for forward contracts between carriers and shippers

  22.10.2019    

An internet-based marketplace enabling ocean freight buyers and sellers to agree on binding forward commitments would make the existing spot market more efficient, according to maritime research consultancy Drewry.
Inefficiencies create supply chain uncertainty for shippers and also hurt carriers in terms of cost of sales and freight rate stability, according to a white paper released by Drewry with logistics software provider CyberLogitec.
"Our study concluded that many of the market's pain points could be addressed through a capability to flexibly buy or sell ocean freight services in advance, using a neutral, global platform," Drewry Supply Chain Advisors' head of e-business Philippe Salles was quoted as saying in a report by JOC Technology.
"Volume commitments and capacity guarantees would provide an early visualisation of demand to the market, thereby reducing the supply-demand mismatch and rate volatility, to the benefit of all market participants."
That opinion comes as evidence mounts that publicly available dynamic rates provided online by ocean carriers might be converging with contracts rates the lines offer directly to beneficial cargo owners (BCOs) or non-vessel-operating common carriers (NVOs). At present only Maersk Line, Hapag-Lloyd and CMA CGM offer instant quotes online, but others are expected to follow suit in the coming months, sources told JOC.com.
One critical element to understand, as it relates to online quotes, is whether the quotes are so-called "street rates" available to any potential buyer that registers an account with a carrier, or whether they are a set of managed dynamic quotes provided to specific buyers based on those buyers' characteristics.
In that scenario, a shipper moving 100,000 TEU annually would receive a different dynamic rate than a 100-TEU-per-year shipper, or a large volume shipper needing extra volume at precisely the same time as other shippers. Theoretically, the online rate would be driven by network dynamics on the carrier side as well, even if container lines are not quite at the point to factor those dynamics in completely.
Drewry's study also determined that forward spot buying technology would enable container lines to improve dynamic capacity management and increase vessel load factors.Forward contracts would protect shippers' margins.
For shippers, Drewry argued that forward contracts would "protect their product margins and provide an effective hedge against freight rate increases."
It said: "Together with space guarantees, enforced through a deposit scheme and vendor reliability scores, this would result in more stable and elevated service levels of their ocean providers that enable reduction of safety stock levels."
Maersk, for example, unveiled a digital product in June, called Maersk Spot, that guarantees shippers' boxes will be loaded.
"An industry fully functioning in a dynamic pricing environment may do away with the need for the elaborate, and at times cumbersome, contract negotiations," an executive at a top 10 container line told JOC.com. "However, Walmart and Home Depot will never go along with Bob's Corner Trade Mart having access to the same rate levels."
The trouble with comparing dynamic ocean freight pricing environments to those in other industries, such as airlines, is that the range of services offered by carriers doesn't vary as much, so there's less opportunity to differentiate on that service, the carrier executive said.
"In a normally functioning ocean market, there should always be a spread between contracted rates and spot rates, or those available on a dynamic portal. In a sick market, the narrowing rate spread is concerning to all."



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