Drewry proposes longer term, index-linked service contracts

LONDON shipping consultant Drewry has advocated shippers and carriers should signed longer-term service contracts, pegging rates to container indices - such as Shanghai's - to reduce instability and price volatility.


Drewry Supply Chain Advisor division director Philip Damas told American Shipper that long contracts, ranging from 18 to 24 months, can help "provide more stability and predictability in the shipper-carrier contractual relationship, rather than the typical 12-month contract."


It said pegging service contracts' rates to container rate indices could be a solution to the problem of pricing instability, reported London's International Freighting Weekly.


But those opposed say it might be artificial to fix rates for two years and that pricing could become out of sync with market changing market pressures.


Some also worry that one of the contracting parties may force the other to re-negotiate terms before the end of the contract.


But Mr Damas said using an independent index to suggest when the rates in long-term contracts should be reviewed by shipper and shipping line could solve these issues.


"Provided the contract is backed by mutual obligations such as volume commitments and service guarantees and contains tight contractual language, this pricing mechanism has the benefit of providing stability for both parties.


"It avoids unacceptable big surprises during the period of the contract and reduces opportunistic temptations for either party to walk away from the contract."


Agreeing, The Containership Company (TCC) said it was considering linking its contracts to container rate indices. TCC marketing chief Lars Jensen said customers had been positive about the suggestion.


It said this might help stop carriers finding ways to cancel contracts if market prices suddenly increased and shippers were doing the same as prices fell.
(Source:http://www.schednet.com)