By Guest writer 23/08/2012 Questions remain, however. Can containerised freight really be classed as a commodity? And is the industry ready and willing to fundamentally change the way in which capacity and prices are secured?Shippers repeatedly call for less volatile pricing. This is understandable, considering their margins can be decimated by the rollercoaster ride of spot rates. The carriers themselves seem incapable of controlling the rapid fluctuations in pricing. So, can financial tools from other ‘commodities’ help?Well, why don’t shippers and freight forwarders arrange more traditional service contracts with carriers? Surely, this would give shippers security and carriers steady reliable volumes, enabling both to plan ahead and set a sustainable pricing structure. Set over a defined period with volume commitments and agreed service levels and parameters, plus a fixed freight rate, this is the traditional way of ensuring some stability for shippers.The problem, however, seems to lie with the nature of the contracts. For a start, often the legal status of these contracts is questionable, as is how enforceable they are. Secondly, volume commitments are not widely enforced and ocean freight service levels barely register as they are insignificant compared to price. Finally, the rate agreed between the counterparties can severely harm relationships as one party inevitably loses out as rates climb or sink.When spot rates move higher carriers seek to benefit and they come under pressure to increase surcharges in order to guarantee space. Conversely, if spot rates fall shippers become desperate to move volumes to rivals that offer cheaper rates.This was clearly demonstrated in 2010 when a sudden shortage of capacity saw rates rise rapidly. Lloyd’s List reported the ‘tearing up of contracts’. There have also been many instances of shippers’ cargo being ‘delayed at the port’ coinciding with pressure from carriers to renegotiate the contracts. It appears that win-win deals do not really exist in competitive, ‘commoditised’ markets.Linking a service contract with a carrier to an index is certainly a way of ensuring neither shipper nor carrier is a major loser or winner against the prevailing market conditions. Indices such as the Shanghai Containerised Freight Index (SCFI) are now pretty firmly established and respected and can provide a basis for index-linked contracts.David Briggs, senior manager, container freight derivatives for TSC Container Freight is a keen advocate for extending the indexing of rates forward to the futures market, allowing shippers and/or forwarders to hedge rates well into the future. His company already offers a hedging facility, based on indices and he says that interest is growing rapidly.“The container industry continues to struggle with massive rate swings, problematic contracting procedures and unreliable forecasting. Innovative products such as index-linked service contracts and hedging tools are now available that allow shippers and carriers to agree stronger commitments and fix their freight rates without placing undue stress on their commercial relationships,” he explains.Briggs highlights that some 65% of dry bulk is now hedged and that containers have the potential to go the same way.Using a clearing house inLondon, shippers would for the first time be using a paper market rather than a physical market. Briggs says this would help all shippers plan well in advance with security of rates for specific volumes.“This is a risk management tool that benefits both carriers and shippers” he argues. “The rates available in the futures market are very competitive and shippers have the opportunity to ensure the rapidly changing spot market does not affect their margins. Carriers have the benefit of guaranteed volumes at guaranteed rates for a portion of their capacity, helping them to plan capacity more effectively.”So if hedging is such a win-win solution, why are shippers and carriers not flocking to embrace the scheme?The Loadstar asked a selection of medium-sized shippers and forwarders their views on hedging in a virtual ‘paper’ market and the response was mixed.Although all agreed stabilisation of rates was highly desirable, many expressed a fear that involving financial institutions would not only lead to a drain of money away from the core industry to ‘financial gamblers’ but also would require expertise they just didn’t have in negotiating hedging contracts.However, the biggest elephant in the room when considering hedging rates is the prospect of major penalties if the volumes are not fulfilled. Hedged contracts have no room for negotiation once the deal is done. If the shipper wishes to lower volumes or delay shipments as inventory demands change they would face hefty penalties for any hedged volumes that are not fulfilled.Briggs accepts that hedging is not the way forward for all shippers, but he points out that hedging 100% of required volumes is not the idea anyway. He explains: “Shippers with steady container freight demand should look to hedge a proportion of their future requirements. This gives the flexibility to alter volumes as needed.”Whether the industry will come to accept index-linked contracts and will then push one step forward to future hedging of rates is questionable. But at a time that shippers are increasingly exasperated with rate fluctuation, it may develop into a tool that could benefit the industry as a whole. By: Dan March, logistics specialistIncreasingly volatile rates on the world’s major ocean freight lanes is an ongoing concern for shippers and freight forwarders.Multinational forwarders like DHL are carefully considering the use of indexing tools, in conjunction with customers and carriers, to smooth out rate volatility and provide a more stable environment.Yet, a small but growing number of companies are creating and offering a more structured paper-based, index-linked facility, including options for full hedging of future volumes and rates.
Edited 1 times. Last edit by Adam Campbell on 18th August 2016 10:50pm 1Sign inorRegisterto rate and replyShow all comments (8)Jeremiah Moss Software Developer 3Sign inorRegisterto rate and replyJulien Cuny Co-Founder, PIXYUL4 years ago” Every year for the last decade some expert or other has claimed it was the last year/generation of consoles. And yet the current generation has outsold the previous ones and is doing very very well.”Well it’s completely different, he’s not saying this is the last generation because console will die (like we heard a lot few years back)….he’s saying this is the last generation because the new console will be from the same generation than the previous one.It’s a software compatibility statement not a Doomsday scenario about consoles not selling anymore. 1Sign inorRegisterto rate and replyJon Festinger Faculty & Prof. of Professional Practice (SFU), Centre for Digital Media4 years ago Love how he is just known by his rockstar name as “Greenberg” only. Sort of like “Prince”. 😉 Edited 2 times. Last edit by Julien Cuny on 18th August 2016 4:50pm 11Sign inorRegisterto rate and replyAdam Campbell Product Manager, Azoomee4 years ago We’ve been tending towards this for a long time, but its finally happening. Consoles are not finished, they’re just changing format and that includes the likely end of any clear generation. The Scorpio is technically *two generations ahead of the Xbox One but it will pretty much play the same games and use the same ecosystem. Its going to feel like a strange transition but it makes sense. This is the last console generation – GreenbergHead of Xbox marketing stresses company’s commitment to compatibility, backtracks on pledge of no exclusives for ScorpioBrendan SinclairManaging EditorThursday 18th August 2016Share this article Recommend Tweet ShareCompanies in this articleMicrosoftMicrosoft’s head of Xbox games marketing thinks this is the last console generation. Speaking with Engadget this week, Greenberg expanded on comments made earlier this year by Xbox head Phil Spencer, who had suggested foregoing the seven-or-so-year gap between hardware releases in favor of the continuous cadence of PC and smartphone releases.”For us, we think the future is without console generations,” Greenberg said. “We think that the ability to build a library, a community, to be able to iterate with the hardware — we’re making a pretty big bet on that with Project Scorpio. We’re basically saying, ‘This isn’t a new generation; everything you have continues forward and it works.’ We think of this as a family of devices.Related JobsSenior Game Designer – UE4 – AAA United Kingdom Amiqus GamesProgrammer – REMOTE – work with industry veterans! North West Amiqus GamesJunior Video Editor – GLOBAL publisher United Kingdom Amiqus GamesDiscover more jobs in games “But we’ll see. We’re going to learn from this, we’re going to see how that goes. So far I’d say, based on the reaction, there appears to be a lot of demand and interest around Project Scorpio, and we think it’s going to be a pretty big success. If the games and the content deliver, which I think they will do, I think it will change the way we think about the future of console gaming.”Greenberg also cleared up some confusion about the possibility of exclusive games for the Scorpio. Microsoft had previously said that all Xbox One games and accessories would work on all versions of the hardware, but has also referenced VR as a feature that would only be enabled by the Scorpio hardware. Greenberg explained the discrepancy as part of the company’s “promise and commitment around compatibility,” which essentially extends only to making sure Project Scorpio is backwards compatible with Xbox One and Xbox One S games or accessories.”The next thing was ‘Are you going to make games exclusively to Project Scorpio?’ And we said we’re not going to have console-exclusive games for Project Scorpio,” Greenberg said. “It’s one ecosystem — whether you have an Xbox One S or Project Scorpio, we don’t want anyone to be left behind, Now, with the power and capabilities we have, we’ll be able to do high-fidelity VR. Now, that space, we don’t think of that as console gaming, we think of that as high-fidelity VR, and so with the VR experiences those will be new things that you will get on Project Scorpio.”Celebrating employer excellence in the video games industry8th July 2021Submit your company Sign up for The Publishing & Retail newsletter and get the best of GamesIndustry.biz in your inbox. Enter your email addressMore storiesApple questions credibility of Xbox testimonyiPhone maker asserts that Microsoft did not produce evidence to back Lori Wright’s claims of unprofitable consolesBy James Batchelor 2 days agoEpic pushed for subscription-free multiplayer on Xbox ahead of Apple battleCEO Tim Sweeney told Xbox boss Phil Spencer that “certain plans for August” would create an “extraordinary opportunity”By James Batchelor 7 days agoLatest comments (8)Michael Werle Senior Engineer, Sony Computer Entertainment Europe4 years ago Oh +God not this again. Every year for the last decade some expert or other has claimed it was the last year/generation of consoles. And yet the current generation has outsold the previous ones and is doing very very well.I’ll believe it when I see it. 0Sign inorRegisterto rate and replyPaul Jace Merchandiser 0Sign inorRegisterto rate and replySign in to contributeEmail addressPasswordSign in Need an account? Register now. 2Sign inorRegisterto rate and replyMichael Werle Senior Engineer, Sony Computer Entertainment Europe4 years ago You’re right; I misinterpreted the details. (Well, TBH, I skimmed the article somewhat)Then again, this was done before when the PS2 was launched with (almost) full backward-compatibility with PS1 games.Of course, somewhat easier moving forward now because the current gen (XBone/PS4) is mostly just a repackaged bespoke PC rather than a completely bespoke hardware/software solution. Still console games tend to rely strongly on hardware assumptions so maintaining compatibility while providing significantly improved specs for future games is not going to be that easy. 4 years ago The seven year gap was actually highly unusual – previous generations were actually much faster. 3Sign inorRegisterto rate and replyEric Leisy VR Production Designer, Nike4 years ago I do understand the logic driving this concept of “the last console” but I’m not really sure I understand the target audience for this product. The last information I saw regarding the Scorpio was that it would be in the $1,000 range, which puts it pretty much in direct competition with the PC market. Console users are people who want simplicity and affordability in their hardware, most console users that I know would consider changing a video card or processor a fairly complicated process that they wouldn’t want to mess with. And then there is the pricing, consoles have obviously been on a skyward trajectory in terms of pricing, but it seemed like this latest gen being priced at 500 to 600 was really approaching the limits of what people would pay. I know of many console users who are still in the previous generation. And most people would argue if you’re going to spend $1,000 why not just get a PC, an open ended device not just tied to games…Perhaps the spirit of the console will be carried on in the world of handhelds from this point on, which maybe Nintendo already forsaw in the tea leaves as evidenced by their new system.. 4 years ago I agree with Adam in that this is just a natural evolution of console gaming. And to be honest I probably would have preferred for this to have started last gen due to all the games and accessories I acquired.