Colossal container ships represent a $500 billion industry, which carries 90% of the world trade on its broad back. Its trade routes connect more than 150 countries, forming a logistical network that is staggering in its scale and complexity. But like any other old and big system, this industry has nagging weak spots – such as a lack of transparency and inadequate accountability between counterparties.
In a stable market, these flaws can be accommodated, but as soon as the threat of volatility presents itself, the feet of clay quickly begin to crumble beneath the container giant.
And as we’ve now seen, a spike in bunker fuels costs in 2017-18, driven by the rally in crude oil prices, has shaken the industry, challenging the viability of the existing system. For example, the average monthly price for Rotterdam delivered 380 CST fuel oil jumped by 46.2% from $321.10/ mt in October 2017 to $469.50/mt in October 2018. Naturally, voyage costs for container vessels spiraled up along with fuel prices, turning freight trading between container carriers and their clients into a nightmare of bunker surcharge calculations, void sailings and increasingly strained relationships.
The ultimate result – a loss of time and money as well as growing uncertainty for almost everyone involved. And considering the upcoming IMO 2020 sulfur cap regulation, which may bring an extreme volatility in bunker prices in the new decade, current troubles may just be a warm up.
So, now could be the perfect time for industry players to look into alternative forms of shipper-carrier contracts. The ideal solution should provide transparency into voyage costs, managing exposure to bunker price volatility as well as ensure accountability via an efficient trade platform.
The best way to achieve that lies in the marriage of two concepts that the container market is yet to fully embrace – index-linked freight agreements and smart contracts in the blockchain environment.