Perhaps the most difficult aspect of container shipping is deciding what’s the right price for the service of moving a box from one destination to another. Ocean carriers, shippers, forwarders and NVOs all have a different opinion on what’s a fair freight rate. The AJOT sat down with Mike Vaccaro, vice president Northeast & Southeast Regions for Hyundai America Shipping Agency, the US arm of Hyundai Merchant Marine, to talk about service and indexed contracts, NVOs, repositioning and the rest. By George Lauriat, AJOT Since the onset of the “Great Recession” and subsequent collapse of the shipping sector in late 2007, nothing related to ocean freight rates has been quite the same. There has been no period of “business as usual.” The entire shipping industry has risen and fallen in dramatic fashion and trying to bring stability to the process has been elusive for all parties. Finding the right price for services rendered in ocean carriage has been difficult in chaotic, economic times. But Mike Vaccaro, vice president Northeast & Southeast Regions for Hyundai America Shipping Agency, told the AJOT that he sees the shipper-ocean carrier negotiation process as an “evolution”. “There is certainly an evolution underway. Everybody is adapting to the new order relative to bigger ships and slow steaming, so new ideas put forth like indexed rates are possible. Floating bunkers [bunker surcharges] as part of the concept we are all in this together – share our pain, share the gain – for features out of our [ocean carrier] control,” is now a regular part of our industry’s service contracts. Leap of Faith – Indexed Contracts The big new item on the table for shippers and ocean carriers is the so-called indexed contract. “Indexed service contracts for two or three years are a positive step for the industry,” Vaccaro told the AJOT. “We ax fight every year…this year my year, your year next. Does it make any sense? But it [indexed service contracts] takes a big leap of faith from both sides.” “It means that the transportation and logistics might go out and get an indexed service contract – but what happens at the next level up when the competitors start getting lower spot rates and our [indexed] rates are now uncompetitive on the shelves?” Equally agreeing on the width of the “narrow band” of the indexed contract, and components figured into the basket that makes it move up and down is a challenge. BCO volume commitments are one element that carriers are worried about. And it is easy to see how shippers can get caught short of fulfilling a volume commitment. “Nearly all BCOs hedge their volumes,” Vaccaro said. “Say a BCO has 10,000 boxes, it may decide to commit 8,000 to a service contract. We agree, but we [ocean carrier] want this spread over 52 weeks, and the BCO says I don’t ship that way. Most of my volume is in August, and they book for maximum peak volumes.” This means the shipper might have a shortfall on their commitment but not necessarily one that the ocean carrier can’t prepare for. But understanding the volumes is important to the ocean carrier planning. Knowing the volume commitments helps establish vessel rotations and how port allocations work out. “It makes a difference of whether Shanghai or Yantian get a bulk of the space,” Vaccaro related. There is another more subtle change in the business of shipping; the rhythm of the shipping cycles is gone. Is there a real Peak Season anymore? According to Vaccaro, there hasn’t been much “peak” in the Peak Season. “There was a small surge here, but many of our customers have flattened out their shipments [moving freight] more often, but as smaller shipments.” Vaccaro says toys, Christmas decorations and other “seasonals” are still moving [the same,] but it is not like previous Peak Seasons. For example, apparels and footwear are not being moved like they use to before the recession. The “flattening” this year may be due in part to shippers altering their deliveries in view of the potential of an ILA labor dispute on the East