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toring its transit so the end customer has visibility into the shipment’s arrival. But the real problems occur before the vessel leaves the dock.

Shippers, freight forwarders, and non-vessel–operating common carriers (NVOCCs) will reserve slots, only to abandon the booking. Maybe they’ve found cheaper rates elsewhere, the forwarder couldn’t get the box to the carrier on time, or there wasn’t sufficient freight to be stuffed in the box to justify the cost of tender. To compensate for the lost business, carriers use a practice called “rolling,” where a shipper’s cargo is abruptly moved to another sailing in favor of a more-profitable customer. Shippers respond by double-booking their shipments, reserving slots, sometimes on two sailing strings, just to get space aboard one. Carriers aid and abet the process by overbooking their capacity.

About one-quarter of all ship bookings never material-
ize because users find cheaper rates elsewhere, according
to the New York Shipping Exchange (NYSHEX), which
has created a digital capacity-allocation platform sup-
ported by real-time market data and binding contracts
with incentives for shippers to ship on the contracted
vessel and for carriers to make the contracted capacity
available. No-shows cost carriers about $23 billion a year,
NYSHEX has estimated. (The group did not respond to
requests for comment.) The cost of repositioning empty
containers to locations where they can be filled with
cargo represents another $15 billion to $20 billion
hit, according to consultancy BCG (formerly Boston
Consulting Group).

Much container volume moves under contract. However, contracts have proved difficult to enforce, and as a result, there are no repercussions for violating them. Though steamship lines may be convinced their customers are at fault, suing them and risking the loss of future business is another matter. “No one wants to end up in court to live up to the contractual obligations,” said Craig Fuller, founder of TransRisk, a digital platform expected to be rolled out later this year that would allow participants to trade futures contracts for spot truckload pricing. Like the liner trade, the U.S. truckload market suffers from delivery variability caused by shippers and truckers kicking one another to the curb in search of lower or higher rates.

COMMON-SENSE STUFF

One obvious approach to ending the chaos is to develop ironclad and enforceable contracts that hold shippers and carriers financially accountable for failing to live up to their obligations. At a recent industry conference, Patrick McGrath, a senior vice president at German liner Hapag-Lloyd A.G., said that financial incentives should exist, but that carriers must first be in a stronger position to insist on them.

A tailwind might be found in the development of blockchain technology, a distributed ledger that creates a transparent and indelible trail of each transaction. At the core of the blockchain concept is so-called smart or self-executing contracts that are converted to computer code, stored, and supervised by a network of computers running the blockchain. A smart contract has binding enforceability and has a built-in financial escrow that pays out to the damaged party whether it be shipper or carrier, according to Fuller of TransRisk, who also co-found-ed the “Blockchain in Transport Alliance” (BiTA), a multi-industry group tasked with developing blockchain standards.

BiTA members are working to perfect smart contracts that would govern the penalties and commitments from ship lines and NVOCCs, Fuller said. A first draft of the language should be published sometime in the third quarter, he said.

Liners could take a page from other industries like airlines and hotels and offer discounts in return for shipper flexibility on sailing times, said Philip Damas, head of supply chain advisers at U.K.-based consultancy Drewry, who spoke at the conference along with McGrath. At the same time, users could also pay more for guaranteed space, Damas said.