Contracting startup raises $8.5M to enforce shipper-carrier terms

Dive Brief:

The New York Shipping Exchange (NYSHEX) received an influx of $8.5 million in Series A funding from Goldman Sachs Principle Strategic Investments and GE Ventures, among others, American Shipper reported Tuesday.
NYSHEX was created to enhance trust via contracts between shippers and carriers. Penalties of 40% of the agreed rate for no shows by shippers and 35% for roll-overs by carriers will now be imposed for signers who violate agreed-on terms.
Five of the top ten carriers are alleged to have already engaged with NYSHEX, which expects to be up and running within the transpacific trade within the next six months, and with Asia-Europe trade by year's end.

Dive Insight:

Efforts to resolve the long-standing battle between shippers and carriers regarding rates and cancelations is the impetus behind the creation of NYSHEX. The contracting platform, like its freight marketplace cousins, seeks to address a lack of both transparency and efficiency that plagues the industry.

It's a vicious cycle stemming from a lack of trust. In times of need, shippers expect service at all costs, leading some to book multiple slots on the same route in order to guarantee transport, according to carriers. In turn, carriers suffer from no-shows, which has led some to overbook slots in anticipation of fraudulent bookings. When, in fact, all shipments show up, the carrier is forced to roll a shipment over to the next available transport option. Shippers argue this practice of overbooking leads them to overbook in the first place. The Loadstar reports this process costs both sides roughly $23 billion each year.

However, with an established contract system in place, the situation could improve, primarily in terms of transparency. Shippers know they'll retain a space exactly where and when they've booked it, while carriers will avoid the uncertainty of filling their TEUs. The NYSHEX platform would allow for both sides to come together and avoid this issue.

Yet, those who handle bookings for shippers have expressed concern over the system, arguing the contracts work more in favor of carriers, and that roll-over fees of 35% are too low, based on the degree of disruption they cause, according to The Loadstar.

Investors disagree, calling NYSHEX an alternative to technology-based disruption. The same high level of technology and digitalization will be part of the NYSHEX system, they claim, encouraging stability in a highly uncertain industry, where collaboration is long overdue.