APL says multi-year contracts stay at 5pc, and deals don't freeze rates

MULTI-YEAR service contracts - averaging two years - represent only five per cent of service contracts, if APL's experience is anything to go by.


In an interview Newark's Journal of Commerce, Pan American trade vice president Bob Sappio in charge of APL trade to North America and Latin America, said his company's experience showed that the popularity of the multi-year contracts has not increased.


Mr Sapio also said that rates rise and fall in the course of the multi-year contracts based on various indices, but only within a "narrow band".


"We have formulas that allow rates to move up or down in a narrow band - some are customer driven, some use a single third-party index or combination of indices, some use other macro-economic indicators," said Mr Sappio.


"For a certain segment of the market, longer-term contracts provide both service and rate predictability. Customers want service certainty and predictable rates - we can facilitate this in more thoughtful and intelligent contracts - rather than rate and volume agreements that have characterised much of the service contract process," he said.


"Obstacles include the starting point of the rate in a multi-year agreement, willingness of customers to pay for service specificity and service commitments, how do we index the rate and allow it to move - albeit in a narrow band, and which index or combination on indices is best to use. Lastly, are both parties willing to stay the course of the multi-year agreement even if the market moves well beyond what was envisioned - either up or down." Mr Sappio said.
(Source:http://www.schednet.com)