Data processing: financial – business practice – management – or co – For cost/price
Reexamination Certificate
1999-05-04
2003-09-23
Dixon, Thomas A. (Department: 3629)
Data processing: financial, business practice, management, or co
For cost/price
Reexamination Certificate
active
06625584
ABSTRACT:
CROSS REFERENCE TO RELATED APPLICATIONS
Not Applicable
STATEMENT REGARDING FEDERALLY SPONSORED RESEARCH OR DEVELOPMENT
Not Applicable
SEQUENCE LISTING
Not Applicable
BACKGROUND OF THE INVENTION
The present invention relates to the field of option pricing and contracting of shipping space. Container freight rates, in the US import/export trade are highly cyclical due to the participation of foreign flag carriers with lower operating costs who are constantly setting rates, negotiating volume discounts, changing rates of container shipping space based on availability, changing rates of shipping container space often based on commodity. For example, when carriers have shortage of container space and equipment they routinely increase freight rates. Similarly they routinely lower rates when they have surplus equipment in one region of the world to reposition their container equipment; this process is routinely used to tackle container imbalance and is the container carriers' form of yield management
Through Apr. 30, 1999 the Federal Maritime Commission, Washington D.C. based on the 1984 Shipping Act was responsible to ensure that the container carriers do not increase freight rates arbitrarily and without due cause. The US Government has deregulated the container ship industry, which operated within conferences since 1916 and had modified itself in 1984. Now the Ocean Shipping reform Act of 1998 will allow the carriers to negotiate privately. This shall allow shippers of large cargo volumes to enjoy advantageous freight rates by negotiating privately. The small shipper will seek to attain economies of scale by booking their container cargo through third party “Infomediaries” in order to become part of a larger buying block for lower prices, because only limited number of shippers will enjoy deeply discounted container rates. Until now there was no suitable way to minimize these drawbacks and enable the shipper to enjoy competitive freight rates without cargo volume. The shipper is requesting container space at a certain price from the platform referred to as “Maritime Freight Option” and the carrier bids on the cargo volume not knowing the cargo source. The shipper does not compromise their relationship with any carrier who may dominate particular trade and fear any form of reprisals.
Option contracts (“options”), are known in other fields as a way of locking in a particular purchase price for a given commodity. Because of this, buyers to minimize the risk of rising prices can use options. One of the most widely known types of options is the covered option to purchase stock. The issuer of this type of option owns a number of shares of a particular stock. The buyer of this type of option has the right to purchase, from the issuer of the option, a predetermined number of shares of the stock, at a predetermined price, at any time before the option expires. For example, if A owns 1000 shares of UVW stock, A can sell an option to B that gives B the right to buy A's stock for $50 per share at any time before a predetermined expiration date. If the option is exercised, the seller receives the pre-agreed purchase price in exchange for the stock. If the option expires unexercised, the seller retains the stock and can sell another option on the same stock.
Covered options are not limited to the stock market—they have been used to purchase various other commodities as well. For example, if A owns an ounce of silver, A can sell an option to B, for $0.50, which gives B the right to buy A's ounce of silver for $5. If, before the option expires, B decides that he wants to buy A's silver B exercises his option and pays A $5 for the silver. If B decides that he does not want to buy A's silver, B does nothing. Because B is not bound to buy A's silver, if the market price of silver falls below $5, B will not want to exercise his option he will buy the silver on the open market. No matter what B does, however, A retains the $0.50 purchase price of the option.
Options are often used in areas where the price of the underlying commodity (such as the stock or the silver) is volatile. The option purchaser benefits by obtaining a guarantee that he will be able to buy the commodity at a price that he can afford. The option seller benefits by receiving the purchase price of the option.
Until now, however, there has been no acceptable way to minimize the risk of fluctuations in containerized freight rates. In particular, as far as we are aware, booking options to engage container space have never been sold on an auction platform. Moreover, no systems have been developed for determining prices for options on container space, and keeping track of the sale and exercise of those booking options.
SUMMARY OF THE INVENTION
The present invention advantageously fills the aforementioned deficiency in the prior art by providing a method and program for pricing, selling, and exercising options to engage shipping container space.
The invention advantageously enables shippers, for a cost transaction fee, to lock in a guaranteed price at which they can engage container space, without financially committing themselves to irrevocably engage the container space, without accepting any responsibility for delivering minimum volume, without making any payments for the container space engaged and without putting the full tariff rate of the container space at risk in case the customer's commodity is not ready for shipment.
The invention also advantageously provides the seller with an opportunity to profit by selling options to engage shipping container space worldwide utilizing the power of the Internet to offer global shippers real-time results. The international shipping industry like the global financial markets is functioning 24 hours. When the US markets close, Asia is opening, when Asia closes, Europe is still working. The Internet is able to deliver real-time yield management to the sellers and simultaneously provide real-time price/inventory management to the advantage of the global shippers. The American industry is going global as marketplaces are consolidating, NAFTA is an example of such continued consolidation and companies such as Home Depot are entering new markets.
A shipper has diversified markets. For example, Home Depot will expand to embrace new markets and will ship containerized cargo worldwide. However, it is reasonable to assume they will be unable to safely commit substantial cargo to any one carrier. There are thousands of such shipper transactions worldwide that shall benefit from the service.
In particular, one aspect of the present invention is directed to a method of pricing options to engage container space. This method includes inputting information specifying where a customer wishes to load from and where he wishes to discharge at, type of equipment required, type of commodity required, type of service sought and at least the minimum transit time that the customer desires. A price for an option that gives the customer a right to engage container space to ship cargo from the origin to the destination within a desired time is calculated and output. The purchase price of the space engagement is one of the terms of the option.
Other aspects of the present invention are directed to a computer program and an apparatus corresponding to the method previously described and to an embodiment using a central controller and a number of agent terminals.
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Gooley, Toby; How to choose an ocean carrier; Here are some practical guidelines for evaluating steamship-line services; Apr. 1992; Traffic Management, v31, n4, p83A(4); Dialog copy pp. 1-4.
Bains Jatin S.
Bains Surinder S.
Davies Livingston
Dixon Thomas A.
Livingston Davies
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