With mergers and alliance formations limiting carrier options for ocean freight procurement, shippers now have to adjust their bid strategies to achieve the best possible rates and service levels. For those of you tasked with managing an organization’s ocean transportation spend, you are no doubt aware that bid season is rapidly approaching. In order to make sure you are getting the most out of your procurement strategy, I’ve put together a list of best practices to better prepare your organization prior to executing an ocean RFP:
Understand shipping alliances and vessel sharing agreement
While there are about a dozen carriers of significance still remaining, in reality they are spread across three alliances. Thus if contracting with two carriers in the same alliance, vessel service issues could impact both carriers. Furthermore, with shared vessel agreements, it is entirely possible that each carrier’s service offering could actually be on the same vessel as one another, meaning you are really contracting with a single carrier. This is especially important to remember with high volume lanes. If two or more carriers exist on the same lane, you risk overlap within the alliance. Lane optimization should consist of a broader (relatively speaking) carrier mix and diversification across alliances to avoid overlap.
Bid design & carrier inputs
A fine balance exists when determining what information to request from carriers, for shippers have to be careful not to create an overly complex bid sheet that frustrates both carriers and your stakeholders. Requesting input from carriers (e.g. transshipment, Destination Terminal name, operating carrier of preferred service string) must be purposeful. This information should have the ability to be optimized and used to drive business decisions. Carefully crafted bid design is key to preventing downstream award rejections and costly operational issues.
Contractual obligations and carrier performance
Minimum Container Quantity (MQC) – Prior to the bid, it is crucial to understand how each carrier is performing against the current contract’s MQC. A shipper’s contract will often possess a minimum volume threshold clause with the carrier in order to obtain guaranteed space at a specific contractual cost. Failure to meet the terms of established commitments with the carrier will, in theory, result in a financial penalty. Understanding your position as a shipper and what obligations you’ll be held to is key, for it will impact your bid strategy and awards processes. A failure to be proactive by reviewing this information beforehand can lead to shippers being blindsided later in the bid.
Schedule reliability and transit time verification (ocean transit variability)
Carriers are typically responsible for inputting values into the RFP, but a process needs to exist for diligently reviewing the accuracy of carrier input to ensure transit time occurs as stated. Verification is crucial since carrier input can change, be entered incorrectly or schedules may be revised during the bid cycle. In order to receive agreed upon service expectations, shippers should conduct a thorough analysis of carrier options that is based upon performance factors such as verified transit times, schedule reliability, cost, and capacity.
Review how your door deliveries are procured and managed
With significant over-the-road truck capacity shortages still plaguing the market in many regions, ocean carriers prefer to focus on the port-to-port moves and are less interested in delivering all the way to the inland destination (door). Shippers can gain better control and ensure priority by having a direct relationship and involvement in how transport to and from doors is procured. Start with developing a strategic partnership with your drayage provider. By taking ownership of this relationship away from the steamship line, you can gain deeper insight and better cost control within your supply chain. As a shipper, you can nominate a predefined carrier with an agreed upon rate, thereby allowing you to roll the delivery/door cost into the ocean rate and then only having to deal with a single invoice.
Implementing the tips listed above gives your organization the opportunity to successfully execute an ocean transportation procurement bid smoothly. If your organization needs assistance with its bidding strategy, seek the advice of transportation experts who possess the detailed knowledge required to optimize your procurement event.
John Westwood is a Senior Manager for Chainalytics’ Transportation competency and has 17+ years experience in transportation sourcing and logistics management. At Chainalytics, John specializes in assisting global organizations in the development and implementation of transportation procurement strategies and international transportation spend management.
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