Many organizations are consistently missing the mark with their transportation spend due to contract rate increases and fluctuating spot rates on ocean freight lanes. The lack of visibility needed to keep your ocean freight management in line with your forecast presents additional challenges for shippers. Also, due to a larger emphasis on domestic spend, international spend – particularly full container load – often fails to receive the detailed focus it requires to avoid a busted budget.
For organizations that periodically need ocean transport, this can prove problematic as rate competition and a shipper’s ranking amongst carriers is directly tied to the number of containers an organization controls and ships with that carrier. Furthermore, as I mentioned in a recent blog, the ocean carrier options continue to be affected by mergers and acquisitions, which limits competition and leverage. As a result, smaller organizations sourcing ocean transport find themselves paying elevated rates due to a lack of buying power in the market.
Changes in spot rates have created recent problems
According to a recent Drewry report, shippers have experienced a significant spike in eastbound transpacific spot rates in recent months, with rates having reached their highest level in years during September. Conversely, the opposite is occurring for spot rates from Asia to Europe, which is somewhat of an anomaly considering both trade routes deal with similar economics and carrier options.
Source: World Container Index Assessed by Drewry
There are several factors contributing to the surge of transpacific rates, including a strong peak season, larger vessel sizes creating capacity imbalance, and a sense of urgency to move inventory quickly to avoid potential tariff complications. As a result, many contract shippers’ cargo has been passed over (or “rolled”) by carriers seeking additional profits from higher spot rates. Transpacific rates are expected to cool down in the coming months but still remain higher than the previous year.
Strategies for maintaining budget accuracy
With the volatility associated with higher rates, organizations must consider methods available to receive the best possible rates and access to category expertise and intelligence. Here are a few tips to help smaller shippers gain competitive value amongst ocean transport providers:
- Collaborate to gain marketplace leverage: In an environment like a consortium, organizations can benefit from marketplace leverage with collective volumes and receive incentives typically granted to large shippers such as fixed rates for ocean and guaranteed capacity with the carrier of choice, thus gaining visibility in a crowded market. Furthermore, by gaining access to other shippers, the opportunity for idea sharing through an independent trusted advisor allows organizations to work together in a model that provides positive results for all parties involved.
- Utilize business analytics: Utilizing centralized business analytics provided through dashboard technology allows organizations to possess a better understanding of their spend and helps companies measure and drive better results.
- Alleviate stress through risk management: Implementing a consistent strategy comprised of pre-arranged service agreements and contracts free from peak season surcharges and general rate increases allows shippers to minimize negative outcomes while keeping them on budget.
These strategies, along with some advanced steps your organization can employ, provide multiple benefits and allow your company to conduct its sourcing event with a higher level of confidence. For organizations seeking a strategic partnership, Chainalytics’ Ocean Buying Group offers various ocean procurement options for small to medium-sized shippers, including cost-efficient single shipper bid and consortium type bids. Taking advantage of the resources available will help your organization’s bid run smoothly and deliver the results needed to remain competitive.
John Westwood is a Sr. Manager in Chainalytics’ Transportation competency and has 17+ years experience in transportation sourcing and logistics management. At Chainalytics, John specializes in assisting global organizations implement transportation procurement strategies as well as international transportation spend management.
