4 Tips to Overcome Common Ocean Shipping Procurement Challenges
Jan 14, 2020
Procurement of ocean shipping services is the activity of sourcing and procuring not only the best ocean freight rates, but also the best shipping services amongst the various carriers available in the market in line with the requirement of your customers.
Whether you are a BCO (Beneficial Cargo Owner) or a Freight Forwarder/NVOCC, you are under endless pressure to ensure that you can procure ocean shipping services that give you the best rates, service, capacity and reliability.
For many, procuring ocean shipping services is a challenge. However, with meticulous planning, preparation and market intelligence, one can overcome these challenges:
1. Hidden costs
2. Choice of carrier
3. Capability analysis
4. Service reliability
5. After sales service
Here are four tips on how to overcome ocean shipping services procurement challenges.
1. Weigh your options
In the case of procurement of ocean shipping services, having options means everything. By options, we suggest choosing the right carrier, which is capable of not only offering, but also providing the right service at the right price for your shipments.
There are several carriers that may be able to offer cheaper rates than you need. Remember, however, not everything is or should be about the cheapest rates.
Rates without service reliability or space guarantee could end up meaning nothing.
Apart from the issues with rates, one of the main challenges that shippers face as part of procuring ocean shipping services is unraveling the various costs involved in a freight shipment.
While it may seem to you that some carriers are offering better rates than others, what you may be missing is the fact that the carriers offering these cheap rates may have some hidden costs. These hidden costs typically only come to the fore when the shipment needs to be released at the destination.
This is where market intelligence and thorough understanding of the carriers and their service patterns come into play. You should weigh your options in terms of what type of rates, terms of contracts (long-term, short-term, quarterly, or capped rate contract), and services you need to procure from the carrier.
You need to have the knowledge and understanding of the carrier’s operations as well. It will reveal certain vital information such as where the carrier actually needs their containers, what size/type is required at the destination, etc.
Remember that if a rate is almost too low to believe - that usually is the case and it likely won’t hold up throughout the contract period.
2. Choose Wisely
The proliferation of container shipping alliances in the market has its pluses and minuses.
If you are a global BCO or Freight Forwarder/ NVOCC, the chances are that you will be shipping with two or more of the global carriers, which means you work with one or all of the alliances.
You have the option to pick and choose the best carrier with the best service. If chosen carefully, you can end up working with the best carriers from each of the four alliances.
For example, if you take Ocean Alliance, you have the option to work with CMA-CGM, Cosco, OOCL, Evergreen.
Say you pick CMA-CGM and OOCL as being the best option for you, but if something happens to the ship (berthing delay, skipping a port, etc.), it can affect both these lines.
But if you choose CMA-CGM from Ocean alliance, MSC from 2M, MOL from THE Alliance, you are spreading your risk as none of these lines are in the same alliance and may not face the same problems at the same time.
On the flip side, if you choose one or more of the carriers from within the same alliance, you may be exposed to some common problems.
For example, if there is a problem with blank sailings, delays at the port, or other scheduling problems, all lines will be affected. Why? Because they are all literally in the same boat.
So, choose carriers wisely and spread your shipments as best as possible.
3. Consolidate and Gain
Survival of the fittest is something that applies very much to the shipping industry. One of the ways you can be the fittest is by consolidating your volumes.
Shippers with bigger volumes, naturally, enjoy some more benefits than those who don’t have such volumes. Consolidated volumes may enable you to demand more attention and better service from the carriers. Remember, consolidated and steady volumes are also advantageous to the carriers as they can have a guaranteed base load.
This also means that you can negotiate a longer validity with the carriers. It will help you avoid or at least manage market volatility and freight rate fluctuations during your shipment period.
If you have a large volume but are unable to consolidate or don’t know how to, here are some tips on how to consolidate your volumes.
If you don’t have big volumes, you can still minimize the risk of container-rate fluctuations using this example.
4. Go Digital
Customers are increasingly turning to online freight platforms. E-sourcing tools, real-time track and trace, and freight benchmarking services allow them to:
1. Develop a digital procurement strategy that will benefit them in the long run
2. Achieve visibility in terms of shipment tracking so they can take alternate steps in case of any delays (like using air freight to supplement goods that may not reach the assembly line in time due to delays in sea freight)
3. Create metrics for measurement of the service offers
4. Analyze the service proposals and how it fits into their requirements
5. Access contract rates on a real-time basis for the various modes of transport and service types
6. Achieve visibility and transparency in terms of freight charges, surcharges, etc. to avoid any hidden costs
7. Avoid any invoicing errors
The procurement of ocean shipping services plays a vital role in the entire supply chain.
Companies that have set structures, automated tools, and practices for procurement will be able to assess their options, adjust their priorities and respond suitably to the ever-changing needs of this dynamic market.
An excellent ocean shipping service is one that is sustainable in the long run for both suppliers and shippers in the interest of maintaining their relationship and business.