The following is a supply Chain Matters guest commentary contributed by Cory Margand, Founder and CEO of SimpliShip an international freight marketplace created out of the frustration of today’s outdated shipping processes and underutilization of technology. We recently spoke with Cory Margand and Keegan O’Brien of SimpliShip and invited this guest blog contribution.
“Insanity: doing the same thing over and over again and expecting different results”
- Albert Einstein
Is anyone else sick of hearing about the doom and gloom of the ocean carriers?
The freight landscape has shifted and businesses are operating in new ways. Yet, our industry is making the same choices without considering the impact of this new landscape and expecting different results. Given the oversupply of vessels we are currently experiencing, there has been a lot of talk about the state of the industry due to some of these choices. Shippers must now wait and see how their rates will be affected by things like carrier consolidation. If we are ever going to see a change; the focus needs to shift to the process itself. Shippers must position themselves to have more control over their fate; rather than just the carriers. So, what should your business be doing differently?
STOP LOCKING ALL YOUR VOLUME INTO CONTRACTS
How it works today:
- Beneficial Cargo Owners (BCO’s) go out with a tender annually with volume by lane
- Carriers/NVOCC’s provide their bids
- BCO’s select their carrier portfolio based on price, capabilities, and performance
So what’s the problem? Quite simply no one can tell the future, especially in today’s highly volatile and changing global logistics environment. So, why would you lock all of your volume into a contract? As an example, in 2015, rates in certain lanes dropped roughly 50 percent after longer-term contracts were awarded. I wouldn’t want to have been the person responsible for negotiating contracts on behalf of the BCO (although they probably bragged to their boss how much they saved year on year). We are talking upwards of millions of dollars depending on volume! In other words, it’s never a zero sum game; either the carrier or the shipper loses out and loses out big!
START MAKING SPOT RATES PART OF YOUR STRATEGY
How the shipment tendering process can work:
- Non Vessel Owning Common Carrier’s (NVOCC’s) & Forwarders negotiate contracts with carriers
- Some of the larger shippers will enter into contract negotiations but still have a huge need for spot rates in order to fill-out required capacity.
- Small businesses procure spot rates continuously throughout their sell in cycle
Typically, small businesses rely on 1 or 2 Forwarders and rates are provided after multiple emails or phone calls. Unfortunately, that means there’s no leverage for the shippers, there are limited negotiations and it’s done in a total vacuum. The worst part is that once the rates are received, they hardly ever compared apples to apples; the shipper must now spend even more time figuring out which is the best combination of rates and service. Not to mention, this means more time required to track such information in spreadsheets or other applications. On the flip side, NVO’s & Forwarders are cold calling all day long in hopes they get an in- person meeting with a shipper at some point. I can speak from personal experience that the odds are stacked against the Forwarder from the beginning.
Now, I’m certainly not impartial, but I want to make it clear that it’s time for everyone in the industry to embrace technology to drive efficiencies and risk management for both shipper and carriers. Processes that create a losing situation for supply chain partners need to be eradicated immediately. With SimpliShip, shippers enter their air or ocean shipment information, post it and instantly connect with a network of pre-screened NVOCC’s and freight forwarders eager to earn their business. The marketplace is mutually beneficial, providing a centralized location for shippers to reduce costs and time; while NVO’s and forwarders benefit by gaining a new sales channel, low customer acquisition cost, and significantly reduced lead times to secure new business.
Visit www.SimpliShip.com to sign up or learn more.
Disclosure: Neither The Ferrari Consulting and Research Group nor the Supply Chain Matters® blog have a current business relationship with SimpliShip.com. We share this guest commentary for purposes of market education.