International Shipping - 10 Key Current Considerations for Shippers / BCOs

As of mid of 2022 which by some is seen as end of pandemic, from trade perspective, and mainly end, or better said reduction of lockdowns. Consumers now have at discretion to spend their free money on goods (i.e., a subject of trade) or now “again” on services, entertainment or travel, even though with more hassle. We can slowly conclude that times of short capacities, super high ocean rates, industry dominated by shipping lines (i.e., a supplier’s market) is over...... or is it not??

Maersk Line that is one of the largest shipping line entity – as per 2021 Annual report (here) we see that out of total revenue of 61,78 Bil USD there is about 19,67 EBIT, i.e. profit. That represents some ~31% of profit margin, certainly one of the best industries performing and good for the government taxations.

To what degree did the shipping companies enjoyed their dominant position of the last 2 years and what are their plans to allocate their extra earned dollars now –> that is maybe a good story line for another article then now; in this article we would like to give some realistic views and recommendations to shipper/BCO community, i.e. those entities booking and paying for cargo transferred in ocean containers.

Now let’s zoom into the 10 most important areas and recommendations, some of them are old / new challenges from before the pandemic, some are escalated higher on priority list, and some are brand new.?

============================

1.????Ocean Rate – what do I decide for?

Your success starts and falls with a good or bad Ocean rate. Off course having large volume corporation (or group of companies) is putting you in better negotiation spot, but in recent years this was not relevant. In last 2 years it was a supplier market, i.e., ocean carriers were those who set conditions, and likely it is to stay to some degree.

Some good tips and best practises around your ocean rate and contacts:?

• A)???Have a central repository of your contracts for all carriers, even if the payers are diverse within your company or if booking parties are external (if you using booking agents). It is important that you keep this function centralized for overall utilization overview, monitoring and benchmarking and for running next tenders
• B)???For benchmarking – sign up with some of the benchmark data providers (like Xeneta or FreightOS) and stay on top what is happening and trending
• C)???Explore new types of ocean rates, some carriers gives interesting options of rate vs guarantee of loading, e.g. Maersk has right now some 5 types of rates (page 20): 1) "Twill by Maersk", 2. "Maersk Spot", 3. "Block Space Contract", 4. "Flexible Contract", 5. "Unlimited contract" ....
• D)???Self-billing – if you have technical capability and commercial strength – go for self-billing. It is always much easier to calculate your bill based on agreed prices rather than wait for a surprise. One way or another you need to run or introduce freight audit function , but self-billing helps your productivity costs halfway. Also consider outsourcing Freight Audit to managed service providers who work at scale. Consider e.g. ControlPay for this.

============================

2.????Realities of my carrier allocation

Related to your ocean rate is so called MQC or allocation of containers. There is slight difference here: Minimum Quantity Commitment (MQC) is a value on ocean contract header level where you as shipper (or BCO) commits to certain quantity of containers to ship with carrier, versus Allocation values are typically on a contract line level, i.e., on rate and it is an estimate from carrier of how much they can give you capacity per rate (per trade) within term. This is typically counted per month or seasonally. In Sum all allocations should be equal to MQC.

Now what does that mean? These figures are indicative of what total volumes you can count on. In theory if you don’t book out all, or if you book way too much within term, you should be penalized, but it is often not part of the contract and carrier would only take that into consideration for next term volume offer.

A good industry practice is to arrange your ocean logistics operations in two manners:

• A)???Using your TMS or your portal / visibility tool collect your monthly, mid-term or total term allocation fulfilment KPI, and do that globally (!!) – that way you know where you stand at certain point of times and can address operational issues with your carrier representative in quarterly reviews
• B)???Use these data as planning for your dynamic decision which carrier you want to use – this is applicable only to trade lanes that have multiple carriers or that allow secondary carrier (spot carrier). That way you can dynamically steer where you heading to in terms of allocation utilization. Many TMSs knows this dynamic allocation process.

Last but not least – recent trend in industry is to reverse flow of booking – i.e. create an ocean booking ahead of time based on your internal volume forecasting process (based on orders, contracted cargo schedules) and secure your space early on. And only later on do connect this “downstream” booking with upstream vendor booking (plan to ship) info. This has been proven to work for quite a few shippers to assure capacity and it brings new view on ocean booking data set – that is now kind of “supply item” in your overall logistics orchestration. Check e.g., Slync what they doing on this topic or E2open and their transporation forecasting tool.

?============================

?3.????How many of your bookings are rejected?

One of the key KPI in ocean shipping industry is the # of rejected bookings per trade lane. It is a very key that shipper / BCO monitors this figure independently and tight it up with average lead time to answer to booking request. Knowing the % of such cases gives shipper / BCO much better negotiation position and leverage with quarterly reviews or next contract terms. If your booking rejection rate is higher from 10% or response time more than average 48hrs, you are treated quite badly.

Best Practises:

• A) Use fully your TMS or visibility tool to monitor this metric tightly, if you did not implement/enable this feature yet, do it at soonest
• B) Refer to some external indexes for this figure. Unfortunentely there are not many, or this metric is hidden behind other one, like average lead time from booking request to loading - check this Shipping Index as example

?============================

4.????Understand your booking as transport capacity supply

This is new concept altogether. Shippers / BCOs need to start looking at confirmed carrier booking as “available transport capacity”. Traditionally if upstream process got updated (e.g., reduced Order amount, Vendor booking ready date postpone etc.), we did go ahead and cancel existing carrier booking because in our TMS it’s all sequential designed.

Let’s now imagine that your confirmed booking is not sequenced to any order, or shipment or vendor commitment. It represents available space that I can use for other cargo or other shipper who is in my portfolio or within regional vicinity. If this is fully understood, this can lead to “second hand” market with container capacity. Off course this is applicable to only certain scale of operation and to certain exposed origins / ports, but there it is where this brings biggest value!

Recommendations: On your critical tradelines or origins consider introducing bulk (aka "forecasted") bookings and manage them as a supply item. Also consider having ready secondary carrier booking ahead of time if you have multicarrier lane.

Again, there are tools on the market that work as standalone or in complement to standard TMSs that have this expertise – check out Slync.io on this process.

?============================

5.????Tons of unstructured data points

Yes, we are in 2020s and yet we got tons of emails flowing around, expecially in ocean shipping. Average amount of emails for 1 shipped container is coming to 100s – and mistakes related to that can be uncounted for. Where is the digitalization?

Even though booking request and booking confirmation done via TMS or carrier websites and portals, process seems to be automated and digitalized, carriers provide much more info in their PDFs and emails that goes to the person, who initiate the booking. More info or updated info; don’t forget the booking process is dynamic in nature and changes happens. It is still expected that users will need to spot updates and changes by naked eye. ?

Even though booking request and booking confirmation process seems to be automated and digitalized, carriers provide much more info in their PDFs and emails after the confirmation. Updated info -> don’t forget the booking process is dynamic in nature and changes happens. Common not-best practice today is users need to spot updates and changes by naked eye.?

Same goes for bill of lading instructions and bill of lading issuance process.?

Recommendations: There are tools on the market solving this problem, they work either as stand-alone or being attached to existing TMSs. Invest in full automation! Check what Slync.io can do around automation and unstructured data handling. Also alternative is Vector ai or specifically Shipamax if you are freight forwarder and running CargoWise as your TMS.

?============================?

6.????Roll over of your container during vessel loading

This one is one of the evergreens operational problems and truly hard to address. Common explanation from ocean carriers’ side is that since they have high volatility of loading demand (i.e. how many containers actually show up at port / container yard) they need to over-allocate the vessel. Remember some 20 years ago, in airline industry it was also common that some passengers were asked to stay at origin? :-)

Now what are possible mitigation strategies to avoid that your container is the one rolled over?

• A)???Try to get better binding contracts that assures loading to booked vessel – check points on "1. Ocean rate" but if you are large shipper, most likely you are going to be treated well by carrier. It is the medium and small shippers that are vulnerable – but still some carriers offer also to SME segment load guarantees.
• B)???Be on top of what is happening – implementing solid container level visibility tool helps operationally to be informed as first about this
• C)???Monitor and collect data – there are some ports and some carriers where this fenomen would happen more likely – use visibility tools to gain this overview and use this aggregated view in your next term negotiation, or simply change carrier on given trade lane
• D)???Join any of the shipping councils / bodies that are organized to find out about how your peers are treated and where this bad habit occurs most (e.g. Shipper council of Infor Nexus, Gemini Shipper Association)

??============================??

7.????Flaw(full) visibility – still?

Did you ever thought why by today, 2020+, ocean carriers did not (yet) equip their containers that they provide you with some sort of IOT (GPS tracking) devices? By now we certainly can have affordable device that can stay long time without charging. Currently only some containers are equipped (Reefers, or military equipment, or whoever pay extra) with such devices, but there is no such initiative on whole scale... yet. The value of such investment as well as new business models are very promising, but it is not happening. Why? One of the possible reason here is that maybe carriers do not want that – as it would show (uncover) lots of their internal lack of transparency or inefficiency.

Now recent boom of Real Time Transport Visibility (RTTV) providers such as project44, shippeo, fourkites or sixfold has opened new horizons. But the true real time only works on road transports, where IOT device is mounted in every cabin of each truck; in ocean it does not work on container! On container even these RTTV providers rely on traditional EDI connection with carrier (e.g., project44 acquired Ocean Insights for this), and as such the same pain on unreliable data remains in container level visibility.

Recommendations & Best Practises:

• A)???Be aware that true GPS on ocean container level is not yet there, if needed you can hire external companies that would do that (People Technology, Savvy, or even Schenker offers this) – but for extra fees. What they eventually do is that they mount a IOT Device on container only for your particular journey from origin to destination. After they / or their partner remove it from the box.
• B)???To know where exactly your truck or vessel or container is at any point of time is only a feature, not bringing value itself. What brings value is the subsequent automated ETA recalculation – e.g. if there is delay, what does it mean for my container being ready for gate out at destination? So dont aquire a real time visiblity without recalculated ETA function.
• C)???If you decide to invest into visibility tool, ask yourselves where the value is generated at your company and what kind of KPI is the one you going to measure it (we should provide separate write up on industry best practice in some of the next blog release)
• D)???You may be good enough with visibility of your carrier or your LSP actually. Only if you need to monitor down to product line level or connect the container info with your destination inventory, then research on visibility tools.

???============================??

?8.????Utilize container Street Turns

If you are a shipper or BCO you may not know what “Steet turn” is – check this link for deeper insight. This relates to mainly merchant haulage process, i.e. if you have container Port delivery and you got separate dray carrier trucking it to your final destination.

Typically, it is your dray trucker who knows this process. Try to encourage your trucker(s) to use this process and be aware where they do. It represents significant cost reduction removing empty driven miles and time spent on it. And therefore, you may be in position to get your dray transport cheaper, and you contribute to green economy, by simply not driving miles that are not needed.

You may use this argument also during negation with ocean carrier on door moves (carrier haulage) and condition that in certain regions you (your operation) is ready to collaborate on street turns, and expect lower rates and faster container delivery to your packing origins.

Check these two platform handling street turn process: Avantida, Box Reload and Matchbox.

????============================??

9.????Container availability & forecasting

(un)availability of empty container is a major pain for ocean carriers that is now more then before visible. Often your rejected booking may not be because of no space on vessel, but no container (equipment) is ready nearby for your shipment.

What carrier are very keen and hungry for are advance structured data – shipper forecasts or expected volumes with high accuracy. That way carrier can plan ahead where and which containers are needed and can immediately after finishing previous leg, reposition this container somewhere else.

This forecasting and empty container optimization is something that operational manager at carrier side are most busy nowadays. If you have decent forecasting data, use this to your advantage during your quarterly reviews or negotionation for rates and allocations.

???============================?

10.?Insource or outsource – that is the question?

To outsource your logistics operation or keep it inhouse – that is the question, almost as Othello is waging pros and cons while deciding on his live; we also need to put on fictitious scale the considerations for this move. Again, we are not trying to advocate one or another, only providing to decision makes some recent facts from the industry to review before either of this decision is made.

Consider these:

• A)???what is really a core competency of your offering? E.g., Company Medisana, medical devices trading company wants to deliver best tools to its consumers in time – is logistics their core competency? No. Or electronic industry conglomerate Schneider Electric has many variable products from power industry generators to light switch in many countries. Part of its strategy is how they deliver to the customer, in what time, what inventory they will need to maintain; is logistics their core competency? Yes
• B)???Outsourcing getting easier – some large carriers will offer logistics outsourcing (warehousing, booking services or 4PL services) as part of their carrier rates – or with a minimum up price – worth considering?
• C)???Reach to new markets – do we need logistics personel in every geography or origin?
• D)???Complexity of legal environments / trade controls - many LSPs have now also Trade Legal advisory arms included in their Lead logistics offering? At the same time there are tools on market equipping medium or large shippers with appropriate trade regulation knowledge e.g. E2open (Trade Express)
• E)???Outsource of Transport end 2 end or outsource of “logistics works” – are you going to be paing for transport or for managed service?
• F)????Do you need to outsource to LSP? Nowadays any BPO (Business Process Outsourcing) can do also logistics and shipping.

This decision is definitely long term one, take your time and weight in more categories!

????============================?

One more complementary – multimodal and ecommerce – many ocean carriers invested into their LSP capabilities, warehousing assets, digital offerings and even went into other modes of transport (Maersk’s merger with Senator International mainly for their supremacy in air cargo, CMA’s purchase of 6x Airbus cargo aircrafts and creation of Air division) – and if you happen to be in need of any such service – consider their offering, expecially should the service be complementary to your ocean volume!

We hope this long article with current ocean shipping consideration were helpful and inspiring. This comes from our profesional exposure over last few years with many types of customers, shippers and carriers alike and understanding what ticks and what problems they need to solve. For more info, consulting or insight please reach to Jakub Ctvrtnicek at [email protected]

Happy Shipping!