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Tips For Ocean Container Freight Contract Negotiations

Tips For Ocean Container Freight Contract Negotiations

Ocean freight tendering is complicated with little standardization, but there are ways shippers can succeed and not view it as such an onerous process.

By Gary Chisamore | Wednesday, August 31, 2016 Published American Shipper Magazine

Shippers typically have three expiry dates for their ocean rates: year-end (for exports), spring (for imports) and their fiscal year end. In these times of low rates, shippers would all love to lock in rates and get liner carriers to agree to multiyear agreements. But that’s not going to happen.

So shippers are likely to dust off their in-house or third-party bidding tool. They might only use it once a year, and might have forgotten how to use it. Hopefully the staff that last used it are still with the company.

Ocean tendering is one of the more complex data management exercises supply chain management stakeholders will undertake. The thousands of responses a shipper might have to consider include service characteristics like: location, commodity, equipment, fee, charge, move type, service, currency, date, types, names and codes. All require some level of validation or acceptance.

Global shippers also have to make a decision: do they provide actual forecasted volumes and include some “what if” lanes where there may be some business? Those presumptive tenders put carriers in a difficult position, because these “phantom” volumes can climb into the hundreds or even thousands of TEUs. Some of these phantom tenders almost look like price books. This problem could surely be addressed by carriers offering alternate ways to easily and immediately provide spot rates that represent the same pricing rationale as actual volumes, if any unforeseen volumes materialize.

Another shipper strategy is to include non-vessel-operating common carriers (NVOCCs) and forwarders in their tenders. But this really doesn’t work for larger volumes. Those requests will typically just be passed through to carriers, who can easily tell where the NVO's tender volume requests originated. With smaller volumes, the forwarder will respond with their in-house rates only, or a mix.

Which all begs the question: how difficult should ocean tender bidding be? Solutions are available with capability to evaluate responses and award business. Shippers can incorporate into their evaluation scores for carriers’ past performances, service ratings and technical capabilities. Shippers can also enable multiple routings for the same trade lane, to compare the quickest and cheapest route options.v

Some systems allow for multiple responses for the same trade lane, where carriers can provide different service or price options. Some solutions support 'conditional' or 'expressive' bidding, a function where carriers can offer a discount if they are awarded specific volumes or lanes.

Ocean tendering is a unique process compared to traditional procurement practices, incorporating multiple rounds and enabling the shipper to set target rates.

Setting the target can be done in myriad ways – by percentage off the “quoted” rate, as a flat price, or as a factor of a shipper’s current rate that may incorporate trends from various container rate indexes.

The second part of the tender process is awarding the business. Depending on the preferred strategy, a shipper may want to split its awards based on preferred carrier minimums, maximums or split by ranking of the quote and/or service score. Some tools incorporate scenario engines to simulate the real-time impact of carrier selections by region, country, trade lanes and services.

Through the process, save a thought for carrier pricing staffs. They have to deal with different shipper defined formats, some of which are very unusual. Carriers have to remember how to use each customer’s tendering solution (including their usernames and password). They might need training, particularly if the shipper is a new or sporadic customer.

Then there’s what I’d refer to as “deadline madness.”   Deadlines are set for responses for the first two rounds of bidding. Pricing personnel receive excel files via email or export them directly from the solution provider's application. Many files have to be split up and forwarded to different regional offices and merged back into a single spreadsheet. The spreadsheet may have specific structural rules about column labels, names and data, and may be locked to eliminate alterations.

Excel is a powerful tool and pricing unlocks the files to incorporate formula that enables them to build rates. In a few cases, this “creativity” requires adding new columns, labels and fields. When the regions return their quotes to central pricing, they don’t always fit together and they certainly look different from what was originally sent. Problems tend to arise when the shipper tries to import strange formats or merge those formats into their central spreadsheet. No surprise when that doesn’t work.

I recall on one occasion a completed sheet came back locked by the carrier. The quotes were wrong and the file was returned for correction. However, the person who locked the sheet had gone on vacation and no one else at the carrier could unlock it.

One solution would have been a standardized, machine-importable rate format among all carriers. During my time at the ocean carrier booking portal INTTRA, we did try to initiate a uniform ocean tender format and process with carrier members. Carriers had a great opportunity to lead the way. Unfortunately, due to concerns about antitrust, competition, priorities, conflicting philosophy, funding and the state of the economy, that project died on the vine.

We also had no luck in getting carrier consensus or interest in developing a uniform method of communicating their rates electronically to customers. I can’t understand why the sector still hasn’t taken the lead and created a uniform format.

p>Certain solution providers have had an importable file format for years, but it will take much more than a few software companies alone to get universal adoption acceptance, which is a shame. In the meantime, shippers that struggle with the tendering process can consider the use of turn-key managed procurement and ocean tender solutions. These can be more efficient and less time-consuming for shippers, as the managed providers take care of the formats and data communications through the whole lifecycle, from release to awards.

Gary Chisamore, vice president at supply chain management software provider Freightgate, has been providing and managing ocean tender solutions for more than a decade.

Partner with Freightgate. To schedule a No-Obligation Demonstration of Freightgate’s Logistics Cloud Solutions, please complete form at: http://www.freightgate.net/demo or Email: sales@freightgate.com or Call Freightgate Sales at (714) 799-2833.

About Freightgate
Based in Fountain Valley, California, the Freightgate team has been developing Internet solutions for the freight and logistics since 1994, such as its industry-leading Logistics Cloud Platform, offering Supply Chain Collaboration & Visibility; TMS, Global Tender Bid Management; Least Cost Routing, Service Contract and Quote Management; Regulatory Compliance CBP and FMC; Automated eInvoice Audit and Payment; innovative What-If-Scenario Analysis tool; interactive online Sailing Schedule; BFN (Built for NetSuite) approved SuiteApps. Freightgate is ISO 9001:2008 certified. Visit Freightgate at: http://www.freightgate.net

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