News / Performance-based pricing and innovation now key for 'makers and movers'

Short-term pricing, dual-sourcing strategies and managing increased supply chain complexity are now “front and centre” for global ocean freight shippers.

Julia Myroshnychenko, global category team lead for international logistics at Henkel, a German chemical and consumer goods manufacturer, said the company had been “hit” on some annual rate agreements.

“We weren’t able to maintain those rates, which is a big issue for a manufacturer like us,” she said at yesterday’s Makers and Movers global summit.

“So we’re mostly looking at a hybrid approach, between short-to-medium term pricing solutions.”

And according to Flexport chief operating officer Sanne Manders, more in industry are also likely to lean toward performance-based pricing.

“Performance-based contracts are actually more interesting, in combination with the long-term agreements,” he said. “Because it’s better to sit down every quarter together and look at our combined performance, and talk about how to improve. So we renew our ‘marriage’ every three months, instead of doing these annual bid cycles nobody likes.

“However, performance contracts are hard and cannot be done on handshake agreements, you really have to have deep insights into your supply chain and real data to base the discussion on.”

As the volatility in freight market continues, cargo owners are also becoming more focused on business continuity, noted Andrea Abegg, VP global distribution & logistics at Estée Lauder.

She explained: “With all the disruptions from Covid, Montreal port strikes and Suez Canal blockage, for example, there’s much more focus on business continuity planning, and making sure you have back-up solutions.

“For example, where previously dual-sourcing seemed optional, now it feels like it’s front and centre, and super important for logistics.”

Mr Manders also noted the potential for container supply chains to gain greater complexity, given the changes in sourcing and the global e-commerce boom during the pandemic.

“First of all, shippers want to be closer to their customers. Second, they’re going to source from multiple locations; so where you used to have a simple supply chain of one point to another point, it’s now going to be 20 locations to 50 destinations, which will drive a lot of complexity.”

Inna Kuznetsova, CEO at 1010data, said the disruptions over the past year were driving innovation among supply chain players.

“There are lots of changes on the shipping front – there is a lack of containers, especially reefers, a lack of warehousing labour and a lack of warehousing capacity in coastal areas [of North America].

“We see some companies coming up with more unusual solutions, such as creating small distribution centres, rethinking their sourcing to on-shore, or diversifying to reduce risks.

“Because, if you just sit there waiting for this to pass, I think you’ll lose. But if you keep rethinking what you do, chances are you’ll create a new competitive advantage. And that is true for any business,” she added.