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There is a profound shift underway in the relationship between shippers and their logistics providers.
The former, faced with the continual, will-sapping uncertainty of today’s economy is understandably seeking to eliminate as much cost as possible from every area of their businesses; while on the other side forwarders, carriers and other logistics suppliers – all as equally perturbed as shippers by the commercial gloom – are seeking to cement and deepen their relationships with their key customers.
But these two ambitions are driving customers and suppliers in very different directions.
One freight forwarder told The Loadstar: “I went into a couple of blue-chip retailers recently for supply chain meetings and was amazed to find them fronted by the procurement department rather than their supply chain executives.
“The last three years of rate volatility and capacity manipulation by carriers has frightened everybody into treating freight as a purely transactional commodity, whereas the real value is found in understanding a customer’s supply chain – using lead times to manage inventory and acting for the customer.”
He said that the speech given by Marks & Spencer’s head of logistics Jason Keegan at the TOC Container Supply Chain event in Antwerp was “a cry for common sense”.
“Procurement departments are great at paperclips and not so great at evaluating service – they give freight on a differential, and if that differential happens to be just 50 cents, it’s still a differential,” he added.
The roots of the problem are twofold: logistics providers of various hues and across different modes have been periodically engaged in bitter battles for market share, prompting violent swings in freight rates and the temptation for shippers to contract only on price.
At the same time, the continuing failure of many major shippers to have a supply chain executive at board level has meant that freight contracting falls to the procurement department, rather than the supply chain department. “These two departments’ interests are rarely aligned,” says one insider. “There are a lot of forced marriages taking place and most of them will end in tears.”
On the sidelines of the Antwerp TOC event, MOL’s director for Asia-Europe trade Stanely Smulders told The Loadstar: “In the relationship between carriers and customers, I like to make a distinction between direct shippers – BCOs – and the forwarders. With forwarders, the relationship is actually very good. You talk to parties that are professionals – they know their business, they know where you are coming from and forecasting is easier. A forwarder can say they are going to do a certain volume on this trade lane this year, and I can have confidence in that, and the larger the forwarder, the tighter these relationships are because there is a mutual dependence.
“With the BCOs, the relationship is different. Some have very professional people with a logistics background that are running the operations. They work quite similarly to forwarders. And then you get BCOs who are procurement professionals and for whom shipping services are simply just another procurement item, as if they are buying a toothbrush. Then you work on the basis of a spreadsheet; you fill in your numbers and you are either in or out. The problem for us with that is that if you are out – or even if you are in – our organisation has to establish a lot of new contacts with the shipper and his receiving organisations, and with that always comes disruption. So if you aim to keep service levels up, a stable relationship helps.”
While the trend is long underway in container shipping, where it has become part of shippers’ planned distribution activities, it is also turning up in the express sector, which mostly deals with unplanned, emergency shipments. However, recent shocks to supply chains such as the volcanic ash cloud and Japanese tsunami are leading some shippers to budget annually for express services, looking to commoditise a service that is by its very nature entirely unpredictable, according to Priority Freight’s chief executive Andrew Austin.
“Shippers’ procurement departments are trying to commoditise our service, while we are trying to turn that commodity into a relationship. We want to personalise the relationship with key customers, but many of them want to behave as procurement officers,” he told The Loadstar.
“Procurement specialists are answerable to the company’s shareholders, but they appear to take little account of the operations and needs of that company’s supply chain. Commoditisation of expedited freight is to some extent the consequence of natural maturity, but ultimately shippers won’t get real value without a long-term relationship to accompany it,” Mr Austin said.