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International Shipping in 2009: A Year to Remember, Not to Forget
The year 2009 is one most would like to forget, particularly those of us involved in international movement of goods. For shippers and consignees, accurate forecasting has been almost impossible, rate levels have been unpredictable, and capacity has suddenly become constricted. Although we are all ready to put it behind us, 2009 was a year from which we can learn critical lessons to keep supply chains flowing efficiently in the future.
Seek partnerships, not just savings. In 2009 freight rates took a nose dive. This was due to a combination of market conditions and rate slashing by carriers to retain or increase market share. As a result, several global carriers were driven to the brink of bankruptcy and had to take actions adversely affecting the trade in order to survive. Rates were suddenly and drastically increased, available capacity was slashed, and supply chains were turned on their heads.
Smart shippers and consignees approached their relationship with their carriers as a partnership, understanding that there needs to be reasonable expectations on both sides when it comes to freight rates and service. Their supply chains kept moving with minimal disruption and lower rate increases. Those that fought their core carriers and moved their freight to the lowest bidder found difficulty securing space and fell victim to severe rate increases.
There is always a cheaper option out there, especially when it comes to freight rates. However, the lower rate is not always in the long-term best interests of a supply chain. A close partnership with your carriers is the best way to move into the 2010 contract year.
Build more time into your supply chain and focus on accurate planning. Shipping capacity was drastically reduced in 2008 and 2009. Vessels were pulled out of service in all trades; first to accommodate the reduced volume, then to foster a supply shortage that would sustain increased rates.
Expect demand to grow faster than the return of capacity. Carriers continue to focus on revenue recovery and have been reluctant to return vessels into service. In fact, the Federal Maritime Commission recently voted unanimously to initiate a non-adjudicatory investigation into the space and equipment shortages amidst the steady increase in shipping activity.
Continue to build time into your supply chain to accommodate potential rolled bookings, slower transit times, and potential delays caused by Importer Security Filing (ISF) enforcement actions. Make sure you have a clear understanding with your carriers about booking window requirements, their commitment to you on space allocation, and provide as much detailed forecasting as possible.
Include a Non-vessel Operating Common Carrier (NVOCC) in your service portfolio. A shipper or consignee that signs a direct contract with a primary carrier is generally limited to the services of that carrier. When space is tight, or a new lane is entered and not serviced by the primary carrier, they have to scramble to find another carrier or NVOCC to move their freight. Generally, that new provider is not familiar with their product requirements or shipping patterns and service suffers as a result.
When you negotiate your contracts, plan to include an NVOCC and get them involved early. NVOCCs keep contracts with multiple carriers and typically have a broad service capability across multiple lanes. An NVOCC will provide you with a back-up solution if your primary carriers fail to provide the service you need. They will also provide you with a continuous gauge on ocean freight market prices throughout the contract year. Finally, NVOCCs typically do not require any volume commitment, which allows shippers more flexibility to make a change if necessary.
Don’t give up. Last year was one of the most challenging years in international shipping since the Great Depression. The challenges required us to innovate and find efficiencies. If we keep mind of the lessons we learned, we will come out on the other side with stronger and leaner supply chains.
Michael W. Coleman, CHB
President
*This article appeared in Virginia Business Magazine’s 2010 Maritime Guide, published in April 2010.