You Waste A Lot Of Time On Signing Shipping Contracts
One of our NVOCC customers has contracts with 21 steamship lines. We have another customer with 15 carrier contracts. There are several others whom we’ve spoken to who’ve told us they have contracts with multiple liners.
What’s funny about this?
We never asked them how many contracts they have!
They just volunteered the information to show us how much business they’re doing by ocean. Now, this would make sense if there was a correlation between number of containers shipped and number of contracts signed. But generally, that’s not the case.
On the contrary, it turns out that the more contracts an NVOCC has with carriers, the less confidence they have in the rates they’re getting. So if you have 21 carrier contracts, it’s probably because contracts 1 through 15 are useless!
Shipping Contracts Don’t Grow Ocean Freight Sales
Everyone wants a carrier contract and everyone wants you to know how many contracts they have signed. Given this need, contracts must have value to procurement, right?
Not really.
Ocean carrier contracts are supposed to represent a commitment of volume by the buyer (shipper or freight forwarder/NVOCC) and a commitment of rate AND capacity by the transporting carrier.
So now ask yourself as a forwarder/NVOCC: “How many times did my company fail to meet the Minimum Quantity Commitment (MQC) that we had signed for on a carrier contract?”
Or if you work for a carrier, ask yourself: “How many times did I fail to load my client’s container onto a vessel due to yield or due to a lack of equipment at an inland point?”.
No matter what the number is, its unacceptably high.
What we find then is that carrier contracts just aren’t worth much to anyone.
Now, we know most carriers need to use contracts as a way to manage workflow and maintain regulatory compliance. But the current process isn’t working. While contracts can be valuable for planning, they’re not very useful for executing. Today’s shipping contract is based on the “what could go wrong?” assumption. That’s not a very good premise to run your business on.
When trade volumes are up, carriers win directly at the expense of their lower yielding, high volume customers. When trade volumes are down, shippers and NVOCC’s win by renegotiating or simply walking away from their vendor commitment.
Where both parties lose out is in the ensuing process we like to call “rate shopping”. It’s a process built on emails and teams of pricing specialists who manually hunt for rates or capacity.
So much for helping procurement!
What’s The Solution?
To begin with, the logistics industry needs to get out of the, “we’ve always done it this way” mentality. After all, the fastest way to go broke is to keep doing the same thing.
Rather than waiting for all the different stakeholders in the industry to change, today’s logistics businesses need to adopt new alternatives they can implement on their own. Online platforms offer those alternatives right now and, as they grow, will be the future of the industry.
And there’s incentive to adopt online platforms for B2B sellers. According to a poll, conducted by research firm Forrester Inc., online platforms are desired by B2B buyers.
In fact, shopping habits are evolving and in our opinion the logistics industry needs to adapt along with them. Luckily, the adaptation has already begun.
As they expand their service offerings, they will allow buyers and sellers of container capacity to book, document and invoice shipments in a single click.
Rather than seeing this as a “race to the bottom” or a way to replace workers, however, the true visionaries of today’s market realize that human resources can be better utilized for higher value services. That’s where the profits can be made. They’re adopting these cloud based technologies because there are very little upfront costs, but massive returns to be realized by unlocking the value of logistics, both as a business and as a process.
At the end of the day, shipping contracts aren’t “bad”, they’re just about as relevant to 21st century business as a TELEX machine. It’s time to get off the TELEX machine.
By: CoLoadX on March 21, 2017, 6:55 p.m.