Transcript Regional Intermodal Trends: A Fresh Look at Cost and

Best Practices In Transportation
Procurement
Long Island Import Export Association
April 14, 2011
Agenda
– State of the Market: 2009-2011
– Supply & Demand Levels
– Value-based Assessment
– Centralization
– Lessons from 2010
– Fuel Surcharges
– The Role of NVOs
– Bid & Contracting Practices
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Unprecedented Volatility in 2009 and 2011
Discussions with shippers and carriers
suggest freight rates in 2011 will be stable.
3
Priorities Changed in 2010 – So has Risk*
Buyers were forced to reset their focus on service
levels and capacity availability across modes.
4
Supply & Demand Dynamics
Development of transpacific and transatlantic container volumes
and slot capacity, 1995 – 2010, in ‘000 TEU – Moffatt & Nichol
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Supply & Demand Dynamics
Far East to US - Containerized Trade
Growth Rate In TEUs
18.9%
6.7%
6.5%
2008
2009
2010
2011
2012
-6.0%
-18.3%
Volume growth is expected but it will be modest compared to 2010.
Source – IHS Global Insight
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Buyers Sought Automation
In 2009 60 percent of firms managed transportation procurement
manually. In 2010 that number fell to less than 40 percent.
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Automation Allows For Centralization
Systems that manage the complexity of large, global
networks allow for centralization of procurement activities.
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Automation + Centralization = Best Practice
Centralized buyers were far less likely to
have rates increase by double digits. Why?
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Equipment Shortages In 2010
• Lapse in container production during downturn (20082009) came back to haunt the industry in 2010.
• Shippers who could get space often had trouble getting
equipment – particularly exporters located “off the
beaten path.”
• Best practice – Forecasting, communication and
accountability.
– Accurately forecast your need for equipment and space.
– Communicate changes to your forecasted needs to your
carriers.
– Hold your carriers accountable for service failures,
particularly if you’re providing them with good
information.
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Battleground 2011: Fuel
• Fuel prices (all kids – bunker, diesel, etc) will be
extremely volatile in 2011:
– Unrest in the Middle East
– Global economic uncertainty remains
– American “driving season”
• BCOs are looking to lock-in fuel costs to make
transportation costs predictable.
• If you’re not paying your carrier a fuel surcharge you’re
paying for it in the freight rate.
• Best practice – Let your fuel surcharge float with an
agreed upon index.
– IFO 380 Singapore/Rotterdam
– Threshold based adjustments to fees.
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The Role of NVOs – US Inbound BoLs
100.00%
90.00%
80.00%
70.00%
60.00%
Carrier (TEU)
NVOCC (TEU)
Carrier (Shipments)
NVOCC (Shipments)
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2003 2004 2005 2006 2007 2008 2009 2010
Tight capacity markets like we saw in 2010 drive volumes to NVOs.
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The Role of NVOs
• More BCOs are using NVOs than ever before:
– NVO’s share of US inbound TEU has increased to about onequarter in 2010; up from less than 10 percent in 2003.
– NVOs and Carriers are nearing parity in terms of shipments.
• There are pluses and minuses to using an NVO:
– Leverage purchasing power of larger volumes (plus).
– One more degree removed from carrier (minus).
• Best practice –BCOs with dense volumes should
negotiate with carriers AND include an NVO in your
carrier mix. Small BCOs should leverage NVO scale;
align with shipper’s associations where applicable.
• Warning – Know your NVO.
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Bid Solicitation & Contracting Practices
• Plan for the unexpected:
– Consider scenarios where your network will be impacted
(example – Japan quake/tsunami, Iceland volcano).
– Ensure you have access to the spot market. Keep companies you
don’t contract with in the loop.
• KISS – “Keep It Simple Stupid”
– Use commonly accepted terms and conditions; don’t make up
anything crazy.
– Clearly define terms and especially acronyms.
• Long term contracting – Is it right for you?
– Large, steady, predictable volumes.
– Base commodities.
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Thank you!
Please feel free to contact me at any time:
Jim Blaeser
Publisher
American Shipper
(212) 464-8394
[email protected]
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