Ocean shipping volumes are down over a third. Profits for ocean shipping companies have been reduced by over 50 percent. Container shipments that used to cost over $5,000 per shipment are now going for less than $2,000.
Is this the right time to renegotiate ocean freight agreements with major carriers?
Unfortunately, like most simple questions there is no simple answer. But this is the time to reassess those ocean contracts, particularly those associated with a one directional movement; for example, Europe to the United States or Asia to Europe. What we are discovering is there is tremendous overcapacity in certain lanes and in those ocean freight rates are very susceptible to rate negotiations. Other lanes, however, for example, Asia to the United States, continue to demand high rates because of consistent capacity demands. Thus our recommendation is to conduct a lane by lane analysis of current shipping requirements (especially containerized shipments) to determine where your capacity can effectively give a leverage advantage in underutilized lanes and thus effective price negotiations advantages. Numerous reports from the U.S. Bureau of Labor Statistics and industry groups (all available on the Internet) can assist you with quantifiable analyses of lane movements for the major shipping lanes.
Should you negotiate directly with the freight conferences or use a third-party logistics provider?
Again, the answer is complex. If you are a large shipper, such as Wal-Mart, then your leverage advantage equals or exceeds that of a third-party logistics provider and it makes sense for you to negotiate directly with the ocean freight conferences. If you're a small or infrequent shipper there is a considerable advantage in utilizing the services of a third-party logistics provider. Large providers, such as Khune & Nagel, CH Robinson, DHL, UPS ,FedEx, and others, have tremendous leverage in the marketplace and can more effectively use your volumes into an overall offering to the ocean freight conferences that allow them to receive the better rates. The downside is third-party logistics providers are compensated for this service with a fee and even where they successfully negotiate freight rates below what you have been paying they are not necessarily passing to you the full rate advantage from the ocean carrier negotiations and/or not passing it immediately to you. So there is a time lag difference between the ocean freight rate improvements and those savings accruing to you.
When the economy improves will we be able to maintain those rate advantages?
No, certainly long-term contractual agreements will be maintained by both third-party logistics providers and ocean conferences. It is unrealistic to assume that with a change in the capacity moving from a buyer’s market of over-capacity to a seller's market of under-capacity that lucrative short-term rates will be maintained. It will be difficult in the current price negotiations with ocean freight conference providers because they have a long history of business cycles affecting their business. They are quite hesitant in entering into a disadvantaged long-term agreement based on the short-term economic dislocation that has been caused by the financial crisis worldwide.