In theory, the more cargo a shipper has, the better the service it can command from an ocean carrier. In reality, no matter how much volume shippers move or how much they may demand good service, liner companies are letting them down.
The experiences of two European shippers offer an example. German industrial conglomerate Siemens ships some 100,000 20-foot equivalent units of containers a year to customers worldwide. Norway’s Elkem, a producer of silicone and special alloys for the smelting industry, ships 30,000 TEUs a year.
Both shippers demand good service, but with its size and global supply chain, Siemens can insist on certain requirements from its carriers. If they don’t measure up, well, plenty of others are ready to fill the void. Elkem, however, which also has a global supply chain, ships its products from remote ports off the beaten container path, so it has a tougher time getting carriers to fulfill its contracts.
Transportation managers for both shippers described their experiences with carrier service at Containerization International’s 14th Annual Liner Shipping Conference in London this month.
“We need reliable delivery times. (Cargo) can’t be late or rolled,” said Robert Gora, Siemens’ vice president of global logistics. Even so, Siemens has been hit by late shipments recently. “Because of the carriers’ financial problems, reliability is really suffering.”
Interestingly, container shipping lines increased the reliability of their service schedules to a record on-time arrival rate of 69 percent in the fourth quarter of 2011, the third straight quarter of improvement, according to Drewry’s Schedule Reliability Insight report.
But the report also noted a sharp deterioration in reliability followed the previous record of 68 percent set in the second quarter of 2009.
The container shipping business is becoming more commoditized, Gora noted, “but carriers need to differentiate on service to get our business.”
With 200 factories worldwide and almost 1,000 shipping departments that handle shipments from 39,000 suppliers and ship products to more than 150,000 internal customers, Siemens is trying to consolidate orders into a single traffic management system with shipping departments at the division or business unit levels.
It also wants to reduce the number of freight forwarders it uses from more than 130 to around 20, and shift most of its container volumes over to contracts negotiated directly with carriers, using forwarders for booking, handling and customs clearance.
Siemens is particularly demanding on pricing. It insists its carriers adhere to fixed rates spelled out in its annual contracts plus bunker surcharges that are indexed to averages. Other surcharges raise a warning flag. “We don’t like getting billed for surcharges,” Gora said.
Siemens also insists on a “most-favorable” rate clause in its contracts that requires carriers to offer it the lowest freight rate offered to any of the line’s other customers on a given trade lane. “If a carrier or forwarder offers a lower rate, we want that rate.”
Siemens doesn’t like high processing costs, so it wants to interface with its carriers by using technology such as EDI, track and trace and self-billing. It’s also conscious of the need to cut its global carbon footprint, so it requires reliable reporting by its carriers of their own carbon dioxide emissions. It uses an independent auditor to verify the carriers’ carbon reports.
Not all of Siemens’ efforts to ensure reliability have met success. Because of the high cost of its air freight bills, Siemens is trying to shift refrigerated cargo to ocean freight. “But carriers failed three times,” Gora said. “Sea freight has to be more aware of reliability.”
In Elkem’s experience, carriers failed the reliable pricing test. When Marc Lembrecht, Elkem’s container traffic manager, issued a tender for annual contracts to pick up silicone in containers from the port it operates at its Bremanger plant on a deep fjord in northern Norway, it got rate bids that were all over the map. “Some carriers were quoting negative freight rates below cost,” Lembrecht said. He faced a quandary in looking at such low prices. “Was it ethical to accept it? Are you going to question the sale price?”
After three rounds of negotiations, Lembrecht signed annual contracts with several carriers. But in mid-March, one carrier stopped accepting its bookings, while the others stuck by their contractual commitments. “We were informed that there was no space on the vessel, but the carrier said we could get our containers picked up by paying a premium,” he said. “It sounded like we were being forced to move from economy to first class, but I only wanted to move a box, not get champagne.”
Later in March, the carrier suspended service to the port at Bremanger altogether. “We couldn’t switch from Carrier A to Carrier B right away,” Lembrecht said. “We need to rely on the integrity and reliability of our carriers, because of our locations in Norway and Iceland.”