Each spring, after signing new service contracts with my ocean carriers, I take a deep breath, give my eyes a rest from the spreadsheets, and tell our COO that I have completed my most important task of the year. I understand that ensuring our procurement and sales folks have reliable access to predictably priced ocean transportation is essential to the ongoing success of our small business.
In 2020, we all learned that having a service contract, while still somewhat helpful, was no guarantee that an ocean carrier would accept our booking requests, provide shipping space, or make equipment available to move our cargo. Without the ability to move goods — raw materials or finished product — business stops.
Clearly, we cannot compel an ocean carrier to serve our particular shipping needs at any given moment if their business objectives drive them in a different direction. We have seen carriers decline to participate in whole sectors of industry. Take the October announcement by one large carrier that they would suspend servicing the US Agricultural export community, for example. We understand that a carrier would not want to tie up ocean containers for the necessary additional weeks when they could more swiftly ship them empty to Asia, where they could be loaded with consumer goods heading back to the US at freight rates that are exponentially higher than any soybean shipper would have been able to pay for their shipment departing our country.
If ocean carriers continue to shy away from service commitments — in service contracts or otherwise — in favor of having the flexibility to react to market conditions, logistics managers at smaller volume or “operationally unattractive” BCOs should consider aligning with freight forwarders (NVOCCs) or shippers’ associations that might be more successful at securing those commitments. The next step will be explaining to the corner office that the days of being able to budget for ocean transportation are gone, since rates have shown an ability to rise, despite contract agreements and unchallenged by competitive factors, in an environment where roughly 80 percent of the market is served by three alliances.