Management Dynamics

Management Dynamics

On Oct. 18, all European-based conferences were disbanded. Deregulation of ocean shipping has finally come to pass, and we are seeing early signs that beneficial cargo owners and logistics providers are scrambling to manage transportation costs in this new environment.

In the cozy world where carriers conferred on vessel capacity and agreed upon pricing levels for surcharges, there was a modicum of price stability. Competition among carriers was focused on relatively simple factors of base ocean freight rates and service levels, which made it easy for shippers to manage rate agreements, understand their total costs and select a carrier.

That has all changed. We are seeing divergences in bunker, currency, terminal-handling and war-risk surcharges among carriers. While shippers might be able to find generally lower rates, it is significantly harder to calculate a bottom-line cost. This impacts how service contracts are negotiated and managed, how alternative routes and rates for a shipment are calculated and compared to select a carrier service, and how freight invoices are audited. Clearly, these new rate components and volatility will require new processes and information systems.

This rate volatility is hard for a shipper, but significantly more difficult for logistics providers that have more complexity in terms of routes, rates and contract structures.

Many will point to all-in rates as the answer, though a win-win doesn’t seem possible with the volatility in commodity prices. The answer is to look to history and the deregulation of ocean shipping in the U.S. Leading companies addressed the challenge of confidential service contracts and highly volatile accessorials with trade management systems that can handle this complexity and allow companies to truly benefit from deregulation.