Reality Shows

Reality Shows

The end of the peak shipping season used to leave time for shippers and carriers alike to sit back and reflect on the year just ended before easing into the one coming up. This year, it means the start of the 2011 contracting season is at hand.

The negotiations between shippers and a range of providers are starting earlier than ever this year, particularly in the ocean arena that sends so much international volume cascading through U.S. distribution networks. In fact, several shippers and ocean carriers say they expect to start the year with the contracting that usually occurs later in the spring and that their strategic goals for the talks are largely already in place.

For one shipper, who spoke to us on condition of anonymity, those priorities are clear and simple: service, reliability and price, in that order.

It may sound simple, but in fact the priorities seem to turn previous contracting goals on their head. That’s another sign companies are going beyond the hazy descriptions of new shipper-carrier relationships and moving to implement new agreements that recognize mutual commercial needs and market realities over the longer term.

For many shippers, to be honest, placing service and reliability above rates would mark a sea change in contracting. The wild fluctuations in pricing over the last two years were a sign relationships between carriers and shippers were far too weighted toward the prices; the service failures and equipment shortages in the early part of 2010 proved the same thing.

Placing service and reliability at the top of the contracting priority list recognizes that the ability to get the right goods to the right place at the right time is a fundamental, strategic goal. It doesn’t mean giving up cost sanity to some broad, academic concept of partnership.

Carriers are showing strong signs that they’re recognizing what we’ll call commercial reality.

APL President Eng Aik Meng told The Journal of Commerce’s TPM Asia conference in October, “Partnership may be overused in describing carrier-customer relationships.” And Maersk Line seemed to defy the feel-good talk about relationships last month in announcing its schedule for three rate increases in 2011.

Neither carrier had to dodge bricks over the statements because, in each case they were describing the parameters of sensible relationships built on commercial reality.

For our shipper, that means ensuring there is service and that the company can rely on having its goods when and where it needs them. It also means ensuring its costs remain within a reasonable range of what the company expects to spend over the course of a contract.

That range, and how pricing may move within it, will be up to negotiation. But the priorities won’t necessarily conflict with those of carriers that have set their own versions of those priorities, including a focus on reliability.

“We’re asking for better communication,” Maersk Line President Michael White told us. “We want a better dialogue about how they see variances during the year. It’s not a one-way street.”

Relationships built on realistic expectations seldom are.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com. Follow Paul Page on Twitter, www.twitter.com/paulpage.