Shippers' associations can do more

Shippers' associations can do more

Most shippers' associations were formed as nonprofit organizations to negotiate shipping rates with carriers on behalf of multiple shippers, and many of them still limit themselves to that role. This can be a full-time job in an era when contracts are continually renegotiated and amended, rates increase or decrease, and terms and conditions change. Even so, shippers' associations have the opportunity to do much more.

The formation of shippers' associations was motivated by reduction of the shippers' logistics staff, lack of in-depth knowledge of contract negotiation, and the need to train new staff on the tricks of the trade. It was also motivated by the Shipping Act of 1984. Most shippers' associations deal with a small group of related commodities for a particular industry. Some associations concentrate on exports, while others focus on imports. A small percentage of associations accept both importers and exporters.

As associations tend to focus on a specific group of shippers, they tend to be small. As nonprofit organizations, they tend to lack resources for activities beyond basic contract negotiations. However, there are many opportunities that shippers' associations can seize to benefit their members. Most of these opportunities require the associations to expand enough to be able to achieve economies of scale and scope.

One such opportunity lies in finding creative ways to reduce shipment costs. Carriers typically take advantage of the trade imbalance to charge the shipper more money for repositioning of containers. The carriers use volume of imports and exports in a year as an indicator for the trade imbalance and charge shippers accordingly. In 2002, U.S. containerized imports totaled about 13 million TEUs, compared with 6 million TEUs for exports - a ratio of 2.13 imported containers for each exported box.

This ratio, however, does not apply everywhere. In the Japanese ports of Tokyo, Yokohama, Nagoya and Kobe, four containers are exported from the U.S. for every three that move eastbound to the U.S. Shippers' associations could take advantage of such information and team up with other associations and shippers that trade in the same region. This increase in the association's scope would have a direct impact on its members' profitability.

Shippers' associations might also consider leasing their own ISO container tanks and reefers. Considering that not all ocean carriers can provide these kinds of special containers easily, the associations could lease the equipment and pool these resources among their members.

Another area that is becoming increasingly important is information technology. Small and medium-sized shippers cannot afford having their own systems to manage contracts, monitor current bookings against each contract, and provide EDI integration with ocean carriers or carrier-backed portals. Many shippers seem to be content to use the ocean carriers' or forwarders' systems to perform such activities.

Yet another opportunity for shippers' associations is in using contract information to rate the bills of lading. With some carriers still depending on a manual process to rate the bills, errors are inevitable. These errors will not be captured promptly without regular shipper audits - an enormous task that requires dedicated resources. Most shippers and carriers do not know for sure how many errors are being missed. Carriers' internal figures show that the percentage of bills of lading based on the wrong rates ranges from the high single digits to much higher double-digit percentages. The costs can be in the thousands of dollars for the shippers or the carriers.

Carriers have contract-management systems to control their own errors. By implementing their own contract-management and booking systems, shippers and shippers' associations can automate most of these tasks and gain unprecedented level of control on their costs, not to mention reducing or eliminating the effort involved in chasing erroneous bills of lading. There are several systems available, but not all of them provide a level of integration that can enable shippers to achieve the required results.

These are only a few of the opportunities that shippers' associations can seize to add value for their members. This expansion of economies of size and scope is likely to be costly for shippers' associations, but the benefits will outweigh the costs.

Capt. Emad Samwel is president of Ethos Management Consulting, which offers management and information-technology consulting to organizations involved in supply-chain transportation. He can be reached at (905) 884-8272, or via e-mail at esamwel@ethosmanagementconsulting.com.