Contract Negotiations Approaching
Finding new options with ocean carriers will prevent further downward
progression in the markets

By David Bennett
Vice President, Global Logistics Sales, Schneider Logistics

You might have noticed that my title has changed. In January of this year, I began a very exciting position at Schneider Logistics. I am honored to join Schneider Logistics as the Vice President of Global Logistics Sales for the International division and look forward to working with a group of world class professionals with many years of experience in the transportation industry.

Since I began writing this column for Cargo Business News, I have touched on several hot topics or issues.

•  The financial markets and their impact on the trade
•  Over-capacity in terms of terminal capacity in South China and its impact in terms of our supply chain costs.
•  Volatility of the freight rates and the need to remain “calm” during this period in order to keep our partners on the ocean carrier side in business

As I was preparing this column, it hit me that we are extremely close to another volatile event — the transpacific eastbound contract negotiations. In January, I asked everyone to remain “calm” as we watched rates in the trade fall like a brick, leading us to rate levels that cannot be sustained for the long haul without dire consequences. What are those consequences? Good question, as those of you responsible for negotiating rates for ocean freight services find yourselves under enormous pressure from your senior management to cut costs further.

How do you get your costs lower in this environment, where carriers are laying down vessels at a level we have never experienced, because they can’t afford to operate at these revenue levels? I have some ideas, which I will touch on shortly, but first let me address the consequences of this market.

Reduced Offerings
Reduced service offerings from your carrier base are on the horizon. Wan Hai Lines and PIL (well-established carriers in the Intra Asia trade and, in recent years, very reliable carriers to the West Coast) have announced plans to reduce capacity and service by taking on a slot charter agreement with the CKHY Alliance.

Warning! This is the beginning of more capacity reduction in the trade needed to align capacity to demand. We are going to see further reductions in capacity if the market conditions push our carriers toward non-compensatory rate levels. This certainly provides “short term” gains for the shippers, but in the long term, once capacity and demand start to realign, look out because those short term gains could disappear like our 401K balances did in October and November.

Expectations in a Volatile Environment
What can we expect, and how can we gain some market stability in this volatile environment?

Over the last 90 days, we’ve seen some relative stability in the oil markets with the price of oil hovering around the $40 to $45 level, and the result is obvious — lower fuel costs. Bunker rates are stabilizing for the ocean carriers, fuel prices for our truckers have dropped, and we should see some significant opportunities in this new contract negotiation period to stabilize this component of the rates, unlike 2008 that led to some very confrontational discussions with our carriers.

At these levels, we need to be looking at new ways to make long-term agreements attractive to our carriers. I would suggest one way to do so is eliminating (where possible) the movement of containers inland via the rail.

New Options
There are many opportunities to remove costs from the supply chain, such as transloading alternatives. In the past, we have looked at this option only with a rather narrow point of view, focusing on services to Southern California; however, many carriers now provide excellent transit times to the South Atlantic ports, such as Savannah and even Norfolk, and it has become a viable transload gateway to certain regions.

Want to dangle a carrot in front of your ocean carriers this spring? Try discussing the option of keeping their containers within the port communities and eliminating the need to move the containers inland by rail. You allow them so many opportunities to be more cost-efficient and you can actually eliminate the handling of merchandise through your distribution centers if the proper process is put in place. Huge cost advantages are possible, and this model of bypass distribution direct to stores has positive environmental impacts as well.

There are many different options to improve the flow of cargo throughout the supply chain. One thing is for sure — this year will prove to be more pivotal than previous years as we work with our ocean carriers to prevent further downward progression in the markets, which has dire consequences long term.

In This Issue

New Items

Time for the Tough to Get Going

Supply Chain
Real Estate Responds to Supply Chain Shifts

Taking Your Ship to an IP Environment

Compliance Corner: SOPs, the Foundation of Trade Compliance

New Applications for RFID

Features
Gateway at a Glance ­� Canada

Moving Goods in a Slower Economy

Ports & infrastructure
National Gateway — a Public-Private Partnership in Progress

California River Ports

Port Products
Clean Air Equipment

Commentary
Contract Negotiations Approaching

Who, What, Where, When

Final Say