best practices in transportation procurement long island import export association april 14, 2011
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Best Practices In Transportation Procurement
Long Island Import Export AssociationApril 14, 2011
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Agenda
– State of the Market: 2009-2011
– Supply & Demand Levels– Value-based Assessment– Centralization– Lessons from 2010– Fuel Surcharges– The Role of NVOs– Bid & Contracting Practices
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Unprecedented Volatility in 2009 and 2011
Discussions with shippers and carriers suggest freight rates in 2011 will be stable.
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Priorities Changed in 2010 – So has Risk*
Buyers were forced to reset their focus on service levels and capacity availability across modes.
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Supply & Demand Dynamics
Development of transpacific and transatlantic container volumes and slot capacity, 1995 – 2010, in ‘000 TEU – Moffatt & Nichol 5
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Supply & Demand Dynamics
Volume growth is expected but it will be modest compared to 2010. Source – IHS Global Insight
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Buyers Sought Automation
In 2009 60 percent of firms managed transportation procurement manually. In 2010 that number fell to less than 40 percent.
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Automation Allows For Centralization
Systems that manage the complexity of large, global networks allow for centralization of procurement activities.
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Automation + Centralization = Best Practice
Centralized buyers were far less likely to have rates increase by double digits. Why?
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Equipment Shortages In 2010
• Lapse in container production during downturn (2008-2009) came back to haunt the industry in 2010.
• Shippers who could get space often had trouble getting equipment – particularly exporters located “off the beaten path.”
• Best practice – Forecasting, communication and accountability. – Accurately forecast your need for equipment and space.– Communicate changes to your forecasted needs to your
carriers. – Hold your carriers accountable for service failures,
particularly if you’re providing them with good information.
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Battleground 2011: Fuel
• Fuel prices (all kids – bunker, diesel, etc) will be extremely volatile in 2011:– Unrest in the Middle East– Global economic uncertainty remains– American “driving season”
• BCOs are looking to lock-in fuel costs to make transportation costs predictable.
• If you’re not paying your carrier a fuel surcharge you’re paying for it in the freight rate.
• Best practice – Let your fuel surcharge float with an agreed upon index. – IFO 380 Singapore/Rotterdam– Threshold based adjustments to fees.
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The Role of NVOs – US Inbound BoLs
12Tight capacity markets like we saw in 2010 drive volumes to NVOs.
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The Role of NVOs
• More BCOs are using NVOs than ever before:– NVO’s share of US inbound TEU has increased to about one-
quarter in 2010; up from less than 10 percent in 2003.– NVOs and Carriers are nearing parity in terms of shipments.
• There are pluses and minuses to using an NVO:– Leverage purchasing power of larger volumes (plus).– One more degree removed from carrier (minus).
• Best practice –BCOs with dense volumes should negotiate with carriers AND include an NVO in your carrier mix. Small BCOs should leverage NVO scale; align with shipper’s associations where applicable.
• Warning – Know your NVO.
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Bid Solicitation & Contracting Practices• Plan for the unexpected:
– Consider scenarios where your network will be impacted (example – Japan quake/tsunami, Iceland volcano).
– Ensure you have access to the spot market. Keep companies you don’t contract with in the loop.
• KISS – “Keep It Simple Stupid”– Use commonly accepted terms and conditions; don’t
make up anything crazy.– Clearly define terms and especially acronyms.
• Long term contracting – Is it right for you?– Large, steady, predictable volumes.– Base commodities.
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Thank you!
Please feel free to contact me at any time:
Jim BlaeserPublisherAmerican Shipper(212) [email protected]
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