Benchmarking Against Peers Upheld Among Shippers
International transportation and logistics executives are increasingly benchmarking their companies’ costs and supplier terms in ocean transport contracts, according to data gathered by Drewry Supply Chain Advisors.
In the past six months, the ocean transportation spend under carrier contracts benchmarked by shippers via the Drewry Benchmarking Club global initiative increased by 50 percent, to $2.2 billion; the number of benchmarked routes rose by 81 percent and the volume of benchmarked dry container teu jumped by 67 percent. FMCG companies and retailers are generally ahead of industrial manufacturers when it comes to using benchmarking to negotiate contracts.
The global transport procurement consultant reported that the number of multinationals (retailers and manufacturers) participating in the Drewry benchmarking initiative has increased five-fold since 2014.
“Benchmarking ocean contract rates, supplier transit times and contractual terms such as demurrage and detention is becoming more established, as shippers realize the importance of benchmarking for setting target rates, negotiation and rate reviews, particularly when markets are volatile,” said Philip Damas, head of Drewry’s logistics practice.
Drewry has seen a change in the attitude of some shippers, who were initially skeptical about comparing their contract terms confidentially with those of other companies and said that they already benefited from very favourable terms. As the shippers’ competitive pressures have increased and as contract rates have stopped declining, transportation executives have become more open to the use of peer-to-peer groups to identify the most favorable terms of cost and service and to monitor their own performance as buyers against companies moving the same volume of freight under contract.
“When a shipper says that he or she has got the best contract rates and services possible, we still reply that benchmarking is how you know where your company is relative to minimum, average and maximum benchmarks, plus any company can always learn from other companies in the group through voluntary sharing of best practices,” Damas commented. For example, the Drewry Benchmarking Club recently organized best practice discussions on faster tender processes and on e-sourcing-based bid analytics–leading practices which are spreading from very large shippers to medium-sized shippers.
Drewry has recently been asked by shippers in the food and pharma sectors to extend its benchmarking initiative from dry-freight containers to specialized reefer containers and will be informing the industry about further developments in this field.
Using spot rate indices, such as the World Container Index and the Drewry Container Freight Rate Insight, many shippers are also benchmarking their rates against spot international ocean freight rates and spot international air freight rates. Unlike spot rates, contract rates and terms are not published and are available to shippers only via confidential peer-to-peer benchmarking groups or communities.
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