New Articles

Reduce Risk in Your Global Shipping Strategy With Vendor Management

vendor

Reduce Risk in Your Global Shipping Strategy With Vendor Management

Trying to coordinate deliveries to make sure they arrive on time can be a stressful job in today’s volatile shipping landscape.

You need to contend with unexpected shipping cancelations by carriers that are trying to stay profitable. Unpredictable rates caused by too many or too few vessels available at any given time adds to the uncertainty. And if you don’t have complete visibility across your global supply chain, your job is only harder.

Many shippers have found peace of mind by using a global vendor-management program, which combines PO management, global visibility, and shipping consolidation. The program can help you make sure freight arrives on time. And it can help you bring greater savings, consistency, and security to your shipping strategy.

How the Program Works

With a vendor-management program, a logistics provider helps manage both your POs and your global flow of cargo, while serving as a single point of contact between you and carriers.

As POs come in, the provider can calculate when cargo will be picked up and continue to verify that timing as delivery dates near. The provider can also use consolidated shipping to combine your partial shipments with others to create full shipments. This can help you get shipments to their destinations on time, and do so cheaply and efficiently.

With a vendor-management program, you no longer need to arrange multiple order pickups or worry about orders not being ready for pickup.

Instead, you can use the provider’s transportation management system to monitor your current order and shipment statuses in real-time, and see exceptions down to the item level. And if you encounter increased demand or last-minute supply chain outages, you can use the system to reroute freight.

3 Key Benefits to Your Business

A vendor-management program offers you more than the comfort of knowing that your shipments are in good hands. It can also improve your global shipping strategy to help you realize some key benefits.

Lower Costs: There are clear cost benefits of using consolidated shipping. You only pay for the volume of a container that you use rather than paying for a full container that you may not fill. Combining multiple shipments into one can also reduce your customs entries and terminal charges, deliveries, and handling fees.

And the savings only start there. Because you can reduce your supply chain spend even more when you combine a vendor-management program with a provider’s transportation, logistics, warehousing or customs services.

Better Consistency: Global supply chains have more opportunities for service failures. A single point of contact can give you answers and offer alternatives before service failures happen. Customs entries can also be processed more consistently. And fixed weekly schedules that have known transit expectations can make it easier to track your orders.

Greater Security: Less-than-truckload and less-than-container-load freight faces the risk of theft and needs to be secured.

With a vendor-management program, a provider can accept your containers for unloading, consolidation, and reloading. And they can pick up containers at ports and bring them to their facilities for faster, more secure customs clearance. Providers can also run CCTV and seal containers to reduce theft risks.

Choosing a Provider

Make sure the logistics provider you work with can not only understand your unique needs but also turn them into solutions.

For example, shippers have different levels of risk exposure. Limitations of liability, terms, and conditions, and cargo insurance options vary by mode of transport, service type and country.A logistics provider can help you uncover potential liabilities in your supply chain and prepare to manage costs associated with cargo damage or loss. This is why it’s important that you use a provider that has in-house risk-management professionals.

The right provider can also help you manage your regulatory challenges and combine vendor management with your other logistics needs for greater efficiency. Additionally, with businesses, suppliers, and the solutions provider integrated onto the same technology platform, you can gain clear visibility to overall inventory, maintain lower transportation costs, and help ensure on-time deliveries.

Countries require compliance with their own specific set of customs rules, governmental regulations, VAT, duty rate calculations and payment schemes. Even small errors like misspelling on a declaration can lead to fines, penalties or even cargo seizures. For this reason, it’s critical that the logistics provider you choose has regulatory experience in the markets where you do business.

Tailored to Your Needs

Vendor-management programs can be structured in different ways based on what you want to achieve. You could customize it to deliver freight from multiple global suppliers to multiple customers. You could also source all freight for a single company. Or you could use a highly efficient merge-in-transit approach to ship products directly from vendors to customers.

Whatever approach you choose, the end result is the same: Efficient and cost-effective control of your global freight so it arrives on time, wherever you do business.

ocean

A Tough Year on the Water Hasn’t Dampened Innovation for these Ocean Carriers

To say that 2019 has been challenging for ocean carriers would be an understatement. The year began with the National Retail Federation forecasting a decline in year-over-year growth, echoing World Bank chatter of a slowing global economy.

And don’t forget the tariff wars between the U.S. and China (heck, the U.S. and just about anyone). Managing capacity on ships has also been an issue, and then there is the potential biggest bogeyman of all: the International Maritime Organization’s low-sulfur fuel mandate taking effect Jan. 1, 2020.

Sure, we could dwell on the gloom and doom, but that would not be very Global Trade magazine of us, now would it? We here in our silky ivory tower like to spotlight the positive, which we reveal with these ocean shippers we love.

MSC

Mediterranean Shipping Co. this year watched the world’s largest container ship, the MSC Gülsün, complete its maiden voyage from northern China to Europe. With a width of 197 feet and a length of 1,312 feet (!), the Gülsün was built by Samsung Heavy Industries at the Geoje shipyard in South Korea. It can carry up to 23,756 TEUs shipping containers on one haul. That capacity can include 2,000 refrigerated containers for shipping food, beverages, pharmaceuticals or any other chilled and frozen cargoes. That’s a lot of snow cones!

MOL

Mitsui O.S.K. Lines sees MSC Gülsün and raises you the MOL Triumph, which achieved a new world load record this year. Departing Singapore for Northern Europe on THE Alliance’s FE2 service with a cargo of 19,190 TEU. That surpassed the previous load record achieved in August 2018, when Mumbai Maersk sailed from Tanjung Pelepas to Rotterdam with 19,038 TEU onboard. Yes, you are correct, that’s a pretty slim margin of victory, and analysts suspect the MOL Triumph record won’t last long given the 23,000 TEU ships being introduced.

HYUNDAI MERCHANT MARINE 

Speaking of THE Alliance, current members Hapag-Lloyd, ONE and Yang Ming will be joined in April 2020 by Hyundai Merchant Marine (HMM). The South Korean carrier recently signed an agreement to join THE Alliance and then passed the pen to the founding members, who extended the duration of their collaboration until 2030. “HMM is a great fit for THE Alliance as it will provide a number of new and modern vessels, which will help us to deliver better quality and be more efficient,” said Rolf Habben Jansen, Hapag-Lloyd’s chief executive. 

HAPAG-LLOYD

Oh, speaking of the fifth-largest container shipping company in the world, Hapag-Lloyd is piloting an online insurance product as part of a digital offering to try to overcome the widespread practice of shippers relying on the limited cover provided under the terms of carriers’ bills of lading. While Hapag-Lloyd says it takes the utmost care in transporting cargo, company officials acknowledge things can and have gone wrong. Thus, the introduction of Quick Cargo Insurance, which is underwritten by industrial insurer Chubb in Germany and is limited to containerized exports from that country, France and the Netherlands. However, the carrier says it plans to expand the offer.  

MAERSK

To navigate new environmental regulations, A.P. Moller-Maersk A/S is considering going old school. We mean really old school by using a modern version of the old-fashioned sail to help power its ships. Currently being tested on one of Maersk’s giant tankers, the sails look less like the flapping silk you know from Johnny Depp movies and Jerry Seinfeld’s puffy shirt and more like huge marble columns. But they are nothing to laugh at as two 10-story-tall cylinders can harness enough wind to replace 20 percent of the ship’s fossil fuels, according to their maker, Norsepower Oy Ltd. 

MOL, THE SEQUEL

While we’re getting all green up in here, it’s worth also pointing out that Mitsui O.S.K. Lines Ltd. This year joined three other Japanese companies— Asahi Tanker Co., Exeno Yamamizu Corp., and Mitsubishi Corp.—in teaming up to build the world’s first zero-emission tanker by mid-2021. Their joint venture e5 Lab Inc. will power the vessel with large-capacity batteries and operate in Tokyo Bay, according to a statement the foursome released on Aug. 6. Thanks to the onslaught of legislation to improve environmental performance, other companies are also looking to battery power. Norway’s Kongsberg Gruppen is developing an electric container vessel, and Rolls-Royce Holdings last year that started offering battery-powered ship engines.

AMAZON

No, this is not a leftover strand from a different story in this magazine about moving packages on the ground. “Quietly and below the radar,” USA Today recently reported, “Amazon has been ramping up its ocean shipping service, sending close to 4.7 million cartons of consumers goods from China to the United States over the past year, records show.” While other ocean carrier leaders prepare for the bald head of Jeff Bezos, his move really should be no surprise given Amazon’s attempt to control as much of its transportation network as possible. (See my September-October issue story “Air War: Fast, Free Shipping has UPS, FedEx and Amazon Scrambling in the Air”). Of Amazon now floating into the sea, Steve Ferreira, CEO of Ocean Audit, a company that utilizes data and machine learning to find ocean freight refunds for the Fortune 500, told USA Today: “This makes them the only e-commerce company that is able to do the whole transaction from end-to-end. Amazon now has a closed ecosystem.” 

Tariffs & Shippers

IS THE CARGO SHIP SAILING ON NEW TARIFFS?

Demand for Space on Cargo Ships is Surging Ahead of Anticipated Tariffs on China

As over 300 witnesses present testimony in Washington, DC this week and next on the impact of proposed China tariffs on their businesses, uncertainty hangs in the air.

Following the hearing process, committee review and publication of tariff schedules, new tariffs could be imposed as soon as late July or August, which means the cargo shipping rush is on to beat the potential hikes.

Don’t Miss the Boat

The prospect of tariff hikes acts like an “early bird” registration rate as companies are incentivized to lock in better prices now. Many retailers are competing just to find space for their goods on an ocean carrier. Air shipments are an alternative, but far costlier. The shipment surge has resulted in massive congestion at ports and warehouses that are bursting at the seams.

This scenario is familiar. Retailers scrambled last year to book cargo to get ahead of tariffs. Importers front-loaded holiday merchandise shipments to beat the 10 percent tariffs on $200 billion of Chinese imports in the fall of 2018, and then front-loaded spring 2019 merchandise imports late in the year when they anticipated the tariffs would go up from 10 to 25 percent on January 1, 2019. That threat temporarily subsided when President Trump extended the negotiation deadline with China, but reemerged in May 2019. This time, the tariff threat materialized. Goods would remain at 10 percent only if they were exported from China to the United States prior to May 10, 2019 and entered into the United States before June 15, 2019.

New Tariffs, New Shipping Surge

The President has said he will make a decision after the June 28-29 G-20 meetingwhether to impose 25 percent tariffs on an additional $300 billion in Chinese imports, meaning a tariff on nearly everything the United States imports from China, including the kitchen sink (yes, kitchen sinks are on the tariff list).

Retailers generally import most of their holiday goods in August and September, but many are moving up this timetable in anticipation of higher tariffs, accelerating the traditional holiday peak shipping season. If major importers all do the same, advancing the shipment of months of inventory, how will shipping lines manage the demand and allocate vessel space? Where does all this volume sit when it arrives? What is the impact on costs for shippers?

All of this can add up to some choppy trade waters.

Hold My Spot

Retailers, who are the “shippers” of goods, may negotiate service contracts with ocean carriers under which the shipper commits to provide a certain amount of volume over a given period and the carrier commits to a certain rate schedule and set of services. Typically, the greater amount of volume, the better the rates will be. The alternative to contracts is the less predictable spot rate market. Usually valid for only one shipment, the spot rates fluctuate with market conditions.

Larger established shippers are more likely to have service contracts, while small- and medium-sized businesses are likely to be more at the mercy of the spot rate market. Because retailers generally require more pricing certainty and service guarantees, they may opt for contractual arrangements and lose out on the chance to capitalize on weak spot markets. Spot rates can dip below contract levels, for example, if carriers add too much capacity into the system or volume slows. Some businesses play it both ways, confirming some volume under contract and turning to the spot rate market for the rest.

There can also be price-based competition to secure slots on a particular vessel during peak periods, with carriers able to demand surcharges to protect shippers from being rolled onto a later vessel departure. When tariffs are imminent, shippers are often more willing to pay these surcharges to get space on the next available crossing.

Rather than contracting with an individual shipline, a shipper may choose to work with a common carrier, like UPS, that offers ocean transportation, but does not operate the vessels. These Non-Vessel Owning Common Carriers (NVOCCs) differentiate themselves by pointing to their ability to offer a diversified carrier mix and flexibility in cases of unexpected circumstances, such as a strike at the dock a particular carrier uses. The NVOCC negotiates with ocean carriers for a number of slots on particular trade lanes, in effect negotiating as the shipper, and then offers ocean shipping service to customers.

Seeking A Port in a Storm

In theory, changes to service contracts must be agreed upon by both parties – carrier and shipper – before taking effect. In practice, however, shippers and carriers sometimes treat service contracts more as guidelines than binding agreements. Import surges have caused some carriers to hike previously agreed rates, and if the shipper won’t pay, the cargo might sit in Shanghai.

Various organizations are developing innovative solutions to address these contract challenges, including through the use of technology to record contract terms and track shipments’ conformity with those terms, financial security tools to ensure penalty settlement, and requirements to pay collateral at the time of contract, unlike the current spot market where no money is exchanged until goods are on the water and either party can cancel at any prior point without an enforceable penalty.

As the race to get goods to shore heats up, shippers not only face cost increases at sea. With ports struggling with containers stacked six or seven high, shippers also face extra charges to get their goods off ships, onto trucks and into warehouses. As one example, the onslaught of containers also means a surge in demand for chassis, the steel frames that allow trucks to carry shipping containers. If sufficient chassis are not available, truckers have to delay deliveries, incurring costs that are passed to the shipper.

With thousands of retailers moving tremendous volume, the issue of warehouse capacity also becomes a challenge. According to Los Angeles Times reporting, Southern California’s warehousing and distribution complex, the largest in the world, has a less than one percent vacancy rate. Some retailers have resorted to storing pallets outside, while others face hefty fees for exceeding storage windows.

Ports part one
China trade

Are China’s Neighboring Ports Ready?

What about sourcing from countries other than China to avoid the tariffs? That’s easier said than done, at least in the short term to beat a looming tariff deadline. Switching to new vendors and manufacturers takes money and time. New vendors must be trained to meet retailer standards and be able to meet needed lead times. Factories must be vetted for quality standards, social welfare conditions and security factors. China also has superb logistics and other supply chain advantages that other countries cannot match.

In a recent piece in The Hill, the Cato Institute’s Dan Ikenson pointed to trade data showing that, as U.S. imports from China fell by 12 percent in the first four months of 2019, imports from Vietnam grew by 32 percent over the same period. However, Vietnam’s transportation infrastructure is reportedly overwhelmed with the new volume, straining the country’s roads and ports. And, Vietnam is facing pressure to adopt more rigorous measures to ensure that Chinese products do not get transshipped through the country and into the United States, merely to avoid U.S. tariffs.

“The Port of Los Angeles and the Port of Long Beach together comprise the San Pedro Bay Port Complex…On the import side, our most recent analysis estimates the current and proposed tariffs directed at China will impact roughly 66% of all imports by value at the San Pedro Bay.”

– June 17 letter to U.S. Trade Representative Robert Lighthizer from Eugene Seroka, Executive Director, Port of Los Angeles

Rough Waters Ahead

Despite the current shipping boom as producers and retailers build inventory to get ahead of tariffs, the shipping industry is concerned about the future impacts of an inevitable falloff in volume, even if the U.S. economy remains strong. When import volumes soften, dockworkers are not called to work, and the demand shrinks for logistics workers, warehouse workers and truckers. The surges and variability caused by tariff threats – some enacted and some not — have generated a boatload of uncertainty across the wide range of industries that make up the supply chain.

That uncertainty affects not only the users of shipping infrastructure, but sometimes the infrastructure itself. The Massachusetts Port Authority (Massport) owns and operates the Conley Container Terminal in the port of Boston, which serves 1,600 regional import and export businesses. After avoiding tariffs last fall on ship-to-shore cranes to service larger container ships, Massport finds the cranes back on the proposed tariff list. The imposition of 25 percent tariffs would add at least $10 million in costs for three new cranes it plans to buy. Currently, there is no U.S. manufacturer for these cranes and the only experienced manufacturer is in China.

The President and CEO of the American Association of Port Authorities is among those testifying at the hearings this week. He will make the case that tariff increases would negatively impact ports’ ability to make investments in infrastructure that are needed to handle significant growth in trade volumes in years to come. Modern transport infrastructure and a return to greater trade certainty will add up to smoother sailing for ports, consumers, and workers across the supply chain.

Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.

This article originally appeared on TradeVistas.org. Used with permission.

Soybean Transport Efficiencies: Containers Win the Export Race

Illinois, the global leader of producing and exporting soybeans, is uniquely positioned to efficiently export soybeans through container shipping or bulk barge to international markets around the world. With about two-thirds of Illinois soybeans destined for export, it’s crucial to ensure an efficient transportation process. Containers and bulk shipments of soybeans from Illinois can travel through the Gulf of Mexico, the Pacific Northwest, California and even the St. Lawrence Seaway to reach Asian markets.

Not only is container shipping faster, but it also results in higher quality soybeans by preservation in container. Standard freight containers are loaded and sealed, then transferred onto ships, trains and trucks with the goods secured throughout the transportation process. Shipping via container is on average 42 days in comparison to 51 days via bulk vessel shipping. For more information, visit: http://bit.ly/2WM8OuP

Infographic: Containers Give Illinois an Edge in Quality Soybean Exports

Illinois is the global leader in producing soybeans. In 2018, Illinois farmers grew nearly 700 million bushels of soybeans, the highest of any state. If Illinois was a country, it would be the 4th largest soybean producer in the world. Not only does Illinois offer a large amount of soybeans, but the state also offers specialty and preserved quality beans.

With container shipping, soybeans are able to travel to international destinations while maintaining quality throughout the supply chain. Containerization limits damage from fungi, insects and foreign material. For food-grade, identity-preserved and non-GMO soybeans, container shipping is the preferred method.

Beans can be loaded on or near the farm and remain in the same container throughout the journey, from truck to rail to ocean vessel. This, in turn, reduces handling and prevents any potential damage. For more information about the benefits of container shipping, visit: https://bit.ly/2VDkYWp


One Hurdle Left for the Giant P3 Shipping Alliance

Los Angeles, CA – Creation of the giant P3 shipping alliance now rests with Chinese regulators, who, analysts say, are on the verge of sanctioning what would be the most powerful ocean carrier consortium in the world.

Approval by Beijing is the final hurdle standing in the way of the proposed P3 to begin operations as early as this fall.

The P3 would be made up of the three largest container carriers in the world – Denmark’s Maersk Line, MSC of Switzerland and France-based CMA CGM.

The three-line consortium would create a combined fleet of 250 ships operating on a global front that would handle an estimated 43 percent of Asia-to-Europe container shipping, 41 percent of the trans-Atlantic box trade, and almost a full quarter of the container volume in the transpacific market.

The alliance will allow the three giant carriers to cut billions in annual costs by sharing ocean terminals, space on each other’s vessels, and exploiting each container carrier’s geographic strengths to move cargo faster and more economically.

Regulatory agencies in both the US and the European Union have given their approval to the proposed alliance after stating that they wouldn’t pursue any antitrust issues regarding the deal.

The Chinese are expected to announce their approval of the alliance by the end of this month.

06/13/2014