The Covid-19 Pandemic has increased in global supply chains:
-Uncertainty
-Increased Costs
-Delays
-Reduced Capacity
-Limited Negotiation Leverage for Shippers
When freight is managed as a “commodity” there is little opportunity for long-term, more successful and profitable relationships in the purchasing of global transportation services between shippers of cargo, service providers and carriers.
Most shippers with international footprints work directly with carrier options, NVOCC’s, 3PL’s or forwarders/brokers. These relationships, as we enter the second year of the Covid-19 Pandemic are increasingly critical aspects of freight, logistics and overall supply chain management success.
Uncertainty in the freight markets has created a disruption, confusion, and disharmony in the trade lanes of the world, in particular, to and from the USA/China. Air and Ocean Freight Pricing is up in multiples of 3-8x average pricing over the 2017-2019 periods.
There are also delays and a significant lack of carrier capacity, chassis and trucking capabilities. This has impacted both imports and exports as well as certain domestic movements.
While the biggest impact is on international trade lanes, domestic freight is up and has caused capacity and pricing increase, as well.
The most impactful frustration is with inbound air and ocean freight from China to North America. The concerns start with the “demand planning” and the need to substantially increase lead times, say normally at 8-12 weeks to 20-30 weeks out.
Importers need to be prepared for delays in moving the freight as much as 30-60 days. Carriers have now come up with “Premium Pricing” best described as “If you want your freight to move … this is the price you will have to pay”. This is causing ocean freight pricing to rise into the $8-15,000 level per 40’ Container from China to the West Coast USA.
Ocean Freight which has been typically guided by “annual contracts” is now mainly controlled by “spot market pricing”. Another leading indicator of a very tight market condition.
Airfreight pricing could as high as $10.00 per kilo., where normally $2.50 per kilo would be the market rates.
The market volatility is likely to extend into 2022 so we caution all supply chain managers to properly prepare for more difficult times and seek numerous options.
With all the doom and gloom, there are a number of measures we can take to mitigate the impact and
When we have “sustainable relationships” we capitalize on the following:
Better working relationships between shippers, service providers, and carriers
We all want to work in an atmosphere in global trade where we would describe our relationships in the global supply chain as excellent. This allows for less stress and overall better results.
Quality relationships create the ability for better planning and management by more informed and better-anticipated expectations.
Ability to work through Pandemic Disruption.
Carriers and Service Providers are more likely to accommodate existing clients where a favorable working relationship is present. Since there is limited capacity, the industry prioritizes clients over prospects.
Longer tenured relationships
Changing service providers and carriers frequently is disruptive and costly and never a preferred option. Everyone engaged in the supply chain does better in long-term relationships.
Reduction of risk and spend in the global supply chain
When the relationships work well we always see a direct relationship to the reduction of costs and risks as goods move through the supply chain cycle both domestically and internationally
Keep in mind that there are a number of options from freight consolidation, drawbacks, FTZ’s … that these relationships can bring to value in global supply chains.
Consistency in pricing and service agreements
If we always have “spikes” and “steep” changes in our business models, no one will be happy in your company and the difficulty to manage operational issues will be very difficult all the time.
The preference always is to have a smooth gliding more rhythmic path in the business model to follow so changes are not large or small but even out on a more consistent basis.
Less “angst” in “day to day” business dealings
The uncertainty is global shipping has caused much frustration, which has led to high degrees of angst.
Angst causes stress. Stress causes anger. Anger causes bad decisions. Bad decisions usually produce bad results. Eliminate angst and have more success.
Ability to work through problems and bringing quicker resolve to issues at hand
Global supply chain managers face challenges every day. Even in the best-managed supply chains, problems will occur daily. They need to be resolved quickly. Good working relationships “open the door” to quick, swift and comprehensive resolution.
Access to better security and trade compliance initiatives
Every international supply chain requires due diligence, reasonable care and supervision and control to meet various government security and trade compliance regulatory requirements. Better working relationships foster a more secure and compliant environment to ship freight in.
Better access to and utilization of technology resources
Technology will always enhance business relationships with all the benefits of expediency, efficiency, exactness and information flow.
Technology is becoming one of the most important value-adds in business relationships in the global supply chain:
-Enhance efficiency in information flow
-Enhance correctness in information
-Allows information flow to be the conduit for more informed decision-making
-Creates KPI’s (key performance indicators) that manage accountability between the multiple parties in international transactions
-Becomes a management tool to increase overall performance, lower costs and reduce risk.
Creating a “partnership” approach
We cannot emphasize enough the importance of establishing a “mindset” between all the parties to approach matters on a “partnership” basis. This is the best course of action that achieves “trust and confidence” between shippers, service providers, and carriers.
Trust and confidence become “hallmarks” and allows all parties to both compromise and benefit from all the actions that impact one another in the day-to-day movement of freight throughout the world.
The following key factors create a path to better relationships and sustainability.
Transparency
Share all the information necessary to get the job done right. Eliminate a “mindset” of clandestine behavior, working through “secret passageways or working in the shadows” mentality.
Put up all the data. Shippers outline clear expectations. Service providers and carriers outline clear capabilities.
A no non-sense, direct, no BS approach works best.
Valuing Favored Incumbents
Always be loyal to companies that have serviced you well. Loyalty is what you expect from your customers, so give it to your vendors and suppliers, when well deserved.
If you need to conduct an RFP (Request for Proposal) and bring in competition always give some advantage to a favored incumbent.
Be Open and Honest, Consistently
The value of being open falls in line with being transparent, but also adds on an element of “frankness, truthfulness and honesty”. People trust those who are honest period.
When you are more honest, you can get more done as people better respect you and are more open to participate and go the extra yard to get better results.
Be Creative
The challenges of global trade can be daunting. Every approach will require a potentially different and maybe even a new revolutionary approach.
Creativity is a necessary element of being able to compete successfully, as creativity opens the door for problem resolution, progressive options, aggressive tactics and at times advanced/rebellious/extreme/mutinous behaviors.
Risk Management in assuring “Insurance” is Addressed
Claims are inevitable if you ship goods internationally. If you want to see a “relationship, go south quickly” have an unresolved claim. Liability for loss and damage in global trade is an area of major concern.
All parties in the supply chain shipper, service provider and carrier need to know where their risk begins and ends and if there is a claim, where indemnification will originate.
When this is left unclear, it creates frustration between the parties and eventually a loss of confidence, which leads to a breakdown in any opportunity for sustainability between the parties.
Address insurance concerns proactively, comprehensively and with transparency and you will mitigate future relationship issues.
Summary
Quality relationships drive sustainability, which is always a preferred option in global trade.
The big concern is the impact all of this will have on both industrial and consumer pricing, which has and is likely to increase pricing even more than it has already with inflation raising its ugly head.
Comprehensive planning, making better more informed decisions and developing quality options and relationships create a blueprint for mitigating these supply chain challenges now and down the road.
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Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.
The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.
Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.
Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.
He can be reached at tomcook@bluetigerintl.com or 516-359-6232.
