For European shippers and freight forwarders, the end of the year marks the start of ocean freight contract negotiations. For US shippers, springtime usually marks the beginning of the annual contract negotiation with ocean carriers. However, things have gottenoff track when capacity began to outpace the market and rates fell to historic lows. As a result, forwarders and shippers began to change their strategy. In the end, how can we be more efficient and evolve the age-old practice of "tendering/bidding"? In this week’s social media survey, we asked folks how frequently they negotiate (tender/bid) their freight. While there was no clear majority, 40% said they tender/bid freight on a monthly basis compared to 30% each for every quarter and annually. The higher percentage rate for monthly bidding is not surprising considering the erratic rate market; but as Chas Deller, co-founder of forwarding firm, 10xOcean notes, “There are two golden rules – You only go to bid if you can reduce costs and improve service.” @Xeneta_AS 2 Golden rules You only go to bid if you can reduce costs and improve service . In a recent podcast, we highlighted that based on current data, short-term contract average price for the East Asia-North Europe lane declined 24%; but, the market low price increased 11%. The gain in the market low price indicates that carriers have been successful in pulling up short-term rates during the quarter. If this trend continues, 2017 could usher in higher ocean freight rateswith long-term rates also feeling the upward trend as carriers are rejecting long-term contracts at the previous historic lows from earlier in the year. The industryremains cautiously optimistic of what the end of the year and 2017 can bring for rates. As we noted, the Hanjin effect has worn off, but in the end, the market is looking up. In addition, a previous Twitter survey indicated that folks expect higher rates in 2017. Peter Tirschwell, Senior Director, Editorial Content for HIS Markit, Maritime Trade provided his thoughts on 2017 freight rates, “Slight increase but not as much as some shippers are expecting or as much as carriers would like.” These leads then to a question about how useful are these periodic negotiations. Its a tug of war between BCOs and suppliers. Does anyone benefit in the end? A benefit of long-term contract negotiations is the simple efficiency of locking in rates so constant negotiation doesn't need to happen. While usually large volume shippers contract on longer freight contracts, the sheer unpredictability of the market earlier in the year has made spot market prices more attractive. However, as I noted above, efficiency and transparency, is the order of the day. For many, negotiations can take anywhere from 60-90 days; a whole quarter is lost simply trying to see if maybe prices or service is better somewhere else. With such a broken industry with disparate practices and processes, it all becomes one big ball of chaos, confusion and fighting in the dark. Data is everywhere and nowhere. Rate sheet standards are non-existent. Trying to make sense of a BCO's, carriers' and freight forwarders' rate sheets is like deciphering code to make any sense of it and get them to speak the same language. In the end, th process doesn't come without any costs to shippers. Inefficiency is expensive. Spending time collecting all the disparate data, making sense of it and then negotiating and allocating, causes a few new gray hairs to pop up. Not to mention that for many logistics and supply chain professionals, the most important thing is to make sure that the cargo, inventory flow is undisturbed; that they have less things to worry about and only focus on getting things from A to B to make sure overall company revenue trends upward. What's important forlogistics and supply chain professionals is that they change providers as little as possibly needed as it causes disruptions to their supply chain, which in the end is a big loss. There needs to be a better way to benchmark suppliers and keep abreast of the market on a constant basis to be aware of how the market moves and how changes in market dynamics can affect prices, service and in the end the flow of trade. The market continues to shake out as losses mount and M&A activity continues. We willall be affected by thesocial economic issues amounting, which will affect supply and demand, which will affect carriers' financial health, and in turn affect freight rates and service. What's your overall thought on ocean freight negotiations? Here to stay or more to come? Tell us what you think, leave your comment below. Check out how Electrolux used Xeneta during their ocean freight negotiations to get visbility into their prices. Download the report here.More Shippers Tendering Freight Monthly
Long-term or Spot | Tug of War
Are Negotiations Obsolete? Is Efficiency at Play?
Disturbance in the Force is Not Welcomed
FAQs
How Often Do You Negotiate Ocean Freight Rates? ›
Each year, as part of their freight rate procurement process, importers and exporters negotiate freight rates and services with carriers or freight forwarders. This is known as an annual freight tender, and it's worth considering using them if you ship more than 1000 TEUs a year.
How to negotiate ocean freight rates? ›Negotiation Strategies
Explain the reasons behind your rate expectations using market data and the shipping needs you've considered. Highlight your business's reliability as a volume source for carriers, justifying favorable rates. Consider inviting multiple carriers to submit rates for a competitive environment.
You need to make the most out of your containers by maximizing your cargo sizes each time you ship. For example, you should book FCL (Full Container Load) to ensure that you maximize your space on every 20ft or 40ft container. Shipping FCL will reduce your cost per unit, but there is a drawback.
What is freight rate negotiation? ›When you negotiate freight rates, you're either beginning or building relationships with a freight forwarder that could add value to your operations. Strong relationships throughout the supply chain pay off over time, and you want to keep things productive and cordial between you and the other party.
How can I get cheaper freight rates? ›- Shipment Volume: Higher shipments often lead to lower rates, as carriers can maximize their capacity.
- Freight Class: Accurate classification of your cargo based on its characteristics can ensure you're charged the correct rate.
Ocean freight is the price you pay for your international transport by sea. There are many variables that can determine this price. For example, the type of cargo, the volume and weight of the cargo, but also the sailing route defines the final price of each shipment. The choice for FCL or LCL is also of influence.
Why are ocean freight rates so high? ›Longer transit times mean additional fuel and operating costs for ocean carriers, which are then passed on to shippers through rate increases and additional surcharges.
What is the formula for ocean freight? ›Multiply the chargeable weight by the applicable freight rate per kilogram (kg). This will give you the freight cost for the cargo. Additionally, consider any additional charges such as fuel surcharges, terminal handling fees, or customs duties, which should be factored into the total cost.
What is the LTL pricing strategy? ›Historically, LTL pricing relied on base rates set by carriers using in-house models and assumptions. Factors like freight class, shipment dimensions, trailer space usage, handling costs, and risk exposure all went into the rate calculations.
How do I lower my LTL? ›- Oversized freight.
- Re-weigh & re-measure.
- Residential delivery.
- Inside delivery.
- Truck ordered not used (TONU)
- Appointment.
- Liftgate.
- Extra packaging.
How do you negotiate rates? ›
- Determine your minimum acceptable rate. ...
- Know your industry. ...
- Know your value as a contractor. ...
- Where you live can affect your pay. ...
- Consider features and circ*mstances unique to each client. ...
- Get a range of hourly rates from potential clients. ...
- Start with a high rate.
Flatbed Freight Rates – August 12, 2024
National average flatbed rates are $2.44 per mile, $0.08 less than the July average. The Southeast has the highest average flatbed rates at $2.59 per mile. The lowest rates are in the West, with an average of $2.21 per mile.
A freight rate index collects pricing information from multiple carriers, shippers or forwarders at regular intervals to calculate a benchmark or market rate for freight for any given shipping lane and provide visibility into freight rates for interested parties.
How do I get shipping prices down? ›- Slim down package weight. ...
- Lower the DIM weight. ...
- Consolidate shipping boxes. ...
- Avoid Expedited Shipping Charges. ...
- Shorten the shipping distance. ...
- Negotiate with carriers. ...
- Get help from the pros.
- Understand your operating costs. ...
- Keep an eye on spot rates to understand the market. ...
- Consider additional fees and costs while negotiating. ...
- Use pick-up and drop-off times for leverage. ...
- Know when to say no. ...
- Get a contract in writing.