By Sara Mayes, President and CEO, Gemini Shippers Group
As the head of a shippers’ association, I often get questions from supply chain leaders on how they should allocate their freight for the upcoming 2016 contracting season. Like years past, shippers face a multitude of questions to consider when determining carrier allocations.
Carriers and Alliances: How do I allocate cargo among the various carriers and alliances products?
Routing Options: How should we allocate between the US East and West Coast? For cargo destined to the US East Coast, should we focus on strings that move via the Panama Canal or the Suez Canal? Which ports should we use as gateway ports for inland intermodal cargo? Should we book our shipment for door delivery or arrange last mile logistics ourselves? Which underlying class I railroad is optimal for our inland cargo? What do I do about Chassis?
Rate Structure: Should we lock in long term rates or focus on short term spot pricing?
Service Requirements: How important is transit time? How important is customer service and documentation? What other value added services do I require?
Carriers vs. NVOCC or Shippers Association: Should we procure direct contracts with Ocean carriers, or route freight via a freight intermediary, or a shippers’ association?
Price: What is a fair and reasonable price for the service levels I require?
In a normal year, supply chain managers face an enormous task of analyzing the almost endless permutations of origins – destinations – carriers – alliances – gateways – railroads – drayage companies and price options available to them.
This year shippers have a more sizable challenge driven by the high level of uncertainty facing ocean shipping.
Product uncertainty: Pending M&A activity and the opening of the enlarged Panama Canal will most likely lead to significant product changes for many carriers and vessel alliances in 2016.
Price Uncertainty: Significant overcapacity, and tepid global demand have introduced an extreme amount of rate volatility into the market in 2015. Low ocean freight rates buoyed by recent low bunker prices have driven rates to recent historical lows, putting carriers’ ability to remain profitable at risk.
With all of these factors in play, my answer to shippers on how to allocate their cargo is simple: allocate cargo like you should allocate your investment portfolio – carefully, thoughtfully, diversified, and aligned with your tolerance for risk.
Here at Gemini Shippers, we help to educate our member companies on the changing permutations of choice and help them to align their carrier selections to create a value proposition that corresponds to service level and price goals required to successfully manage their supply chain. With our diverse carrier options and no required commitment from members, we offer tremendous flexibility.
Understanding the freight ecosystem and your company’s business requirements before you allocate cargo in 2016 is key to a successful contracting program.
To find out how Gemini can make a difference for your company, visit us at www.geminishippers.com or call us at 212-947-3424.