You Get What You Pay For

You Get What You Pay For

On Monday, October 26, 2009 The Wall Street Journal published the article “Beat the Clock” by Paul F. Nunes, Geoffrey Godbey and H. James Wilson. The article proposed various methods in which companies could “sell time” to consumers through their products and services. What the article suggested was that by shaving wait or commitment times, companies were recognizing the value of the consumer’s time – a commodity many people, even during the recession, are willing to pay more for.

But consumers aren’t the only ones looking for more time, companies are in need of it as well. This was evident during a recent Webinar by the Journal of Commerce where AMR Research and C.H. Robinson provided commentary regarding how outsourced 3PL services can streamline supply chains, which in turn will save companies time and money.

As the economy gets back on its feet and businesses begin to breathe more easily, a major focus is on cutting out inefficient measures. These unnecessary or outdated techniques and practices are being hit now as companies start trimming their fat, so to speak, to stave off further profit losses or impediments. For supply chain managers, there are several factors to take into consideration when recreating best practice measures.

Utilizing the services of an out-of-house logistics company, when done correctly, can lead to improved and more efficient supply chain networks. Today’s successful logistics companies have adopted the adage that “time is money” by providing their customers with highly qualified account managers and comprehensive, easy to use technology. The factors that make up a successful partnership with an outside logistics company are 1) Transparency, 2) Flexibility and 3) Control.

Transparency

During the JOC Webinar, Greg Aimi with AMR Research accurately depicted the complex and highly involved nature of a supply chain network. Many companies seek a logistics partner that can consolidate these factions. However the key to making this joint effort successful is a logistics company that also offers complete visibility into a supply chain. There is never any time where your company should be out of touch with the goings on in your supply chain. Other companies involved, such as the manufacturers, suppliers, and customers, also need access to the areas of the network that impact them. For example, the manufacturer must be fully informed of any changes to the production schedule. With greater transparency, answers will be at your fingertips and decisions will not be put on hold while you wait for someone to ask someone to ask someone.

Flexibility

Logistics companies came into existence by consolidating their customers’ workload into one or two contacts. Rather than companies reaching out to 10 or more carriers and 5 consolidators, they now have a single source that will do this work for them. But the needs of companies are constantly changing, from service requirements to cost restrictions, and a strong logistics partner is one that can shift fluidly from one need to another. Your company will spend less time trying to compensate for late orders and missed deliveries because it is the responsibility of the logistics team to provide a solution.

Control

The final, and most important factor for your company, is the need to keep control in your hands. It’s your supply chain, and no matter what they say, no one knows it better than you. A truly great logistics partnership is one that improves your overall control. Both transparency and flexibility play into this third component. Without them, your company will not have complete control over its supply chain networks.

When supply chains are performing at optimal levels, you save your company the time involved to fix problems, the cost of personnel required to address the problems and the delays it causes for your customers. With this reduction in cost you can save more money for your customers as well as for your company. You also help establish your company as a reliable entity to do business with in the industry, one that can meet promised deadlines. If time really is money, then any time wasted is like throwing money out the window.

The below image was adapted from a diagram provided by Greg Aimi during the JOC Webinar. The bullet points dictate necessary outsourcing models to achieve the different levels of supply chain efficiency.

The below 30 second video is a fast-forward of a container ship being loaded.

Welcome!

As this is our first post, we thought it would be mutually beneficial to address what the ocean freight industry has done this past year and what we expect it to do over the next few months.

What we have seen:

During the 2^nd half of 2008 through August of 2009, the US and World economies plummeted. The ocean freight industry, in an effort to reduce costs, cut or merged trade lane services and docked more than 500 vessels (see picture below of the “Ghost Fleet” off the coast of Malaysia). Yet even with this reduced capacity there was still not enough demand, so carriers drastically reduced rates to unsustainable amounts.

What carriers quickly realized was that even with pricing below cost there was still no demand. Carriers then took a different approach by drastically raising prices through Rate Restoration Increases, General Rate Increases and even Peak Season Surcharges. Below is a piece from the TSA website (Transpacific Stabilization Agreement, a research and discussion forum between ocean carriers such as APL, CMA, ZIM, OOCL and more):

2009-10 Interim Revenue Improvement
Given the unprecedented market conditions in early 2009, TSA member lines did not announce a customary program of rate and surcharge adjustments for the upcoming contract year, that would form the basis for contract negotiations.

However, upon reviewing the results of negotiations after most contracts had been signed, carriers determined that overall rate levels in the trade going forward - and locked in for 12 months - were unsustainable, and that further revenue improvement was needed.

On July 7, 2009 transpacific container shipping lines announced an interim revenue improvement program for the 2009-10 contract year, including:

- A $500 per 40-foot container (FEU) rate increase for all commodities
and all U.S destinations, to take effect August 10, 2009.

- Full implementation of the quarterly floating bunker fuel charge, to the
July 1 levels of $188 for the West Coast and $385 for the East Coast.

- A possible peak season surcharge in the event the eastbound market
measurably strengthens and extensive peak season costs are incurred.

Prices now are at levels similar to those before the global economic recession. Carriers are sharing vessels and still continuing to lay up ships and delay or even cancel production orders of new ships. Branches are being closed and work consolidated to reduce overhead costs. With only a marginal increase in demand during this year’s peak season, some in the industry are convinced that we will not see enough of a profitable holiday season to pull our economy out of this recession. Some economists forecast the recession to last until 2012.

What we expect to see:

In an unstable economy we can only expect prices to remain unpredictable. Although carriers will not drop their rates back to the phenomenally low rates seen a few months months ago, we expect continued rate fluctuations as carriers try to survive by raising rates while shippers continue to push back.

The market is already beginning to improve, and we expect in the next 6 months the shipping industry will see demand return. Unfortunately, with the service and personnel cuts required to survive the current economy most companies will be ill-equipped to handle the needs of their returning customer base. Customers who were loyal during the recession, namely NVOCC’s and freight forwarders, will likely receive preferred service at the outset but the lack of available personnel will play a significant role in service and end customer satisfaction.

The following is a video of compiled images of oil tankers set to music.

We hope you find it entertaining and interesting.

Video provided on YouTube by ElMejoDeMuja