How to Negotiate Ocean Carrier Contracts
What you put into contract negotiations dictates what you get in return. So begin by putting together a prospectus of your industry and your company and where it is moving—with input from all departments and levels of management within the extended enterprise.
Assess and understand where business is growing or slowing—where supply bases are migrating and where your key consumer markets are located. Shifting U.S. demographics and consumption, and associated transportation costs, may direct where your company is locating distribution facilities, and therefore, proximity to certain ports.
At the same time, sourcing strategies may similarly impact what ports you are bringing product into. For example, pushing manufacturing further inland in China may warrant consideration of Suez Canal routings via the U.S. East Coast versus Pacific transits to the West Coast—and carriers serving those areas.
Having a firm direction of corporate growth strategies and transportation requirements will give you a better idea of what lanes you will be looking to fill.
WHEN YOU APPROACH THE TABLE
IDENTIFY YOUR NEEDS.
Before you identify potential carriers, determine your requirements. Is demand consistent all year round or is it seasonal? Are you looking for basic services and port-to-port rates or will you need dedicated space and specific visibility requirements?
If corporate strategies are in flux, long-term demand is not clear, or you’re looking for spot capacity, consider a single-year contract instead of a multi-year contract. If you are looking to grow a partnership with a carrier, your growth expectations are aligned, and you would like to lock in capacity long term, consider the latter. Make sure you clearly outline your expectations, in terms of service, ethics, and security, so carriers know where you’re coming from.
The more information you can share with potential partners, the more detailed terms and targeted rates you will receive in return. Provide a candid assessment of lane forecasts and where you see your business moving.
If you are looking to seal a partnership for the future, consider your value to the carrier. Why should they want your business? Are you a good fit? What are your required container turn times? What type of equipment will you need? What are your customer service and technology needs?
Sell your business. Prepare data on potential facility expansions, recent or pending acquisitions, and process improvements in your own ocean carrier management operations. Look to drive value rather than a bargain because ultimately you will get what you pay for.
UNDERSTAND THE CARRIER’S POSITION.
Try and assess carriers’ key drivers for pricing strategies. Knowing current market conditions, and how they may influence a carrier’s volume cycles, will impact their willingness to negotiate and provide you with a better strategy for negotiations.
What and where are their strengths? What ports are they serving? Where are they growing their services? Do they own their own terminals? Are there labor, congestion, or capacity concerns at these ports that might be problematic for your own speed-and cost-to-market needs?
Having assessed your needs and those of the carriers, role-play the negotiations and consider what your response may be. Have a plan to account for all possible objections. What terms are required and what can you do without? Bring a list of concessions to the table so that you have some wiggle room when you begin.
PERFORM POST CONTRACT DUE DILIGENCE.
Following a successful negotiation, record what went well and what can be improved. Use this historical analysis when you begin your next negotiation.
Also, if warranted, consider opportunities where you may begin planning out long-term growth initiatives with your carrier. For example, if a carrier is investing heavily in certain lanes or ports, identify ways your business might leverage these investments.