Smooth Sailing: Managing Ocean Transport by Lane
Are your ocean shipments moving via the most efficient and cost-effective method? The type of goods, time of year, and ultimate destination of your cargo are just some factors to consider when contracting with ocean carriers. Here, a best-practices guide for managing ocean shipments and ensuring cargo arrives on time, intact, and under budget.
Speed is the name of the game in supply chain management. Shippers want to get cargo to and from the distribution center in the shortest amount of time at the lowest cost possible.
But the most cost-effective shipping method is not always the most obvious.
“We had a shipper moving watermelons from Mexico in refrigerated containers, which are more expensive than dry containers,” recalls Mark Miller, director of corporate communications for Oakland, Calif.-based Crowley Maritime Corporation. “Because the melons were moving in the fall and winter, we suggested transporting them in open-top containers with shade cloth stretched across the top. The idea worked and the shipper was able to cut costs.”
Whether you ship from the Pacific Rim, Europe, or through the Americas, some knowledge about the factors that affect the cost and speed of your shipments can help you improve efficiency and reduce transportation costs.
The Trans-Pacific trade (Pacific Rim-U.S.) is mainly dominated by Asia imports and can incur transit times of up to 50 days depending on your business. That may sound like a long time, but many factors—such as weather and the rotation of the ship sailing—combine to affect transit times.
“For shippers moving goods out of Hong Kong to the West Coast, transit times could be as fast as 11 days,” notes Tom Craig, president of Glenmoore, Pa.-based consulting firm LTD Management.
“Shipping to the East Coast increases transit times to 25 to 30 days, or upwards of 45 days, for example, coming from a port in Malaysia and going inland to Pittsburgh.”
“Cargo on the last port of loading, and unloaded at the first port of discharge, reaps the fastest transit time,” says Greg Stangel, vice president of marketing for Intermarine, a New Orleans-based ocean carrier specializing in project and breakbulk cargoes.
“Rarely, however, does a full ship move from one port to another,” he notes. “Usually a vessel goes to a port and spends a few days there, which increases the overall transit times.”
Also, says Stangel, “In the United States, increased homeland security means that more inspections are taking place in all the ocean lanes. The Coast Guard is stopping more and more vessels for inspections prior to discharge and prior to entering the port itself.” Delays related to these inspections can be significant.
Transport buyers looking to cut costs on shipments should also take a look at their cargo’s final destination to see if a more economical alternative exists. In each lane, a carrier will generally have a certain number of base ports, and shipments from base port to base port will always be the most economical, says Craig.
In the Trans-Pacific, the carrier usually has three base ports, Hong Kong, Kaohsiung, and Busan in Korea, he adds. An add-on charge will apply when shipping out of a different port.
“The cheapest price in this lane involves shipments coming from Hong Kong to the West Coast, which is a primary port. Shipping to the East Coast will cost more,” notes Craig.
Shippers sourcing from Southeast Asia to the East Coast who are looking for an economical answer, however, also have two all-water routes available to them via the Suez Canal and the Panama Canal. The trade-off for the all-water route is lower cost and longer transit times versus traveling via minilandbridge from the West Coast, which permits faster transit at a higher price point.
When shipping from Europe to the United States via the Trans-Atlantic trade lanes, transit times are much shorter than the Trans-Pacific lanes, clocking in at roughly seven to 14 days or more.
While many of the factors that affect speed in these lanes are the same as the Trans-Pacific, Craig notes that the North Atlantic is mainly guided by freight forwarders and Non-Vessel-Operating Common Carriers (NVOs) so the relationship an independent shipper has with a carrier may play a big part in maintaining the efficiency and cost effectiveness of shipments.
“For the most part, this lane is not shipper-dominated,” notes Craig. “Europeans are used to dealing with freight forwarders when shipping in these lanes, so pricing and negotiations often depend on who you deal with and how you deal with them.”
Though this can be intimidating for the independent shipper, Craig says shipping without a freight forwarder or NVO in this lane can certainly still be done. He advises shippers to ask two questions prior to signing on with a carrier.
“First, if the shipper’s strength is the Trans-Pacific trade, he should ask ‘What can I give the carrier to increase my value? Can I negotiate an extended contract including both Trans-Pacific and North Atlantic cargo?’ By doing this, the shipper may be able to negotiate a contract that is in his best interests as well as the carrier’s,” says Craig.
The second question the transport buyer should ask is whether or not partnering with a freight forwarder or NVO will be beneficial. Because so many carriers are involved with these service providers, notes Craig, a shipper may want to explore this option to help get his cargo on a ship and get the pricing he needs.
The Americas trade lanes include shipments traveling between South America, Central America, the Caribbean, the United States, Canada, and Mexico. Transit times in these markets, however, generally do not have the same demand as in other trade lanes.
Although not as much pressure exists in these lanes as in the Trans-Pacific or Trans-Atlantic lanes, the smaller capacity of the lane works well for certain niche shippers.
The decreased capacity of this lane as compared with the Trans-Pacific for example, can give shippers increased flexibility when shipping via ocean. Carriers who serve this lane can frequently offer shippers more personalized service, depending on demand.
“Though we have regular service,” says Stangel of Intermarine, which offers customized voyages for shippers, “we don’t run out ships in a purposefully fixed rotation. We construct every voyage based on the demand of cargo for that particular week.” This system allows the customer to determine the sailing schedules rather than trying to make a carrier’s fixed schedule fit the shipper’s needs.
The cost for customized service can sometimes run slightly higher than fixed rotations but does not have to be unaffordable, notes Stangel. The cost for shipping varies depending on the nature of the cargo (shape, size, stackability) as well as the requirements on service. For example, last-in/first-out service will likely cost more than stopover service.
“If a shipper wants fast transit to Argentina, for instance,” says Stangel, “normally we stop at Brazil before going to Argentina, which takes additional time. If the shipper wants to bypass Brazil and go directly to Argentina, we can make that happen, but there will be an opportunity cost for this service.”
If you want your carrier to customize voyages for your cargo and still remain cost-effective, you should be willing to work with your service provider to plan sailings ahead of time with plenty of notice.
“With more advanced planning, we can work with shippers to customize voyages and provide an economic answer rather than a hardship answer,” says Stangel.
The Give and Take
Regardless of the lane in which you will be shipping your cargo, the cost will be affected by the frequency of the shipments that you make with a particular carrier.
“The majority of shippers move their freight with us under confidential contracts, committing to move a certain number of containers or trailers over a period of time at less-than-tariff rates,” says Crowley’s Miller. “Infrequent shippers, or those who don’t move cargo under contract, generally pay the published tariff rates.”
Developing a long-term relationship with a carrier is one thing Jeff Carmignani knows the value of first- hand. As vice president of Logan, Utah-based ICON Health and Fitness, the world’s largest manufacturer of fitness equipment, Carmignani ships cargo from Asia to the United States, Europe, and South America.
The company also exports out of Utah to northern and southern Europe and to the United Kingdom. ICON’s retailers include department stores such as Sears, sporting goods stores such as Sports Authority, and mass merchandisers Wal-Mart, Kmart, and Target.
Carmignani credits his long-time partnership with ocean carrier APL for helping his company manage shipments through all the major ocean trade lanes.
“Transit times are a big issue for us,” says Carmignani. “We have run into problems trying to get space on vessels and get containers back during the peak season, which impacts the efficiency of our shipments.”
The company previously worked with APL and, believing in the value of long-term relationships, decided to utilize the carrier’s services not just for its peak season shipments, but for its year-round business, including shipments during the slack season.
“In order to secure competitive pricing with APL, we negotiated a contract that has the same pricing year-round,” says Carmignani.
This partnership allows for give and take among shipper and carrier, an aspect Craig says can make a real difference in negotiating prices and elevating service levels.
“The people at APL have been very cognizant of our needs,” says Carmignani. “They work closely with us to make sure we have the number of containers we require and protect space for us on the vessels.”
When ICON’s containers got stuck on the rail in Salt Lake City due to a backlog on the West Coast ports and capacity strain on the railroads, APL was able to work with Union Pacific Railroad to get the containers delivered to the company in a timely fashion.
“The railroads don’t recognize me as their customer,” notes Carmignani. “They only recognize the carrier, so it was very beneficial to have our carrier working for us in this situation.”
Carmignani advises other shippers to develop strong relations with their carriers to improve service levels and expedite shipments. This means willingness to establish a give-and-take partnership.
“Anything I can do to make my business more efficient from the carrier’s standpoint will come back in the form of better pricing and service,” he says.
Tackling Contract Negotiations
Developing long-term partnerships also tends to make contract negotiations go more smoothly, but for shippers looking to sign on with a carrier for the first time, the process of contract negotiations may be daunting.
An important thing to consider, says Craig, is combating peak season times in the lanes in which you will be shipping, to increase your service potential. Many carriers overbook space on their ships during the peak season and shippers should look to protect themselves in this situation.
Container capacity is another thing to be aware of when shipping to and from Europe and Asia during the peak time. Labor issues in the United States result in delays loading the empty containers, says Craig.
In Europe and Asia, workers at the ports often do not have the time to load all the empties, so coming out of these locations you may not have the containers you need.
Peak times for the Trans-Pacific lane run from about May or June through November, and most contracts for Trans-Pacific movements are negotiated in April. The peak season for Trans-Atlantic trade is generally from December through February and most contracts involving trade in this lane are negotiated during November.
Shippers who can avoid movements during the peak season may find lower costs across the board from ocean carriers. It is important to note, however, that changes in vessel capacity during slack seasons may also mean potential disruptions to established shipping patterns, so shippers need to be aware of this during negotiations.
Contracts have a tendency to include some confusing language and unless shippers know exactly what stipulations they are committing to, they may find themselves in rocky seas come payment time.
Carriers will often discuss fuel charges, bunkers, and other specifics but may not be so open about those charges in the fine print, warns Craig.
“This develops into a wordsmith game between shipper and carrier as far as holding rates,” he says. “Carriers often come up with a new charge and a new name, and the shipper may be hit with extra costs that he thought were covered under the contract. Be aware that you may not have a firm cost contract even when you think you do.”
Look for items such as “revenue recovery charges,” which leave the contract open for a second round of negotiations and an increase in pricing at the carrier’s discretion, says Craig. Examine the contract to see if you can restrict any of these price increases to ensure that all prices are in effect as of the date of the contract, with no exceptions.
While cost and speed will always require a trade-off, shippers who are proactive in the carrier selection process will be more likely to develop partnerships that address the specific needs of their cargo.
Shippers should consider the following factors when selecting an ocean carrier:
1. Service frequency. By partnering with a carrier who offers multiple sailings, manufacturers gain greater flexibility in their production schedules. They can receive raw materials over different days and can then ship manufactured goods to market as they are completed. This prevents the shipper from having to wait a week or more for the next outgoing vessel.
This can also impact warehousing costs by keeping cargo moving through the supply chain. Another advantage of multiple weekly sailings is that if a shipper’s cargo arrives late to port, it can be put onto another vessel to sail out a day or two later rather than sitting on the dock for an extended period of time.
2. Inland transportation. Most cargo needs to move from the port to another destination inland, which can have a great impact on the efficiency of the shipment. Bottlenecks at intermodal rail ramps or driver shortages on the road can cause problems for shippers and carriers.
Before partnering with a carrier, find out about its partnerships with inland transportation providers and how your carrier can leverage its purchasing power to achieve the best service possible.
3. Comparison shopping. Don’t forget the power of the Internet in comparison shopping. Start with the carrier’s web site, where you will find sailing schedules, transit times, and a list of available equipment, along with a list of equipment locations throughout the country.
You can also check tariff rates online, send an e-mail, or make a phone call to freight services outlining what you have to ship, where you need it to go, when it needs to arrive, etc. The carrier can offer you information on cost and the best way to get the cargo where it needs to go.
With the right people on your side you can address the variables specific to your ocean shipping needs and ensure your company cuts costs and saves valuable time.