For logistics managers with limited time at the helm, this chaotic market seems extraordinary. But let me assure you that this is just another “black swan,” a totally unexpected market event—and you will see many more before your retirement.
Black swan events can affect just one mode such as a strike, or weather disaster, and then there’s an event like a pandemic that affects every corner of the global market. However, the news this month is about a turnaround in ocean rates.
Ocean prices in competitive lanes are in a free fall. Contracted prices, seen as a hedge against further price increases are, for some, now higher than spot prices, as ship owners are looking out just a few months when box capacity will increase with the delivery of new, larger vessels.
Shippers are quickly turning the tables to grab some margins back, and service providers are working on operational restrictions and further consolidation to maintain the upper hand in pricing.
There are a few things buyers and sellers might want to do, perhaps with an underused contracting technique or two, in order to transition to a win-win-win relationship among service provider, forwarder, and shipper.
Shipper coopetition. Instead of competing with other shippers for a carrier’s capacity, cooperate to increase your leverage significantly. Shippers can legally increase their collective buying power while helping carriers optimize their planning, scheduling and billing.
The American Institute for Shippers’ Associations defines shippers’ associations as: “Generally non-profit transportation membership cooperatives which arrange for the domestic or international shipment of members’ cargo.” Whether you work through a non-profit association or a for-profit broker/3PL, there may well be opportunities for improvement in pricing and service as the carriers in all modes are consolidating. What are you doing in response?
Vested logistics. This term borrows from the Vested Outsourcing movement out of the University of Tennessee. A few brave souls among logistics service providers have begun to follow the multi-step process the Vested practitioners recommend.
Usually, the reticence has been on the shipper’s side to commit to an open process focused on innovation, not brow beating. A declining rate market is the time for shippers to try and lock in a long-term partnership with service providers.
It might be a good time to start a conversation about reducing mutual pain when disruptions occur. Keep in mind that there are innovation and adaptation steps that can offset base cost increases, and it may be time to look into using a proven method for success rather than making up your own.
Getting to “we.” Almost 10 years ago, my colleagues Jeanette Nyden, Kate Vitasek and David Frydlinger wrote a book titled “Getting to We” about planning for and successfully negotiating important deals.
Instead of an adversarial approach to buying logistics services, they suggest that we might try sitting down and openly figuring out the best long-term solution for all parties. This sounds naïve, but it isn’t, as they suggest that there are paths to good deals that others have trodden before.
After the pricing and service roller coaster ride is done, what will we do differently before the next black swan arrives?