Global shipper highlights the need for carriers to focus on
AT a time when the shipping industry is besieged with stories about declining rates and increased tonnage, the Shipping Gazette interviewed a global logistics manager from a major global shipper - who is willing to pay more to ship goods with carriers who provide a more reliable service.
The company's global logistics head told the Shipping Gazette there was a simple reason for this: it saves the company money over the long term.
This publication has long advocated that carriers are too preoccupied with price. In a bid to secure volumes the carriers' response has all-too-often been to reduce rates, even sometimes to a point which threatens the viability of the business itself.
While accepting that price is one of the key factors in securing business, we have argued that it is not the only factor. If a carrier provides a higher level of service and has enough confidence in their product, then there will always be players in the market that are willing to pay above the market rate and provide the volumes necessary to make the relationship viable.
The global logistics manager we interviewed backed up our arguments. He categorically stated that rates are not the only criteria he uses when determining which carrier to use. He said, "we do internal surveys, satisfaction surveys and relationship surveys. We ask questions like ‘what is your relationship with the accounts manager and on a local level are you able to get issues resolved quickly?'"
According to our source, those offering a superior service might be chosen over a rival even if the rates they were offering carried a premium. Obviously our source was a little reluctant to discuss exact figures and percentages but said "certainly we would allow between US$ 100-200 per container."
The logistics manager admitted this figure over the long term could amount to a lot of money, but he said if you choose a carrier that offers you a failing service because of its extremely competitive price you will end up being forced to change that service provider anyway at some point.
This causes a lot of unnecessary disruption to your operations, and furthermore you will likely return to the carrier you originally wanted but chose to leave for a better price, when after all they provided the service that you want.
The logistics manager added that many carriers still do not understand the importance attached to service by global brand companies.
"To the unfortunate exclusion of service, a lot of carriers cannot get their heads around the idea that the customer might really want to pay more; they think we are always going to go with the cheapest.
"We are constantly trying to educate the carriers on the importance that we attach to service," he said.
One example this shipper shared with us was how one carrier, who clearly understood the importance of service levels, benefitted from this belief in their product.
This carrier company held firm in negotiations over price with the shipper (which was looking for a more competitive rate because of the large volumes it was offering).
"They turned around to us and said ‘no, if we accept your extra volume at a lower price, we are not confident that we can provide the service level that we offer you today and that is more important to us
AT a time when the shipping industry is besieged with stories about declining rates and increased tonnage, the Shipping Gazette interviewed a global logistics manager from a major global shipper - who is willing to pay more to ship goods with carriers who provide a more reliable service.
The company's global logistics head told the Shipping Gazette there was a simple reason for this: it saves the company money over the long term.
This publication has long advocated that carriers are too preoccupied with price. In a bid to secure volumes the carriers' response has all-too-often been to reduce rates, even sometimes to a point which threatens the viability of the business itself.
While accepting that price is one of the key factors in securing business, we have argued that it is not the only factor. If a carrier provides a higher level of service and has enough confidence in their product, then there will always be players in the market that are willing to pay above the market rate and provide the volumes necessary to make the relationship viable.
The global logistics manager we interviewed backed up our arguments. He categorically stated that rates are not the only criteria he uses when determining which carrier to use. He said, "we do internal surveys, satisfaction surveys and relationship surveys. We ask questions like ‘what is your relationship with the accounts manager and on a local level are you able to get issues resolved quickly?'"
According to our source, those offering a superior service might be chosen over a rival even if the rates they were offering carried a premium. Obviously our source was a little reluctant to discuss exact figures and percentages but said "certainly we would allow between US$ 100-200 per container."
The logistics manager admitted this figure over the long term could amount to a lot of money, but he said if you choose a carrier that offers you a failing service because of its extremely competitive price you will end up being forced to change that service provider anyway at some point.
This causes a lot of unnecessary disruption to your operations, and furthermore you will likely return to the carrier you originally wanted but chose to leave for a better price, when after all they provided the service that you want.
The logistics manager added that many carriers still do not understand the importance attached to service by global brand companies.
"To the unfortunate exclusion of service, a lot of carriers cannot get their heads around the idea that the customer might really want to pay more; they think we are always going to go with the cheapest.
"We are constantly trying to educate the carriers on the importance that we attach to service," he said.
One example this shipper shared with us was how one carrier, who clearly understood the importance of service levels, benefitted from this belief in their product.
This carrier company held firm in negotiations over price with the shipper (which was looking for a more competitive rate because of the large volumes it was offering).
"They turned around to us and said ‘no, if we accept your extra volume at a lower price, we are not confident that we can provide the service level that we offer you today and that is more important to us'."
The result of all this, after the initial shock of the carrier turning down the business, was appreciation of the honesty of that carrier company which gave our source's company more confidence in their ability to provide the level of service they were offering. The global manager said "today we treat this company as our premium carrier."
A key area in which carriers can provide the kind of service that shippers are looking for, he explained, was in the area of connectivity.
As part of the service package carriers provide to major customers, this element cannot be under-estimated; as the customer's primary concern is getting its boxes to the required destination on schedule.
So for example, if a carrier has a good relationship with the US rail authorities, or trucking companies in Europe, if it can get its boxes unloaded efficiently or if it has berthing priorities these factors will make it more attractive - and for this higher level of service many global brand name companies are willing to pay more.
In addition to connectivity, another area in which carriers can attract major clients and premium rates is through greater transparency.
As all businesses try to increase their supply chain efficiency, the importance of transparency between different partners has increased.
Our source said, "From a planning perspective we need a lot more transparency on the carriers' execution of their service. This means we need our IT systems to recognise where a product is and how much of it is where.
Also, we need to know if a vessel is on schedule, if a feeder service meets the mother ship according to plan, if there are any incidents along the way."
In a bid to effect this greater transparency, this shipper is starting to build service agreements with the carriers it uses, clarifying what is expected of them and when. The company also operates with a few shipping lines– at the moment four carriers are responsible for transporting a significant portion of its volumes. The company also ties the carriers into a three year relationship with annual rate reviews and certain guarantees over volumes.
This creates a mini-market effect which is a win-win situation for both carriers and the company. For the customer it means they get the service levels they require to get boxes delivered where and when they want. It affords them greater transparency in planning and prevents the waste of time, money and disruption to service spent in constantly chasing the cheapest rates.
For the carrier it allows them the luxury of being able to develop their services, guarantees volume and perhaps most importantly removes the constant threat of their service being pulled in favour of a cheaper but inferior alternative.."
The result of all this, after the initial shock of the carrier turning down the business, was appreciation of the honesty of that carrier company which gave our source's company more confidence in their ability to provide the level of service they were offering. The global manager said "today we treat this company as our premium carrier."
A key area in which carriers can provide the kind of service that shippers are looking for, he explained, was in the area of connectivity.
As part of the service package carriers provide to major customers, this element cannot be under-estimated; as the customer's primary concern is getting its boxes to the required destination on schedule.
So for example, if a carrier has a good relationship with the US rail authorities, or trucking companies in Europe, if it can get its boxes unloaded efficiently or if it has berthing priorities these factors will make it more attractive - and for this higher level of service many global brand name companies are willing to pay more.
In addition to connectivity, another area in which carriers can attract major clients and premium rates is through greater transparency.
As all businesses try to increase their supply chain efficiency, the importance of transparency between different partners has increased.
Our source said, "From a planning perspective we need a lot more transparency on the carriers' execution of their service. This means we need our IT systems to recognise where a product is and how much of it is where.
Also, we need to know if a vessel is on schedule, if a feeder service meets the mother ship according to plan, if there are any incidents along the way."
In a bid to effect this greater transparency, this shipper is starting to build service agreements with the carriers it uses, clarifying what is expected of them and when. The company also operates with a few shipping lines– at the moment four carriers are responsible for transporting a significant portion of its volumes. The company also ties the carriers into a three year relationship with annual rate reviews and certain guarantees over volumes.
This creates a mini-market effect which is a win-win situation for both carriers and the company. For the customer it means they get the service levels they require to get boxes delivered where and when they want. It affords them greater transparency in planning and prevents the waste of time, money and disruption to service spent in constantly chasing the cheapest rates.
For the carrier it allows them the luxury of being able to develop their services, guarantees volume and perhaps most importantly removes the constant threat of their service being pulled in favour of a cheaper but inferior alternative.
