Tips for maintaining a successful ocean transportation procurement event

Mergers and alliances often limit carrier options for ocean freight procurement. To compensate, shippers must adjust their bid strategies to achieve the best possible rates and service levels. For those of you tasked with managing an organization’s ocean transportation spend, bid season is likely a challenging time. To make sure you get the most out of your procurement strategy, here’s a list of best practices to better prepare your organization before executing an ocean request for proposal (RFP).

Understand shipping alliances and vessel sharing agreements
About a dozen carriers of significance remain. Unfortunately, they’re spread across three alliances. If you’re contracting with two carriers in the same alliance, vessel service issues could impact both carriers. Furthermore, with shared vessel agreements, it’s entirely possible that each carrier’s service offering could be on the same vessel. In other words, you’re contracting with a single carrier. This scenario is especially important to remember with high-volume lanes. If two or more carriers exist on the same lane, you risk overlap within the alliance. Lane optimization should consist of a broader (relatively speaking) carrier mix and diversification across alliances to avoid overlap.

Bid design and carrier inputs
A fine balance exists when determining what information to ask for from carriers. As a shipper, you must be careful not to create an overly complex bid sheet that frustrates both carriers and stakeholders. Asking for carrier input (for example, transshipment, destination terminal name or operating carrier of preferred service string) must be purposeful. You should be able to optimize and leverage this information to make business decisions. Carefully crafted bid design is key to preventing downstream award rejections and costly operational issues.

Contractual obligations and carrier performance
Before the bid, it’s crucial to understand how each carrier performs against your current contract’s minimum container quantity. A shipper’s contract will often have a minimum volume threshold clause with the carrier to obtain guaranteed space at a specific contractual cost. Failing to meet the terms of your established commitments with the carrier will, in theory, result in a financial penalty. It’s important to understand your position and your obligations because it impacts your bid strategy and awards processes. If you fail to be proactive and review this information beforehand, it may blindside you later in the bid.

Schedule reliability and transit time verification (ocean transit variability)
Carriers are responsible for RFP details, and they should establish an internal review process to maintain transit time accuracy. Verification is crucial because carrier input can change due to incorrectly entered details or revised schedules during the bid cycle. As a shipper, to receive agreed upon service expectations, you should conduct a thorough analysis of carrier options. It should be based on performance factors such as verified transit times, schedule reliability, cost and capacity.

Review how your door deliveries are procured and managed
Significant over-the-road truck capacity shortages still plague the market in many regions. As such, ocean carriers prefer to focus on port-to-port moves. They’re less interested in delivering all the way to the inland destination (door). Shippers can gain better control and guarantee priority by having a direct relationship and involvement in how transport to and from doors is procured. Start by developing a strategic partnership with your drayage provider. By taking ownership of this relationship away from the steamship line, you can gain deeper insight and better cost control within your supply chain. As a shipper, you can nominate a predefined carrier with an agreed upon rate. Doing so allows you to roll the delivery/door cost into the ocean rate. And then you’ll only have to deal with a single invoice.

Implementing these tips gives your organization the opportunity to execute a smooth and successful ocean transportation procurement bid.

— By John Westwood