Managing Ocean Transportation Costs in the “Age of Supply Chain Volatility”

Dan Gardner
October 21, 2020
min read
Managing Ocean Transportation Costs in the “Age of Supply Chain Volatility”Managing Ocean Transportation Costs in the “Age of Supply Chain Volatility”

When I think about the future of U.S. import trade for the balance of 2020 and beyond, there is one word that comes to mind: Volatile. Whether one speaks of the inability to forecast retail demand for Back to School and The Holidays, the ongoing ramifications of the Section 301 Tariffs, or the fact that the Generalized System of Preferences expires on 12/31/20, it is nearly impossible for U.S. importers to know how the next 6-18 months will play out.

There’s no greater proof of the volatility inherent to importing than in the ocean container rates found in the Trans-Pacific East Bound trade. With spot rates nearly double what they were a year ago, yet another General Rate Increase and containers being rolled at multiple Asian ports, it’s safe to say that the service and pricing aspects of the TPEB trade will be all over the place for the foreseeable future.

One of the results of all this volatility is the variances between what importers budget for item-specific landed costs, and what they actually turn out to be. Be they in the form of unanticipated increases in ocean transportation costs, the need to convert ocean to air freight due to blanked sailings, or that pesky 25% Trump Tariff, it is going to be exceedingly difficult for importers to control these costs.

If there’s one thing I’ve learned in global trade it is that while importers must be aware of factors that are out of their control, what they really need to do is focus on the things they CAN control. And in the world of ocean container pricing that means not only negotiating the best rates possible but making sure that those rates are monitored, properly applied, and most importantly, accurately billed.

Historically, this has meant waiting for an invoice to arrive from a carrier and manually auditing that invoice against a contract or spot quote. Never an entirely accurate undertaking, the combination of higher spot rates, contracts that are subject to GRI’s, and demurrage/detention fees that require a Ph.D. in Calculus to understand, makes it very difficult for even the best of auditors to keep up.

One way to avoid the manual nature of audits is to invest in a Transportation Management System that is designed specifically for maritime shipping. A much more pro-active approach, today’s ocean TMS’s not only allow importers to upload rates and allocate containers across carriers, some enable the measurement of variances between what was agree upon with a carrier, and what really transpired.

Truly forward-thinking TMS providers go beyond basic features in ways that allow importers to manage volatility in real-time. For example, the best maritime TMS’s integrate traditional capabilities with container-level tracking to monitor free time, as well as calculate demurrage and/or detention charges. Based on up-to-the-minute updates, these solutions also identify variances between contractual, actual, and budgeted costs, thus allowing importers to immediately act on those discrepancies.

While it is very difficult for importers to control the unpredictability that is native to global trade, they can use the aforementioned features to create an early warning system to proactively control costs. In the end, it is the absence of predictability that demands a shift away from a reactive posture to a model where digital solutions enable pre-emptive decision making. If you’re looking to manage ocean freight in the “Age of Supply Chain Volatility”, an investment in a maritime-centric TMS is a good place to start.

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