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Shippers facing ‘different game’ in 2021 as freight costs rise

Shippers facing ‘different game’ in 2021 as freight costs rise

US businesses shipping freight face tough service contract and pricing talks with all types of carriers in the months ahead, as unusually high freight volumes in December keep pressure on capacity from the port to the last mile, logistics managers said during a webinar Tuesday. Those logistics managers aren’t expecting any reprieve in early 2021.

Double-digit increases in containerized imports from Asia in recent months don’t show signs of abating. That’s keeping pressure on supply chains and transportation pricing, panelists said during a webinar called “Code Red: Ocean, Air & Truck Forecast” sponsored by TranzAct Technologies, the NASSTRAC shipper group, and the Council of Supply Chain Management Professionals.

“I think going into the [ocean] contracting season, it’s going to be a whole different game,” John Janson, global logistics director at apparel importer SanMar, said. “I believe you’ll see the shipper-of-choice concept we’ve focused on in truckload come up in the ocean industry.” Shippers will have to prove to carriers they are beneficial cargo owners (BCOs) of choice.

“Carriers are going to look at you and ask, ‘How have you paid your bills, have you been a good steward of my equipment?’ If you can unload and return containers quickly, if you can transload and get a container back, that’s going to be more meaningful,” Janson added. “If you’re used to shipping a container all the way inland before returning it, you’re going to pay a heavier price.”

Getting access to ocean capacity “was a day-by-day challenge this year, and it continues to be,” said Lori Fellmer, vice president of logistics and carrier management at BassTech International. Similar to many other shippers, the manufacturer found contracts “fell short” when it came to delivering capacity in 2020. “We do need to diversify how we get access to ocean carriers,” she said.

That means going to freight forwarders, non-vessel-operating common carriers (NVOs), and the ocean spot market, Fellmer said — new steps for many large BCOs, including BassTech and SanMar. “You need to make use of shipper associations, strategic forwarders in lanes where your carriers are falling short, and go to the spot market when you need to,” she said.

That will likely be expensive, with ocean spot rates, such as truckload spot rates, at record highs, “but you have to add it to the mix,” Fellmer said. “You have to take that blended [approach] to ocean freight. That’s going to become a reality in 2021. The best advice I can give is to manage those relationships. The sales reps for the steamship lines, they’re not having a good year either.”

“The surge in volume has been well beyond what anybody predicted,” said Peter Tirschwell, vice president of IHS Markit, Maritime & Trade, which includes JOC.com. “For shippers dependent on ocean containers, it’s going to be a rough several months. We’ll see an elevated freight market carry into the contracting season,” pushing contract rates higher.

‘Putting valves’ on shippers

The situation isn’t that different in other modes, including truckload, air freight, and parcel, Janson and other speakers said. The volatility, tight capacity and labor shortages brought about by the COVID-19 pandemic are affecting transportation across the board. “For the first time, there are people who are not getting cargo picked up,” Janson said of parcel shippers.

“The major parcel carriers in the US are putting capacity valves on shippers,” he said. “What they’re doing is paying off. Their on-time delivery rates are in the high 90s at a time when volumes are taking off. They’re looking for better customers, not bigger customers, and there are a lot of people on the sidelines right now who are not able to move products.”

At a time of high volumes and tight capacity, equipment management is an issue across modes, Janson and other speakers said. “For parcel carriers, if you’re adding more packages per stop, you’re desirable” as a shipper, Janson said. “If you’re adding more stops, you’re not.” A large truckload carrier also told Janson it could not meet a freight commitment because it could not find enough trailers.

“The [truckload] market is at an incredible peak and is likely to stay at this peak for awhile, at least another quarter,” said Brent Hutto, chief relationship officer at Truckstop.com, a spot freight marketplace and technology company. Freight “is all connected,” he said. “Collaboration is going to become more and more important as this marketplace gains more and more pressure.”

“A lot of people are managing transportation by the seat of their pants,” said Mike Regan, chief relationship officer of TranzAct Technologies. “We are emphasizing that every company needs a transportation spend management plan.”

CEOs and CFOs may not like double-digit cost increases, but what they really hate are surprises. “If costs go up, you can [be terminated] unless you’ve explained the reasons they’re going up beforehand,” Regan said.

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