Ocean Freight Benchmarking for Proposal (RFP) Process

  • cleader_icon January 4, 2018

Ocean Freight Benchmarking for Proposal (RFP) Process

There is more chatter about ocean freight benchmarking and its use in negotiation tactics for the Annual Request-for-Proposal (RFP) Process.

Back in 2008 Inbound Logistics Magazine wrote an article “How to Negotiate Ocean Carrier Contracts” Source: http://www.inboundlogistics.com/cms/article/how-to-negotiate-ocean-carrier-contracts/ . The article stated “When You Approach The Table:

    • Before you identify potential carriers, determine your requirements. Are you looking for basic services and port-to-port rates or will you need dedicated space and specific visibility requirements? Make sure you clearly outline your expectations, in terms of service, ethics, and security, so carriers know where you’re coming from.
    • Try and assess carriers’ key drivers for pricing strategies. Knowing current market conditions, and how they may influence a carrier’s volume cycles, will impact their willingness to negotiate and provide you with a better strategy for negotiations.
    • Bring a list of concessions to the table so that you have some wiggle room when you begin.

Back in 2008, ocean freight benchmarking was just a dream. Now, it is a possibility yet is it a proven fact or partially fiction. True rate benchmarking of what you have compared to what others have tends to happen when people are willing to share their confidential data. But, how would you ever know if the ocean freight rates shared are actual or fiction? Will ocean freight benchmarking become the phantom tactical approach in the RFP process?

In a recent Global Trade Magazine article titled Benchmarking Against Peers Upheld Among Shippers, it states three points:

      • Retailers and manufacturers participating in Drewry benchmarking has increased five-fold since 2014.
      • Benchmarking ocean contract rates, transit times, and contractual terms is becoming more established.
      • Shippers realize the importance of benchmarking for setting target rates, negotiation, and rate reviews.

“Benchmarking ocean contract rates, supplier transit times and contractual terms such as demurrage and detention is becoming more established, as shippers realize the importance of benchmarking for setting target rates, negotiation and rate reviews, particularly when markets are volatile,” said Philip Damas, head of Drewry’s logistics practice. Using spot rate indices, such as the World Container Index and the Drewry Container Freight Rate Insight, many shippers are also benchmarking their rates against spot international ocean freight rates and spot international air freight rates. Unlike spot rates, contract rates and terms are not published and are available to shippers only via confidential peer-to-peer benchmarking groups or communities. Source: Benchmarking Against Peers Upheld Among Shippers http://www.globaltrademag.com/global-logistics/benchmarking-peers-upheld-among-shippers

Founded in 2012 in Oslo, Norway, Xeneta has sporclaimed itself as the largest ocean freight rate benchmarking and market intelligence platform. Xeneta has positioned itself as the leading container pricing platform and challenged the status quo of the traditional volatile shipping industry. By digitizing the crowdsourcing of ocean container prices, it has created the most complete global container pricing index bringing pricing transparency to all stakeholders in international container trade. Source: Are you paying the right ocean freight rates? https://www.xeneta.com/

Manufacturers and retailers (shippers) with meaningful ocean freight volumes tend to see their annual RFP processes as compulsory exercises. A recent study by American Shipper suggests that more than two-thirds of shippers still procure freight volume annually – as aligned to industry norms or their companies’ fiscal calendars – whereas the remainder handle the process in a wide variety of ways with no specific preference. The RFP process has become so deeply rooted because it functioned well (or well enough) for many years. Shippers could obtain capacity, service-level guarantees, and favorable rate levels while protecting themselves from the volatility of spot markets. And carriers locked in volume commitments. Source: AlixPartners: Ocean freight shippers need to think short term http://www.americanshipper.com/main/news/alixpartners-ocean-freight-shippers-need-to-think-65741.aspx#hide

If you are interested in benchmarking your current ocean freight contracts and/or container rates, there are several companies proclaiming they can provide you with insights. How valuable are these insights? What is the cost of this knowledge compare to actual ROI? This is what you need to discover and clarify fact from fiction.

Ocean Freight Benchmarking Companies