Drewry urges BCOs to transform contract strategy with ocean liners

  Sept 11--OCEAN freight procurement consultancy, Drewry Supply Chain Advisors is urging international transport and logistics executives using container shipping to adapt their procurement and contract strategy since the ocean provider base is undergoing its largest transformation in two decades.

  In the last five years, beneficial cargo owners (BCOs) have been able to secure large reductions in freight costs by running traditional competitive bids with numerous providers in an over-supplied, fragmented market.

  "Today's business environment is starkly different, so we are now pro-actively advising our BCO customers that last year's contract strategy will simply not work as a blueprint for the coming annual ocean tender," said Drewry logistics chief Philip Damas.

  "Things will be different and organisations must be prepared," he said.

  "Rapid consolidation in the supplier base, changes in supplier behaviour, huge reductions in vessel orders and new developments in tender technology will bring real change and uncertainty to the ocean transport procurement environment," said Mr Damas.

  Annual contracts being renegotiated on the Asia-North Europe and Asia-US west coast routes are typically seeing container annual freight rate increases of 50 per cent (although from a low base).

  Drewry believes by incorporating benchmarking and e-sourcing best practices in BCOs' tender management process, rate increases can be mitigated.

  Use of big data and optimisation can also help find the best combination of bids to meet the intended balance between cost and service for the BCOs' many different lanes or supply chains.

  BCOs could also face more frequent potential issues from rollovers and cancelled sailings in the medium term. In early 2017, European exporters suffered shortages of export shipping capacity to Asia, at a time when quarterly volumes to China were running 18 per cent higher than in the first quarter of 2016.


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