Actions Procurement Professionals Should Take Now
Market Buzz and Trends

Actions Procurement Professionals Should Take Now

1. Review structure of ocean freight contracts: Ocean freight is currently considered a rising market in many if not all regions across the world. Ocean rates remain extremely volatile, and the appropriate strategy must be developed in order to structure contracts that can remain flexible with the market. Often times, shippers are finding that their contracts are becoming invalid after spot buy rates rise above contract rates and ocean carriers can get other shippers to pay more for the same space. Accenture has seen more leading practice shippers shift from a standard locked-in rate structure to index based contracts where the contractual rate fluctuates based off an index such as the Shanghai or Drewery Index. Moving to index based contracts allows shippers to secure space on a vessel without having carriers come back for rate increases prior to contract expiration.
2. Consider modal optimization: When faced with a tight market and a core carrier base that has already been asked to lower their rates repeatedly, shippers now have to shift how they move freight in order to capture savings on a repetitive basis. Take, for instance, the truckload industry. Three years ago, shippers could easily achieve double digit savings by simply stating they were going to execute a network Request for Proposal (RFP). However, now that the market is getting tighter and carriers have easily been able to push price increases, shippers now need to conduct network bids by allowing carriers the flexibility to offer both truckload and intermodal rates. On average, Accenture has seen shippers achieve savings of 10 to 12 percent by shifting a lane from a truckload move to an intermodal move. While it is critical to ensure your organization can absorb the longer transit times that come along with intermodal moves, double digit savings are too large to ignore in a rising market.

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Market Buzz and Trends

UPS Abandons Bid for TNT

UPS has announced that it has abandoned its bid for TNT Express after encountering stiff objections from the European Commission. UPS had intended to purchase TNT Express to expand its reach outside of their current strong presence in North America and Asia. The European Commission (EC) has been very vocal about its worries that the overnight parcel market would effectively become a duopoly between the combined UPS-TNT new company and DHL. In addition to the European Commission, FedEx openly objected to the deal, stating it could potentially be shut out of the European market altogether. UPS had hoped that a plan to sell some of its assets in Europe to DPD, together with TNT assets, would satisfy the objections set forth by the EC by essentially creating a new pan-European overnight-parcel-delivery competitor. However, that solution did not temper the commission’s existing objections.

Ocean Freight Strikes Stress Importance of Contingency Plans

In December 2012, the industry saw the busiest port on the West Coast come to a standstill as the International Longshore and Warehouse Union workers went on strike at the L.A./Long Beach port. Retailers had to scramble to divert freight to Oakland and ports in Mexico. Eight days and billions of dollars in lost trade later, the L.A./Long Beach port strike came to an end. However, now the industry is facing a strike that could impact not just one port along the East Coast but one that could affect fourteen ports along the East Coast and the Gulf coast. Last year, these ports handled 110 million tons of cargo, so the impact to supply chains will be astronomical if these ports do shut down for just one day let alone an extended period of time.