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Navigating shifting currents of the ocean freight market

Container shipping rates are under pressure from a sluggish global economy, China’s slowdown and expanding capacity. Therein lie opportunities for shippers.

Overview

If you’re shipping goods across the oceans, the near-term outlook for 2016 should remain favorable, with container rates near record lows, ample or excess capacity and tepid global demand.

According to Drewry, a London-based shipping consultant, the container shipping industry faces “three more years of overcapacity and financial pain” because of “slowing global trade and a bloated order book of large vessel capacity.”1

In recent years, several new, so-called Ultra Large Container Vessels (ULCVs) hit the market. Meanwhile, the new container vessel order book continues to grow.

Against this backdrop, we have been working with a number of clients to help them improve their shipping spending and drive savings.

Client Profile

The client in question has diverse, containerized ocean freight volume, including inbound raw material cargo from suppliers, intra-company cross-border inventory and stock transfer shipments to warehouses, and finally outbound shipments to end customers.

The client’s ocean network included more than 2,300 unique lanes from 45 origin countries to 96 destination countries, with annual ocean freight spending of more than $100 million.

Based on our market intelligence, analysis, and extensive planning discussions with the client, our primary goal was to help the client realize minimum contracted savings of $10 million in the first year and at least $6.5 million in the second year.

Our client’s secondary goal was to maintain or improve service levels while consolidating the carrier base.

Strategy

We take a global approach to the markets. That means helping the client negotiate freight rates at the global level and leverage its consolidated spending with a targeted group of suppliers, while maintaining a heavy emphasis on local and regional operational needs. Other elements of our plan included:

  • We deployed subject matter experts to each of the regions to work with the client’s regional stakeholders.

  • The bidding consisted of three rounds with initial blind bidding, followed by indicative or target pricing provided by our logistics team, and a final round of face-to-face negotiations.

  • Throughout the program we leveraged constraint-based optimization tools to efficiently identify optimal award recommendations under multiple scenarios and constraints.

  • We leveraged the interactive Accenture Insights data visualization tool to analyze the results and identify additional opportunities.

Results

Our client saved more than $14 million in the first year (compared to a target of $10 million) and saved $10 million in the second year (against a target of $6.5 million).

The client also exceeded service-level objectives by negotiating improved free-time arrangements- for example, 60 days demurrage free time in one port to accommodate an ongoing production issue.
Also, by deploying our team to work with regional client stakeholders, each region had a level of flexibility to customize elements of the process and to accommodate strategies to address unique local challenges, without affecting plans in the other regions.


Authors

Matthew Harris

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Mark Hillman

Mark Hillman

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