The start of 2023 is met with a frenzy of new shipping contracts after six months of plummeting ocean container rates. The Drewry World Container Index released a report last December indicating the average occupancy for a 40ft container has sunk as low as $2,135. This is a steep drop from the peak that was $10,377 in September 2021, a time when container carriers were scrambling to find additional vessels.
The reason why it’s even lower than the 10-yr average ($2,694) is because the world’s shipping industry has reached its supply surplus stage. However, unlike previous cycles, the pandemic has pushed us beyond tipping point – sector and business leaders had to respond fast and make long-term decisions under ‘new normal’ circumstances. The result is supply of cargo has surpassed the anticipated demand for (formerly) essential goods, even when some economies are already back at pre-pandemic levels.
Shippers were fast to move by locking in short-term contracts weeks before the holiday season. Whether they’re after stockpiling individual pallets or huge volumes of grain or liquid, they have the advantage of being one of the earliest to use up cargo space from newly deployed container vessels. At this very moment, they are likely achieving the best margins they’ve ever had since the first quarter of 2020. They couldn’t have done without supply chain intelligence from a professional freight forwarder.
Optimizing your supply chain strategy in this opportune time requires a bit of teamwork between you and your transport partner. You might know your own logistics more than well enough that you keep a tender with your service provider so that options will always be diverse and rates are competitive. This arrangement doesn’t always guarantee stability because spot shipment orders (i.e. transactions based on live changes in currencies) have significantly increased, ultimately changing how businesses approach inventory. The research team at the privately-funded Freightos Baltic Index has revealed that over 65% of shipments during the 2021 peak season arrived late because tenders at the time weren’t flexible enough.
The Philippines is blessed to have a local freight forwarding industry that is compact, sufficiently manned and young enough to adapt to new business processes. The necessity of e-commerce fulfillment has made logistics providers to come up with new service arrangements in line with LCL and LTL. While the country is also experiencing its very own supply chain crisis, there is a consistently massive demand for imports, attracting more voyages in the Indo-Pacific region. If you have worries about domestic shipping cost, a freight forwarder can help you navigate the optimal routes and delivery dates so that you don’t have to keep relying on spot rates.
Before you decide to propose a contract rate, we suggest you consider the following parameters to get the best deal:
Are you ready to overhaul your inventory management?
Many businesses have come to realize they are now finding it more difficult to turnover goods despite having ordered new merchandise and getting rid of old ones. People are now more inclined to buy products and brands that are advertised in online marketplaces. These new avenues give more opportunity for upstarts to compete with your business. While your marketing team is busy coming up with a new campaign, your purchasing team is at a crossroads. Is it time to cut off underperforming product lines and downsize your assortments, to make way for new stock?
If you’re not sure, you have the option of renting warehouse space to accommodate inventory. This is useful when you still want to put them up for sale in your online store. When an order is activated, the freight forwarder will be the one to take care of the dispatch, shipping and distribution. At first, you may think you don’t have sufficient inventory to invest in a premium service, but successful shippers have capitalized this as part of their cost optimization strategy. We will see how low freight rates have made things more favorable.
Returns and refunds are becoming the new norm fulfillment. How is this relevant to freight?
While established companies like Amazon and Costco have long prioritized customer service, shopping thru digital platforms in the Philippines has often yielded a mixed experience. It was only starting a year ago that e-commerce giants operating in the country took quality control more seriously by offering refunds at the expense of the vendor’s sales credit, and freebies to those who were left shorthanded.
Shippers will want to employ their own returns and refunds policy as part of their customer loyalty strategy, and there’s no better advantage but making use of the current shipping prices. A delayed order being relegated under this policy is still a bad thing. The entire process of having a staff reconcile an irate customer and billing a new invoice is going to cost you more than having no freight charges. Your commitment, however, will be remembered. Every good deed grants you a second chance.
To keep post-sales fulfillment expenses low, you may need to find a separate logistics partner who is good at last-minute deliveries. Look for those who are able to offload goods under a small window time, ideally less than three hours after picking up the crate or parcel from your distribution center. The cargo operator will likely reward the freight forwarder a lower rate for being on time, not needing to place the item on queue.
Vendor managed inventory: remember, the best business models is whenever the product is at hand.
Starting a venture can be intimidating after seeing how expensive the initial investments can pile up. This is why people who have a market yet don’t have a plan in managing inventory have resorted to dropshipping. The downside of this business model is that you have no control over the product until it is in your possession. The most common modification dropshippers are after is branding – they take out the item from the original packaging and resell it under a different presentation. That’s the most they can do.
You don’t have to do this when your supplier can be the one to handle everything, while you focus on what you do best. With the VMI system, you grant a third party full responsibility over your inventory before they are ready to be sold. In most cases, they already have their own storage premises, which means you, are only charged once the item reaches the retail shelf space. This is another cost-effective way to shelter you from additional shipping fees, especially for categories that see quick demand spikes and need to be delivered right away like frozen foods.
If you need to know more about where global shipping rates are heading and how you can take advantage of the opportunities, just send us a quote and one of our consultants will make sure you answer your questions.
