Banding together
Shippers' associations give small shippers collective muscle.
By Chris Gillis
These days, liner carriers may be hungry for freight, but that doesn't mean they're willing to give small individual shippers a break on rates for ocean freight transportation services.
By combining cargo volumes, as well as their voices, through a shippers' association, small shippers believe they can more effectively attain the proper level of attention from the liner carriers that's afforded to their larger volume brethren.
'When we knock on the carrier's door for rates and service, the door is being opened,' said Ryan Turman, organizer and executive director of the recently launched Southeast Distribution Association (SEDA), a forest products shippers' association. 'We're given a seat at the table.'
The 12 founding SEDA members, comprising hardwood log and lumber shippers scattered along the East Coast and Ohio Valley, spent two years carefully developing the shippers' association. The tipping point for whether to ship their volumes individually or collectively came two years ago when U.S. exports suddenly began to increase.
'During the export boom, we couldn't secure good rates,' said Turman, who also serves as business development manager for Hillsville, Va.-based lumber shipper Turman-Mercer. 'Our only choice was to go to NVOCCs (non-vessel-operating common carriers) to get rates.'
While many of the SEDA members knew each other for years, they have never been part of a shippers' association. 'It came to the point that we needed more control and transparency with what was happening with our rates,' Turman said.
SEDA, with a current collective annual freight volume of about 10,000 TEUs and service contracts with five liner carriers, began moving its first containers in March.
'The concept is very appealing to forest product companies and our membership is growing quickly now that we have preferred rates established with our carrier partners,' Turman said.
'It was apparent to me that Anglo-American needed to take more control over the shipping process and our own rates,' added Graham Hill, president of Anglo-American Hardwoods and SEDA co-founder. 'By combining our container volumes in SEDA we were able to attract attention from carriers and negotiate our own contracts.'
Most SEDA members' freight departs East Coast ports destined for furniture, flooring and veneer manufacturers in the Far East, Europe and Middle East.
Shippers' associations have played a role in domestic and international shipping for nearly 100 years. They come in different forms and sizes. The membership may focus on a particular commodity or consist of numerous types of product shippers. According to the American Institute for Shippers' Associations (AISA), annual revenues generated by these non-profit entities may range from less than $200,000 to more than $100 million.
In the United States, there are basically two types of shippers' associations:
' Full-service shippers' associations primarily focus on the domestic market and have operational facilities and employees. This type of shippers' association ships goods in its own name, issues a shipping receipt to the association member, and processes loss and damage claims on behalf of the member. It also arranges trucking, rail and ocean transport to provide door-to-door service.
' A rate-negotiating shippers' association seeks favorable carrier service contracts through the collective bargaining ability of the group. This type of shippers' association, which does not become involved with operational aspects of the freight move, is prevalent in international transportation. In this case, the liner carrier may bill the association or the individual member, depending on the arrangements.
AISA consists of 10 shippers' association members, which is representative of less than half the estimated total number of these entities in the U.S. market today, said Bill Clark, AISA president. Some shippers' associations have disappeared in recent years for various reasons, and some have shifted from non-profit enterprises to for-profit third-party and fourth-party logistics operations, which requires them to obtain the proper federal operating licenses.
Some shippers' associations are actively seeking to expand their ranks.
'Now is the time to reach out to small and midsized shippers to get them to join,' said Gene Graves, executive director of Dublin, Ohio-based United Shippers Alliance. 'Companies are cutting back on personnel, but through our association they can still have the advantage of a larger organization and access to many carriers.'
The United Shippers Alliance emerged in Central Ohio in the mid-1990s during the expansion of the Rickenbacher Industrial Park with its foreign trade zone and intermodal hub, and now contracts for upwards of 10,000 containers a year. In addition to negotiating liner carrier rates, the association arranges substantial less-than-truckload contracts with carriers such as UPS Freight, YRC and Con-way Freight. 'We found a good, strong niche,' Graves said.
Clark worries that most shippers' associations aren't doing enough to attract more small and midsized shippers, which would help many of them lift their sagging freight volumes.
'What I would encourage them to do is offer a much larger array of services. That would make for a value-added process,' Clark said. 'What I'm not seeing is that thought process right now. Everyone is hunkered down. However, they need to be better prepared to come out of the box when this economic situation clears.'
The North American Shippers Association, better known in the industry as NASA, negotiates service contracts for full containerloads of beer, wines and spirits, and mineral water in various trade lanes. NASA's partner, J.F. Hillebrand, contracts suppliers and follows up on the ready date long before an order is loaded into a container. The purchase order is the reference number used throughout the entire freight move. Since NASA's formation in 1998, its membership has grown to nearly 600 shippers with a combined 45,000 containers a year.
NASA provides its members with other services as well, such as customs brokerage, intermodal transport, empty-keg return and e-marketing. The association developed the so-called Vinliner insulation kit, which employs thermal insulation in dry containers to protect wines, champagnes and other beverages against fluctuating temperatures, and offers stainless steel tanks and flexitanks for bulk transportation.
'Our membership has increased over the past two years. The additional services were a big help,' said Dave Ferris, president of J.F. Hillebrand USA.
'We're constantly looking at what services we can add to our basket,' Graves said. United Shippers Alliance has been asked by its members to consider offering air freight and less-than-containerload programs.
While shippers' associations offer many benefits to small shippers, the recent formation of SEDA, which is not an AISA member, is the exception rather than the rule.
'I'm getting inquiries from people who want to start new shippers' associations,' said Clark of AISA. 'But when asked why they want to do it, you find out that they may have only one customer with a small number of containers. You'll need more than that to get started.'
Turman realizes that SEDA will need to work hard to maintain its membership, and especially in a fiercely competitive market where ocean carriers and NVOs may attempt to lure away shippers by undercutting the shippers' association's rates. SEDA hired CV International, a Norfolk, Va.-based freight forwarder, earlier this year to assist in contract negotiations, contract management, and forwarding.
'We're fortunate that our members have been extremely loyal throughout the process,' Turman said. 'They're committed to the concept.'