DIY container drayage
| Edward Sands global practice leader for logistics, ICG Commerce |
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2011 has arrived and shippers looking to drive sustainability initiatives should consider a radical change in how rates are built. When you negotiate your contracts this year, it's time to think seriously about an alternative that has real, measurable benefits to consider.
I spent the first 16 years of my career in ocean carrier sales. I then had my own experiences as a shipper and realized there were many benefits to all parties (carriers, drayage companies and distribution centers) that result from operating independently.
Carrier services for 'store-door delivery' ' the movement of goods to the consignee's place of business, customarily applied to movement by truck ' were borne out of a need to provide 'door-to-door, value-added services,' but also to circumvent pricing policies and clauses contained in shipper's contracts. Prior to the Ocean Shipping Reform Act, carrier sales representatives would write letters and then copy them onto a shipper's letterhead to be sent via fax (no kidding) to some conference employee. When conference meetings were held in Hong Kong or San Francisco, there was a tremendous effort to have the best game plan to execute 'at the table' and deliver a pricing scheme for the shipper.
If you were a shipper at the time and had a facility in Carson, Calif., the objective was to get 'group 4 store-door pricing' specific to your contract. Typically the conferences would provide $50 add-ons to West Coast rates in an effort to shield contracted pricing from another shipper, or a non-vessel-operating common carrier who might access the same terms under their rights as a 'similarly situated shipper.' These add-ons were usually below the actual cost when deducted from the West Coast rate.
Rarely was the notion of premium 'store-door' service really the objective here. Carriers dealt with this rapid expansion in store-door pricing by adding resources that eliminated any profit on trucking.
Today, you can reap benefits from managing drayage operations yourself:
' Don't assign all the operational accountability for drayage to your ocean carrier because it makes your life easier. Having one invoice from a carrier is easy to audit, but that's not enough.
' Marine drayage companies already operate on razor-thin margins and are very dependent on cash flow to run their businesses. Ocean carriers may offer longer payment terms, challenging fuel surcharge conditions and low market rates. This limits the damage from door delivery ocean rates with negative margin on the final mile. Building relationships with your marine drayage company based on timely and accurate billing, a marketable fuel surcharge rate and excellent service will provide benefits to your operation.
' Make drayage vendors and your facilities more accountable for operational excellence. Eliminate the ocean carrier from the operational mix for deliveries and you will realize the benefits of simplicity.
' Take delivery of your cargo on either a port or ramp container yard basis. Reduce complexity and consider having your forwarder or broker ' perhaps for a small transaction fee ' manage the drayage carrier. They should focus on optimizing port and CY free time, reducing bobtails and providing the drayage company the chance to add real value to your operation.
' Sustainability initiatives and the continued pressure on ports to reduce their impact on the communities in which they operate means shippers have to get engaged. Requirements for clean trucks, natural gas powered vehicles and the inevitable pressure created by the labor market for drivers, mean shippers need to establish real and substantive operating relationships with drayage carriers or risk falling behind.
' Prepare yourself for the changes underway in how carriers manage chassis pools. The industry is moving away rapidly from this model and you need to be prepared.
' Return containers quickly and focus on eliminating excessive detention and demurrage clauses in contracts. Rarely do shippers eliminate those clauses or reduce the number of days unless forced to. By driving accountability for the management of port and CY free time, container deliveries, empty returns and access to capacity you and your business will see real benefits.
' Fuel prices will continue to challenge us. Carriers who are required to provide door deliveries will inevitably build more cost into their pricing to account for fuel. Take the 'margin hit' from trucking out of your ocean carrier's operation and learn to manage it like your domestic trucking agreements.
' Interacting with technology platforms like warehousing, transportation and yard management systems requires timely and accurate data to be effective. This is where ocean carriers are at a disadvantage because they rely on third parties to provide timely delivery events. Holding your drayage company accountable for delivery updates will vastly improve your data reliability.
I would challenge many of you to forget the past, reduce the complexity of your contracts and realize there is another way to control and reduce your overall logistics costs. Do it yourself!
Edward Sands
global practice leader for logistics, ICG Commerce
King of Prussia, Pa.
Sands will be a regular contributor to the Strategic View commentaries for American Shipper magazine, and online at www.AmericanShipper.com. He can be reached at esands@icgcommerce.com.