How to Lower Your Ocean Freight Costs

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Some of the significant challenges for shippers and freight forwarders are understanding freight costs, lowering the ocean freight spend, and realizing better margins. While market trends and dynamics play a major role in determining your freight cost, having access to critical visibility data ensures that businesses can utilize data to better predict market fluctuations and trends.

The maritime industry’s current state is a perfect example of how numerous factors are at play in determining freight costs. The global pandemic rattled the maritime industry since its onset last year. Plummeting cargo volumes, capacity crunch, blank sailings, port congestion, and freight delays have led to an unprecedented spike in freight costs over the entire year.

Increased demand from across the world caused ships to wait longer than usual at various major ports worldwide. With an already constrained state of affairs at most of these ports, the Ever Given vessel’s recent fiasco getting stuck at the Suez Canal caused major disruptions across global supply chains. Extended shipping delays, equipment shortage, and a further spike to already high freight rates have caused heavy disruption to the Asia-Europe schedules and US-bound routes via the Suez Canal.

The rising ocean freight rates

Ocean freight prices have been on a consistent rise since the summer of 2020. For instance, in December last year, spot rates to North Europe saw a surge of 230% compared to the same period in 2019. Furthermore, long-term contract prices increased by 19.3% in January this year as compared to December 2020. Mid-January witnessed the rise of the cost of shipping a 20ft container from Shanghai to Europe at 4400 USD, which was roughly four times the 10-year average. While the increasing tariffs on the East-West trade started declining after the Chinese New Year, spot rates stopped decreasing. To balance capacity, Maersk temporarily refrained from short-term spot bookings and contracts.

January saw carriers employing additional capacity due to strong cargo demand that further caused infrastructural bottlenecks at major ports, especially in the US. An already constrained workforce availability due to COVID-19 restrictions further contributed to delays and a large number of vessels waiting to berth. The consequence led to the non-availability of empty containers at origins, impacting vessel schedule reliability. The DHL Ocean Freight Market Update for January 2021 stated that the vessel schedule reliability dropped to 50.1% in November 2020 and primarily affected shipments on the Transpacific to the East Coast, delaying vessels globally by five days.

Port Congestions, Detention and Demurrage

With port congestion on the rise globally, shippers and Beneficial Cargo Owners (BCOs) have spent exorbitantly on detention, demurrage, and penalties in the past year. As it is, detention and demurrage are the two most significant challenges of supply chains, and port congestion directly impacts both. The resultant inefficiency in overall supply chain performance is evident, and so is the impact on higher freight rates. The surge in imports from Asia since the summer of 2020 is a continuing trend. Given the present state of affairs, BCOs and the shippers are being forced to pay for not picking up cargo or returning containers timely despite the evident port congestion limiting them from doing so. This is an ongoing conflict between shipping lines, BCOs, and shippers. Under the aftereffects of the pandemic and now the Suez Canal blockage, detention and demurrage is an inflated and growing concern for all.

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Top Reasons Managers Fail to Reduce Ocean Freight Costs

Proactive management of ocean freight costs remains a cloudy goal for shippers. Without a careful eye on the factors in­fluen­cing freight rates, a supply chain manager will see a gradual, if not sudden, rise in ocean freight costs over the course of 2020. …

The need for advanced ocean freight visibility

In the present scenario, gaining ocean freight visibility is of utmost importance. Reliable and accurate ocean freight visibility can help shippers understand where they are paying more than needed and how one can curtail additional expenses. Having visibility across your supply chain can help ensure transparency and agility when unexpected disruptions occur. Visibility is integral to build a robust supply chain risk management system to manage contingencies. 

Ocean freight visibility is the capability to know precisely where your shipment is at a given point of time across the supply chain. In terms of business intelligence, execution visibility in marine logistics provides access to analytical insights that aid critical decision-making, improve efficiency, reduce costs, optimize freight spend, and develop a mechanism to respond to disruptions better. Thus, reliable visibility data can improve delivery performance throughput and enhance service levels and customer experience. 

The Ocean Insights platform boosts visibility across all touchpoints in a supply chain by presenting real-time carrier information into insightful data points that help shippers and BCOs optimize their freight spend. Businesses can leverage these critical data insights to make decisions related to shipping network design, carrier contract negotiations, and inventory levels. With visibility data at your disposal, understanding the root cause of any challenge becomes more effortless and enhances transparency and service levels. 

Therefore, reducing the freight spend will manifest as a consequence of building a robust ocean freight visibility system that counteracts unprecedented crises and eventually helps build supply chain resilience. Ocean Insights’ ocean freight visibility solutions have helped companies like Sysco and Hellman improve their efficiency and reduce freight spend effectively. To know how advanced ocean freight visibility solutions can help your business save on freight costs and also build better risk management systems, contact us today.