How do you get access to shipping capacity in 2021?

In early 2020, some Beneficial Cargo Owners underestimated their capacity requirements for the year ahead (not unreasonable, given that their forecasts were made in the early stages of the pandemic when caution and pessimism were gripping markets).

From mid-2020, however, most logistics operations managers (including many Drewry customers) have struggled to secure ship space or containers for their shipments. Despite carriers returning welcome capacity to the market during 4Q20, persistent high levels of demand have increased pressure on both space and equipment and amplified the supply chain bottlenecks that pre-existed, resulting in considerable market disorder.

The current difficulties experienced by shippers can take different forms:

• Carriers wait longer before they confirm the acceptance of bookings;
• Carriers say that there are no available empty containers;
• Carriers say that space and equipment are not available beyond the original volume commitment of the shipper;
• Carriers say that previously quoted fixed rates are “no longer valid” – but capacity can be found at the much higher spot or capacity guarantee prices.

Learning from this, many shippers are looking to better define their volume commitment and the carriers’ capacity commitment in their next contracts and to improve the way they work with carriers, to ensure security of supply.

Our consultants are currently advising shippers on these challenges and assist them in several key areas, including:

• Pre-tender shipment plans and weekly requirements (are your shipments seasonal? are they known six weeks out..?)
• Process of identifying reliable carriers and understanding the plans of carriers for 2021
• Ongoing forecasting of volumes (steady, reliably predicted volumes motivate carriers)
• Best practices on managing carriers, KPIs and QBRs
• Specific arrangements for slack and peak seasons
• Contract language on capacity commitments and volume commitments
• Two-tier rates based on capacity

There is no doubt that carriers now have the upper hand in the market and will be more disciplined in how they allocate contract shipper capacity this year.

The objective for some shippers this year is to become a “shipper of choice” with whom carriers will be able to work efficiently and with confidence; knowing that expected volumes are aligned with their internal capacity plans. Realistically however, higher rates on many trade lanes will be part of this shipper-of-choice equation, but only part of it.

If exporters and importers pay much higher freight rates under their current and next contracts, it is not unreasonable for them to expect to benefit from improved visibility and a more reliable service.