To bid or not to bid?

The ocean transport market is the most under-supplied it has been for 30 years. Many shippers are unable to ship their cargoes under previous contract terms and are repeatedly forced to go to the spot market to find capacity.

Under normal circumstances, procurement and logistics executives would conclude that now is not the time to go to bid, and that ocean contracts now provide limited value and insufficient protection to shippers.

But these are not normal circumstances in the global transport world.

In Drewry’s recent experience, securing new ocean contracts with providers avoids even more expensive spot rates and at least provides some form of volume commitment for the duration of new agreements. New contracts are better than the alternative – shipping under spot rates and having no contractual service commitments or ongoing service from your providers.

The alternative of extending your contracts at the previous rates is also not realistic in the current market.

If, as a shipper, you are still paying your agreed rates from last year (unlikely and probably only if you are within your original allocation), then these rates will soon expire and you will need new rates and new contracts.

As we all know, spot rates have soared and most are still on an upward trend. So you’d want to avoid having to use these if at all possible.

Note that contracts with an ocean carrier to move freight in or out of USA requires filing with the Federal Maritime Commission, so there has to be un underlying contract and a filing of amendments. So, in effect, there is no choice in the USA market if you reach agreement with a direct ocean carrier. It is then very important to negotiate both the large and the small print, and to check that there is sufficient protection for your organisation and that the terms and conditions are “as agreed”.

Drewry has recently helped a number of shipper customers with their bids, alleviating the pressure on their people - allowing them to focus on the day-to-day issue resolution of moving freight and bringing to them our experience of this year’s changes. Make sure that your bid strategy and bid process take into account changes in carrier behaviour and the new complications caused by the market upheaval (see below).