Episode 62:
Mastering tender strategies

Hi, and welcome to another episode of Freight to the Point. This week we’re featuring a webinar which we hosted recently titled: Mastering Tender Strategies, How to Negotiate the Best Deals in Shipping. The webinar was hosted by Zencargo’s, VP of Ocean, Anne-Sophie Fribourg and Catia Fernandes, Head of Trade Asia & IPAK Europe and Intra-Europe.

The pair examine the current rate market, providing analysis and insights into the factors shippers should be aware of when entering tender negotiations, as well as providing strategies for securing the best deals. We hope you enjoy it.

Catia Fernandes:
So let’s get started. I’ll do first a quick intro about me. So I’ve been in Zencargo for over two and a half years, handling ocean procurement. And I come from a carrier background, having worked at both international and regional shipping lines for over 15 years. Anne-Sophie, why don’t you give an intro of yourself as well?

Anne-Sophie Fribourg:
Thanks, Catia. Good afternoon everyone. So I’m Anne-Sophie Fribourg, I’m the VP of Ocean Freight activities with Zencargo since one year. And I used to work for another French freight forwarder for many years, being in charge of ocean freight negotiations with shipping lines and also dealing with different routes all over the world. And I’m very happy to be here.

Catia Fernandes:
So before we kick-start our presentation, let’s run a poll, if that’s okay. We want to know what you’re keen to learn in this session. So whether you want to understand what good looks like when tendering, or you’re unsure how the market will swing and you want some guidance, you’re trying to understand how we can save costs through tenders and/or you want guidance on rates.

So please feel free to choose, and we’ll just run through the results once you’ve done it. So here are the results. Seems like the majority is unsure how the market is going to play out and so would like some guidance. I think you will find quite a lot of guidance and knowledge sharing from this session. So this is great. We will start then with how our presentation is actually going to go forward. So handing over to Anne-Sophie.

Anne-Sophie Fribourg:
So what we see on the market as of today and since, I would say, a few years now because we’ve seen various changes, many, many big changes over the past three years, is still uncertainty. This is really, we see uncertainty in terms of demand, uncertainty in terms of rates and I would say more than uncertainty, but volatility, extreme volatility on the prices and also uncertainty in the entire landscape.

But we’ll talk about this a bit more deeply. So when we talk about demand uncertainty, if we have a look at the graphs you see here and think of what has happened last year at the same period, we could see that businesses were ordering stock in order to avoid congestion in order to be ready for Christmas. And there was a kind of surge in volumes last year and that was also ahead of the holidays.

And before COVID, I would say that this time of the year was really the time of the peak season, especially on Asia, Europe, but not only on other trades as well. So definitely since last year, small peak season, we have not seen any peak or any surge on the country. We’ve seen volumes really becoming weaker and weaker over the months, up till the end of the year. The volumes were quite high on transatlantic trade because US importers were importing from Europe, but it had already decreased from Asia.

And on Asia, Europe, definitely the volume decreased. And since the beginning of the year, we’ve seen volumes decreasing by double digits on the two main trades, which are transpacific and Asia, Europe. We know that the Chinese exports tumbled earlier in the year, understanding that the post-COVID recovery for China is very slow. We see that we even talk about deflation in China, the housing prices are sleeping, consumer prices were flat in June, investment has tumbled and there are definitely economic troubles.

And even if we’ve talked a lot during the year of, I would say, a shift to Southeast Asia in terms of sourcing, the shift has happened, I would say, not in a big big extent. It has happened but still, we see that China economy having trouble, has a strong impact on the volumes that are carried over on their export trades. And also, we know with what is happening in Europe and in the US that importing stocks are still full.

And we know that there’s still a shift to services rather than consumer goods, which was what we had seen exactly the contrary of what we had seen during COVID time. So how will it evolve? It is difficult to say. We don’t see any surge for the rest of the year so far. We don’t expect it. Might be really by the last months of 2023, but we should not see any big activity coming back before that time. So now, Catia, you can talk about rates.

Catia Fernandes:
That’s it. So rate uncertainty, it’s another factor. We’ve seen that rates have not been stable for quite some time. If you look at this time last year, the rates were much higher and the drop, therefore, has been phenomenal. You have the Far East, North Europe, a drop of 87%. Far East to the US East Coast, 76% and to the West Coast, 80%.

So given this major drop, carriers have been put under pressure as these rates are not sustainable in the long run and therefore, they’ve been trying to implement GRIs. You have the example on the transpacific trade in mid-April where there was a 50% rate increase announcement, which was then reflected on a 39% increase according to Xeneta.

So they did manage to get those rates. And on the Asia, Europe trade, we are now seeing carriers such as Maersk taking the lead to implement a 50% increase in rates from the end of July, 31st of July. And this was a movement that was clearly followed by the rest of the carriers. And the last factor, Anne-Sophie.

Anne-Sophie Fribourg:
Yeah. So now we can talk about landscape, carrier landscape. And the good news of it, I would say, compared to COVID time, is that carriers have made massive efforts to restore their services, to restore their schedule reliability. And we see now that we have a good schedule reliability, meaning the actual transit time when you measure it versus the announced transit time.

And we see that they are back to… Which is, of course, very important for the shippers to have a reliability in what they can forecast and what they can announce to their customers and in order to have the goods right on time in the warehouses. So back to 66%. This is still not the final objective because it was much higher before COVID, but we should remember that one year ago, it was around 30%.

So definitely good news. In terms of offer on the market, we all know that there is a lot of capacity coming in. We know that the shipping lines have invested in bigger ships, and have also a need to replace some of the ships due to the ships having to be compliant with the new IMO regulations. So there is a massive arrival of ships in 2023, 2024. And we’ll see how they can manage it, which is a challenge for the carriers.

And that has also, of course, a strong impact on the rates because this market is a lot about dynamics between supply and demand. And when we see changes in the alliances, we’ve seen that Maersk and MSC have separated from 2M. Even if it’s not yet effective, we’ve seen that they’ve gone through standalone services. So that will have an impact because they will have their own strategies.

And this is something that we monitor very closely to see what is the trend, how to position ourselves with these two carriers being independent. And what could be the reaction of the others, whether they’re going to stay.

There will be now still two alliance remaining, the ocean alliance and the alliance. We are monitoring very closely whether there’s going to be… There could be some more slot agreements between the carriers. So this is something to monitor in the coming months.

Catia Fernandes:
Indeed. And I think now it’s the time to discuss if contract is the right choice for me as a shipper. So for that, you need to… Contracting is very different for every business and strategy should evolve with lane conditions and a commercial plan. So the first step is to understand your business model so that you know if you need to deliver in terms of volume.

So if you have low volumes, then maybe tendering is not worth investing. You need to understand your seasonality. So if there’s periods where capacity is a must, then it’s important to guarantee that in advance. You also need to look at your growth plans to understand the role that different lanes or SKUs have to play in the year ahead.

And where is that growth coming from so that you protect those critical points. In terms of price elasticity, what we mean is you need to understand if there is products that can absorb price fluctuations and higher rates, or if there’s a need to have set prices with minimum volatility.

And finally, is to understand where you’re going to be playing in terms of routes, because obviously each route has different challenges. So for example, Asia to the US is dealing with unions, negotiations with issues with the Panama Canal draft.

If you’re talking about Asia, Europe you have issues with industrial action and obviously the war in Ukraine, so these geopolitical disasters. If you talk about the transatlantic, it’s the capacity versus spot rates that it’s the main challenge. And so understanding this affects how you negotiate contracts for multiple lanes, obviously.

Anne-Sophie Fribourg:
I’d like to add, Catia, that there’s one point that is very important and that we’ve seen going to certain excess during COVID with the problem of free time, because we’ve seen that the demurrage and detention costs have been very high for shippers during COVID because of congestion.

And I’m sitting in France and we’ve been through strikes very recently, and this has a strong impact on the spend that a shipper can have. And that is something to take into account and to study very closely when you intend to launch a tender. Of course, when there are strikes, it’s difficult to plan it and to anticipate it.

But knowing your products, knowing the needs from the final customers is very important to calculate what could be the needed free time. Knowing also that as a general rule, carriers want their equipment to not stay too long on the terminals or to stay too long in the depots, but it is a criterion that is very important when you run a tender because financial impact is big.

Catia Fernandes:
Yeah, indeed. And it can cost a lot of money, indeed.

Anne-Sophie Fribourg:
Yeah. And that’s also the link to the next slide where we say, “How do we mitigate our risk?” Our risk in terms of there are different risk, of course, when you are shipping. But if you conduct a tender, you want to minimize your risk of having extra cost.

Because as a logistics manager, you have committed with a board or for a certain spend, and you have to ask yourself the good question, “How do I justify a potential increase in the prices when I run my tender? What is the benefit of a long-term deal?” All these questions, you have to ask yourself before you run the tender. What is a good length of it? And in terms of risks mitigation, there’s a risk of service.

And the way to reply to it, the risk of… I’ve mentioned earlier that shipping lines are bringing capacity to the market, but in the meantime, because they are not satisfied with the level of rates that they are seeing on the market now, they are implementing major blank sailing programs in order to better balance capacity and demand.

And of course, when you have to ship your products, it is complicated when the cargo is loaded in a container on a terminal to change the carrier because there is a blank sailing. So it is very important to have forecast so that you have also, of course, a partner that will help you having a good visibility on what will be the blank sailings for the next months.

And of course, if you commit in a tender, you commit for a long time. It can be minimum six months to one year. You’ll have to split your risk with different carriers, different alliances in order to avoid blank sailings. And that will be possible. That will start with you, I would say, with a accurate forecast.

And we’ll talk about it later, but Zencargo can also help with the data, managing the data that also helps to get accurate forecast, shipping forecast. Of course, risk also can be minimized with the timing of negotiation risk in terms of rate. My own conviction, my own belief is that there has to be a fair and the right price.

For a long-term deal, it cannot be the lowest rate of the market. That does not exist. It should not be the highest rate of the market. We’ve seen some very, very, very high rates during COVID, which was not sustainable in the long run for nobody. But it has to be a price where the shipping line would be able to commit and deliver and load the cargo and not roll the cargo because the rate is too low.

The shipper would have to be able to pay the right price even if the spot market is lower, but there shouldn’t be too much of a difference. So all this is a question of balance between all the factors that we see on the market. And the timing of the negotiation is very important. I would say that the tender season traditionally starts beginning of September, and the shipping lines would never commit with medium-sized customers before they commit with the big retailers who are launching their tenders early September.

So the best time, I would say, is November and can be also after Chinese New Year, March or April. So two times in the year where you can probably mitigate the risk of having higher pricing. And then I say commit and deliver. Why? Because we’ve seen, and with my experience I can tell you that I’ve seen that there is a kind of reputation on the market.

And I’m strongly pushing our customers whenever… And we, as forwarders, whatever we commit we must deliver. Because if we commit and don’t deliver, then you have a reputation on the market. And I’ve never seen a shipping line not helping a customer that has been loyal. That doesn’t mean that that customer has to pay the highest price or that the customer should not negotiate.

But it’s a kind of trust relationship. We are in, I would say, it’s more a verbal commitment, and even if there are contracts… I’ve seen contracts not being respected and most of the time, there is no dead freight clause in the contract. So we’ve seen that during COVID, but that was a bit specific.

So important to commit and deliver and also very important to work with a reliable partner, to work with, of course, a freight forwarder that has a good… But Catia will talk about it after, that has a good relationship, the partner that is really well-known on the market and that is trustworthy. I’ll let you continue, Catia.

Catia Fernandes:
So I’ll jump into that. So what should shippers look for in a partner? So we have quite a few number of bullet points there. I’ll go through them because they’re quite important. And we’ll help you choose the best one for you. So we believe flexibility and agility is a key factor.

And therefore, a partner who can adapt to your changing needs to handle situations in shipment volumes and also to accommodate last-minute requests, providing additional capacity during peak seasons or adjusting services based on your requirements. That adds a lot of value to your supply chain efficiency.

Then we talk about service levels. So service levels in terms of communication, in terms of advanced planning, in terms of delivering shipments consistently and on time. Another point that you should look for is SLAs. SLAs, in terms of creating accountability between both sides and also a partner that is strong on technology so that you have access to data across the supply chain.

And that will enable you to produce accurate forecasting, which, as Anne-Sophie said, guarantees allocation on ships as it creates that level of trust with carriers. We believe also that network and a partner with a good network is important because it gives you access to local services and flexibility in partnerships across your volumes of service needs.

We’ll go to experience, and I think this is a key factor. So experience is really important because it allows you to have access to a partner that understands how to negotiate the best deals and understands how to adapt the strategies of tendering in the events of disruption. And finally, we’ve added this one because it is something that it’s been in the market for a while but not too long ago.

And it’s to do with obviously the need that quite a lot of customers now have, in terms of reducing the carbon emissions. And so working with a partner that is able to deliver and allow for that information to reach to you so that you can then visualize and know that you’ve been able to reduce your emissions when you ship your cargo.

Anne-Sophie Fribourg:
So now we want to talk about us and how we are able to add value. And as I mentioned it earlier, we can guide you on the best time to do it and how to do it of course, how to launch the tender, how to be able to… what is the right time to talk to the shipping lines, which shipping lines.

It is quite complicated today. We know that the shipping lines are a bit cherry-picking. We see that many times they would choose the trades where they are interested in replying and not other trades or maybe there’s not enough volume. All this is a kind of work we can do and we have tools to be able to… We have our own negotiations. So where we can add value is using our negotiations in order to propose to you rates where shipping lines would not propose that rate and would propose another rate.

So we have to play with all these possibilities we have on the market. Where we can really add value, I would say, is the leverage we can have with the understanding of the market that we do have. I think this is key in getting people on one side, understanding your needs.

And on the other side, being able to understand the needs of the carriers, how to be attractive to the carriers because this is important. And how to get the best out of it in terms of rates. And it could be that some trades should stay on the spot market, some others should go on the long-term. There could be mixed model.

And all this has to be deeply analyzed and studied. In Zencargo, we have experts on the major trades, not only on the big trades like TP and Asia, Europe, but also on Intra-Asia. And we are developing according to our customer profiles. So of course, we are able to procure on many trades, and we have access to carriers’ trade management departments where we can negotiate competitive rates.

And not only rates because it’s a negotiation. What is important is rates and space together. That is key. So either it’s a space that is negotiated for Zencargo because the volume is small or it’s a dedicated space to a customer. And we have a team, we play both on global level with the carriers but also on local level because you have some niche carriers, you have some niche markets.

And we want to have the complete of a view of all the possibilities that are on the market in order to leverage the best rates for our customers. And we also do that with the help of market experts such as Xeneta and Drewry with whom we work closely and we do see what are the market trends. Xeneta gathers rates from a large number of customers, either BCOs or a medium-sized customer.

And on many trades, not all, but many trades, it’s a good benchmark to see what are the long-term rates and the spot rates. And then of course, our platform is helping a lot. Working at SKU level helps to bring visibility. And this is really something that Zencargo can bring to you, is have a better visibility and help you build up your forecast so that they are accurate and you are able to, as I said earlier, commit and deliver.

And then also, of course, our expertise help us leveraging the small volume trades with the big ones, which is a key thing also for a customer that is developing on certain trades and already mature on other trades. So definitely, we have a team of people like Catia and also other persons in our team.

We have also someone in Asia that is really checking what is being done on the prepaid market with the Chinese freight forwarders and the Chinese customers. So we really are able to leverage all prices and see what is the best on the market also for long-term deals.

Catia Fernandes:
I think we go to questions and answers. So when is the best time to launch tenders on Asia, Europe? I think you’ve answered that, Anne-Sophie.

Anne-Sophie Fribourg:
Yes. I say the best time would be before the end of the year or after Chinese New Year, March or November because the big tenders have been launched already as from September.

Catia Fernandes:
Another good question around, “Is it better to play on the spot markets or should I start looking at the long-term market?” We did mention this in the beginning. I think playing on the spot markets is a very short-term strategy and it is difficult to sustain, especially if you have issues that you’re not able to cover with the short-term market.

So the whole spectrum of factors we covered from being able to cover your peaks of demand, being able to have certainty of rates if you need, your price elasticity. So there’s all of these factors that we cover. They’re not all best serviced by the spot market. So if you feel that your business model has a need to be under the tender, then you need to cover that. Otherwise, you will be ending up with bigger costs than if you were to stay on the spot market, despite the spot market might be cheaper.

Anne-Sophie Fribourg:
I think volume is key to answer that question.

Catia Fernandes:
Yes, exactly.

Anne-Sophie Fribourg:
Because if you have small volumes, maybe you can play on the spot… But the spot market will not prevent you from any GRI. We see that, for example, on India, North Europe, shipping lines have announced big amount of GRIs from 1st of August.

Catia Fernandes:
Yeah, the 50%.

Anne-Sophie Fribourg:
It would not prevent that. If you have a long-term rate, you might not have the best of the spot rates that is happening today, but on the long run, you will have very often made some analysis backwards of what was the spot market and what was the long-term rate in a normal situation, I would say. Not like COVID.

And I’ve seen that the long-term negotiations are always more. At the end of the day, you pay less than if you had stayed on the spot market. So it’s a question of analysis and you can also play with both if you have enough volume to play with both, which we recommend in order to get the best of the world. How will the alliance split affect under negotiation?

It will surely, because we have now two standalone carriers that have different strategies and that will be probably looking for volumes. That could bring rates down in the tender negotiations because they would be looking for cargo. But again, I think what I said earlier, we should not expect to get lowest of the lowest rates in a tender.

Shipping lines are not ready to give away… They had some operational costs. They earn a lot of money and we all know it. But they had some operational costs that are higher than before. So it’s question of where is the limit under which they will not go. But surely, it will have an effect. I think it will have an effect because they are the two biggest carriers. So that will have an effect. Sure.

Catia Fernandes:
Another good question. So how do I know if my partner has a good network? What questions should I ask? So I think on a good network, it’s really down to the local needs you have, and really trying to understand if those local needs is something that when you approach your partner, it’s something that they can solve.

So it depends on what local needs you have and especially, if it’s niche markets, that’s a very good way of understanding if there’s a good network around that partner and if they can help you tackle those challenges that not always every single freight forwarder will be able to solve. So I think that’s a good way. You have another, Anne-Sophie?

Anne-Sophie Fribourg:
No. I’d like to add that the questions to ask should be: how do you procure rates or where do you procure your rates? And how do you handle bookings? What is your relationship with the shipping lines locally? Things like this.

Catia Fernandes:
Yeah.

Anne-Sophie Fribourg:
I think these are the main questions.

Thanks for listening to this week’s episode. Hope you liked it and got some valuable tactics to take forward in your tender negotiations. If you did enjoy the episode, please don’t forget to subscribe and share with your network. And if you have any questions or feedback, please don’t hesitate to contact us on LinkedIn. We’d love to hear from you. But until next time, goodbye.