How to make tenders work for you in 2023

Passing the halfway mark in 2023, the key theme of the supply chain industry remains  ‘uncertainty’. Skittishness about what will happen next permeates demand, rates, and the entire shipping landscape, leaving shippers understandably cautious about committing to a long term contract especially at a time when falling rates have shifted market power back to shippers.

However, the advantages of contracts go beyond price – by remaining on the fence regarding commitments to suppliers and business plans, shippers risk staying in stasis, unable to build relationships that can provide long term development and competitive advantage. 

The challenge is to approach tender season with a strategic outlook, working with available partners to create arrangements that can provide shippers with the certainty they need to succeed in the future while also leaving flexibility to adapt to shifts in the market that will inevitably come.

To understand the opportunities available and how shippers can make the most of them, we sat down with Anne-Sophie Fribourg, Vice President – Global Ocean Freight and Catia Fernandes, Head of Trade Asia and IPAK at Zencargo on our podcast Freight to the Point.

Taking the plunge on tenders

Shippers are currently dealing with a range of pressures, including unpredictable demand, fluctuating rates, and a rapidly evolving landscape of shipping carriers. In this dynamic environment, there are valid questions about whether a contract is even worth it, given the opportunities to save on the spot market.

While the spot market has offered more attractive rates in 2023, it carries risks over the long term, particularly as businesses eye the long-awaited restocking swing. Businesses who commit fully to the spot market risk finding themselves locked out of crucial capacity come the return of demand, paying over market rates to keep essential stock moving and suffering on service levels. However, by starting early, shippers have more time to choose the right deal and shape their needs.

Once upon a time, businesses would initiate tender negotiations beginning in September. However, the approach has changed considerably in recent times. Now, we advise shippers to start negotiations around November or post the Chinese New Year in March or April, ensuring they have a clear understanding of their needs for the year ahead, gathering data from commercial indicators to assess the viability of the options available and make the right decisions.

Assessing the tender market

Three pivotal factors are steering the change in 2023: uncertainty in demand, rates, and carriers.

Demand weakening

Unpredictable consumer appetite, fueled by the global economic environment, has affected shippers’ willingness to commit to volumes and impacts carriers’ willingness to secure space at competitive rates. This year is yet to see the traditional peak, with volumes steadily weakening as uncertainty continues.

Rate declines

Rate volatility is increasing, resulting in significant differences between spot and long-term rates. “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.” says Catia

Compared to last year, we’ve seen falls of 87% Far East–North Europe, 76% on Far East– US East Coast and 80% Far-East–West Coast, 80%.

Carrier strategy

Carriers are becoming more selective, cherry-picking trades, and often prioritising larger shippers over medium-sized customers as they eye their own balance sheets and long-term plans. This includes regular attempts to juice unsustainable rates, with a successful 50% GRI on Transpacfic routes in April.

Adapting tender strategy for your business model

While contracts have their advantages, not all contracts are created equal. While the commercial advantage sits with shippers, shippers have more flexibility to shape their tenders to their needs. Key considerations include: 

• Volumes: Larger volumes generally merit long-term contracts, while smaller volumes can benefit more from spot market opportunities. However, those relying on the spot market are more at the mercy of GRIs, which should be built into contingent spending plans.
• Seasonality: Businesses with steady demand plans have more scope to set reliable, regular shipping terms with contracts, committing to certain volumes. 
• Growth Plans: If a company is expanding into new trades while maturing in others, a mixed approach might be best, using long-term contracts for established routes and spot markets for new ones.
• Price Elasticity: If a company’s goods are highly price elastic, rate stability might be more valuable than chasing the lowest rates.
• Routes: The specific trade routes a company uses will significantly impact their negotiation strategy as different lanes have unique market dynamics and carrier preferences, exacerbated by the divergent strategies of various carriers.

Mitigating risk in tenders

Managing risk requires an active approach to contracts from shippers, keeping in mind the key needs of the business and ensuring that all arrangements are fit for purpose.

• Diversification is key: Avoid relying on a single carrier or contract type. Shippers should spread their business across multiple carriers and contract durations to insulate themselves from potential supply chain fluctuations.
• Revise and revisit: Shippers must regularly review their contracts to ensure that they not only remain competitive with the market but that they also continue to serve the shipper’s evolving needs effectively.
• Focus on relationships: Contracts are a collaborative relationship – well maintained partnerships with carriers can result in better service levels, priority capacity allocation, and more flexible contractual terms.
• Quantify needs and results: Reliable data is the core of the contract relationship. Sourcing and sharing up-to-date SKU information, demand plans and real-time data analytics can help shippers accurately assess their needs and set appropriate SLAs with carriers.

Contracting with confidence

With the supply chain market stubbornly resisting predictability, it’s up to shippers to ensure they have the right information at their disposal to make effective decisions for the year ahead. However, for many businesses, especially those working with legacy supply chain management systems, siloed data and unwieldy teams, obtaining the right data plan volumes, lead times and service levels can be time consuming, inefficient and inaccurate.  

Zencargo works with leading shippers worldwide to help them manage, optimise and execute their supply chain in real-time, based on data-driven contracting strategies.

• Zencargo’s supply chain platform aggregates information from internal systems, manufacturers and external data sources to create a holistic view of your supply chain in real time. Commercial and logistics teams can work with up-to-date visibility into market trends, rate fluctuations, and demand variability, giving you the information you need to plan and negotiate with confidence.

• Our logistics experts work with a range of leading partners to help our customers find the best rates and service levels, no matter the lane or product. With advance planning, we help our customers manage risk, diversify their carrier portfolios, and align their strategies with their specific business models.
  
• We offer consultative support on contract terms, negotiating strategy and SLA management to ensure our customers are supported to the fullest extent, with long term protection and flexibility.

To find out more about how you can get more of out of tender season in 2023, get in touch with our experts today.