Understanding (another) unprecedented tender season

As tender season gets underway, supply chain teams are once more having to plan a year ahead in a moment when everything feels uncertain. Tender season is a period of time when shippers invite carriers and forwarders to submit ‘tenders’ or quotes based on the company’s shipping requirements. This is an opportunity for businesses to compare and decide the best match for their shipping requirements in order to achieve the best possible results for their supply chain. 

Rates have seen a steady decline, demand is low and there are new vessels scheduled for delivery next year. After two years of carrier-shipper friction, some teams feel now is the time to make hay while the sun of low-rates shines, but tenders are about the long term, which is anyone’s game.  

To get a head start on what shippers should be thinking about, we welcomed back Chantal McRoberts, Head of Advisory at shipping consultancy Drewry, on our weekly podcast Freight to the Point. Chantal is currently advising a range of businesses on their tender negotiations, so we asked her what businesses need to be thinking about this year. 

What’s going on in the market?

Right now, there’s something out there to worry everyone. In this scenario it can be tempting to focus on maximising outcomes for your business at the expense of other stakeholders in the supply chain ecosystem, but the structural issues in the market can only be solved collaboratively.

‘Shippers are concerned now about transit times, probably high detention and demurrage charges and maybe some high dead freight clauses because obviously demand is falling.’ says Chantal.  ‘But the main one is service levels and where they can get their cargo to.’

The reason for the worry is the slowing economic climate putting pressure on carriers, with demand dropping and  latent capacity coming into the market. Carriers have little choice but to control capacity to maintain fill rates. While shippers understandably dislike blanked sailings, it’s important to realise that both shippers and carriers want to achieve the same end goal – moving cargo efficiently and effectively.

The worry for many going into the tender season is how to do that at the right price, when rates seem to be falling.

How to approach rates

The question for most shippers in a falling spot market is whether to bother with contract rates or to focus on the spot market. The answer is that it will likely require a mix of both. Contracts are an essential tool for ensuring that capacity is available for your cargo, spot rates give you the flexibility to find a better price when it’s available. 

Another option that has gained popularity is index linked contracts with a rate that follows a particular market index. They give you the space to get a good price, while also being able to take your mind off rates. 

‘If you go down the index linked route, you can become more focused on your operational issues with your carriers…You can really focus on your carriers delivering what they say they’re going to deliver to you because the rates are a moot point.’ explains Chantal.

One caveat is that these contracts should include scope for review, at least quarterly, but more frequently if you have the internal financial capabilities to keep up with and judge rates.

What does a good deal look like?

While rates are understandably front of mind for many shippers, it’s important to remember that the point of a contract isn’t just to get the best price for your cargo. It’s to get the best overall outcome for your supply chain – that includes price, but also service, speed, capacity and long-term security.

“I think contracts, in many people’s heads, are just about the rates, but there are a lot more to that.’ says Chantal. ‘They’re a way to understand the fundamentals of your business and obviously the carrier’s provision of how they’re going to service your business.’

While tenders are often portrayed as a competition among carriers and forwarders for shippers’ business, there are advantages to a more collaborative approach. Recent years have put strain on carrier-shipper relationships, but looking to one-up or ‘win’ in a tender negotiation misses the point that the best relationships should be mutually beneficial. 

‘We would always advise to make sure that you talk about your contract to your carrier…about any changes before you go to bid, allow them the time to digest’, says Chantal. ‘It’s a tool which you can build your relationship from, but it’s also something you’re both signing up to.’

To that end, shippers could consider the wider context of their contracts:

• Is this personal to our business and our needs?
• Is there scope for evolution in this dynamic market?
• Does this create a win-win where carrier and shipper interests are aligned?

Best practices for contract accountability

The foundation of a good contract is accountability – making sure that each side is delivering on agreed principles to achieve mutual value, especially after a period where SLAs have often been ignored when convenient by both sides. 

Making measurement work for you starts with KPIs that suit your business but also your partner. Often this means that less is more when it comes to metrics, focusing on a few things that matter rather than splitting attention between too many data points. In their advisory work, Chantal recommends working on a ‘golden list’.

‘It’s about having a very specific list that’s very visible and easy to measure and allows you to make changes where you need to make changes or if you are on that index linked contract, allow you to talk about the operational enhancements that your carrier can or cannot provide.’ explains Chantal.

Key issues to consider should include:

• The impact of blank or cancelled sailings
• Managing industrial action 
• Forecasting obligations for shippers
• Visibility and communication SLAs 

Driving better relationships with technology

The issue of forecasting will be top of mind for carriers, with new capacity coming into the market and an uncertain demand situation. Shippers can work more effectively with their partners by taking an agile approach to forecasting. For Zencargo customers, this starts with effective purchase order management. 

Instead of dividing annual volume by 52 weeks, shippers can integrate live purchase order data with the Zencargo supply chain platform to give more accurate, recent and flexible updates to carriers. 

Likewise, when it comes to charges such as detention and demurrage, integration of documents, timelines and actions-taken, it gives shippers and carriers the ability to see clearly what’s working and what’s not, rather than playing a blame game with extra fees, working together to solve the problem.

Build long term value 

The decisions you make now will have long term impacts for your business, your relationships and your customers. That’s why it’s key to make sure you have the right insight, advice and support as you go to the market. 

Our experts work with the fastest growing businesses to help them optimise their supply chain performance with real-time visibility, communication and analysis, combined with world-class freight forwarding services. To find out how you can make the right decisions this tender season, get in touch with our team today.