How To Negotiate Competitive

Ocean Freight Rates

- Ebook Publication By Xeneta -
 Sea Freight prices are negotiable but how your
company manages carrier rate negotiations may
make a great difference to your bottom line.

Uncertainty is part of the game in managing your freight rate

negotiations. In a supply-demand volatile industry such as
shipping, the scales keep tipping from side to side, changing with
which side is ever really in the driver’s seat.

As one supply-chain pundit warned, the attitude that "whatever

price is mentioned must be raised or reduced" is a sign of poor
outcomes between any two parties.

Get-tough approach might be OK in negotiating a car fleet, but

shipping is not a business environment where you can pound your
fist until you get the price you want. Another reason to trade in the
boxing gloves for kid gloves is that going cheap is not always very
smart.

Allow all your enquiries to signify real steps, however big or small,
toward a mutually advantageous business relationship.

Whichever forms these negotiations take - either as a direct

negotiation, an RFQ or an indirect negotiation - here are some
tactics that will help you excel in your freight rate negotiation.

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 CHAPTER ONE

Do Your
Homework
Before the Negotiation Process

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 Know Your Numbers
.

Getting a grip on the art of negotiating your ocean shipping rates is

an important part of your job and the company’s bottom
line. Therefore, your e-mail spam box is probably full of unsolicited
invitations to cut your present relationships out of the picture for
their lower rates.

The trade-off may hurt in the long run. But, if you make those
decisions based on facts and not gut feeling or past relationships,
the outcome may be different.

Research, benchmarking and data trumps fuzzy feelings when it

comes to ocean freight procurement. Before your first move in your
freight rate negotiation, you want to be smart about the numbers
that will come up in the conversation. Know where your estimate
stands within the price range for your items.

Review all relevant invoices, bill of ladings, carrier contracts and

accounting systems that your business accumulated in the past.
Feel free to collaborate with other financial experts in your
company, to discuss where you can save on freight charges.

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 Research, benchmarking and data trumps
fuzzy feelings when it comes to ocean freight
procurement

Be smart about the numbers that will come up in the

negotiation and know where your estimate stands
within the price range for your freight rates

One way to benchmark is to compare your spend to the three metrics

Market High, Market Average & Market Low. Your spend reflects the total
spend of all your port-pairs with allocated volume

SPEND COMPARISION

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 CHAPTER TWO

Don’t Ignore
The Changing Tides of Your
Freight Rate

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 Why Are Prices So
Volatile?
.

The answer is that for every shipping rate negotiation, there is a

season. Peak seasons yield higher price estimates. Depending on
the nature of your goods, there are slow and heavier seasons and
prices reflect supply and demand.

In Asia, for e.g., from mid-January through early February an

upsurge of cargo is evident, as businesses are eager to beat the
Chinese New Year deadline when factories may shut down.

With resulting space problems for cargo to get on to the vessels,

rates may rise. In any niche good’s "peak season" where there is a
big demand for cargo, rates are high; in turn you need to adjust, and
readjust, your expectations.

Another nuance is marketplace quality versus cost-savings and

that is where you need to examine your priorities. Some companies
will quote higher but ask yourself two questions:
• Is the service, beyond the rates, uniquely high? Are they faster
than the competition?
• Do quality and speed for your line of business matter more than
variations in price?

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 Know Your Market and
Service Patterns
.

Another main point often ignored in shipping rate negotiations is

that some customers don’t study the freight market and service
patterns covering the different shipping lines operating on that
route. Who is the best carrier or OTI on that route, the best routing
for your cargo etc.?

Only through understanding the market and service patterns, you

can determine what kind of carrier rate negotiations to enter into.
Should you enter into a long -term rate, short-term rate, quarterly
rate, capped rate system etc.

You need to have the knowledge and understanding of the carrier’s

operations which could also reveal certain vital information such
as where the carrier actually needs their containers and what
size/type is required at the destination.

This knowledge can help you offer some benefits to the carrier
such that they can also reciprocate the same to you in terms of
shipping rates. Shipping rate negotiations are after all a two-way
street.

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 CHAPTER THREE

Understand and Know

Your Terms of Sale and Your
Competition

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Understanding Your Terms
of Sale
.

This is a crucial factor in shipping rate negotiations. You, as the

shipper definitely needs to be aware of the terms of sale.

The terms of sale will be outlined in the sales contract between a

seller and buyer and it is essential to know and understand the
Incoterms involved/used, the terms of shipment (CY-CY, CFS-CY
etc.) and the costs associated with it as these terms will help you
identify who pays what charges for a shipment, to whom and the
responsibilities thereof. You may wonder what your terms of sale
has to do with the shipping line.

It is worth remembering that in a shipping rate negotiation, the

base freight is only one part and there are many charges applicable
in the full freight chain. The costs involved in the full chain must be
explored so that the services required from the carrier can be
clearly outlined and the rate negotiated.

If not understood and calculated properly, the surcharges

applicable could impact on the final negotiations, to the extent of
even rendering the gains made on the shipping rate negotiations
useless.

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 Know Your Competition
And Minimize Changes
.

You need to know who your main competitors are in the market,
what are their volumes, what are their main routes, what are their
weaker routes.

Reason is that your competition could be shipping with the same

carrier that you are negotiating with and you need to know what
kind of rates they are able to secure compared to you. You should
know your competition not just in terms of the shipping rates but
also in terms of their business.

For example, if their shipping rates are better than yours due to
their volumes, but you still have some competitive advantage in
other areas such as local haulage and other charges, you could use
that as an advantage while pricing.

Once negotiated if you make any changes to your terms of contract

or bill of lading such as change in mode of transport (from rail to
road for example), these changes will affect your rates.

Changes may not be possible after the goods have arrived to

wherever they were assigned.

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 CHAPTER FOUR

Conclusion

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 Conclusion

As a shipper, you must be vigilant and always be on top of market

movements to know how to approach your negotiations with suppliers.
Ask yourself, what’s important?
• Uninterrupted logistics flow
• Competitive container rates
• Target setting

Make sure you know how your rates compare to the market for informed
decision making.

Don’t be too proud to ask for outside help if you need it. Service
organizations can help you get the right ocean transportation rates and
ocean freight contracts. They can be called upon to improve the
management of rates, routes, schedules and ultimately your entire
contract.

Choosing a reliable third party with sophisticated software tools can

open your door toward selecting the shipping rates and services. This will
more than compensate for having made the investment in outside
assistance.

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ABOUT XENETA

Xeneta is the leading ocean freight price comparison and shipping market
watch index transforming the shipping and logistics industry.

Xeneta’s easy-to-use yet powerful reporting and analytics platform

provides shippers and freight forwarders the software data they need to
compare their shipping prices against the world's largest database of
contracted rates – reporting live on market average and low/high
movements.

Xeneta’s shipping indexes comprises of over 35 million contracted rates

and covers over 160,000 global trade routes enabling informed decisions
with actionable intelligence optimizing companies’ logistics procurement.

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