Overall, it is with a palpable sense of relief that many logistics leaders are drawing a curtain on 2022. Despite the volatility and disruption, for some, the year ended far better than it started. Rewind to those first few months when the average cost of a global 40-foot GP ocean container was at about $10,000, there was an acute shortage of transport capacity and a talent drought that saw some companies pay a higher hourly warehouse labor rate than the equivalent salaried senior logistics executive.
As we closed the year out, and despite overall logistics costs continuing to increase, some transportation rates are tumbling. For example, according to the Freightos Baltic Exchange, that average cost of a global 40-foot GP ocean container has more than halved and is now sitting at around the $4,000 mark. A couple of sluggish economic quarters coupled with the looming fear of economic recession dampening consumer confidence and some sectors of the logistics industry, as they say, turned on a dime. Having said that, if you are still paying $10,000 for that 40-foot GP ocean container and your competitors are paying $4,000, then clearly you have a problem.
Logistics leaders must be cautious and temper their optimism for easier times in 2023. For many, over the past few years, the challenges of reducing costs and improving service have been less of a priority as the industry went into survival mode to keep up with demand in a highly constrained market. However, as the following figure demonstrates, third-party logistics services are in the top three of resources having negative impacts on the cash flow of organizations. If the CFO or CSCO of your organization has not come calling for cost savings, they will.
Preparing For, and Running, a Successful Transportation Tender
Many logistics leaders are dusting off their bidding tools and processes as well as the perennial procurement favorite, the spreadsheet. Service providers across all modes of transportation are bracing themselves for a swell in tenders and there is plenty of pent-up demand to suggest that this year´s tender season will be lengthy and frenetic. As next figure details, some companies have not tendered their transportation for quite some time.
Surely tendering transportation is like riding a bicycle. A skill that, through lack of practice, might be rusty but is not altogether forgotten. Expectations have moved on and there are some fundamental best practices that must be incorporated to be successful in any transportation tender. Like everyone believing their baby is the most beautiful, most logistics leaders believe that their tender is the most important piece of business to have come to market. … In reality, it probably isn´t — no comment on the babies.
Here are three top tips for logistics leaders to follow and that will ensure a successful and happy transportation tendering season for one and all.
No. 1 — Fail to forecast and I forecast you´ll fail.
Having the ability to crystalize anticipated volumes by lane and mode, at least, over the next 12 months is crucial for success. Forecasting is never an exact science, if it is not a strong competency within your organization, provide a realistic plus and minus tolerance with the forecast and review and update it regularly. Be transparent with your forecasting methodology and anticipate and inform changes, carriers greatly appreciate collaborative customers.
No. 2 — Competitive pricing does not mean cheap rates.
In an environment where transportation rates are tumbling there is often an overriding temptation to race for the bottom. Shippers and carriers alike are equally guilty of making a tender all about the price. If the past three years have taught us anything, and I hope they have, it is that to secure a competitive price you need to follow a simple equation.
No. 3 — Remember it takes two to tango. Become a shipper of choice.
Whether working with carriers, freight forwarders and/or assorted 3PLs, service providers will absolutely assess the ease and appeal of doing business with shippers. A spiky, non-responsive, overly demanding and uncompromising customer could be altogether turned away, or, more likely, reluctantly engaged with and pay a premium to compensate for their disruptive nature and all-round bad attitude. Shippers of choice often demonstrate behaviors such as:
- Implementing efficient and flexible processes and resources to simplify business for carriers.
- Adopting technology for connectivity, billing and innovation of data sharing.
- Having a partnership mindset that favors long-term strategies, payment terms and methodologies for cost management.
Whatever your motivation for tendering transportation, whether it’s a simple benchmarking exercise or a wholesale change in service providers, have a clear goal and vision of your expected outcome. It’s fine to see where the tides (responses) take you, but rudderless ships often fail to reach safe havens. You don´t have to pre-empt the outcome — that almost defeats the objective of a competitive bid — but bear in mind pragmatic logisticians rarely like surprises.
David Gonzalez
VP Analyst
Gartner Supply Chain
david.gonzalez@gartner.com
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