In the world of shipping, time is money, especially now. Freight costs are soaring. Shipping is moving along at a crawl in some markets. And the current state of things seems most likely a surge, not a blip. ING does not see the situation improving significantly until 2023 when a major increase in ocean freight capacity (i.e., more containers and more container ships being put to sea) is expected.
But even then, there are no guarantees that prices will just magically fall back to pre-pandemic levels, especially since many of the issues driving up prices now, such as truck driver shortages and uneven levels of economic activity, will not be resolved simply by adding more containers and more ships.
This makes freight cost reduction a matter of not just short-term expense-cutting, but the long-term health and sustainability of your business. And we’ve got some proven methods.
Before getting into the strategies themselves, let’s review what comprises what you pay for maritime freight. The main component is the Maritime Freight Charge, which is the major charge for the shipment itself.
There are four important things to remember when trying to reduce this charge.
- The cheapest path between two places is not always a straight line. This is because costs generally go up with increased shipping between trade lanes. For example, it costs more to ship cargo from Asia to the US than vice versa.
- A full-container is cheaper per unit shipped than a shipment that doesn’t fill a container.
- Route prices can go through cyclical patterns caused by carriers undercutting each other, with rates eventually reversing after hitting bottom, often in the form of General Rate Increases (GRIs).
- A portion of your freight charge may be charges that involve some geographic component related to higher insurance rates (the Aden Gulf surcharge), fuel costs (the low sulfur charge), facilities usage (the Suez Canal surcharge), and more.
Other common major charges include:
- Currency Adjustment Factor (CAF)
- Bunker Adjustment Factor (BAF)
- Peak Season Surcharge (PSS)
These three charges all have a time component, which means minimizing them or avoiding them is also a matter of timing.
1. Use Reputable Freight Forwarders Only
This may sound like 101-level stuff, but a bad freight forwarding experience can seem like a nightmare. A disreputable forwarder will pass the buck, never seem to do enough, and will insist on more money for things you thought were already settled.
What you’re looking for in a reputable freight forwarder is clarity and transparency. What they promise should be clear and specific, such as their pricing structure and terms of what services can be provided, in case there is a dispute or complaint. They should also have references and testimonials and preferably found on reliable databases such as the WCA.
2. Know Your Customs
Customs can be a black hole of time and money if you don’t know the rules. For instance, in the US, it’s very easy to get tripped up by:
- Rules of origin
- Country of origin markings
- Customs valuations
- Tariff codes
Hiring a customs broker to avoid mistakes and discrepancies is advisable. Having a door-to-door supply chain solution is generally the best option depending on your enterprise. Mistakes and incorrect documents are something you really don’t want, especially with pandemic-related border difficulties in many countries.
3. Use FCL If You Can
Full Container Loading (FCL) reduces shipping costs by reducing the number of times you need to ship, and by reducing your unit costs per shipment. This works well if you can afford to fill up an entire container each time, and if the warehousing costs it creates won’t cancel out what you’re saving.
But there’s also the issue of creating longer gaps between shipments, especially now with the length of those gaps being less predictable than they were in the past. So, do your homework.
4. Have You Thought About Packaging?
Packaging is something not everyone takes advantage of when it comes to logistical cost savings. But the complexities of packaging are so extensive, packaging optimization is a required discipline. We’ve all had the experience of receiving a package at our home, opening it, and discovering that the item that we actually bought is only a fraction the size of the outside container.
Wasteful, right? Well, doing the same thing in a freight container is even more wasteful.
With the world becoming more aware of the pollution and carbon footprint associated with ocean freight, packaging is becoming one of the areas where you can demonstrate that you’re doing your part, while cutting down on your shipping costs.
Dimensions, strength & composition, weight, and handling procedures all affect how easy it is and how much it costs to ship a package. Improvements in many of these areas also have a corresponding ecological benefit.
So this can be a real two-birds-one-stone benefit in the long-term.
5. Maybe Air Freight?
Before the current supply chain crisis ramped up, the cost of air freight was roughly 12 times that of sea freight. As of May 2021, it was down to six times.
As vaccinations roll out and borders reopen around the world, more economies are likely to roar back to life the way the US will over the next year, which could put further strain on sea freight until the expected capacity improvements arrive in 2023.
This won’t necessarily be enough to draw air freight even with sea freight in a straight apples-to-apples comparison, but there are other factors to consider.
If you’re shipping something perishable, temperature-sensitive, and not especially large, heavy, or frequent, you might want to think about it, especially if you are facing a market defined by shortages in your product category, the overall benefits just might outweigh the upfront costs.
6. Have You Considered Outsourcing Your Transport and Logistics?
Outsourcing transportation and logistics departments are a growing trend in the face of labor shortages, instability, greater demands for operational speed and first-time-right capabilities, and the growing need for technical skills to cope with digital transformation.
Outsourcing these departments can save you time, money, and headaches while boosting transparency and statistical rigor in your operations. And with more complexity and transformation on the horizon such as robots, IoT, and AI-managed warehouses, it just makes sense.
7. Predictive Analytics
All the major freight charges mentioned by name in the cost section of this article can be avoided or reduced through the use of predictive analytics to improve your planning. By utilizing AI and machine learning technology, predictive analytics can find the best rates and space across carriers, using only a fraction of the previous effort.
For example, when analyzing carrier pricing, predictive tools can take market demand, carrier supply, market seasonality, and other factors, such as historical cancellation of bookings, into consideration when creating their models.
Other possible factors can include:
- Historical data
- Speed of sales
- Competitor index
- Inventory levels
- Weather forecasts
- Global news
Predictive analytics enables you to calculate the shipping options with maximum cost-effectiveness in terms of the carrier you use, how much you ship, how often you ship, what time of the year you ship, the contract type, etc. And they can be recalculated if a shipment is late, or if something else unexpected goes wrong (which has been happening quite a lot lately).
8. Digitize & Automate Your Freight Processes
The world of shipping is more complex and unpredictable than ever before. Pandemic closures. Power outages in China. A blockage in the Suez Canal. You name it. This makes it vitally important that you digitize and automate as much of your operation as possible.
The process of receiving a quote and booking a cargo shipment the old-fashioned way involves more than 8 phone calls, up to 24 emails, 12-48 hours, and over 100 pieces of paperwork for the average shipper. And it could involve a lot more if something unexpected happens.
Digital transformation of these processes is absolutely vital to coping and remaining competitive in the face of global supply chain acceleration and instability in a way that doesn’t require a herculean amount of effort and paperwork. Booking times can be reduced from days to minutes. And adjustments in planning and scheduling can be made automatically in response to changes somewhere else in the chain.
9. Access To Carrier Data Via API Integration
This may sound very technical, but hear us out. An Application Program Interface (API) is like a prefabricated tunnel to somebody’s website (a carrier in this case).
Once a carrier’s API “tunnel” is connected to your website, data can flow very easily in one or both directions, automatically if you so desire. If a third-party website has ever let you log in using your Google or Facebook password, that’s an API at work. If you’ve ever seen a company’s Twitter feed displayed live on their website homepage, that’s another API.
With a bit of code and very little effort, shippers and freight forwarders can connect different systems and software using APIs. And the real-world benefits can be useful. At BlueX, we’ve developed an API that connects users directly to real-time carrier rates, space, schedules, and tracking data, which can help automate your workflows, reduce human error, and save time.
10. Use An E-Wallet
The pressure on the shipping industry to move faster, ship faster, and deliver faster has never been higher. But as alluded to previously, the shipping business is often still done on paper. And so are many bank processes, which often involve the taking of sweet time as money is moved across borders, and the charging of monopolistic sums to do it. But e-wallets (such as Paypal and Venmo) are revolutionizing global commercial transactions by putting money in the Cloud.
BlueX Pay is the e-wallet standard in the shipping industry, providing easy global and local B2B supply chain payments for shippers and freight forwarders, who can send and receive money online via the BlueX Pay digital wallet in over 30 currencies, to and from 130 countries, with low transaction fees starting at $2 USD.
To learn more, be sure to visit us here or get in touch with our experts at firstname.lastname@example.org.