When navigating the rough waters of ocean freight transportation, one of the most difficult daily activities for non vessel operating common carriers (NVOCC) and freight forwarders is tracking and managing the many complexities of ocean carrier contracts. What makes this issue particularly compelling is the fact that the contract information forms the cost basis for NVOCCs and freight forwarders. Given the myriad of factors that can impact contract details at any given time – from price fluctuations to fuel surcharges – collecting, managing and disseminating information on a day-to-day basis can be a daunting task. In today’s web-based world however, NVOCCs and freight forwarders are realizing that global visibility into information in real-time is rapidly becoming a critical component driving cost-effective, profitable business and quoting decisions.

Paper-based processes holding the industry back

When it comes to ocean freight transportation, contract processes have been manual and paper-based for decades. As global trade has grown, so has the complexity and decentralization of contract negotiations, leading to lower efficiencies and limited visibility on buy rates, among other vital information. With manual/paper-based processes, users are left constantly scrambling for rates, making revisions that may or may not get passed on to all of the appropriate recipients, or going directly to local carriers where they may not get the best pricing available. 

A large portion of ocean carrier contract management for the NVOCC or freight forwarder has meant keeping stacks of paper or faxes on file in a binder or on contract coordinators’ computers. These contracts are full of information that often changes very quickly depending on market conditions. For example, ships being pulled from service or slow sailing can limit supply, driving shipping prices higher, or fuel price fluctuations can lead to sudden changes in surcharges.

In an effort to automate processes, many offices have used spreadsheet-based applications, intranets, shared file directories or homegrown applications. These efforts have met with limited success, for a number of reasons. Not only is it difficult to find information, setting up, maintaining and sharing applications has met with considerable limitations, especially with respect to maintaining contract, rate and surcharge information up to date. This inability to keep pace in turn limits the ability to provide centrally negotiated rate information, and as a result, local offices often go directly to carriers for pricing.

The inability to access global pricing has become especially problematic in a world where international trade has blossomed and competition between carriers has become fierce. NVOCCs and freight forwarders working in a decentralized environment simply do not have access to all the available information to assess the best shipping route and pricing. In addition, surcharges for various trade lanes can differ considerably, ranging from container handling to security, adding to the complexity and resulting in pricing inaccuracies.

Paradigm shift in price management

The solution to this price management challenge entails a paradigm shift in how contracts are managed. The first step is centralizing information, which can be achieved by taking the original contract along with carrier governing surcharges and capturing the information in a central repository. This makes it easy for users to leverage simple tools such as spreadsheets and web forms to build, validate and store ocean contracts in powerful databases.

The second piece of such solution is enabling flexible front end access to this database information. Web-based portals can now be used to access, retrieve, update and share information quickly using common tools.  For example, users in one office or geography can instantly access and use contract and rate information updated by contract administrators in a different part of the country or globe. The web interface enables users to access data that is up to the minute, which not only enhances visibility to an NVOCC’s cost information, but also allows users to quote based on up to date information on a global scale.

Effective approaches deliver results

Web-based access and tools available today can help NVOCCs and freight forwarders in a number of key areas:

Contract Management

The biggest benefit to capturing the information in a central repository and providing web-based access to ocean contract and price management is that administrators can leverage powerful new tools to search, manage and update even the most complex of ocean contracts. Through a combination of web-based forms and functions, as well as common office tools such as spreadsheets, users can quickly and efficiently manage and update carrier contracts, including general rate increases and carrier surcharge changes to keep pace with the ever-changing landscape of ocean freight rates in a timely manner.

Global Rate Visibility

Another benefit of a web-enabled, database-backed ocean price management solution is the ability for users to distribute the workload of managing ocean contracts. For example, depending on local conditions, some ‘global’ contracts may be negotiated and managed at a regional office, and the results made available to the entire organization. Using the web interface as an enabler, organizations can view all buy contract information globally, in every branch and office, without the need to post spreadsheets on shared file systems or on corporate intranets, or to load custom access applications. With the right price management solution, the web browser provides the user with the ability to both store and search rate information simply, safely and securely. Powerful databases mean complex rate information is easily searchable based on a number of commonly used and important criteria. This information should be available via a secure connection to the application, whether inside a corporate network or via the internet, wherever the user needs to access it.

In addition, due to the nature of the business, a good price management system will have a built in access control system that allows managers to control what a user can do and what information they can see based on their required roles and authorization levels. For example, agents may not have full access to all contract information.

Increased Profitability for Cost-Based Quoting

Contract management and global rate visibility is only the start in a business where the rate drives the logistics execution processes. For NVOCCs and freight forwarders to effectively win business and ensure profitability, their sales force needs to know their transportation costs – i.e. contract carrier rates. It is critical for any price management system’s quoting module to tie costs to sales so that users can make faster, profit-oriented and informed decisions when quoting to their customers. While speed in quoting is important, accurate quoting is critical to maintaining a profitable business model, especially in unsettled economic times.

With quotes being generated within the system, management also has greater oversight and visibility into the effectiveness of their quoting process. NVOCCs can track and identify trends in quoting, in order to drive more aggressive procurement strategies and alter price points when required. Better rate information based on a price management system, whether on the cost side or the sell side, means organizations can perform sophisticated analysis, react more quickly to the market and make better decision

An investment in the future

The complexities and instability associated with ocean freight transport are expected to continue for the foreseeable future. It is widely accepted that changing rates and surcharges are going to become a prominent feature in the landscape of NVOCC and freight forwarder quoting. Companies can no longer be effective if they continue to use homegrown applications, spreadsheets, intranets or paper files.

In the dynamic and competitive global logistics environment, having up-to-date pricing information that can be easily managed, accessed and used within a NVOCCs or freight forwarders processes can mean the difference between profit or loss, success or failure. A price management system is an investment in the future of any business whose livelihood is driven by transportation costs. Having a price management system that is easy to manage, globally accessible and drives quick and profitable quoting is no longer an option; it is an essential tool of business.

Written by Jim Alemany

Director, Rate Management Solutions at Descartes