• Latest
  • Trending
  • All
How to prevent cargo rolling when contracts lack teeth

How to prevent cargo rolling when contracts lack teeth

November 21, 2019
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
Mzee Moi’s Ksh10B Gift to Gideon

Mzee Moi’s Ksh10B Gift to Gideon

April 14, 2020
Covid Knights: Corporate social purpose in the time of COVID-19

Covid Knights: Corporate social purpose in the time of COVID-19

April 14, 2020
How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

How Tesla And BMW Are Leading A Supply Chain Renaissance With Blockchain

April 14, 2020
Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

Last Mile Delivery Market Worth Observing Growth | UPS, FedEx, SF Express

April 14, 2020
LATAM Cargo strengthens European cargo links

LATAM Cargo strengthens European cargo links

April 14, 2020
Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

Ford making reusable hospital gowns from airbag materials as efforts against coronavirus expand

April 14, 2020
Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

Don’t Sweat NBC’s Decision to Cut Back on Television Ad Inventory

April 14, 2020
Software firms sharpen focus on AI, big data as IT spending drops

Software firms sharpen focus on AI, big data as IT spending drops

April 14, 2020
Navigating turbulent times in your supply chain (TL:DR version)

Navigating turbulent times in your supply chain (TL:DR version)

April 14, 2020
Last Mile Delivery by Drones Market is Booming Worldwide

Last Mile Delivery by Drones Market is Booming Worldwide

April 14, 2020
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us
No Result
View All Result
United States International Supply Chain Commission
United States International Supply Chain Commission
Home Logistics

How to prevent cargo rolling when contracts lack teeth

by usiscc
November 21, 2019
in Logistics
0
How to prevent cargo rolling when contracts lack teeth
493
SHARES
1.4k
VIEWS
Share on FacebookShare on Twitter

A shipper books cargo on an ocean liner, but it doesn’t make it on the sailing. The carrier rolled it, as it was overbooked, the case for about 30% of cargo, according to Maersk.

Even with a contract, cargo rolling is an issue that plagues the industry. There are solutions, however they involve time consuming contract negotiations, accurate forecasting, and penalties or higher costs to guarantee shipment.

Based on supply and demand, cargo rolling and no-show cargo go hand-in-hand. Just like airlines, carriers usually don’t get paid for empty space, so they book more cargo than they can carry, rolling what’s less valuable to them.

Fixed contracts and the spot market go hand-in-hand as well. Fixed contracts are designed to provide stable shipping rates and reserved cargo space for the shippers. In return, carriers get a forecasted volume and steady income. But long-term contracts aren’t protecting shippers as anticipated.

“It’s enforceable, but to the degree of the contract,” Gary Ferrulli, chief executive officer of Global Logistics & Transport Consulting told Supply Chain Dive. Rolling depends on the spot market rate levels as well as relationships.


“… you’re going to roll Walmart’s cargo? Probably not.”

Gary Ferrulli

Chief executive officer of Global Logistics & Transport Consulting


If a ship is overbooked and customers include Walmart and a retailer in bankruptcy, “you’re going to roll Walmart’s cargo? Probably not,” said Ferrulli. When he was a vice president for North America, Sea-Land Service, he made decisions each week on which cargo to roll. Usually the decision was based on the customer and relationship value. “In today’s world, it’s a little more complex because of contracts,” he said, but relationship value still matters.

Without guarantees or detailed contracts with teeth, shippers may continue experiencing difficulty getting the cargo space they want, or they’ll pay the spot market price because they failed to negotiate an air-tight contract for the needed space.

Detailed fixed contracts are one way to favorably tilt shipping stability. The other is paying higher rates for guarantees. Newer instant quotes and automated booking programs may start providing helpful guarantees as well, for spot markets.

Change your contracts

When shippers sign a carrier contract, they’re usually generic, said Ferrulli. “They’ll say ‘we’re going to ship with you about 1,000 TEU in this market,'” he said. In the beginning of the year, there’s not much of a capacity issue. But as the year continues, reaching peak shipping times, the shipper may exceed their TEU quote, as they only committed a percentage of their anticipated freight. The carrier then says “we fulfilled our requirement, you fulfilled yours,” and the shipper needs to book on the spot market, he said.

In another scenario, the shipper may contract for 1,000 TEUs, shipping 400 early in the year. Later on they may want to ship another 400 at once, but the carrier claims the 1,000 TEUs must be divided into equal weekly increments, about 20 TEUs per week. Without a more defined contract, the carrier may charge spot rates or roll any of the shipper’s cargo over 20 TEU.

Shippers and carriers are at fault for the rolling problem​. Shippers often don’t sign contracts reflecting their actual cargo needs since they’re hedging their bets, said Ferrulli. Anything above that stated number gives the carrier more leverage outside the contract.

For shippers who know they’ll have seasonal differences in shipping amounts, Ferrulli recommends writing contracts stipulating how many TEUs will be shipped each week and in each lane. Not all carriers accept detailed contract terms like this, and Ferrulli primarily uses four carriers who agreed to it after protracted negotiation. The shippers, though, have to accept that any TEUs outside of that specific contract are subject to spot market rates.

In the past, carriers were often forgiving if a shipper didn’t use their allocated TEU, and carriers extended the unallocated freight to the next year’s contract or wrote a new one. They might also have extended the discounted rates to additional cargo over the contracted amount. “There was selective discipline relative to enforcement of contracts,” he said. “Today it’s become much more disciplined and stringent on meeting the conditions, going both ways.”

Money-back guarantees

The cargo rolling issue started attracting technology solutionsa few years ago.

Startup 300cubits developed a cryptocurrency and online booking system to ensure carriers and shippers fulfilled their contracts. While successful in decreasing cargo rolling and no shows, the startup suspended booking deposit operations on Oct. 1, partly after realizing there are bigger booking pain points than rolling, which is what its system was designed to solve.

Instead, “shippers complain that they often could not get their bookings confirmed during peak season despite their booking volume are still within contract commitment,” said 300cubits founder Johnson Leung in an announcement.

In 2015, start-up NYSHEX, started offering contracts for individual shipments, with penalties if the shipper or carrier canceled. The carrier rolling rate for its NYSHEX Forward service is 2.6%.

In mid-2019, the company began offering NYSHEX Forward Select for multiple port pairs and a monthly volume commitment. Since kicking off that service, with 15,000 TEUs contracted, it announced it has not had any defaults. Booking ahead with guarantees is risky, as NYSHEX penalties are 35-40% of the contracted rate, and sometimes delayed cargo is outside of the defaulting company’s control.


Penalties are one way to incentivize commitments, another is offering a money-back guarantee. But that will cost you.


Penalties are one way to incentivize commitments, another is offering a money-back guarantee. But that will cost you. “You’ll pay more than the contract rate,” said Ferrulli. “Or the 3PL guys will get you a guaranteed space three months from now, but you’ll pay up front. You pay for it one way or another.”

A third model is called “take or pay,” he said. With that less common model, the carrier guarantees a certain number of loads per week and gets paid for that number regardless of whether the shipper delivers that many loads.

Ferrulli estimates that 1-2% of shippers overall have contracts with guarantees, and estimates that 5-7% of larger shippers use some type of guaranteed space.

Newer spot market products are offering guarantees.

Maersk recently introduced Maersk Spot, where customers are charged a fee for no-shows and the carrier compensates them for rolled cargo.

Freight forwarder Kuehne + Nagel is offering money-back guarantees through its online quoting and booking platform, for delays due to rolled cargo. But not all online booking and instant quote systems, offer it. “You get a price and it may not come with anything else such as guaranteed shipments,” Nerijus Poskus, vice president and global head of ocean freight at Flexport told Supply Chain Dive.

Some carriers are creating premium ocean freight services, where shippers pay more, the cargo is guaranteed to leave and arrive on time and is discharged first, Poskus said. “If they fail to deliver, they give the money back.” This is good for high-value goods, where shippers are willing to pay more to reduce the risk. “If it’s a Christmas tree with a low value, it doesn’t matter if the shipment is delayed,” he said, as the shipper may just want a cheaper price.

Online quoting and booking can help with the rolling problem, but it doesn’t fix the problem if they’re just giving prices and no guarantee. “If you’re allowed to cancel and it doesn’t cost anything, shipping lines can’t plan well,” Poskus said. Where online booking can help solve the problem is if a shipper cancels a week or two before sailing, and the carrier sees the cancellation and can replace that with a new booking. “That’s a better way to solve (rolling) than online quoting,” he said.

Share197Tweet123Share49
usiscc

usiscc

  • Trending
  • Comments
  • Latest
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
‘Significant opportunity’ in Asia as supply chain integrates, consolidates

‘Significant opportunity’ in Asia as supply chain integrates, consolidates

January 3, 2020
3 keys to mitigating severe supply shortages from coronavirus disruption

3 keys to mitigating severe supply shortages from coronavirus disruption

March 18, 2020
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

0
Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

Global Industry Analysis, Size, Share, Growth, Trends, and Forecasts 2016–2024 – ZMR News Reports

0
PHOTOS: Ottawa firefighters respond to warehouse fire

PHOTOS: Ottawa firefighters respond to warehouse fire

0
Antonov An-225 Mriya: world’s largest cargo plane, history, details

Antonov An-225 Mriya: world’s largest cargo plane, history, details

April 15, 2020
Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

Copperstate Farms Launches International Cannabis Brand DNA Genetics in Arizona Market

April 14, 2020
Mzee Moi’s Ksh10B Gift to Gideon

Mzee Moi’s Ksh10B Gift to Gideon

April 14, 2020
  • Privacy Policy
  • Terms of Use
  • Disclaimer
  • DMCA
  • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

No Result
View All Result
  • Supply Chain
  • Logistics
  • Warehousing
  • Procurement
  • Shipping
  • More
    • Strategic Sourcing
    • Spend Analysis
    • Inventory
    • Contact Us

Copyright © 2021 United States International Supply Chain Commission (usiscc.org)

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.

SAVE & ACCEPT