A global chemical company that ships a wide array of polymers, inorganic and organic chemical products from 43 factories worldwide was finding it difficult to obtain competitive ocean freight rates. With 55,000 TEUs annually spread out over 6,000 shipping lanes, the company’s global reach was working against it, reducing its average TEUs per lane to 10 with only about 100 to 300 TEUs allocated to its highest-volume lanes.
If the “80-20 Rule” can be applied to shipping, then 80 percent of shipments should be carried in 20 percent of a shipper’s lanes. In this case, the chemical manufacturer was working with the inverse—20 percent of the company’s volume was carried in 80 percent of its lanes. This far more complicated set of requirements meant that the company didn’t have as much leverage in its freight rate negotiations as high-volume single-lane shippers in the 100,000+ TEU range looking to buy cargo in major lanes.
Though reducing year-over-year freight spend was an important objective, the ability to obtain data to show that the company was paying market rate was equally as important.
Ocean freight data
Gathering the data associated with shipping multiple products from 43 factories over 6,000 shipping lanes into a manageable form was a challenge. Prior to the advent of digitization and the current generation of electronic bid management, the company had attempted to collect and collate the data using spreadsheets, which greatly increased the risk of errors from manual entry. From improperly spelled port names to ports incorrectly associated with the wrong country, the manufacturer’s baseline shipment data needed to be thoroughly cleansed.
Procurement meets benchmark
The company set out to find a partner with expertise in web-based transportation and logistics. While there are many e-procurement platforms available, Ticontract is a specialized transportation procurement platform built for the needs of the logistics industry. With direct access to more than 35,000 carriers and tools to manage and analyze complex freight rates, the company soon found that Ticontract is also backed by an experienced team of logistics professionals who offer full support for the entire process.
After using the Ticontract Bid Management module for two annual global RFQs, the company began looking for a way to integrate benchmarked freight rate data into the bid process. Benchmarks are a useful tool for both shippers and carriers. Carriers gain independent verification that the rates requested by their shipper customers correlate with their market offering. Shippers receive independent verification that the rates they accept on their many smaller lanes are comparable to those reported by larger shippers on those same lanes.
The company introduced Xeneta, provider of the world’s largest cloud database of contracted ocean freight rates, into the Ticontract bid process. Xeneta’s real-time metrics on more than 10,000 shipping lanes help shippers establish benchmarks on lanes relevant to them and then utilize that data to address challenges related to high volatility and make better informed decisions.
Benchmarking means there are no questions regarding the freight rates offered by the carriers, and no questions from management on whether the freight rates negotiated are competitive with peers. Benchmarking provides the real-time data necessary to give shippers the necessary leverage to negotiate freight rates matching or parallel to the market in your chosen lanes.
“It’s not just having access to huge volumes of data,” explained Thomas Sorbo, COO, Xeneta, “it’s getting the data necessary to make solid, fact-based decisions.”
Advanced, data-driven bid events
Ticontract provided the platform for managing the bid. Although Ticontract has a huge database of over-the-road truckers, ocean carriers, NVOCCs and freight forwarders, the chemical company utilized a closed sourcing event, inviting ocean carriers to participate rather than opening the bid up to any carrier with open capacity in specified lanes. The company had pre-qualified each carrier in terms of metrics such as financial strength, delayed shipment ratios and other measurements relevant to its business.
Next, Xeneta scrubbed the company’s data, cutting entries that didn’t adhere to the annual number of shipments, lanes and products carried. Of the company’s 6,000 lanes, Xeneta was able to provide a benchmark for 48 percent of those where a standard 20- or 40-foot container carried a non-IMO cargo.
With the data clarified and parameters established, the chemical manufacturer launched its third 12-month global RFQ on the Ticontract platform. It included an initial three-week-long request for quotes, an analysis, an additional two-week-long opportunity for selected carriers to re-bid and ended with the introduction of the Xeneta benchmarks prior to inviting carriers for face-to-face negotiations.
The goal was to ensure transparent and open negotiations during the entire process. With neither the carriers nor the company able to influence the global freight market, benchmarks enabled all parties to use the bid event to negotiate from a position of equal footing. The carriers were able to use the benchmarked rates as independent dynamic feedback in making their offers, while the company used the benchmarks as a way to determine if the rates offered—while subject to TEUs per lane, equipment required and the actual cargo—were competitive in the current market.
Xeneta’s benchmarking matches your port-to-port lanes against its live pricing database. Best-in-class freight rates will be supplied lane by lane and can be used as the basis for timely, data-driven negotiations. Contact us to learn how injecting real-time data into the RFQ process can supercharge your next bid event.