Managing Your Ocean Freight Business
Strategic opportunities in ocean freight management
Dramatic change in the global ocean freight market has triggered shippers to reassess their management strategies and freight procurement models. Old ways of doing things may be discarded in favor of new ways determined by new requirements. For example, shippers recognize they need end-to-end visibility, performance tracking, differentiated service levels, exception management in the supply chain, and much more.
Choice of BCO & NVO models
For one company, dsm-firmenich, this is especially true as its 2023 merger meant rapidly identifying strategic and technical synergies in its global logistics network and supply chain. Dave Coenen, Head of Network Strategy and Design, Global Logistics at dsm-firmenich led the initiative to bring together the supply chains of two distinct companies, strategically assessing and optimizing a united global network and finding a way to apply two different ocean freight business models. Royal DSM used the beneficial cargo owner (BCO) model while Firmenich used the non-vessel operating (NVO) common carrier model. “We wanted to combine the best of both worlds into one,” says Coenen.
These decisions were occurring in the context of a “roller coaster ocean freight industry which has gone through 180-degree change,” according to Bram Thuis, Procurement Lead, Global Logistics at dsm-firmenich. During the two years preceding the company’s merger, ocean freight rates shot up in response to limited capacity before they returned more recently to pre-pandemic levels. With this, as well as substantial investment in new vessels, power is clearly on the shippers’ side today.
Direct negotiations with carriers
Ten carriers control about 84% of the global ocean freight market and, increasingly, they are willing to participate directly in ocean freight tenders. Typically they focus on large companies with large shipping volumes but even here there is change. Marco Dierke, Head of Ocean Contract Management at DHL Global Forwarding notes that a suitable volume in the past was 10,000 TEU but now carriers are directly involved with lower volumes – 2,000 TEU and even just 500 TEU.
Despite this, it remains essential for shippers to “become a customer of choice,” says Thuis, noting that dsm-firmenich manages some 30,000 TEU of ocean freight per annum, totaling about 8 million kilograms across 250,000 outbound shipments. For most of these flows, dsm-firmenich prefers to use the BCO model, as this provides leverage with the shipping lines and direct control of the freight capacities it procures.
The BCO model is not always the right choice for the company though. An NVO setup can support dsm-firmenich better in some cases, for example at its inland locations such as Austria.
What does seem to be critically important, though, is that shippers communicate clearly in the market during each tender so that all parties, especially carriers and freight forwarders, know what their required roles will be.
The role of the freight forwarder
When a shipper works directly with a carrier, this may appear to challenge the role of the freight forwarder. But in fact it doesn’t.
Carrier core business is in the port-to-port realm. Therefore, a direct contract with a shipping line omits all the many other things that need to be done pre- and post-shipment and it cannot deliver effective ocean freight management. According to Thuis, “The freight forwarder has all the tools and systems in place to track and trace, manage exceptions, measure performance, and more. We could invest in those things, but we prefer to outsource. It means we can leverage all the expertise of the freight forwarder.”
Today’s shippers benefit greatly from reducing the complexities of global trade, and it’s the freight forwarder not the carrier that enables this with services such as transport management and exception management , along with procurement management, allocation management, and freight audit and pay services. The right forwarder can also deliver data-driven visibility and innovation, metrics and reporting, plus import/export, trade compliance, customs brokerage, and all other aspects of shipping compliance.
Strategic shipper-forwarder partnership
This is far beyond the remit of a carrier or booking agent. What’s needed, according to Coenen, is a strategic shipper-forwarder partnership. In this relationship, data and connectivity are key to supply chain optimization. Companies like dsm-firmenich need to extract smart data from big data, which is why it selected a 24/7 data-driven DHL Ocean Contract Management control tower solution. With one data source, one platform, and one report, the company is empowered to effectively manage its ocean freight business, drawing conclusions based on exceptions to make the right adjustments in its global supply chain.
Dierke advises shippers to “spend less time talking about how to save costs and invest more attention in saving process time.” Using the example of dsm-firmenich’s 250,000 outgoing shipments per annum, Dierke notes if a more efficient process can save 10 minutes per shipment, the company could save around 42,000 hours per annum, which translates into a highly significant cost saving.
The strategic opportunities in ocean freight management are more extensive today than ever before. With the right strategic shipper-forwarder relationship, companies get expert support to achieve excellent execution in all standard operating procedures.
Explore These Topics in More Depth with Our Webinar
Explore different Ocean Freight supply chain models, with a focus on BCO vs. NVO. Gain valuable insights into dsm-firmenich's experiences, learnings, and strategic decision-making for supply chain setups.