Episode 31:
Navigate - 2023:
It's time to take action

Hello and welcome to another episode of Freight to the Point, a podcast from Zencargo. I’m Helena Wood. And today we have another special episode where we feature one of the recorded sessions from our virtual summit Navigate, which we last held back in October. The session featured today was titled, ‘2023, It’s Time to Take Action’, with Zencargo’s CEO and co-founder Alex Hersham and Chantal McRoberts, the head of advisory at Drewry Shipping Consultants. In their session, Chantal and Alex covered what has happened in the market, how shippers should navigate contracting season for 2023, and why businesses should not forget about origin management amidst the falling freight rates.

Welcome Chantal and welcome back to Navigate everyone. I’m delighted to be joined by Chantal Roberts, who’s the head of advisory at Drewry. Chantal has over 20 years of experience in the maritime and shipping industries. She started off working at P&0, which I recently found out where she was the youngest ever trade manager, which is a really fun fact. Now, Chantal was modest and said it was for a backhaul trade, but I think backhaul trades are really the lifeblood of how businesses work. And Chantal’s worked at some other startups, like APL and Maersk, so is very au fait with the in and outs of how shipping lines work. And Chantal’s going to be talking to us about what’s happening in the market, how we as a community and you as shippers can prepare for 2023 tender season. And I think importantly will also be talking to us about what does it mean to be a shipper of choice in today’s market? And is that relevant in today’s market? I think it is very relevant, but Chantal will be telling us more. Welcome Chantal.

Hi, nice to meet everybody. Hope you’re all well.

I’m sure they are and I’m sure they’re very much looking forward to hearing less of me and more of you. So I’m going to jump right in, if that’s okay? This is probably the obvious starting question, but the market is moving very, very quickly. Tell me how your clients are keeping up with these changes.

So as we are seeing the market is constantly evolving. And our clients are desperately trying to keep up and desperately trying to future proof. We are immediately seeing three approaches. On the operational side, obviously with the current slowdown in shipment volumes and demand and with full warehouses in North America and Europe, we see our clients are adjusting their shipping volumes and trying to identify where best to keep inventory and to avoid overwhelming networks. They’re also going through the process of destocking. Obviously, the warehouses are full. In the middle of all the disruption when it was move, move, move, now it’s clear, clear, clear. Another approach, which is very closely linked to that, is we’re seeing that our shipping community communicating more frequently with their providers, primarily to set lower expectations on volume of course, linked to the combination of reduced demand and the destocking issue that’s continuing to happen right now.

From a contractual point of view, we now see both sides trying to find a compromise on the volume commitments which aren’t being reached versus retaining cargo which is available to ship. We know that providers and ocean carriers are desperate to fill up the capacity, but we also know that some shippers now just don’t have the volume. We also know that some BCOs are starting to work on their new contract negotiation strategies already, because of the way the market is evolving and to take advantage of an improved bargaining power in the forthcoming contract negotiations. In our view, contract negotiations will no longer be about capacity and allocation. It will be very much strategic and about what rates are acceptable to the shippers in the market. So lots going on and lots of things that they’re trying to do.

Really lots there and lots to digest. We’re going to come onto the 2023 tender season and what you’re seeing with some of the large players and how the wider audience can read into that in a moment. And we’ll also talk about this concept of being shipper of choice and the relevance in today’s markets. But you touched on there a few things. Without going into any details, what are you seeing where dead freight deals have been signed? Is there any room for negotiation there or if a dead freight deal has been signed it’s been signed?

Well, that’s a really good question and it’s something that we are being asked quite regularly at the moment. Our advice at the moment, is to go back to your contracts, try and leverage your provider relationship, revisit the terms, try to talk about what would be an acceptable level on the MQC versus the dead freight. And talk about the right approach in developing this two way relationship. I know we’re going to talk about the shipper of choice, but when we’re in a market which is in a bit of a tailspin, it’s now important to be a carrier of choice. So if the providers want to be that to retain the volume at an acceptable freight rate, then maybe they need to start opening up and talking about the removal of the dead freight clauses.

And do you see any carriers trying to merge that conversation into a 2023 conversation? Obviously, some dead freights are multi-year anyway.

Yeah.

But is that happening? So are we having 2023 negotiations almost happening by accident already, because of that type of dead freight contract renegotiation or not?

I would say it’s slightly hybrid, because obviously you’re on the TransPac calendar, you still have your rates valid until April of next year. So there is a conversation happening now, which will set the tone for those conversations with the next boiler plate agreements or master service agreements. So it’s a hybrid conversation where we would always say go back, speak to your providers, leverage your relationship, be open with them about what you can provide and what you can’t provide and why that’s happening. And then try and talk to them about how does that impact the contract, how does that impact my MQC or my dead freight clause? And then bring it back to the table when you come into your big season.

And I think that point of relationships are important, is a really apt point. And I’m going to come on now to this question around being shipper of choice. But I think if we look to the last 24 months, and I know not everyone has acted in the same way, but actually relationships have been very vital, whichever way we look at it, whether it’s allocation, whether it was equipment release, whether it was at the beginning of the crisis, even being offered a long term deal was seen as preferential. So I totally agree with that. You have spoken though, many times about being shipper of choice, the importance of choosing the right shipping line. Talk to us about the relevance of that, given the backdrop of this falling market.

So I actually really agree with that and I think I obviously definitely agree with straightforward of choice, let’s start with that. But I also really agree with shipper of choice and knowing who you want to do business with. Some shipping lines are more flexible and more supportive and more relationship oriented. Some preferred data, some are okay with let’s say, more volatile or transactional relationships, I think that’s really important. And I think despite the fact that we might look back over the last 18 to 24 months and say, “Well, rates have been high, maybe now it’s our turn.” Type dynamic. I think having relationships through the cycle is vital and it really helps businesses perform. Just before you joined, Helena was saying that there was a poll done and people are still expecting a lot of uncertainty and a lot of volatility. And again, if you can build those ties and deepen those relationships across the ecosystem, I think that helps you navigate and buffer through those periods of uncertainty quite effectively.

Well, all we have to do is look back to a period not too long ago when there was the Suez Canal blockage with the Ever Given. And I remember that the days and weeks before that, it really did feel like the market was coming down, I don’t know if you recall. But it really felt like the term market was getting back down to a three or even a two handle. You could feel it getting to an elevated but only marginally elevated level. And then obviously, that completely changed the game and sustained very, very high levels for the following 12 months really. And I’m not saying that was the only thing that drove it, but if we think about that in the context of it was one thing that acted as a big catalyst to change structurally the outlook. Again, I think it speaks to the importance of relationships and the importance of both sides to the table delivering on what they said they were going to deliver on.Talk to me for a little bit about origin management, because I know that this is a service that Drewry had been offering recently. And at Zencargo, just for context, we think that purchase order management is key. We think that if you do purchase order management well the skew visibility that it gives you is so powerful for your merchandising colleagues. The ability to drive down origin dwell times, which is one of the key KPI’s I actually look at on a daily basis in terms of how we operate our business, it’s hugely impacted by doing purchase order management. Consolidation and reducing the amount of air freight all impacted by great PO management that for us flows through our systems, but we have the network on platform. But you’ve been speaking to me a lot about origin management and how Drewry think about origin management. So perhaps maybe I can start with why have you recently started to offer services around origin management?

Yeah, I think it’s a cost leakage point. I also just continue to believe that it’s one of the biggest strategic levers that if done well can impact the entire downstream. Obviously doing things at destination to manage destination dwell, to manage prioritisation of intake, to understand if there’s been service disruptions and what that means for intake are all hugely important. But we start at Zencargo really with the belief that purchase order management when done well is a game changer and only a few businesses globally do it well. And the impact of that can have. Actually, if I talk a bit about what I see in the market, we even see such a big divergence in how people manage origin dwell. So everybody wants to focus on the origin dwell KPI. Rarely, unless you’re working with businesses like Zencargo, do you actually have accurate data. Because typically, the manufacturer might say it was the freight forward or the freight forward of the manufacturer, the shipping line might jump in as well. So there’s always that dynamic.But also it’s so interesting how people manage their origin in different ways. Some are happier to have longer cash to cash cycles and flow everything through a CFS even if it doesn’t need to flow through a CFS, so they have more control over their intake and they store more at origin. Others are more about lead times and processing and if you can find utilisation improvements then that’s great but never crush the lead times. So really I think there’s so much value across origin management. And maybe there’s some people out there that we can support together, you through the consultancy service and us through the ongoing order management and I think that would be a lot of fun.I’m conscious of time and I know that I’ll be brow beaten into making sure that we move through. So just a couple of last quick fire questions to you. The first one, is the market going to stabilise?

Very interesting. I’m going to move us on, if that’s okay, Chantal to some Q and A? So I definitely can’t answer this first question, because it’ll be the definition of talking my own book. The first question is essentially if I can summarise, is around large shipping lines moving more and more into end to end. We’ve obviously seen that with CMA while ago, acquiring Ceva and then them going on to do more in contract logistics. We’ve seen it with Maersk, obviously with their several acquisitions. You could say to an extent we’ve recently seen it with both Hapag and MSC, although they might argue that that was more one off and they’re more focused on still being the world’s best shipping lines rather than going direct.To an extent we’ve seen it with Cosco as well, although to a much lesser extent. And obviously, this has triggered a lot of MNA as a result. The question really is are these large ocean carriers ready, paraphrasing here, to handle these volumes directly with shippers? Are they well set up? And do we see a large migration of business going forward as to shipping lines? And then if I can build on that, as the rates normalise, does that trend, if it is a trend, does it continue next year, because maybe a big part of the leverage was the rates they were able to offer? So your thoughts on that would be much appreciated.

So candidly, if you were advising clients next year and Maersk offering this integrated service, obviously it will come down to the end to end cost and the value and the technology, and what it can drive, but is it something that you’d be advising clients to shy away from given what you’ve heard or a different piece of advice?

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