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This year’s RFP season requires that smart shippers exact a strategy to move through Coronavirus turmoil starting now. The dark surprise of a global pandemic ratchets up the usual harry of the RFP period. To help bring clarity to the chaos, Flexport recently held a webinar focused on driving value during RFP to mitigate risk. Following are some of the takeaways.
Multiple factors were already causing shifts in the supply chain before the arrival of Coronavirus.
As 2019 drew to a close, manufacturing was moving away from China, a trend inspired by tariff fallout from US-China trade wars and rising Chinese salaries. At the same time, analysts were predicting a doomsday scenario due to unpredictable marine fuel oil prices and availability, as a result of new IMO2020 environmental regulations.
Now, Coronavirus adds another blow, sending figures for departing units from China plummeting, challenging economies around the globe, and saddling companies everywhere with a dire need to diversify.
Additionally, collapsing oil prices have washed out any savings for shipping lines that installed scrubbers in response to the high price spread between IMO-compliant Very Low Sulphur Fuel Oil (VLSFO) and IMO380 bunker oil, which means carrier costs have changed. It’s more important than ever to choose the right service provider mix to reduce associated risks.
Lower demand typically means lower prices, too, but ocean carriers are getting better at managing capacity. In 2018, post-Chinese New Year, carriers announced nine blank sailings on Asia-Europe trade lanes. In 2019, it was 15. In 2020, at least for the short-term, blank sailings have skyrocketed, keeping prices more or less stable.
“This year, so far, we’ve had 54 blank sailings post-Chinese New Year on Asia-Europe trade lanes, which tells you that 39 ships were removed just because of Coronavirus,” explains Nerijus Poskus, Flexport Global Head of Ocean Operations and Procurement.
“We are actually seeing already blank sailings announced as far ahead as April and May, which is almost unheard of, because April is typically a busy month for shipping.”
Poskus predicts an April surge in volume and pricing along with a shortage of equipment as logisticians scurry to retrieve containers stranded in Europe or Los Angeles as a result of those blank sailings.
“We are also seeing an increased demand in premium ocean freight products such as fast boat, priority discharge, no roll, and equipment availability guarantee. Airfreight capacity is very limited, and these products are a great and inexpensive alternative.”
According to Poskus, a continuous rise in demand along Southeast Asia and Indian Subcontinent routes is highly likely. Carriers are adding capacity to these routes.
Travel Bans: Another Disrupting Challenge
Passenger planes account for about 45 percent of airfreight capacity in Asia. Given extensive travel bans and that Coronavirus has prompted numerous flight cancellations, supply for airfreight will be severely limited. And with that, will come high prices. Some believe it could take nearly a year before airfreight capacity normalizes. As a result, shippers may become more reliant on ocean.
To plan for the uncertainty, Flexport VP and Global Head of Pricing Rachel Dyke offers a brief list of questions to ask directly in order to open additional conversation during RFP season:
- How are prices impacted by Coronavirus?
- Are prices valid during Coronavirus disruptions?
- How much capacity is expected and on what schedule?
These details, in tandem with recommended basic questions, help businesses hire the right freight forwarders.
A Value-Driven Approach
To remain agile during negotiations, take a value-driven approach. In other words, go beyond the usual price-focused rounds and comparison of basic service offerings:
Look at total cost of ownership, comparing the RFP price and the landed price, which may include undisclosed general rate increases or require indirect tech or communication resources.
Ask about service capabilities, like the ability to optimize routes or escalate service solutions during crises like Coronavirus.
Communicate during negotiations with regularly scheduled talks that make space for transparency on issues as they arise, such as what happens during quarantines in different regions.
Tony Crisafulli, Flexport Senior Director, Global Pricing and Account Solutions, recommends using a decision matrix to score forwarders based on unique business priorities, information that arises during RFP talks, and the responsiveness of contenders as Coronavirus infection rates rise or recede in different regions.
To discover more insights into a value-driven approach, watch our webinar on demand: “Request for Partnership: Tips to Navigate a Value-Driven Freight Forwarding Process.”