In the complex and recently volatile world of international shipping, businesses must manage costs effectively. Supply chain costs and more specifically, freight rates, are a key part of that.
The recent diversion of ships around the Red Sea and Covid-19 crunch has only added layers of cost and complexity. Placing further scrutiny on freight rates and logistics strategies. Supply chain managers know that identifying ways to avoid paying above average freight rates is more crucial than ever for maintaining a competitive advantage.
Here, we will explore five strategies that can help international shippers of containerised goods manage and minimise freight costs.
Read market analysis and freight rates forecast
One of the most effective ways to ensure you’re not paying an above average freight rate is to fully understand the market. There are plenty of resources available to inform you on the trajectory of freight rates, and many of them are free.
WTA’s Freight Rate Forecast is released every month, and as the title suggests, it attempts to predict the direction of travel for rates. It’s available for free and you can sign up below.
Beyond the WTA Freight Rate Forecast, there are boundless other options for gathering insight on the market. Keeping up to date with articles related to rates on The Loadstar, regularly checking in on Drewry’s World Container Index, or tuning into market forecast webinars from Xeneta, are just some free avenues to gaining a better understanding.
Obviously, logistics is a high pressure and busy profession. However, taking the time to consume resources related to the industry will strengthen your negotiating position.
It allows you to understand whether you’re getting a good deal from your service provider. You can better understand the reasons for freight rates being where they are. Knowledge which will enhance overall business performance.
“Understanding the factors at play leaves you so well prepared acquire the best rates available. But they need to be balanced with using straight-talking, reliable logistics partners who are going to be realistic about the costs involved, not hit you with surcharges later.”
Jade Blackburn, Head of Sales, WTA
Subscribe to our Freight Rate Forecast
Our expert insight and analysis of the current freight rate market.
Establish long-term contracts
If you have sufficient volume, one of the most effective ways to avoid paying average freight rates is through the establishment of long-term contracts with logistics service providers.
These agreements provide more stable and predictable pricing compared to spot market rates, which can be highly volatile due to fluctuations in demand and supply.
By committing to a long-term contract, shippers can lock in rates for a set period, usually ranging from three months to a year or more. This not only shields them from sudden spikes in freight rates but also facilitates better budget planning and cost management.
Take the 2024 Red Sea diversion as an example. Those on long-term contracted rates have been protected from the surge in freight rates, because they have been locked in at lower rate levels.
However, it must be noted that shipping lines will often find ways to limit contracted cargo on their vessels in times where the spot market is commanding much higher fees.
Alternatively, in normal times contracts often come with additional benefits such as priority loading and unloading, which can reduce delays and improve overall supply chain efficiency.
BE AWARE: It must be noted that in times of heavy oversupply of capacity in the market, contract rates will not be the cheapest rates available. When demand is so low, spot rates will get to a level which carriers would never sign a long-term contract on. Therefore, the cheapest rates in those times will be found on the spot market.
The indexed graph above, for illustrative purposes only, highlights the relationship between spot and contract rates that we often see.
The first part of the graph, a time of high demand, spot rates sit considerably above contract rates. However, in times of exceptionally low demand, such as the middle third, carriers will not sign contracts at the low rate levels that the spot market gets down to. So contract rates can sit higher than spot rates.
But then, when demand increases again, the spot market is susceptible to aggressive rate increases that the contract market avoids. As the final third of the graph shows, with spot rates once again sitting above contract rates.
Use a logistics visibility tool
Digital freight platforms are changing the logistics industry forever, by offering complete cost transparency. With a tool in use across your logistics, you’re able to analyse your cost information in enormous detail and compare this with market rates.
Through these tools, such as the WTA Platform, you're able to submit booking requests and receive multiple options in return. Meaning you can pick the best option based on your priorities.
"The development of digital freight management tools gives shippers far more control and visibility over their freight rates. Used properly, they can be a key tool in ensuring freight rate is minimised with every shipment."
Anthony Bour, IT Director, WTA
Additionally, these platforms often provide advanced analytics and tracking tools, enabling shippers to monitor shipments in real-time and optimise all stages of their logistics. This level of visibility can help businesses identify inefficiencies and areas for cost savings, further enhancing their ability to avoid paying above-average freight rates.
Consolidate your shipments to a single logistics provider
Another way to effectively leverage your volume to lower freight costs, is to consolidate all shipments with a single freight forwarder. But this isn’t necessarily in the form of a long-term contract as discussed earlier.
What we mean is, by improving the relationship between you and your logistics partner, you can unlock greater savings. Perhaps beyond freight rates, which only make up a small percentage of overall supply chain costs.
Spreading risk across multiple logistics providers is common practice in the industry. Understandably so. It potentially allows businesses to build up more credit, improving cashflow, whilst ensuring the forwarders are competitive on rate.
However, it's a fragmented and inefficient way to work much of the time. Developing a deeper relationship with a single, transparent, reputable forwarder that you trust has freight cost benefits. It allows you work closely with supply chain experts, who can pour their expertise into maximising logistics value for money.
Optimise container utilisation
Optimising your container usage is a complex science which should be given plenty of thought. No one wants to pay to ship fresh air.
Maximising the utilisation of container space is another crucial strategy for reducing freight costs. Inefficient use of container space can lead to higher costs per unit shipped, which is the key statistic.
Shippers can achieve better container utilisation through careful planning and optimisation of their cargo loading processes. There are advanced software tools which can simulate different loading scenarios and determine the most efficient way to pack goods into containers. These tools can pay for themselves in savings, should they unlock greater levels of container utilisation.
Additionally, adopting practices such as consolidating shipments from multiple suppliers or buyers and using palletised loading can further improve container utilisation.
“Whilst not a direct way to avoid paying above-market average freight rates, improving how you use containers will bring cost per unit shipped down, which is the key metric really.”
Jade Blackburn, Head of Sales, WTA
Optimising container loads example:
Through these techniques, supply chain managers can look to avoid paying above market average in their freight rates. However, as part of this conclusion we must highlight that freight rates are only one small part of wider supply chain cost.
To really get ahead of the competition in your logistics, businesses must look beyond their freight rates and at overall supply chain cost. This is where the biggest optimisation and cost savings can be found. To start a dialogue around reducing your total supply chain cost with our experts operating across 679 trade lanes, reach out today.
