Bid responsibly

Bid responsibly It's said that each year carriers and shippers ask themselves, 'which end of the bat do I have this negotiation season? Am I getting hit? Or am I doing the swinging?'
      But this year could ' and probably should ' be very different for shippers and carriers negotiating transpacific service agreements.
      In the last 12 to 24 months, the global market for ocean carriage has swung dramatically from a seller's advantage to a buyer's market. Shippers are undoubtedly in a position of strength, but there is a real risk they could beat their vendors to death with the same bat they were hit with only a couple years ago. Savvy shippers are keenly aware of the risks here and have shown more concern over their carriers' viability than most can remember.
      The norm has been for each side to eke out whatever advantage it can in negotiating rates, and for some shippers the trump card has been technology.
      Over the past five to 10 years, many large shippers have implemented electronic bid and procurement platforms, and some will argue that a large share of transpacific volume is procured using these tools.
      Carriers were slow to embrace these technologies when they developed earlier this decade. Some remain unable to use them well, or in worst cases, are irresponsible in how they use them. Many carriers still believe shippers use these systems to tilt the playing field to their advantage. And in many instances they're right. That's why shippers buy these tools to facilitate their electronic bids.
      But it's not all bad news for the carriers. When used properly, these systems can offer a mutually beneficial experience assuming both parties come to the bargaining table in a collaborative spirit.

Delivery Models. Logistics industry technology providers, including GT Nexus, JDA Software and Manhattan Associates, compete with 'pure play' procurement technology vendors, such as CombineNet and Ariba, to provide shippers with a standardized platform from which they can distribute requests for quote to their carrier base, receive incoming bids, compare bids, analyze price and service trade-offs, create contracts and plug them directly into execution management systems.
      Business models vary by provider but in general shippers have two options for hiring a vendor:
      ' Use the technology and the provider's consultants to handle the bid process as a project.
      ' Incorporate bids into an annual contract with the vendor.
Functionality also varies by vendor but these systems in general provide:
      ' Baseline pricing.
      ' Best and final pre-bid commitments.
      ' Bid optimization.
      ' Building/awarding subsets of the network.
      ' Conditional or expressive bidding.
      ' Carrier scorecards.
      ' Historical cost visibility.
      ' Integration with spreadsheets such as Excel, XML or TMS.
      ' Incremental bidding.
      ' Line-item awards by carrier.
      ' Post-bid award summaries.
      ' Pre-bid awards.
      ' Scenario building.
      ' Volume coverage/commitment.
      ' 'What if' analysis.
      These systems have always delivered fairly straightforward benefits to shippers. Standardized bids on a centralized platform reduce the cost of the procurement process, create efficiencies and generally lead to a lower price for the services delivered. The return on investment is realized in a matter of months, which is unique in a technology market where returns are measured over the course of years. And there's a whole other world of value when you can plug these contracts into execution management and ultimately audit systems to create truly closed-loop spend management.

Carrier Benefits. Carriers can also benefit from these systems if they let themselves. Figures vary but estimates will put the total cost of participating in a traditional, large ocean service bid at tens of thousands of dollars per carrier. Participating via electronic bid can limit this cost, which goes straight to the bottom line.
      Further, electronic bidding will permit carriers to achieve scale in their sales operations and ultimately participate in more bids with more customers and prospects and get deeper into their customers' business by participating in more of each individual bid. And bid effectiveness can be significantly improved by reducing response time and eliminating errors.
      Ocean carriers have a history of selling themselves short to retain volume and market share in the downturn. In this difficult environment carriers may run the risk of bidding themselves out of existence if they fail to understand and adopt these technologies because frankly, they're not going away.
      Carriers must embrace these platforms; understand their benefits, and the potential pitfalls. Allow your customers to purchase your services efficiency through the use of these technologies, instead of just buying you cheap. Don't bid indiscriminately. Bid in lanes where your company is competitive, reliable, and most importantly profitable. A standardized bid tool can dumb down your response to a simple comparison of rates if you allow it to by over extending your service offering. Understand your costs and bid accordingly.
      However, technology can only do so much. If shippers come to the negotiating table this year wielding the bat aggressively they'll get immediate results by way of low rates. But outside of that short-term goal, that's probably not a strategy for success in this environment.
      Shippers must protect themselves from carriers that are on the brink. Know the carriers that are invited to participate in bids. Check their financials and insert language into your service agreements that requires access to financial statements and the like. Always have a secondary carriers list for every lane you ship in.
      Savvy shippers will be looking harder at all the bids they receive this year and scrutinizing carrier offerings to ensure the smooth, uninterrupted flow of their supply chains. For shippers this year, that means looking beyond just price.
      And shippers should not forget that this is a cycle and there will be a seller's market again in the future and the carriers will be next at bat.