Off the rack

Off the rack Survey finds diverse transpacific shippers united by reliance on carrier mix, contract rates and port-origin shipment structures.

By Eric Johnson

      If there's a phrase to describe the characteristics of transpacific shippers, it must surely be this: one size does not fit all.
      Shippers on this vital east/west trade lane are tough to categorize, because they vary so greatly in size, type of goods they ship, shipping origins and destinations, and in the manner in which their shipments are structured.
      American Shipper and ComPair Data recently undertook a research initiative to capture details about the way shippers transport goods across the Pacific. What it yielded was a varied picture, largely dependent on the size and type of shipper.
      Respondents to an American Shipper/ComPair Data survey in August and September were asked about the nature of the way they handle ocean freight, from how many carriers they use to whether they ship door-to-door, port-to-port or some other permutation. Respondents were asked whether they use spot rates or contract rates and whether rates or service are more important in their decision-making processes.
      Sixty-five shippers (comprising manufacturers, retailers, third-party logistics providers, freight forwarders and non-vessel-operating common carriers) took part in the survey, with the average annual transpacific volume of each respondent being 30,317 TEUs. Collectively, the 61 shippers providing transpacific volume said they carried 1.85 million TEUs annually. Direct shippers (manufacturers, retailers and wholesalers) accounted for 989,395 TEUs of the transpacific volume while indirect shippers (3PLs, freight forwarders and NVOs) accounted for 859,960 TEUs.
      Sixty-eight percent of respondents ship eastbound on the transpacific while 49 percent ship westbound and 35 percent ship in both directions.
      Of the 65 respondents, 28 were manufacturers, 17 were retailer/wholesalers, 14 were 3PL-freight forwarders, and six were NVOs. The cargoes they transport cover the breadth of the industry, from textiles and apparel to toys, consumer packaged goods, medical equipment, commodities perishable goods, machinery, steel and paper, among other categories.
      As one might imagine, the freight forwarders, 3PLs and NVOs that responded tended to fall into many, or even most, of the goods categories.

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      Now to some of the results.
      ' Respondents use an average of 5.6 different carriers for their transpacific shipments.
      ' Forty-eight percent said they primarily negotiate 'all-in' rates, while 42 percent had accessorial charges separated from their base rates (10 percent didn't respond to this question).
      ' Forty-three percent said they manage the inland transportation component of their shipments in-house, while 37 percent have their carriers manage it and 14 percent have a third-party company manage it (6 percent didn't respond).
      ' Forty-eight percent use all contract rates for transpacific shipments, 35 percent use mostly contract rates and 9 percent use half contract rates and half spot rates (8 percent didn't respond).
      ' Thirty-five percent said their moves are predominantly port-to-door, 34 percent said port-to-port, 14 percent said door-to-port, 12 percent said door-to-door (4 percent didn't respond to the question and 1 percent said they use another method, but didn't specify which one).
      ' Of 46 respondents who answered a question about whether rates or service are more important, 63 percent said rates and service are equally important, 19 percent said service is more important than rates, 15 percent said rates are more important than service, and 2 percent said rates are far more important than service.
      These headline figures are interesting, but then some of the survey data was broken into categories that combined like-sized and like-minded shippers.
      In terms of shipper size, 49 percent of respondents said they moved more than 10,000 TEUs a year globally, 38 percent said they ship between 1,000 and 10,000 TEUs and 11 percent had volume of less than 1,000 TEUs (2 percent didn't respond to the question).

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      Of the 10,000-TEU-a-year-plus shippers:
      ' Fifty-nine percent use 'all-in' rates and 41 percent have surcharges pulled out of their base rates.
      ' Forty-four percent have their carrier manage inland transportation, 28 percent handle it in-house and 28 percent use third party companies to manage it.
      ' Forty-four percent use all contract rates, another 44 percent use mostly contract rates and 10 percent use half contract and half spot rates (2 percent didn't respond).
      ' Forty percent ship predominantly port-to-port, 28 percent port-to-door, 19 percent door-to-door and 9 percent door-to-port (4 percent didn't respond).
      ' Forty-three percent said rates are equally important to service, 28 percent said service is more important than rates, 24 percent said rates are more important than service and 5 percent said rates are far more important than service.
      The first takeaway from this is that larger shippers have a higher level of 'all-in' rates than the average survey respondent. Larger shippers are also much more willing to allow their service partners (carriers and 3PLs) to manage the inland component of their shipments.
   While one-third of respondents to the overall survey structured their moves port-to-door, larger shippers used that option much less, preferring port-to-port moves above other methods. Coupled with a heavier reliance on outside management of inland transportation, this suggests larger shippers are slightly more concerned about the cost element of the basic port-to-port component than the average respondent.
      To support that theory, larger shippers said service makes less of a difference than rates than average shippers did, as 63 percent of total respondents said the two are equal, while only 43 percent of large volume shippers share that opinion. Meanwhile, 24 percent of large shippers said rates were more important than service, while only 15 percent of total respondents had that opinion.
      A caveat while considering this examination of larger shippers: the responses from large shippers constitute a smaller sample size than the overall survey, given that response tallies for some answers in the large shipper group were in single digits. However, those responses represent hundreds of thousands of transpacific TEUs, with the average annual transpacific volume for the 32 respondents in the 'large shipper' category being 56,203 TEUs (almost double the average volume of respondents in the overall survey).

Shipper Categories. Next we look at some of the results by shipper type. In a category of textile, apparel-footwear and toy shippers, there were 23 respondents. Of those, 17 ship eastbound and six ship in both directions. There was inevitable crossover between the three categories of shippers, with all but three of the 23 being retailers, 3PLs, forwarders or NVOs. Of the 20 textile shippers, 13 also ship apparel and footwear, while of the 13 toy shippers, nine are also textile shippers and two are apparel shippers.
      Of 21 respondents in this category who gave their transpacific volume, their average annual volume on the transpacific was 50,740 TEUs (or 1.07 million TEUs collectively). That more or less parallels the average volume in the 'large shipper' category, indicating that many of the largest shippers in the survey are moving goods in these categories.
      ' Sixty-one percent have their surcharges pulled out of base rates, while 35 percent ship 'all in' (4 percent didn't respond).
      ' Forty-eight percent manage their inland transportation in-house, 35 percent have their carrier manage it and 13 percent have a third party manage it (4 percent didn't respond).
      ' Forty-eight percent use all contract rates, 30 percent use mostly contract rates and 22 percent use half contract and half spot rates.
      ' Fifty-two percent of the respondents in this category ship port-to-door, 22 percent use port-to-port, 13 percent use door-to-port and 9 percent move door-to-door (one respondent didn't answer).
      Comparing that to the overall survey, a couple numbers jump out. First, shippers in these categories seem much more inclined to pay base rates with surcharges pulled out (61 percent, compared to 42 percent in the survey as a whole and 41 percent for larger shippers), while the percentage of shippers handling their own inland transportation is higher than the overall average (48 percent to 43 percent) and much higher than that seen among larger shippers (48 percent to 28 percent).
      More of these shippers preferred port-to-door moves (52 percent to 35 percent for the average respondent).
      Again, a grain of salt is required given that the response levels get quite low when segmented into smaller categories. Of note in this category, shippers use an average of 6.2 carriers, with 30 percent using 10 or more carriers and all but two respondents using three or more.
      The next category we examined was consumer goods shippers in electronics, packaged goods and white goods, where there were 25 respondents. Twenty-one ship eastbound, 10 ship westbound and eight ship in both directions. These shippers tended to be smaller than the above category, but still much larger than the average respondent, with an average annual transpacific volume of 45,383 TEUs.
      ' Fifty-two percent use 'all-in' rates, while 48 percent had surcharges pulled out.
      ' Fifty-six percent manage their inland transportation in-house, 28 percent have their carrier manage it and 16 percent use a third party.
      ' Forty-eight percent use all contract rates, 36 percent use mostly contract rates and 16 percent use half contract and half spot rates.
      ' Forty-eight percent ship port-to-door, 24 percent ship port-to-port, 16 percent ship door-to-door and 12 percent ship door-to-port.
      A high proportion of consumer goods shippers manage their transportation in-house, relative to the survey average and the average in the other sub-categories. Other than that, the results don't differ too drastically from the apparel-textile-toys category.
      American Shipper took some preliminary looks at other shipper categories, but in many instances, the response levels weren't high enough to merit valid examination. As with any survey-based research, the greater the participation, the richer the detail in the resulting information.

Conclusions. There's little variability among shippers in the survey in terms of their use of spot rates and contract rates. In the survey as a whole and in the three smaller categories we examined, the overwhelming majority (78 percent to 88 percent, depending on the category) use all or mostly contract rates.
      In fact, in the preliminary looks at other categories, there was little evidence of widespread dependence on spot rates. That's interesting given the transpacific spot rate market for much of 2009 was reported to be very attractive. It leads to the assumption that shippers, even in a favorable market, are inclined to lock in space and rates whenever possible.
      Another interesting issue to note is how many shippers structure their moves from the origin port rather than door. Nearly 70 percent of respondents said they predominantly ship port-to-door or port-to-port (compared to 26 percent door-to-door or door-to-port), and the numbers don't diverge drastically whether we're talking about the origin being in Asia or North America.
      Compare that to the breakdown between the destination options: 48 percent go port-to-port or door-to-port while 47 percent go door-to-door or port-to-door. It seems that shippers surveyed are much less concerned with what happens on the inland side of the origin point of their shipment than on the destination side.
      Meanwhile, the responses on the question about whether rates or service are more important are telling. In a period when rates have been rock bottom on the transpacific, shippers report that they are as concerned with service as they are with rates. More than four-fifths of respondents said service is at least as important as rates and only one respondent said rates are the most important.
      These responses aren't too surprising given that the players on all sides of the industry like to play up the importance of service over rates, yet anecdotal evidence from NVOs and carriers suggests that for shippers, negotiations start and end with rates. Shippers would no doubt say the same thing about carriers.
      What the survey tells us is that no two shippers are exactly alike and that shippers realize that no one carrier can suit all its needs. Of the 61 shippers who provided information on how many carriers they use, all but 10 use three or more carriers. More than half use five or more carriers and more than 20 percent use 10 or more carriers.
      And the use of a wide mix of carriers isn't limited to forwarders or NVOs ' handfuls of manufacturers and retailers are employing a similar strategy. This puts the onus on carriers to offer wide-ranging services suited to their unique customers, or face the reality of competitors doing it for them.