September 2016 Comments & Letters

Baggage on U.S.-Cuba flights and Collaboration procurement to transport optimization. Baggage on U.S.-Cuba flights

   Recent American Shipper articles, online and in print, have covered the resumption of scheduled air transport services between the United States and Cuba. The Department of Transportation recently gave eight U.S. airlines approval to fill a limited number of slots for service into Havana and six carriers were granted rights for daily flights to nine other Cuban cities.
   I run a small freight forwarding company that specializes in shipping airfreight from the United States into Cuba. We mostly handle trade show items, diplomatic/consular shipments, commercial samples, church and NGO donations, and some gift parcels.  We offer services to five airports throughout the island.  
  American Airlines’ Miami station has advised us that they are exploring the addition of cargo to their new routes, but that the focus right now is on passenger baggage. 
  Previously, charter operators (Sun Country, Eastern, American Eagle, World Atlantic, and others) were mostly unable to establish cargo services due to the lack of space on the aircraft. People travelling to Cuba tend to be expatriates who return to visit family carrying anywhere from 100 pounds to 250 pounds of baggage full of gifts and consumer items, and return with similar amounts of goods. That means airlines are usually at, or over, capacity.  
   I feel the same will happen to American and JetBlue when they begin their new service. These airlines are selling cheaper tickets, which will give incentive for passengers to bring more baggage.
  The only cargo operator currently offering scheduled service is IBC Airways. However, IBC is relegated to only U.S. Postal cargo and diplomatic shipments. The Cuban Aviation Authority has not given a permit for any general cargo.
   For the past five years, we have been shipping through Panama. We offer our clients a weekly flight that departs Miami on Tuesdays and arrives in Havana on Sundays. We utilize Cubana’s Tupolev Tu-204-100EC freighter, which provides plenty of pallet space.
  I hope that with greater frequency of flights, there will eventually be room for cargo. We are definitely ready to help U.S. carriers like American and JetBlue to serve our customers.

Manny Dominguez,
Owner, 
Six World Shipping,
Miami

Collaboration procurement to transport optimization

   With over 100,000-plus freight carriers operating in North America, sophisticated shippers long ago realized the only way to successfully and efficiently procure transportation was by hosting regular bidding events. A natural extension of that is to partner with other shippers who have similar needs and engage in collaborative shipping procurement, where carriers can save time and bid for multiple contracts at the same time while identifying synergies that could reduce their costs and the costs of one or more shippers.  
   Launching a successful collaborative shipping event requires a much broader lens than the “aggregate more spend and they will come” philosophy. That’s because pure economies of scale models are only predictable in commodities markets, but the transportation industry is based on relationships and handshake deals still have meaning. 
   Because carriers are rarely obligated to accept loads, aggressively seeking the lowest rate is almost never the best strategy for shippers. The goal of collaborative shipping is to match shippers with carriers on lanes that are mutually beneficial to both parties. More participants up the odds of producing lucrative and efficient relationships for everybody, but also increase the complexity of managing the process.
   Yet, a collaborative shipping event shouldn’t be a free for all—it has to have a focus in order to attract the best bids and cooperation from carriers. The most important thing is make sure to bring together networks that make sense and share similarities. Make sure that participants fully understand the focus of the event; if you are procuring liquid bulk, it doesn’t make sense to invite shippers who only have dry-van needs or carriers that only have flatbed equipment. 
   Geography is also an important consideration. In addition to national carriers with a broad footprint, including regional carriers is always a good idea as they often provide valuable and cost-effective service. However, you have to make sure the shipper participants have enough freight in those regions to be of interest to the bidders.
   Collaborative shipping events are action-based, where real transportation needs are being bid on and contracts are expected to be written when there is a match. When the event starts, it’s really too late for shippers to begin figuring out the exact nature of what they need and what their networks should look like. This is the homework that must be done prior to the event if it is to be successful. 
   It is also vital for the event organizer to communicate to both shippers and carriers how to prepare for the event and keep the dialogue open before, during, and after the event. A web-based sourcing application is typically used to manage communication with carriers, but for shippers, the communication has to be more personal and direct. Data security is an extremely important aspect of communication after the event to ensure that shippers have access to their own bids without seeing information intended for other companies. 
   Shippers can only receive meaningful bids on lanes where they can provide all of the information that carriers need to quote realistic rates. Point of origin and destination geographies are vital to know, but only the first step. Specific equipment needs, time-in-transit restrictions, and even specialized language skills for drivers are all facets of a lane that can affect bids—so they must be both known and communicated efficiently. 
   Lack of full visibility is the biggest barrier to obtaining contracts that can be filled as agreed upon, while providing too much information bogs down carriers, forcing them to search for the key details and possibly standing in the way of optimal bidding. The best results are achieved when shippers know what information to supply and what should wait until ship dates draw near. 
   A very real danger of selecting the wrong partners for collaborative shipping is including companies that are not serious and primarily want to receive multiple bids as a means of benchmarking the market. The problem with this mentality is that it lacks the intelligence to weed out the low “paper rates” carriers may submit for lanes that they may or may not be able to service. Selecting the lowest bidder can land shippers in a lurch if the carrier is unable, or unwilling, to provide the capacity when the rubber meets the road. 
   It is much better to enter collaborative procurement armed with market intelligence, so that these unrealistic bids can be identified. Good intelligence goes even further than benchmarking, and shippers that understand which lanes are tight and which have extra capacity can analyze where they should leverage aggressive bargaining postures versus where there is little room for negotiation. 
   Getting the best results for all stakeholders is highly dependent upon choosing the right software and assembling the right team. There are many sourcing optimization software tools available, and what makes the biggest impact on achieving great outcomes is the quality of optimization engine. The sheer volume of carriers, bids, and business rules and constraints in sizeable collaborative shipping events is generally best left to tools engineered specifically for transportation. 
   Once the calculations have been completed, they should be interpreted by someone with a strong background in both analytics and transportation.
   As more and more shippers look for ways to further optimize transportation, collaborative shipping is gaining traction in the market. The most successful events share a combination of filtering for the best partners and rigorously managing event organization and data analysis.

Kevin Zweier,
Vice President,
Chainalytics,
Atlanta