Hauling freight across any mode of transport can be split into two distinct types of transactions – the fixed-rate contract and the spot market. Fixed-rate contracts give shippers guaranteed capacity for their volume, many weeks or even months in advance. From the carrier's perspective, while such contracts come at the expense of a slight markdown in hauling rates, fixed-rate contracts provide greater stability to their hauling operations.
Conversely, the spot market, as its name suggests is a contract that is fixed on the spot, making volumes and hauling rates erratic based on the day’s supply and demand – a situation that when it occurs, one party or the other will be unhappy about (either because as a shipper they are paying a high price, or as a carrier they are taking a load at too low a price).
But not all shippers can get into fixed-rate contracts, because traditionally, they have been reserved for large shippers and retailers who typically ship in volume on a regular basis, thus shutting out small- and mid-tier shippers that ship lower volumes and/or ship on an irregular basis.
Shippabo, a cloud-based supply chain management company, is disrupting this by allowing its clients who consistently ship anything above a couple of hundred containers to get fixed-rate contracts through its platform. “It is really challenging for smaller shippers to get a contract that is competitive. And it is hard for these shippers to manage such big contracts as they lack a back office that can manage such a large contract,” said Nina Luu, the CEO and co-founder of Shippabo.
One of the reasons shippers look for a fixed-rate contract is so that they can have some predictability in capacity – guaranteed space that would help them pre-book containers, as opposed to waiting for the spot market to be updated at the last minute.
“Shippabo helps aggregate the volumes from smaller clients and provides them a competitive rate as they would if they are buying large capacity,” said Luu. “And we also provide them with a platform that manages and pre-books containers for them. They can see the contract rate and decide on how to allocate and utilize the contract efficiently.”
Luu explained that ocean carriers usually have two parties to service – the shippers and the freight forwarders. Typically, carriers look to sign a portion of their business on some form of fixed contracts to ensure their costs are covered, and then sell the remaining capacity on the spot market. In the event that the spot market taking up a larger share of their business, it would make it harder for carriers to manage their capacity, driving prices up due to volatility.
“This is because there’s no real-time visibility into the booking that is happening on the spot. For instance, let us consider a carrier that has a volume of 15,000 containers and of which they only have 3,000 on a fixed contract, while playing the rest on the spot market. If one of their vessels gets filled up to 60 percent, while the other vessel gets filled to 110 percent, they end up losing revenue,” said Luu. “The ability to be able to get more fixed contracts to ensure they have a better way to manage pricing on the spot is what allows them to be more profitable in the first place.”
Luu was quick to mention that Shippabo’s new feature is not revolutionizing the segment itself, but is providing a unique way for smaller shippers to get into fixed-rate contracts. “My expectation is for people to pre-book containers, because when they don’t have to worry about pricing and some form of guarantee, then they can actually focus on growing and putting process automation into their shipments,” she said.
Apart from securing a fixed-rate contract, shippers are able to manage all their containers spread across different international cargo vessels through the Shippabo system and track all of them. Luu mentioned that shippers can track their containers through the platform even if they did not move their cargo through Shippabo.
“Our goal is to provide stability for the entire market. Everyone understands that there’s a need for different types of players to create a robust supply chain. We want to provide visibility for our clients, while also bringing stability to ocean carriers by offering them a way to receive booking directly from us with exact schedules,” said Luu. “This allows them to add a map and identify the capacity available on each ship, which gives them greater control, even over the spot market.”